What Every Doctor Needs to Know About Disability Insurance
The US Department of Labor states that the median income of physicians in 2017 was $208,000 per year.1 A 35 year old physician making this income would accumulate over $6,000,000 before age 65, and it’s not uncommon for many physicians to earn well over $10,000,000 in income during their working careers. Any asset worth 6-10 million dollars needs to be insured with quality coverage.
You should get Own Occupation disability insurance that protects you in your medical specialty
Since physicians have highly specialized professions, you need a specialized type of disability insurance. The best type of disability insurance for physicians is “own occupation” coverage. This means that if you are totally disabled, you’re able to receive your full disability benefits even if you’re gainfully employed in another occupation or capacity.
Many companies offer own occupation coverage, but fewer offer an enhanced true own occupation definition that drills down even farther to your medical specialty, and is based on your source of earnings. This enhanced true own occupation definition says that if more than 50% of your income came from hands on patient care and you can no longer perform hands on patient care due to disability, or if 50% of your income came from performing surgical procedures and you can no longer perform surgical procedures due to disability, you’ll be considered totally disabled. This is very beneficial, as it provides more ways to receive benefits for those in practice who have not only surgical or hands on duties, but also administrative duties, and become disabled from the hands on aspects of their occupation.
Get coverage for total and partial disability
A total disability means that you are not working in your occupation at all. You would then receive the full monthly disability benefit that you purchased. A partial disability means that you are working your occupation, but have a loss of income of at least 15%-20%. Partial disability benefits are usually paid based on your percentage of lost income (i.e. a 50% loss of income would equate to a 50% payment of your monthly total disability benefit). It’s important to have coverage for both, as not all claims are total in nature.
If you don’t get paid a salary, make sure you have a recovery benefit
Since many physicians get paid based on production or number of procedures, it’s important to have a policy that covers you if you’re recovering from a disability, working full time again, but still have a loss of income. This is called a recovery benefit, and it doesn’t require you to have a loss of time or duties at your job in order to receive a monthly benefit. It simply requires you to have a loss of income of at least 15%-20%. In these situations, the recovery benefit is paid the same way a partial disability benefit is paid.
Consider the future increase options and cost of living adjustment riders
The future increase option (FIO) rider allows you to buy more disability coverage as your income increases without going back through medical underwriting. This is important because our health changes over time and those changes can have negative effects on your ability to buy disability insurance. Having the FIO rider on your policy allows you to increase your coverage without the risk of being medically evaluated again. This is a particularly good feature to have for those in residency or fellowship training, as it allows them to lock in their health now and increase coverage once they graduate.
The US Labor Department indicates that inflation for 2018 is 2.9%.2 In 1980, it was 13.5%.3 The cost of living adjustment rider, or COLA, ensures that if you have a long term disability claim, your benefits will increase to help keep pace with the higher cost of living. This feature is particularly beneficial for those under 45 who might have in excess of 20 years on claim if they were disabled.
Graded premiums are a great idea for those in training
If you’re in residency, or fellowship, you should consider getting your disability insurance before you graduate. Many will put this off until they graduate and begin working, feeling that it’s more affordable then. Consider getting the policy under a graded premium structure. This means that the cost of the coverage starts out much lower than a level premium. The difference is that while a level premium doesn’t increase over time, the graded does. It goes up slightly each year, and eventually becomes more expensive than the level premium. The key is to convert your graded premium to level once you graduate and have better cash flow. This allows you to get the coverage you need, lock in your good health for the future with the FIO rider, and do so with an affordable premium.
Getting a disability insurance quote is easy, but you need help from an expert at the right time
You don’t have to sit down with an agent and discuss all the options to get a good idea of what a disability insurance policy will cost you. There are many resources online that allow you to get multiple quotes from agents and compare at your convenience. There are even some quick and easy online tools that will give you an accurate instant quote. The important part is that once you have a sense as to what’s important in the policy, and what it costs, you need to discuss your situation with a disability insurance expert. There are too many different aspects to coverage that aren’t obvious just from the quotes.
3. Bureau of Labor Statistics 2018
William Olmsted, Registered Representative of Park Avenue Securities, LLC (PAS), 1355 Piccard Drive, Suite 380, Rockville, MD 20850. Securities products and services are offered through PAS, 240-683-1400. Field Representative, The Guardian Life Insurance Company of America (Guardian) New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. PAS is a member of FINRA, SIPC
Individual disability insurance policy Forms 18ID, 18UD, and 18GI underwritten and issued by Berkshire Life Insurance
Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian Life Insurance Company of America, New York, NY. Product provisions and availability may vary by state. In New York: These policies provide disability insurance only. They do not provide basic hospital, basic medical or major medical insurance as defined by the New York State Insurance Department. For policy form 18ID, the expected benefit ratio is 50%. For policy forms 18UD, 18GI, 18UD-F, an 18GIF, the expected benefit ratio is 60%. The expected benefit ratio is the portion of future premiums that the company expects to return as benefits, when averaged over all people with these policy forms. Optional riders are available for an additional premium.
2108-63934 Exp. 08/2020