The Diagnosis on Disability Insurance for Physicians

One thing that is often overlooked and least understood in the insurance world is disability insurance. Physicians tend to automatically think of home insurance, health insurance, auto insurance and forget about disability insurance.

As a physician, you have been through years of training and probably accumulated a significant amount of debt. If an injury occurs and you can no longer perform your job or work fewer hours, it will have a detrimental impact on your future quality of life. This can be even more devastating when you support a family, have children, and may not have a spouse who can make up the difference in lost income. Think of disability insurance as income protection.

When should you get disability insurance?

The best time to get disability insurance is as a resident or fellow as you are likely young and healthy. It can be expensive when you’re in training, but the savings will pay off in the long run. There are also many discounts available through residency and fellowship training programs. If you wait till you are an attending, the premiums will be higher. Take note that this will vary depending on the state you’re in. Also you may want to get your insurance squared away before you move to states which are known to be more expensive, such as California.

Group Disability Insurance

Some physicians think the disability insurance provided by their employer is enough. Here are some points to consider in employer-paid policies:

  1. Contributions are with pre-tax dollars, so the benefits of the policy will be taxable. So if your benefit is 60% of your gross income, it will be taxed, which means the amount you receive could be significantly less. In contrast, a private policy is tax-free.

  2. Contributions an employer makes for you remain with them even if you change jobs. In comparison, a private policy is portable.

  3. Some policies don’t cover work-related injuries or ailments difficult to test like fatigue, pain, or headaches.

Private Disability Insurance

Private disability insurance is difficult to navigate as each provider has their own language and technical terms. So here are some issues to research in your policy:

  1. Own-occupation or specialty-specific – This means that you would be covered if you can longer perform your day-to-day job, even if you ended up being a teacher or consultant somewhere else. Be aware sometimes, own-occupation policies will only be covered for a certain period and then switch to any occupation.

  2. Partial or residual benefit – This is important as there are more partial claims filed in a year than total claims, and many policies do not consider a partial disability.

  3. Cost of Living Adjustment (COLA). A dollar today is not what a dollar in five years will be. Once your claim kicks in, the amount of benefit paid out will increase each year with inflation. Be aware of the language here. Sometimes it is a fixed percentage, a range, or simple/compound components.

  4. Mental health and substance abuse coverage – Very few policies cover this.

How much can you insure?

The amount you can insure usually differs depending on whether you are in training or an attending. In training, most carriers have a fixed amount they insure regardless of your specialty or how much you make. Once you become an attending, most insurance providers have an internal algorithm that considers variables such as how much money you make and any other benefits you are getting from your employer before giving you a number. In general, the goal is to cover close to 0-70% of your gross income. Why not 100%? The premiums for private disability insurance are paid with after-tax dollars, and the benefits are tax-free. So the percentage of tax-free dollars you’ll get will be less than 100%. Be aware that many policies will cite this percentage on your base salary. If you work with an employer who has a tiered payment plan, including bonuses, etc., this might not be included.

How much should you insure?

The amount you should insure is dependent on your personal circumstance. Are you in a dual-income household? Do you take care of children or elder parents? Start by considering your fixed expenses and add some cushion to that, as your variable costs may increase if you have a disability. Perhaps you can’t drive and need to take an uber or need help with childcare or household work.

Should only the breadwinner be insured?

Even in dual-income households, I often see only the highest income earner have disability insurance. I hate to be the bearer of bad news, but unfortunately, someone can pass away earlier than expected, and divorce rates are high. So both people must have coverage if at any point they find themselves single.

Always have an emergency fund

If your coverage does not kick in, an emergency fund can at least cover you and your family for a few months until you figure things out. An emergency fund is a savings account covering your income for three to six months. Or, at the very least, your expenses.

For a physician in training with little time, it’s essential to have someone you can trust walk you through your policy to ensure you are correctly insured for your specialty and needs. Try and get a policy covering the above issues, as rectifying a mistake can be costly once you’re an attending. Prepare for the worst so you can live your best life.

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