Money Checkup: What You Should Know About Disability Insurance

Our CEO and co-founder Stephanie Pearson had a candid conversation with Anjali Jaliwala, Certified Financial Planner and CPA, on her Money Checkup Podcast.

In the podcast, they covered the basics of disability insurance with some additional insight into specifics for physicians. Stephanie broke down the difference between group and private policies, and, because Anjali is from the Golden State, they talked about how California differs from other states (and what to do if you’re moving there).

Here are some highlights from the conversation:

Why is disability insurance so important?

Our biggest asset is our ability to earn income, and disability insurance at its root is income protection.

Many people don’t understand how important it is. Most of us have health insurance, and we also get insurance for our cars, rent, home, etc. Yet we don’t think we need to insure our ability to earn money.

At least within the physician space, it’s really not something we’re taught. Learning that your last paycheck is your last paycheck would be an issue for most of us.

I would be in a different financial position right now had I been fully insured. And I really think this is one piece of financial health that just gets overlooked a lot.

What are essential features that disability policies should have for physicians?

When we talk about disability insurance, specifically for physicians, we’re talking about two potentially different things. There is group disability insurance and private disability insurance. I want to focus on the private side for now.

When we talk about private coverage, one thing to note is that there is no standard language in insurance, as in medicine. Carriers sometimes will use the same words and have different definitions or have different words and the same definitions.

How much income can someone insure?

There are two answers to this one. How much you can insure is different if you are a resident or in training versus if you are already an attending.

In the first case, if you are a resident or fellow, all carriers have what’s called a resident package. Everyone qualifies for the same amount. They don’t look at what kind of doctor you are or how much money you’re making. If you are in training, you qualify for “x.”

Once you become an attending, every carrier has an internal algorithm that determines what you qualify for. In this case it takes into account how much money you make, what benefits you are getting, and who is paying for them. Then, they will spit out a new number based on these factors.

The goal is to get as close to 60 or 70 percent of gross income covered. This is important because private policies are tax-free. After all, you’re purchasing with post-tax dollars.

How much should you insure?

I personally wish I had been maximally insured, but is that right for everybody? Probably not. Everyone has different household needs. What I tend to say to folks is that you need to look at what your fixed monthly costs are, and whatever that is, add about 20 to 30 percent.

After an injury, you will have to deal with things you never had to before. For example, I had problems reaching certain places. We had to get a housekeeper and hire a dog walker. All these things added homecare costs.

Bottom line: Even if you qualify for “x,” you don’t have to purchase “x.” It depends on the particular needs of your individual household.

When is the best time to get disability insurance?

I would argue that the younger you are, the healthier you are, and for most of us, that is in training.

I didn’t know about this as a resident. I got insurance as a first-year attending. In my first policy, I didn’t qualify for as much as I would have as a resident, and it was more expensive.

Also, there are discounts available through residency and fellowship training programs that don’t exist once you become an attending.

Some will actually qualify for more as a resident or fellow than as an attending.

Even still, there is potential that as you finish training and move to “attendinghood,” that there may be a cheaper option out there than the one you previously purchased. This goes back to why I’m doing what I do. I make sure that we touch base with our clients at least twice a year to ensure we’re keeping up with life changes, job changes, moves, etc., to make sure we’re doing the right thing by the right person.

Why would someone not want to rely on their group policy?

There are two options when we talk about employer group policies: employer-paid group policies or employee-paid group policies. The overwhelming majority are employer-paid policies.

There are three things we run into repeatedly when considering group policies compared to private policies.

1. First, suppose your employer is paying for the benefit. In that case, it will come to you as taxable income, while the private policy will be tax-free. And that makes a big difference.
2. Second, employer-paid group policies tend to live with the employer. So, if it comes time for you to move on, whatever they’ve given you stays with them. A private policy, on the other hand, is portable, and you own it. Keep it on your computer, in your sock drawer, wherever, the choice is yours because the policy is yours wherever you go.
3. The last and most important difference comes down to language. Employer-paid policies have to be cheaper policies by design. Employers have to offer them to everybody, so they can’t break the bank. Well, where they save the most hurts us the most. In my case, they didn’t cover work-related injuries. I see probably 10 to 20 percent of people that consult me actually have that in their policies. Carriers have gotten very creative about what they limit.

What should people keep in mind if they’re practicing in California or training outside of California and planning to move into the state?

First things first. Anyone who has training outside California and plans to move to California, please get your policy before you move.

California is an interesting place when it comes to insurance. If you’re comparing notes with colleagues, you should really just do it with other Californians. There are different rules and regulations in the state that actually make it harder for insurance companies to get new products on the market.

You’re considered totally disabled if you cannot do your job. Regardless of whether you’re gainfully employed in another occupation, it adds the phrase “until you make your pre-disability earnings.”

There are actually a couple of other states that have interesting nuances. In places like Texas, some of the discounts are different. As well as Connecticut, Massachusetts, and New Jersey. These things really are state-specific.

Be sure to tune into the full podcast with Anjali Jaliwala for more valuable insights from Stephanie!