Written by: Corey Janoff
Disability insurance is one of the most important components in a solid financial plan for a doctor. Physician disability insurance is a specialty specific (commonly called “own-occupation”) policy that protects a doctor’s income in the event they can’t work due to injury or illness. As it turns out, there are a lot of mistakes doctors make with disability insurance that can potentially be problematic.
What’s the most important component to the success of a financial strategy? Think about that for a minute. It’s not selecting the right investments. It’s not timing the market correctly. It’s the ability to work and earn an income so you can consistently direct a portion of your income towards your financial goals. Until you have achieved all of your financial goals and reached financial independence, it is wise to protect your hard-earned income. Once you have achieved all of your financial goals and no longer need to work for money, you don’t need to protect your income.
Let's run through some of the common mistakes we see doctors make with disability insurance.
1. Waiting to Get Disability Insurance
When I speak to residents and fellows about financial planning, one of the most common questions I am asked is, “When should I get disability insurance?”
My answer: “You should have already purchased it by now.”
I’m serious. You should have purchased it the moment you graduated medical school. Heck, you could have even gotten it while in medical school to be super proactive about your finances. That being said, we can’t go back in time. So if you don’t already have it, get a policy NOW!
There are several reasons you want to get a disability insurance policy as soon as possible. The main reason is to provide income protection if you get disabled, which is the whole point of getting the coverage in the first place. It gives me nightmares to even think about a doctor possibly getting disabled early in their career, with six figure student loan balances and millions of dollars of future earnings lost.
As long as you depend on your income, you should protect your income as best as possible.
Another reason is health related. Not everyone can qualify for a disability insurance policy. In order to get a good policy, you have to be somewhat healthy in the first place. It’s wise to get a policy before any potential health issues arise, as any item in your medical records could potentially be problematic in getting through underwriting.
Age is another reason to get a policy sooner rather than later. Policies are less expensive the younger you are. Simple as that. You can lock in a fixed rate policy when you are young, which can save you boatloads of money in the long run. Every year that you wait, the cost will be about 5% more expensive.
Finally, discounts. Many disability insurance companies offer discounts to residents and fellows. Those discounts remain on the policy after you graduate, so the lifetime savings can be pretty substantial if you lock in a discounted policy while in training.
It’s easier to qualify for a disability policy when you are younger and healthier. It’s less expensive when you are younger and healthier. Rarely do people get younger and healthier over time. That being said, use your age and health to your advantage to lock in a disability insurance policy ASAP.
If you need some guidance on which disability insurance companies to look at, meet with one of our independent financial advisors to help you out.
2. Relying Too Heavily on Group Disability Insurance Through Work
If you work at a hospital or a large group, there is a decent chance your employer provides you with some form of disability insurance. Many doctors assume that if their employer provides them with disability insurance, that is sufficient enough income protection. That is typically not the case.
Most group disability plans through employers only cover a portion of income. A common example is 50% of income up to $10,000/month. If you do the math, that provides a maximum of $120,000 of annual income protection. Many physicians earn far more than that (and even spend more than that), so it is wise to get additional protection beyond what your employer covers.
Another issue with group disability plans is they can be more difficult to qualify for benefits. A couple of years ago an anesthesiologist wrote on Doximity about his experience trying to qualify for a claim on his group disability policy, which turned out to be a nightmare. Reading that article should be enough to convince you that you need a policy outside of work. If it doesn’t, I don’t know what will.
3. Not Getting Enough Disability Insurance
Not having enough disability insurance is one of the biggest pitfalls we see in many doctors we review finances for. Most people don’t even think about getting disability insurance until they are urged to do so. Part of it is lack of education surrounding the subject. Many people don’t think getting disabled is a plausible risk in life.
Several organizations, such as the Department of Labor and the Council for Disability Awareness have done a good job compiling facts about disability insurance to hopefully bring more awareness to the subject.
A general rule I have for people early in their careers is to get as much disability insurance as you can qualify for. If you do get disabled, you won’t complain about potentially having more money than you need. Besides, living with a disability is going to be more expensive than living without one.
In addition to all of your normal living expenses, you now have additional medical expenses to deal with. That could include your out-of-pocket costs for drugs to treat your ailment, or perhaps physical therapy coinsurance payments.
Also, if you are totally disabled for an extended period of time, there is a good chance you will lose your job, which means you will lose your health insurance at work. Unless you have a working spouse with a health insurance plan you can hop on, you are paying out of pocket for your own health insurance (which can get pretty expensive for a disabled person).
On top of all of that, you still need to save money for retirement, since disability insurance benefits typically only last until retirement age (at the longest).
4. Purchasing a Policy Without a True Own Occupation Definition of Disability
When buying a policy, the most important component of the policy is the definition of disability. How does the insurance company define “disabled?” This will determine whether a tremor that prevents you from operating will qualify you for full benefits. It will determine if you will receive benefits when you transition to a research position at your academic hospital because you cannot work in clinic anymore due to your disability.
As a doctor, you want to make sure you have an own-occupation definition of disability that protects you if you cannot perform the substantial and material duties of your specific specialty in medicine. Taking it a step further, you want to be protected if you cannot perform your specific job duties within your specific specialty. If you spend 100% of your time doing one procedure and you cannot do that procedure anymore, you deserve 100% of your disability benefits.
Not all disability insurance companies offer a true own-occupation definition of disability. Some companies advertise they have a fancier “medical-occupation” definition of disability. However, it’s important to read through the actual verbiage in the contract, as the marketing materials can often be misleading.
Get a disability insurance policy to protect your income as a physician, and make sure it has an own-occupation definition of disability that protects the job duties of your specialty.
5. Letting a Policy Lapse Due to Missed Premiums
There are small discounts if you pay your disability insurance premiums annually instead of monthly or quarterly. However, it’s easy to miss the annual bill in the mail. It’s a lot easier to keep your policy active if your policy is on an auto-payment plan each month or quarter.
Do what you want to do in terms of premium frequency, but make sure you pay your premiums! If your policy lapses, your income is no longer protected!
On top of that, in order to reinstate a lapsed policy, you may have to go through medical underwriting again, which can be problematic if any health issues have arisen since you originally purchased your policy. Also, you are older, so the new policy may be based on your current age, rather than the age you originally purchased the coverage.
Lastly, if you locked in a discounted policy while in residency, you may lose that discount when you buy a new policy after your original policy lapses.
Once you purchase a policy, make sure you pay your premiums. If you are on auto-pay, if your bank account changes, make sure you update it with the insurance company!
6. Missing Out on Discounted Rates
I have mentioned “discounts” several times already. It is pretty easy to find a disability insurance company that offers a discount for your circumstances.
Most residents and fellows can qualify for a discounted policy through multiple companies. If you are an attending at hospital, there are some companies that may offer discounts for attendings at your hospital. If not, you can get a multi-person discount if you and two of your colleagues at the same employer all purchase policies through the same company.
Beyond that, some companies offer discounts if you are a member of the AMA (this is different than the AMA sponsored group disability plan, which would not be my first choice for a policy if I was a physician).
Other companies offer discounts for certain specialties that they deem lower risk.
More often than not, there is at least one disability insurance company with an own-occupation policy for physicians that has a discount you can qualify for. Even with the discount, that company may not be the most cost-competitive, or they may not have a specific feature you are looking for. Regardless, it’s worth inquiring about any discounts you may be eligible for.
7. Not Using an Independent Agent to Help Purchase Disability Insurance
If you are working with an insurance agent who works for a company that has it’s own products, odds are said agent is recommending his or her company’s disability policy (and showing you why it is better than all the other policies on the market). That doesn’t necessarily mean you are getting a bad policy. However, you may not be getting the most objective advice.
I recommend working with an independent insurance agent or financial advisor with strong knowledge of disability insurance policies to help you find the policy that best suites your needs. An independent professional shouldn’t care which company you end up getting a policy through. They can help you find the policy that is best for your goals and budget.
I have reviewed less-than-ideal disability insurance policies for physicians, and they were often sold the policy by a representative of a specific insurance company. No one company has the best policy for everyone.
Don't make these mistakes others doctors make with disability insurance. Disability insurance is an often-overlooked component to a physician’s insurance package. The younger and healthier you are, the easier it is to qualify for a policy, so get a disability insurance policy as soon as possible. Make sure you have enough coverage to adequately protect you and your family and don’t rely solely on your coverage at work. Make sure you have a disability insurance policy with a true own-occupation definition of disability. Working with an independent professional can help you find the appropriate policy for your needs and ideally identify any discounts you may be eligible for. Lastly, once you get a policy, don’t forget to pay your premiums!