Disability Insurance for Physicians

As a successful physician, chances are you have several types of insurance for the valuable things in your life, including your health and your home. But many physicians do not take the necessary steps to protect their most important and hardest-won asset—their ability to earn income to support themselves and their families. 

Perhaps you already have a disability insurance policy provided by your employer, but do you really know what it covers? Like medicine, disability insurance is a complex topic with a lot of jargon, but we’re here to help. Our PearsonRavitz co-founder and CEO Stephanie Pearson, MD, FACOG is a disabled physician who sustained a career-ending injury. Stephanie has learned a lot about disability insurance the hard way, and her mission is to share her expertise with her fellow physicians to help them avoid the mistakes she made.

Above all, you need to be sure your disability insurance policy is written specifically for you, in order to cover the exact medicine you were educated and trained to practice. This guide is the result of  thousands of conversations with physicians like you. It covers all you need to know before you speak to a broker to protect your income and peace of mind. 

What Is Disability Insurance?

Disability insurance is income protection. It covers a portion of your income if you can no longer work due to a long-term illness, a debilitating injury, or cognitive challenges. Once coverage is triggered by a health event, you receive a specific amount of money every month. 

As physicians, you are constantly taking care of others, and you need all of your faculties to do so. Disability insurance exists so that you can take care of yourself and your family. In the event that you, could no longer practice the profession you were educated and trained to perform, disability insurance would help you meet your expenses and continue your standard of living with as little financial disruption as possible. It provides you and your loved ones financial peace of mind during a time when finances should be the least of your worries

Why Is Disability Insurance Important for Physicians?

As a physician, your career and livelihood depends on your performance of specific tasks to deliver care and service to your patients. To fulfill your duties for those in your care, you need all of your faculties. An injury or illness can severely affect your job performance. It can also have a major impact far beyond your career, on your personal life as a parent, traveler, or athlete.

Unfortunately, becoming disabled is a very real possibility that happens all too often. 

A short-term or long-term illness or injury could jeopardize your ability to cover basic financial needs for you and your dependents. Consider how long your savings would last your family if you ended up in this unfortunate situation.

Learn about the potential challenges on the path to obtaining disability insurance in our blog article,  4 Key Roadblocks to Securing Disability Coverage, and empower yourself with insights to navigate these obstacles.

Key Physician Disability Insurance Terms and Riders

Riders are the building blocks of your policy, and it’s important to consider how they can affect your coverage. You must understand what they are to make sure your disability insurance meets your specific needs. 

Just as in medicine, the disability insurance industry has a lot of confusing terms. The most important thing to know is that there is no standardization of language in insurance. Different carriers may define the same term in different ways, or different terms similarly. You are not necessarily comparing apples to apples when you shop for policies from different carriers. In addition, the industry is constantly changing. For these reasons, it is best to speak to a broker to confirm the details of your policy.

Below are key components to know about disability insurance for physicians:

1. Own Occupation/Specialty Specific: This is the most important and essential rider for physicians. It means that if you cannot perform what you were specifically educated and trained to perform, you qualify as disabled, and are therefore entitled to receive benefits regardless of whether you are gainfully employed in another occupation. Different carriers use different terms to mean the same thing—please make sure you have the correct language. Be aware that many group disability policies switch from “own occupation” to “any occupation” after two or three years. Often, group policies will define total disability as the inability to do your job and not be gainfully employed. All physicians should get policies that have an own occupation definition.

To understand how this specialized coverage can offer crucial protection tailored to your specific role, read our blog post, What Is Own Occupation Disability Insurance?

2. Future Purchase Option: This rider is an absolute must for young practitioners to protect your future earning potential. It allows you to increase your coverage as your salary increases or you change jobs without having to undergo additional medical underwriting. This rider also goes by many different terms.

3. Residual or Partial Disability: This benefit provides for circumstances that cause you to work part-time because of injury or illness. When you have lost a certain percentage of your income or time (depending on the policy), a benefit will be triggered. Annually, more partial disability claims are filed and paid than total disability claims. 

4. Cost of Living Adjustment: This rider, also known as the COLA rider, helps offset the risk of inflation. On the anniversary of your claim, the carrier increases your monthly benefit based on the language in your policy. The COLA can have simple or compound interest moving forward. Benefits range from up to 3 to 6 percent of the monthly benefit. Some carriers have a fixed percentage increase, while others are tied to the Consumer Price Index and therefore have a range. This rider is most beneficial to younger physicians, who stand to sustain the greatest cost of living increase from an early injury or illness.

5. Catastrophic Injury Rider: This rider (also known as the CAT rider) offers extra protection—in addition to a standard monthly benefit—from the financial impact of a more serious injury or illness. For most individual policies, if you are unable to perform two or more of your activities of daily living or are severely cognitively impaired, you would qualify for an additional benefit.

6. Non-Cancellable, Guaranteed Renewable: This means that the insurance carrier cannot cancel, increase the premiums, or add restrictions to your policy once they have made an offer and you pay the premiums. Even if they stop offering the type of policy you own, as long as you continue to pay your premiums you will receive the same coverage. I recommend all physicians have a non-cancellable, guaranteed renewable disability insurance policy.

7. Benefit Period: This is the length of time that your claim would be paid. Carriers typically offer options that will pay out until the insured turns 65 to 70 years of age. 

8. Elimination/Waiting Period: This is the time between something happening to you and you getting paid. Most physician disability insurance policies require that a person be disabled for a certain period of time before they begin receiving disability benefits. The most common length is 90 days; however, there are shorter and longer options available. 

To learn more about insurance coverage enhancements, read our informative blog post, What Are Insurance Riders for Disability Insurance?, and discover how these optional add-ons can provide tailored protection.

What Is the Difference Between Employer and Private Individual Disability Insurance for Physicians?

As a physician, there are two main types of disability insurance you need to know: group long-term (also known as employer), and private individual long term. 

Group Long-Term (Employer) Disability Insurance: Most employer group long-term policies are paid for by your employer and cover a percentage of your base salary for as long as you remain in your position. 

Private Individual Disability Insurance: This is a policy obtained by and paid for by you and offers the most comprehensive coverage. As with all insurance plans, the riders, or building blocks, are the most important part of the policy. 

Group long-term disability insurance provides some coverage depending on your situation, but you should not rely on it as your sole means of income protection because it has some major limitations:

1. Group long-term disability insurance income is taxable if your employer pays for the policy, which significantly reduces your monthly benefit income. There are a few exceptions to this rule. It is important to have someone look over your policy to make sure you understand the taxation. In addition, many group long-term disability insurance policies only cover a portion of your base salary; bonuses and commissions are often not covered. These policies often have a maximum benefit that is below your true income.
2. It may not be specific to your medical specialty. Your employer may say that their policy is own occupation, but the fine print may say otherwise. Your benefits may only be paid out that way for a certain period of time, after which the language switches to “any occupation.” Often, your own occupation is defined against the national economy. It is not specific to what you do where you do it.
3. It may have inadequate definitions of “total disability.” Employer policies most often define total disability as the inability to do your job and not be otherwise gainfully employed. The gold standard for individual policies defines total disability as “the inability to do your job regardless of gainful employment.”
4. It is often non-portable. Most employer policies are employment dependent, so they will not cover you if you choose to move to another practice or hospital.
5. It can be changed by your employer. The hospital or practice you are employed by has full ownership of your physician disability insurance policy. They may choose to cancel or change your policy at any time.

On the other hand, a quality private individual disability insurance policy is specifically tailored to your unique needs and takes into account all of your sources of income. Because you pay for this plan with post-tax dollars, the benefit income is tax-free. Unlike an employer policy, is it portable, so you can take it with you when you change jobs. And you can adapt it to your changing needs over your lifetime.

Many people decide to not obtain a private individual policy due to the policies that their spouses have in place. Discover the potential pitfalls and risk of relying on your spouse as your insurance policy in our eye-opening blog article at Why Your Spouse Is Not Your Insurance Policy, and gain valuable insights into securing independent and comprehensive coverage.

When Is the Best Time to Apply for a Physician to Apply for Disability Insurance?

In a word: now. There is no set enrollment period for physician disability insurance, so now is always the best time to sign up. It is never too late to invest in your financial peace of mind.

Disability insurance rates are based on several factors: age, gender, health, occupational classification, riders, monthly benefit amount, elimination period, and benefit period. The younger and healthier you are when you apply, the lower your cost. Since none of us are younger than we are today, and since few of us get healthier as we age, the time to purchase disability insurance was, well, yesterday. Residents get special discounted rates they can lock in for the remainder of their career.

A note to people who plan to get pregnant: If you can, we encourage you to get coverage before the first time you try to get pregnant, as insurance companies tend to look for any reason not to cover future pregnancies. 

How Much Does Disability Insurance for Physicians Cost?

Men can expect to spend about 1 to 3 percent of their income on a quality disability insurance policy, whereas women should expect to pay about 2 to 6 percent. The reason women pay more is because they tend to leave the workforce because of illness or injury more often than men. Keep in mind that rates are less expensive across the board for residents. 

Disability insurance rates are based on several factors:

To gain insights into how premiums are determined and how you can secure financial protection, explore our recent blog article on the The Cost of Disability Insurance for Physicians

The “Big 5” Providers

Virtually every other area of insurance offers a laundry list of providers. Some are household names, others are more boutique. But when it comes to disability insurance for physicians, you might be surprised to learn that there are only five companies that provide specialty-specific coverage for individual disability insurance for physicians:

How Much Disability Insurance Do Physicians Need?

It can be difficult to identify how much disability insurance you need at a glance, because it’s not one-size-fits-all. Insurance companies use internal algorithms to determine the amount outside of training.