5 Things Physicians Need to Know About Disability Insurance

After you’ve invested an enormous amount of time, education costs, and postponed income, your time and education are your most valuable assets as you finish up your training.

But anything from a back injury, vision loss, or a hand injury will threaten those assets that you built through years of difficult work in training. And physicians have a 30% chance of missing out on income because of unexpected sickness or injury in their careers!

You may also have student loan debt, which can’t be discharged if you are injured and can’t work—even if you declare bankruptcy. Disability insurance protects you against financial hardship if injury or illness prevents you from working.

But be careful when you look at disability insurance policies! It’s a particular product that works in a unique way, so we want to help you with an easy-to-follow checklist to what you should consider as you look at disability insurance policies.

We've rounded up the more important things to consider as you go through the process of picking a disability insurance policy.

True Own-occupation Disability Coverage for Physicians

Physicians reviewing their long-term disability insurance options need to confirm the policy contract contains a "true own-occupation" definition of disability.

True own-occupation means that you would be deemed disabled if you are unable to perform the material and substantial duties of your occupation (medical specialty) AND your benefits do not change even if you make an income (gainfully employed) in another occupation or specialty.

The most important aspect of a physician disability policy is the definition of disability. The true own-occupation definition is the strongest and provides the most flexibility to receive benefits when disabled.

There are a few other definitions of disability that are often confused with true own-occupation. Most insurance companies (except the "Big 5" insurance companies) will say they have "own-occupation" disability insurance but contain one of the other definitions of disability like:

• True Own-Occupation

• Transitional own-occupation

• Modified own-occupation

• Any occupation

1. True own-occupation

Under this type of disability insurance policy, an insured is considered disabled if they aren’t able to perform the duties of their occupation. In the case of a physician, this would be their medical specialty.

The important part of this definition of coverage is that it provides benefits if you aren’t able to work in your specialty without taking away your flexibility to make an income in another occupation.

True own occupation is almost never provided with employer group plans

This definition is the most favorable for the policy owner and is usually available only with select individual plans. It is almost never provided with employer group plans.

An example would be a surgeon who injures her hand and is no longer able to work in her specialty, but who starts teaching at a university.

If she has true own-occupation coverage, she will be able to continue receiving her disability benefits even though she has found work in a different capacity.

There is not a limit on the additional income earned in her new profession to offset her received disability benefits.

Few insurance carriers have maintained true own-occupation coverage, while most have tacked on a clause to the end of their definition that says something like “so long as you do not engage in any other occupation.”

That is very different from the definition of true own-occupation coverage which guarantees full disability benefits as long as you do not engage in your primary occupation as a physician, even if you get a different job somewhere else.

2. Transitional own-occupation

With this definition, your policy will pay benefits if you cannot work in another occupation and start earning income in a new occupation—but your total net income (including benefits) cannot exceed the total original earned income.

If you make more with your new occupation than you did in your medical specialty, your disability benefits will be offset until your total income is equal to the benefits plus your new income and is not higher than your income as a medical professional.

For example, a cardiologist who is diagnosed with a chronic disease that prevents him from working in his specialty is still able to write articles for popular science magazines about the medical field.

If his income as an author grows to match his income as a cardiologist, then his benefits are reduced until his total income (benefits plus new income) is equal to his original earned income.

3. Modified own-occupation

According to this definition, a person receives benefits when they can’t work in their own occupation and are totally disabled.

With this kind of disability insurance, benefits do not continue if that person wants to work earning an income in another profession.

The options of a totally disabled person with this kind of disability insurance coverage would be to either live off their benefit check and remain totally disabled or return to full-time work in a different occupation.

Most executives and other employees with higher salaries will usually get a secondary policy with a true own-occupation definition.

This type of coverage is usually used as a base level of coverage for company employees. Most executives and other employees with higher salaries will usually get a secondary policy with a true own-occupation definition.

An example would be an emergency physician who injures his back and is no longer able to practice in his specialty. In this case, he has only the employer-provided modified own-occupation coverage.

Due to this definition, when he is offered a job working on emergency medicine policy for his state, he has to choose between taking the opportunity or receiving his disability benefits.

4. Any occupation

This is the most common form of disability insurance and is usually found in employer-sponsored group long-term disability insurance plans and low-cost individual contracts.

In this definition, an insured is considered disabled only if they are unable to work in any occupation for which they are qualified.

This is the least beneficial type for the insured and it also provides the greatest leverage to the insurance company for determining claim eligibility.

Someone with any-occupation coverage can only receive benefits for a claim if their injury or illness prevents them from working anywhere, not just in their specific occupation or another occupation for which they have qualifications.

One of the most commonly overlooked consideration when examining the disability insurance offered by employers is that (assuming the employer is paying for the coverage) this insurance is taxable!

If you are injured and relying on employer-provided disability insurance coverage, you must report as income any amount you receive.

If you pay for better disability insurance that is separate from the employer-provided plan, however, you do not need to include any disability payments as income on your tax return.

Ultimately, employers are going to do what is in their best interest and you should do the same.

In addition, employer-sponsored physician disability insurance plans are rarely portable, so if you switch to an employer who offers inadequate coverage you can’t take your former employer’s policy with you.

This is definitely something to think about because changes in age and health status can decrease your chances of getting an individual policy later.

Ultimately, employers are going to do what is in their best interest and you should do the same.

The problem with most employer-sponsored plans is that they do not offer real own-occupation coverage which could leave you without the benefit you're expecting.

If you’ve decided that you want your own disability insurance policy, the next step is to look at the policies themselves. There are specific add-ons, known as “riders,” that provide additional benefits to the policyholder.

We’ve put together a list of the most important riders that you should make sure that your policy has. These riders make sure that you have the coverage and protection that you want so that your income is protected in the case of injury or illness.

Specialty-specific coverage

This kind of coverage will pay you the full benefit amount if you are disabled and unable to perform the duties of your specialty, even if you can still work in medicine or any other occupation.

Correct classification of your specialty is extremely important in determining the premium rate that the insurance company will charge.

Independent insurance agents that specialize in disability insurance will be able to help you find the best plan for you

Different insurance companies may even assign specialties to different classes, with the result that premiums rates may vary widely across companies.

Independent insurance agents that specialize in disability insurance will be able to help you find the company that assigns that most favorable class to your medical specialty, which results in you paying lower premiums.

High guaranteed increase limit

When you are in training, you are eligible for much less coverage than you will be as an attending.

However, you can "lock in" the guaranteed right to increase your policy in the future without any more physicals or labs.

Since physicians’ incomes increase substantially once they leave training and throughout their careers, it's important to make sure that the cap or maximum is high enough to allow you to protect a large percentage of your income without a health checkup in the future.

Partial/residual disability riders

More physicians are partially disabled each year than totally disabled.

This means that they are prevented from earning their previous full income, but they are still practicing in their specialty.

A good partial benefit rider, sometimes called a residual benefit rider, is key to making sure doctors will have any partial loss in income replaced if this much more likely scenario occurs.

Non-cancelable and guaranteed renewable

A policy that is both non-cancelable and guaranteed renewable means that premiums can’t be raised nor can the contract be changed.

It’s important to make sure that this language is in the disability insurance policy; otherwise, the insurance company has the right to change your premium rates.

Don't forget about choosing the right company!

Don’t waste your time working with companies that are not financially stable or that have bad reputations of overly difficult claims departments.

When it comes to disability insurance for physicians, there are many companies that will offer coverage. However, physicians need to be sure to get *true own-occupation coverage* which is only provided by 6 insurance companies at this point.

The "Big 5" insurance companies include:

• Principal

• Guardian

• Mass Mutual

• Ameritas

• Standard

Some policies are often confused for having *true own-occupation coverage*, but DO NOT. Some of these include:

• Northwestern Mutual

• AMA

• UNUM

• Hartford

• State Farm

• Most employer-provided group plans

As you finish up training, your education and future income are you most valuable assets

Especially in the case of injury or illness, you do not want to spend the time putting up with the hassles of a failing company nor an obstinate claims department if you need to file a claim.

As you finish up training, your education and future income are your most valuable assets. But even if you want a disability insurance policy, sorting through the different sorts of policies and riders can be extremely time-consuming!

Take advantage of training program discounts

If you’re a resident or a fellow you can take advantage of training program discounts that give you the confidence that you’re covered as soon as you enter your first attending position—not to mention that you can take it with you whenever you change employers.

Residents and fellows have the opportunity to use available training program discounts

Residents and fellows have the opportunity to use available training program discounts to get disability insurance at lower rates than at any other point as long as disability insurance is requested before graduation.

If you purchase disability insurance while you are still a resident or fellow, your policy will stack on top of whatever group coverage you receive from your eventual employer. This feature not only makes physician disability insurance unique, but it makes residency or fellowship the best time to buy it.

The thinking behind this feature is to give physicians a valuable benefit at a time when they are most financially vulnerable.

If you are like many physicians, you will complete your residency or fellowship with a significant amount of debt, which you acquired in pursuit of your medical degree.

While the income returns that doctors typically make will likely enable you to pay off your loans quickly, in the waning months of your residency or fellowship you are in a somewhat vulnerable position financially.

Residents and fellows typically earn the lowest level of income that they ever will in the course of their professional careers and are saddled with the highest level of debt.

This is why it is an ideal time to get disability insurance to ensure that you are protected from financial loss in case of injury.

These discounts can provide career-long savings of up to 45 percent of the normal rate.

If you are a woman, you may have the opportunity now to obtain a unisex rate, meaning that you will have the chance to save upwards of $100,000 over your career if you get disability insurance during residency as opposed to waiting until after the end of your training program.

To obtain the discounted rates, you need to submit your application prior to your graduation date

To obtain the discounted rates, you need to submit your application prior to your graduation date, or within the insurance company's grace period.

Since this period differs among the companies, making sure that you get a quote request in before graduation ensures that you have access to the full range of options.

If you get medical approval for coverage now, you will protect yourself from the impact of potential injuries and chronic ailments in the future.

Most residents don’t consider their current health as a potential obstacle to qualify for disability insurance since they are generally young and healthy.

But injuries and/ or chronic conditions could prevent you from getting covered in the future.

By purchasing a disability insurance contract now, you protect not only your current income but the opportunity to purchase more coverage in the future, even if your health changes.

If you buy disability insurance now, you'll make sure that you're covered throughout your career.

You'll never be as young as you are now—getting disability insurance as a resident will keep your premiums low.

Because rates are based on age and health status, a good reason to purchase disability insurance now is that the younger you are, the lower your premiums are likely to be.

The older you get, the more expensive this type of insurance becomes, as you likely to use it increases.

With insurance, it’s always better to get it sooner than to wait until you need it

Even if you’re past the training program discount, you’ll never be younger (and thus have lower premiums) than you are today. With insurance, it’s always better to get it sooner than to wait until you need it.

Since disability insurance rates never change, you want to secure your policy as early in your career as possible. Not only may you get a lower rate because of your age, but you may also be less likely to have health conditions that could result in policy exclusions of coverage.

The plans with non-cancelable and guaranteed renewable provisions will keep those rates stable for the remainder of the contract, usually to the end of your career.

Don’t wait until you are in your forties or fifties to get disability insurance since premiums will be much higher than in your twenties or thirties.

What disability insurance claims pay is based on what's in the insurance contract that exists between you and the insurance company.

There currently exist favorable contracts specifically available to residents that protect your occupation and medical specialty.

But remember that the insurance marketplace is volatile—getting disability insurance now will make sure that the provisions you have will not change, no matter the changes in the market.

As we’ve seen recently, however, the insurance market may suddenly end the availability of certain plans, which further limits the options for medical professionals. By getting a contract today, you get peace of mind that your provisions will not change, no matter the changes in the market.

Insurance is confusing, and disability insurance is a particularly confusing product. For this reason, it's better to work with a good independent agency, instead of directly with an insurance carrier.

An independent agency will be able collect quotes for you and walk you through the intricacies of various plans to make sure that you're cutting through the confusion to get the best plan for you.