What doctors need to know about disability insurance

You might be thinking that your home, your retirement accounts, or your passive income sources are your most valuable assets. In reality, your most valuable asset likely is your ability to practice. What would happen if you could no longer practice medicine? You spent years amassing your knowledge and skills. Would you be willing to start over in a new career?

The good news is, with the right total disability insurance policy, you wouldn’t have to. While that’s simple on the surface, selecting the right disability insurance policy for doctors is complex, according to Lawrence B. Keller, founder of Physician Financial Services.

“There are 6 companies that offer high quality individually underwritten disability insurance,” Keller says. “The key for doctors is to really understand the pros and cons of one company and policy versus another so they can purchase the right policy based upon their needs.”

When Keller works with clients, he reviews the following 5 policy features to determine the best fit. Here’s a brief overview of each.

Non-cancelable and guaranteed-renewable policies

“These give doctors the best protection,” Keller says.

With a guaranteed-renewable policy, the insurance company has the ability to change the premium rate, but only with the approval of a state’s insurance department and by class of policy holder. While this does not happen often, Keller recommends these policies because they provide the best coverage.

True own-occupation policies

True own-occupation policies don’t protect you from loss of income, just your ability to carry out job duties related to your specialty. Keller explains these policies as follows:

“If I’m disabled due to an accident or sickness, and I cannot perform the material and substantial duties of my occupation, I would be deemed totally disabled.”

The key phrase there, Keller says, is “material and substantial duties.” Keller provides the following example: If you’re an orthopedic surgeon specializing in trauma whose business pivots on your ability to perform surgery, surgery likely would be considered your material and substantial duty because it is a major source of revenue generation. In this case, you likely qualify for total disability benefits.

In fact, if your loss of income due to your inability to perform surgery is minimal, you might not qualify for any benefits at all.

These are the only insurance companies that offer true own-occupation coverage:

1. Principal

2. Ameritas

3. Standard

4. Guardian

5. Mass Mutual

6. Ohio National

According to Matt Wiggins, co-founder of Pattern, you need true-own occupation coverage regardless of specialty. "If you have the wrong kind of coverage and become disabled, you may be forced to stay home," Wiggins says. "But if you get true own-occupation coverage, then you have options. You can collect disability, practice medicine in some modified form, or do something else completely, and still collect benefits."

Residual disability riders or partial disability benefit

These riders, Keller says, address the potential loss of income. If you’re not totally disabled, but an injury or sickness cause you to lose income within your specialty, you receive benefits that are proportional to your income as long as you meet the threshold of a 15-20 percent (or greater) loss of income as a result of the disability.

Many of these riders, Keller explains, come with a recovery benefit. Let’s say you suffered a disabling injury that put you out of work for a year. You return to work and discover that many of your patients have gone elsewhere, resulting in a loss of income. If that income loss is tied to the disability, better policies will pay you, usually up until age 65, as long as the loss of income exists and is tied to disability.

Cost-of-living adjustment riders

You can obtain cost-of-living adjustments by purchasing a rider in your policy in many instances. With COLA riders, Keller explains, disability payouts are adjusted for inflation if the disability has lasted for 12 months. Without a COLA rider on a policy, disability payouts remain the same.

“This is designed to keep your purchasing power in line with inflation,” Keller says.

Future increase option rider

This rider, Keller says, allows you to increase your coverage in the future without a physical exam, medical testing, or having to disclose any subsequent medical history to the insurance company.

How much coverage do you need?

Two factors determine the appropriate amount of coverage for physicians: career stage and financial status. At the beginning of your career, you’re likely the least financially stable and you need to insure what you can’t protect with your own savings. This is when most physicians will need the most coverage.

Things look different for physicians in later career stages.

Wiggins says physicians who fall into this category may be able to cover a loss of income from their savings, meaning they could scale back or eliminate disability coverage. The amount a physician is spending monthly on disability insurance may be more productively spent or invested elsewhere. 

Other considerations

For higher-earning specialties, such as dermatologists and neurosurgeons, you might want to consider getting two policies from different companies. This gives you more coverage than any one company alone would give you. You could also use future increase options to allow you to increase your coverage as income rises.

Female doctors might want to use the same approach, Keller says, but premium rates tend to be higher for women, due to complications with pregnancy. Stress-related claims are also higher in women, as are autoimmune diseases. Keller suggests looking for a gender-neutral or unisex rate structure, which can save between 30-50 percent of normal rates.