Disability Insurance: My Advice To Newbies

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As a newly minted physician, you are presumably on an upward trajectory in career earnings. Any injury that limits your ability to achieve financial security needs to be covered by disability insurance. Some risk mitigation involves practicing common sense: no one will feel badly for a surgeon whose knife juggling hobby maims his dominant hand. But everyone will get a knot in their stomach if you develop lymphoma your first year working as an attending.

Disability insurance is intended to protect physicians from those forces beyond their control that threaten their income. I recently sat down with a newbie in my group, a motivated youngster with a kid on the way who needed a concise, “Tell me what to get and what to avoid, I don’t have time to figure it out on my own.”

Here’s what I developed for him, a checklist with brief explanations of what you want and why you want it:

Always pay your premium with after-tax dollars: this way if you ever need the benefit, you will not owe taxes on the benefit.

Buy disability insurance early, as much as you can afford: Since old people get disabled at a higher rate than young people, they are charged higher premiums. Buying as a resident or new attending means locking in lower rates for something that will get more expensive the longer you wait to buy it. Most docs shoot for between $10-15k monthly benefit.

Buy an own occupation/specialty-specific policy. As an emergency physician this is especially important to me. Let’s say I sustain an injury that impairs my ability to perform procedures but my brain is fine – in theory, I could still earn income as a telemedicine doc. I want a policy that replaces the higher amount I would have made working shifts in the ED regardless of my ability to practice a different type of medicine, because odds are my new replacement career will pay less. Sometimes this will be built into your policy and sometimes you will have to pay extra for a rider (a provision that adds additional benefits to your policy for an additional cost) that defines total disability as the inability to practice medicine in your current capacity. This is critical – some policies won’t pay if I can still earn income as a telemedicine doc, others won’t pay me if I can take the graveyard shift at the local Gas N’ Sip.

Read the fine print. Mental disorders and substance abuse are poorly covered if at all in most policies. Read the definition of total disability, as anything short of that definition will require you to get certified by a physician and possibly lawyer up to prove that you can no longer perform your job. Read the exclusions: without a specific rider, you may not be covered if you decide to SCUBA or sky-dive; if you are disabled while getting cosmetic surgery; or while trying to kill yourself. Most policies will only pay benefits until you are 65 years old.

Consider adding specific riders based on your needs:

Future Purchase Option: Pay for the ability to increase coverage when your earnings increase in a few years. A no-brainer if you obtained insurance as a resident or fellow (when you had lower earnings) or prior to making partner/equity status in your practice.

Cost Of Living Adjustment (COLA) Rider: Adjusts your payments up with inflation annually after you start receiving them. I buy my policy at age 30, I file a claim on my 40th birthday, my payments are not adjusted upward to inflation until after my first year of payments have been received (adjustment starts at age 41).

Non-cancelable: Premiums can’t be changed. Big insurance can’t cancel your policy. If this is not written into your policy, you need it as an explicit rider.

Guaranteed Renewable: Contract can’t be changed. You have the right to renew the policy annually and the company can’t alter the policy or reduce the benefits. In other words, if you lose this it’s because you screwed it up or missed a payment.

Residual disability: In most cases, if your income drops 15-20% below what you made prior to sustaining your disability, you are paid a partial benefit.

Catastrophic Coverage: Pays you an extra benefit if you are so severely injured you can’t perform two or more Activities of Daily Living. Think Christopher Reeve paraplegia. Depends how much you’d value this type of benefit.

Lifetime Benefits: If you are disabled before age 45, you get paid benefits for life. Most policies wills stop paying benefits either when you reach their maximum or at age 65 without this rider.

If you are a female physician, obtain a unisex policy through your professional association. It’s cheaper.

Pay annually instead of monthly and ask for a discount. Companies prefer the lump sum prepayment at the start of each year. The down side is you have to plan your cash flow for a single large bill.

Always buy an individual policy, even if you are covered as a resident or fellow by a group policy. Long story short, coverage is weaker, definitions of disability are weaker, and your employer is incentivized to prefer the cheap over the comprehensive. Group policies are also not portable if you leave a job.

Use an independent insurance agent to obtain a policy. They should be able to get a quote from each of the big 5 insurance agencies, and take you through the above checklist to highlight where each policy shines or falls short. Ask them to get you an employer or professional association-related discount.

Cancel your disability policy once you reach financial independence. Once your savings and investment income exceed 25-30x your spending, you no longer need disability insurance.

This post owes a debt of gratitude to numerous threads on the Bogleheads forum as well as WCI’s definitive six part series on the subject (This article is the Cliff’s notes. I strongly encourage you to read Dr. Dahle’s original Russian novel).

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