Disability Insurance for Physicians: Essential Features

In a previous post I discussed the single most important feature of disability insurance for physicians—the definition of disability.

But there are multiple other features of disability insurance you need to think about before you buy additional insurance or if you are buying a policy for the first time.

Before I discuss those features, why exactly do you need disability insurance to begin with? Here are some sobering  statistics to think about:

1. Almost 20% of working age people have a disability—half of these are severe
2. There is a 1 in 8 chance of becoming disabled before age 65
3. Only about 25% of working people with a severe disability are employed
4. It is much more likely (nearly ten times more likely) that you will become disabled than die during your working years

Let’s take a look at the key features you need to think about your disability insurance policy:

Benefit Amount.  Next to the occupational definition of disability this is the next most important feature of your policy. Your benefit amount is related to your specific occupation. So higher risk specialists such as emergency medicine physicians will qualify for a lower benefit amount than lower risk physicians such as internists.

The benefit amount also depends on the income you make since the insurance company won’t pay out more benefits than your current income. Typically you won’t be able to buy insurance greater than about 60-70% of your gross income.

But one common mistake I see most financial advisors and physicians make is that your benefit amount should be correlated as close as possible to your current monthly expenses. If you don’t know what you’re spending today, then how do you know what amount of disability insurance to get? So sit down and figure out what you’re spending before you buy a policy. I know physicians who spend $20,000 per month or more and have disability policy benefits of less than $10,000 per month. Will you be able to get by on disability benefits that are significantly lower than what you’re spending right now?

Elimination Period. This is similar to a deductible in the sense that disability benefits typically don’t kick in until several months after you are totally disabled. In effect you are paying for your disability out of pocket until benefits kick in. The most common elimination periods are 90 days and 180 days. So if you become disabled today and you have a 90 day elimination you won’t receive your first check until the 4^th month of being disabled (7^th month for 180 day elimination period). So this again gets back to the issue of what you’re spending. How long can you get by with your current savings before you need income? If you can’t get by very long, your disability policy should have a short elimination period but if you have adequate savings, choose a longer elimination period to save on the premium.

Next time I’ll discuss other features that you need to consider in a disability insurance policy.

Disability Insurance: Know Your Occupation

Disability insurance is one of the foundations of a solid financial plan for physicians. Yet I’ve seen numerous mistakes financial advisors (read “insurance salesman”) have made when it comes to disability insurance for physicians.

If you do a Google search on “disability insurance for physicians” you’ll come across a large number of insurance salesman that claim to specialize in physician disability insurance. It’s easy to understand why: after all insurance products pay some hefty commissions. For most of these guys, it’s “sell and go away.” Once you’re sold the product that’s generally where the relationship ends. Some of these guys have sold disability policies that are woefully inadequate to several of my physician clients.

I’ve seen this happen with the most important aspect of disability insurance, and that’s the definition of disability. You need to look at your policy and determine exactly what “total disability” means. While you may think that total disability is a uniform definition, it’s actually defined in 3 general ways.

The first definition of total disability is “any occupation.” This means that if you become totally disabled, your disability policy will pay your monthly benefit as long as you do not work in any other occupation. In other words let’s say you’re a surgeon and you develop a herniated disc in your neck causing persistent radiculopathy. If this is a long term disability that precludes you from performing surgery and you have an “any occupation” disability definition in your disability policy, then you won’t be allowed to work at Starbucks serving coffee. If you do then your disability benefits will stop.

The second definition is “own occupation.” This means that even if you become totally disabled in your current occupation, your disability policy will pay your monthly benefit even if you work in another occupation. So going back to the example of the surgeon above, you could still receive disability benefits at the same time as serving coffee at Starbucks. So as you can see having an “own occupation” definition of total disability is far more desirable than “any occupation” coverage. 

The third definition is “modified own occupation.” A lot of physicians disability policies allow “own occupation” coverage for the first 2 or 3 years of disability and then change that to “any occupation” coverage after that time. So the surgeon who becomes disabled and works at Starbucks would be able to get disability benefits for the first 2-3 years and then those benefits would stop. Look at your disability policy to see if you have this mixed definition. When disability insurance for physicians became more restrictive several years ago, these types of policies were common.

Recently insurance companies have loosened up a bit on the definition of disability for physicians. So if you have an “any occupation” or “modified any occupation” disability policy, you should inquire about “own occupation” coverage. There is even one company that now writes specialty specific “own occupation” coverage. So if you’re a gastroenterologist and you become disabled, you could still practice medicine (say urgent care) and still receive disability benefits.