5 Must-Have Disability Features For Physicians
What is Disability Insurance?
Disability insurance is a type of insurance that provides income to a physician if they cannot perform their job. Disability insurance is not for job-related injuries as those get covered by worker’s compensation.
For example, imagine skiing in Colorado, and you hit a tree, severely injuring your back. The accident would cause you not to be able to perform your job. Other examples are a car accident, a serious illness, or recovering from surgery.
These events are why disability insurance becomes important. It gives you an income based on the parameters of the policy you or your employer owns. There are two types of disability coverages, short-term and long-term. The main differences are the length of time the disability persists and the amount of income provided.
Types of Disability Insurance
Short Term – coverage starts on the day of the disability and lasts from 3 months to 2 years. The length of time depends on the coverage you or your employer owns. As the name implies, this coverage is only for a short time, like healing from a broken bone, surgery, or recovery from childbirth. You usually start receiving income from day one by having a short-term policy.
Long Term – coverage starts around six months and lasts up to five years. The average individual disability is 34 months or close to three years. If you cannot work during that time, expenses could pile up. Long-term disability insurance is a must if you cannot work for an extended period and need the income. 66% of the United States workforce does not have a long-term disability policy.
For more questions about Social Security’s definition of a Total Disability, please see the site below.
Why Do Physicians Need Disability Insurance?
25% of workers will get disabled at least once before turning 67. Physicians need disability insurance like any other worker. They do the same things in life other individuals do, such as go on vacations, drive cars, and get ill. However, a physician’s income is more significant, making it more difficult to replace without a disability policy. Not having a policy could cause many financial and emotional problems.
PRO TIP: A fully-funded emergency fund containing six months of living expenses could prevent a physician from needing to purchase a short-term disability policy. This fund is for self-insurance.
What Should Every Physician Know About Disability Insurance?
A worker is 3.5 times more likely to be injured or disabled than to die. Unlike life insurance, you do not see an enormous death benefit paid out upon injury. The insurance pays out monthly.
Also, the younger you are, the cheaper the premium on a disability policy. Therefore, you should lock in the rates when a resident, fellow, or new physician.
Are Disability Policies Worth It?
Absolutely! Disability insurance is not enjoyable to pay. Paying for insurance seems like an expense only. However, the purpose is not to file a claim unless you would suffer a catastrophic financial loss. The purpose of insurance is not to cover your iPhone from damage or get an extended warranty on a vehicle.
Premiums for disability policies can range from 1-4% of your annual salary. It can seem like a considerable amount of money when calculating this for a physician. Yet, you would rather pay the premium and never use the insurance instead of getting disability income while recovering from a devasting accident or illness. Likewise, not having disability insurance and using savings and investments to pay your bills would be equally devastating. Below is a list of 5 Must-Have Disability Features For Physicians.
PRO TIP: Look at all the options and riders when buying a policy. If the premium starts to get too high, cut some features.
5 Must-Have Disability Features for Physicians:
- Non-cancellable and renewable: If the premiums get paid, the policy cannot get canceled, and premiums cannot increase. Some companies can offer a product called “Guaranteed Renewable,” but that is not the same as non-cancellable AND renewable. Insurance companies can raise the rates on a class of policyholders under a “Guaranteed Renewable” rider.
- Own Occupation policy (specific job, not “any” job): This definition of a “total disability” is vital for a physician. The “own occupation” feature means if you cannot perform your occupation’s “material and substantial” duties, then the policy will pay. This statement makes it possible for you to get your disability income while working in another medical specialty and still earn regular income. Getting this feature for a physician is critical as other policies will consider earnings for performing another job. For example, if you cannot stand and see patients all day long due to an accident, you can sit and do Teladoc. Under an “any” policy, you would not get disability income. However, under an “Own” policy, you would receive disability income and the earned income for being a Teladoc physician.
- Short Elimination period (deductible): The elimination period is the amount of time in days you must wait until your policy starts to pay you. The elimination period acts like a deductible where the insurance company hopes you recover and do not need to file a disability claim. Aim to get a policy with fewer days. However, do not go too short, as this will significantly raise your premiums.
- Residual/Partial Disability: What if you are not disabled and can still do your job but have fewer hours? Generally, you must lose 15-20% of your normal workload. If you lost 75-80%, 100% would be paid. Lastly, do not get a policy requiring you to be fully disabled before a Partial Disability rider comes into effect. This rider provides benefits proportionate to the lost income due to a partial disability.
- Cost of Living Adjustments: This rider allows your disability income to rise at a fixed percentage or concurrent to the Consumer Price Index for inflation. The adjustment happens after 12 months, and you want a rider with “no cap” on the monthly benefit. The C.O.L.A. rider is expensive, so this might be one to cut if you need to reduce your premiums.
About The Author
Jordan Benold, CFP® provides fee-only financial planning and investment management services in Frisco, TX. Benold Financial Planning serves clients as a fiduciary and never earns a commission or sells a product. Jordan has over three years of experience as a financial advisor in Frisco.