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Before we start to talk about what we get wrong with disability insurance, I should tell you that I personally do not carry disability insurance. It’s true. If I were no longer able to perform my duties as an anesthesiologist, I would no longer earn a paycheck.
And yet, reviewing the list below, I don’t believe I’ve made a single mistake regarding disability insurance.
You see, I did once buy a true own-occ disability insurance policy from a reputable company via an independent agent. I locked in a low rate in residency and increased my benefit after graduating. It was only after I achieved financial independence that I was in a position where the policy became optional.
I carried the policy for about 10 years, most of them with a $10,000 a month benefit. That was enough to fund the life we lead. Now, our investments can support that, making both disability and term life insurance redundant policies. I no longer carry them, but they were an integral part of my financial plan.
Today’s guest post was written by Matthew Wiggins, a close childhood friend of Coach Chad Carson and partner at Pattern (check rates here), a frequent sponsor of Physician on FIRE, supporting our charitable mission.
Matthew was kind enough to write the following blog post and create a video based on the content. Enjoy!
Top 5 Mistakes Doctors Make With Disability Insurance
Busy doctors can get so stressed by how time-consuming and complicated researching disability insurance can be that they end up going with the wrong policy or forgoing disability insurance altogether.
This leaves many doctors at risk of losing their homes, cars, and general standard of living should they get disabled and not have their income appropriately protected. But it doesn’t have to be that way!
To keep you from putting yourself in this dangerous place, I’m going to share with you the top five mistakes we’ve seen doctors make over the last decade.
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#1 Thinking they don’t need disability insurance
Many doctors, especially young doctors, think that they’ll never become disabled. Studies show, however, that doctors have a 20-30% chance of being disabled over the course of their careers, a much higher chance than those in other white-collar professions.
In addition, the financial impact of not having your income protected can be life-altering. A recent study showed that 42% of people diagnosed with cancer end up depleting all of their life savings, even when they had health insurance.
A huge reason they had to exhaust their savings was due to being out of work for long periods of time and not having an income source.
The best way to protect your assets from the financial effects of a chronic illness or injury is long-term disability insurance. Since your career income is far and away your largest financial asset, protecting it is a no-brainer.
If you’d insure a $30,000 car or a $400,000 house, you should insure your $5 million (or $50 million) career income.
#2 Believing all disability insurance is the same
One of the reasons why researching disability can feel overwhelming is that it’s difficult to understand the policies and their specific language.
Is this true own-occupation disability insurance? How do you know if this rider is the same as that one? And what is a rider, anyway?
Despite its confusing jargon, it’s so important that you fully examine the policies if you choose to do the research yourself. The coverage you purchase and how it protects you is only as good as its contract language.
If the contract language states that the policy will keep paying you the full benefit if you are unable to perform your duties, even if you can work in a different job after the disability, it’s a true own-occupation policy.
If it says that it protects your own medical occupation, but it will diminish or quit paying your benefits if you can simply do ANY job after a disability, then it’s not a true own-occupation policy and is not protecting you thoroughly.
True own-occupation disability insurance is currently only provided by a limited number of companies often referred to as the “big six”: Ameritas, Guardian, Mass Mutual, Ohio National, Principal, and Standard.
#3 Thinking employer coverage is enough
Disability insurance through your employer is just not enough on its own! Most doctors don’t realize this but their employer’s coverage is not true own-occupation coverage and the benefit is most often taxed before you ever receive it.
This means that if you get disabled and think your employer will cover 60% of your income, it may end up only paying you between 25%-40% of your attending income after taxes and other deductions are made.
On top of this, coverage from your employer is not portable in most cases. This means you could end up in a position of not being able to protect your income in the future if you change jobs to an employer that doesn’t provide a disability benefit or if your health has changed to where you can’t get the coverage on your own.
#4 Not using an independent insurance broker
When I was in the 8th grade, I had both of my parents for teachers. They tried so hard to avoid the perception of favoritism, but of course they were partial to me—they were my parents, after all!
I always think about that when I hear about doctors trusting an insurance agent who is employed by a single company to be unbiased.
Even if they have the best intentions to be impartial, if their office is paid for by one company and their bonuses are linked to selling policies from that company, they can only be dispassionate to a certain degree.
Your best bet is to find an independent insurance broker who is not employed by any of the companies that they help you research.
One trick is to ask them how much of their business is placed each year with each company and why? You’ll learn a lot if they are honest with you!
#5 Waiting to buy disability insurance
There are two constants in the world of disability insurance: prices go up as you age and as your health deteriorates.
In most cases, you will never be younger and healthier than you are today so your disability insurance rates will never be better.
Plus, if you’re still in training there are some incredible discounts available to you, some up to 40 percent off of the price you’d pay as an attending.
If you wait too long and you have a health issue arise that would make you uninsurable, your ability to protect your income would vanish, right as you needed it the most.
To get the best price and not risk your opportunity to get coverage, the sooner you start looking into disability insurance, the better.
The Bottom line
In order to protect your income, you really need disability insurance. The problem is disability insurance is complicated and takes too much time to research, which can make you feel overwhelmed and afraid to make a big mistake.
We believe doctors have more important things to do than spend their time researching disability insurance policies and we understand what it feels like to get ripped off or make a bad financial decision.
We hope that you avoid these 5 mistakes and end up with the right protection for your income.
Your mortgage, children’s education, retirement, and standard of living for the rest of your life is at stake!
If you’d like for us to help, click here and request your quotes. We’ll make sure you get disability insurance right the first time and simplify the process for you so you can stop wasting time and feeling overwhelmed. You can save money and spend time on the things you love instead, while being confident your income is protected.
See our additional posts on the topic before consulting with one of our vetted, independent insurance agents who regularly work with physicians.
What mistakes have you seen people make with disability insurance? Have you made any of these yourself?
25 thoughts on “Top 5 Mistakes Doctors Make With Disability Insurance”
I had bought one in two years ago. In fact, to buy any insurance requires a lot of time to understand research, especially health insurance, which requires more time to research and compare.
Hi all,
I’m in final year of fellowship and only just becoming aware of all things financial. So thankful for this blog! I am looking into getting DI but questioning the importance of “true own occupation” disability insurance for non procedural, majority outpatient, specialties (addiction medicine for me). I feel that if I were to be so disabled as to not be able to do my job then I probably would not be able to do much of any job either. Is the increased cost of true own occupation DI worth it then? Would appreciate thoughts/comments. Thanks.
Honestly, I think an independent agent will be the best person to answer that question.
They can go over the pros and cons and risks involved. If your goal is to save money, they should be able to help.
Best,
-PoF
Thanks for sharing on disability insurance
Terrific writing on arbitrary topics. Im trying to currently
accomplish something such as what you have here except for on
a different topic totally. Many thanks for the inspiration to
write better content.
Most employers hope their employees never use employer insurance possibly because they don’t want to pay for “employee wellness.”
Your thoughts on this?
Thanks for mentioning that prices go up as I age and as my health deteriorates so it is best to get coverage as soon as possible. I was recently in a car accident and sustained several serious injuries that affect my ability to go back to work. I wasn’t sure if I should file for disability insurance, but as you mentioned, my age and health certainly aren’t improving. Hopefully I can find a great policy and insurance provider!
I carried disability all the way to 65. Didn’t cost much and even 2 years of disability is not trivial @ 15K/mo x24 mo is 360K you won’t have to spend down. It’s nice to feel all empowered at being FI but portfolios carry a lot of risk especially during accumulation. If you have to tap the well early and SORR risk rears its ugly head (aka 2008) some tax free 15K/mo is well worth it.
Agreed. If you are younger there is also the financial risk that you will cease being disabled. That sounds absurd, but if you have been off for a few years your skills will have eroded and you may not have the physical endurance to return to a high income.
I noticed that you did not include “not buying enough” on your list. There is a lot of pressure to continue to max out DI up to whatever limit is dictated by your income or company (most seem to be $15K). However, if you are married to a high income spouse who also has a policy, and you can manage your expenses (including maxing out available retirement space) on the minimum $5K per month if needed, why continue to increase? Is there any data for two high income households BOTH requiring use of their disability insurance policies at the same time? I’m thinking this is unlikely. There may be anecdotal evidence, but this isn’t enough to justify an additional $1000 per month premium to increase two policies to the max, IMO.
Mistake # 7 Thinking you don’t need DI because you are married and you would live off your spouse’s income in your disability. Each partner should be insured as if they were single. Partners die, they get sick, they become injured, and they leave. In all of those situations, not having a personal DI policy could mean financial devastation. I did this. I didn’t have DI because I was married and thought I was divorce proof. Thankfully I was able to get DI at 42. Do not base your “need” for DI on whether or not you are married. You need DI unless you can live off state disability and without your current partner’s salary. I also love the part about insuring cars and homes yet not wanting to insure our single biggest asset – our ability to make a high income. We don’t think twice about insuring our homes but so many people act like DI is a waste of their money. It’s the most peace inducing money I spend every month, knowing that my family is financially safe if I can’t work.
Mistake #6 Paying the premiums with pre-tax money
Never pay your premiums with pre-tax funds. Always pay the premiums with post-tax funds. I had a colleague who had to live off of her disability insurance and she got nailed with taxes on the distribution because she tried to save money by using pre-tax funds early in her career to pay the premiums.
I did not do this, but I think there is a good case for paying pre-tax; check the math to make sure you are covered for enough after tax. I was earning in the top bracket, and was insured for the (current) 24 bracket. Bird in the hand and whatnot. Obviously, I didn’t see a need to insure myself for 500k/yr of income….
As someone currently living on disability, I disagree. There are a lot of added expenses and some income-tested programs that I qualify for because my disability insurance is non-taxable. Being disabled is costing me more than a grand a month for baseline living (grocery delivery, meal prep, not being able to drive for more than an hour at a time, having to rent an electric wheelchair to ‘walk’ more than a couple of blocks).
But if you do decide to pay with pre-tax dollars, make sure you increase your insured income enough to cover a marginal tax bracket that includes your other sources of income, like social security disability insurance, income from rent, dividends and taxable investments. Having to pay for your increased expenses in post-tax dollars is going to hurt.
I do not agree with this. Odds are you are never going to claim benefits of a DI, using pre-tax money to buy it will save income taxes. If you unfortunately need to claim the benefits your tax bracket will be much lower as you can’t work anymore…
I actually just canceled my private disability insurance this week after I realized that I was paying for something that I no longer needed.
I was financially naive when I got the insurance policy, I just went with the AMA policy when they sent me a letter back in residency I believe. I figured, perhaps incorrectly, that the AMA would obviously partner with a insurance company that would benefit physicians. I do have a mandatory group policy at work and it is a good point that since it is paid with pretax money, the benefits are taxable (VS the private policy premium paid with after tax money).
The disability policy from the AMA slowly increased its monthly premiums over time, I remember paying $80/mo in the beginning and that last premium cost was over $120/mo.
I am surprised there is not more talk about the AMA policy, pros & cons. Guess I really need to read through the policy and see how it compares myself.
Got a $5,000/month policy as a resident; now in the process of exercising my future increase rider up to $15,000/month. Feels like almost too much, but need to remember that it has to cover debts and retirement savings as well.
I’m glad I found info like this early enough to buy it in residency, but I still think I waited too long. If I could do it again I would have bought it before I turned 30 and locked in a lower rate.
I bought my first disability insurance policy shortly after becoming an attending, when my wife quit working. We had one child. I ended that when I was financially independent and didn’t need to earn an income anymore. Never used it, but it was good knowing it was there if I became disabled.
Dr. Cory S. Fawcett
Prescription for Financial Success
Couldn’t agree more on this one! Knowing some of these mistakes would have prevented the biggest potential financial mistake I’ve made (which, in part, led to the creation of my blog) – getting denied personal disability insurance.
I now have to depend on a group policy from my employer out of necessity, and not by choice. This happened because I used an insurance agent who was employed by one company (yes, the same one that seems to hose most physicians) despite him being the brother of a med school class mate. I had some concerning medical conditions that should have prevented me from pursuing DI as a medical student. If I had known about and used a competent independent insurance agent like Matt, they would have pointed me in the right direction to get the guaranteed disability insurance policy.
So, make sure to use a recommended advisor! If you are young and healthy, get it ASAP. If you have medical problems, then get the guaranteed policy before you apply for a personal policy.
Great post, Matt.
Jimmy / TPP
Exactly right. I finally, finally applied, decades after AMA kept bugging me with letters and guess what? I WAS DENIED!!!! I had noted postpartum depression 10 years ago. I called them for a review but haven’t had the time to chase this down. I’m almost FI so its not a big big issue but….I felt like, you’ve been asking me to do this. So yea, wish I had done this in residency. But again I haven’t needed it so? 💁🏾♀️