[PoF: Today’s post is a collection of stories of successes and failures when it comes to disability insurance. I’ve noticed a number of forum questions regarding how much is enough or whether it’s needed at all.
The White Coat Investor answered 10 common questions on the subject in this post the other day.
For the record, I no longer carry disability insurance, as I am financially independent and therefore self-insured, but I considered it an important piece of my financial plan for a good ten years. The authors below are current or past site sponsors.]
Successes and Failures in the Land of Disability Insurance
First up is Jamie K. Fleischner, CLU, ChFC, President of Set for Life Insurance
When people think about disability insurance, they always think of someone else suffering but never think it will happen to them. After working in the disability insurance industry for more than two decades, I’ve come across my share of success stories of people who benefitted from purchasing disability insurance. I’ve also come across situations where people chose not to purchase or accept a policy that had severely negative consequences.
Two such stories come to mind.
The Brand New Attending
The first story is about an orthopedic surgery resident. I met him when he was still in training and he purchased a disability policy to protect his future income. When he finished his training, he contacted me to increase his benefits.
His new job started on August 1st. We increased the policy with no problem to correspond with his new income. On August 8th, I received a phone call from his wife. I assured her that we received his premium payment and that the increase had taken place. She said, “That’s not why I’m calling. My husband was in a horrific accident and is in the hospital. I want to make sure he has insurance.” They had just purchased a new house and hadn’t even paid their first mortgage payment.
My client was driving on the highway on the way to a conference on his first day working as an attending when a 14-wheeler slammed into his car igniting the car into flames. An ambulance worker happened to be several feet away attending to another accident and came right over.
They airlifted him to the University Hospital where his colleagues attended to him without even knowing it was him as he was unrecognizable. More than 75% of his body was burned. Fortunately, the ambulance driver that rescued him had the wherewithal to cover his hands from the fire to protect him, without knowing he was a surgeon.
Needless to say, he was unable to work not only as a physician but in any capacity. He had several extensive surgeries and was incapacitated for over a year. After a year, he gradually started until he was back working full time over three years after the accident. During that time, the University allowed him to conduct some research to stay connected and involved.
As a result of purchasing his disability insurance policy, he was able to maintain his mortgage and student loan payments (as well as his other bills), collect his disability benefits and retain all of the earnings from his research position. He is forever grateful that he not only purchased the policy when he did but also immediately increased it to coincide with his new job and financial responsibilities.
The Athlete and the Motorcycle
The second story relates to a tragic situation but in a different way. I had a high profile person in the sports world contact me for a disability policy. He had just signed a multi-million dollar contract and needed to insure his income. His monthly expenses exceeded $150k/month. He was approved for his policy but it came back with an exclusion on his neck as he was receiving injections for pain relief at the time of the application. The language on the policy had an “except fracture” clause that meant it would pay benefits in the event of an accident. He was angry about the exclusion and decided not to take any policy with an exclusion.
Less than two weeks after declining the policy, I was watching the national news in the morning and saw my client, with a neck brace, on the news after being involved in a motorcycle accident. He broke his neck and could no longer work and was being fired from his high profile position. Subsequently, he not only lost his job but his home, too. He had two kids in college and two in high school and they needed to make some significant changes to accommodate. The stress took a toll on his marriage and his wife left him.
These are true stories that stick with me. They happened to real people and had real consequences. When each of these clients initial went through the process, they were like everyone else. Disabilities seemingly always happen to someone else.
Up next, we have stories from Joe Capone, ChFC, LUTCF and Rick Warren, MBA of Insuring Income
Success in disability insurance comes in a number of forms, but for the purposes of our article it can be distilled down to one major theme – secure the best, most robust policy for the client from an own occupation carrier at the best price. Always look for Unisex, multi-life, resident/fellow discounts, etc.
We have altered the names of the insuringincome.com clients of course and the carrier names have been redacted, but here are the stories:
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Jim and His Lousy Disability Policy
During our initial discussions Jim mentioned that he was, “all set” for disability insurance but agreed to let us review his policy. As it turns out, his disability policy had two exclusions; one for the lumbar spine and one for the urinary tract. It also had a very limited pool of future increase options.
Jim was not aware that exclusions are reviewable and he had been told by his “financial advisor” (really was a contracted insurance agent with a large mutual insurance company) that, “a policy from this carrier [name redacted] with exclusions is still much better than any other company”.
About 6 weeks later, Jim replaced that policy with a new policy from an own occupation carrier, with zero exclusions, the largest pool of future, and the same contract definitions (specialty language, etc). Zero magic went into this as we simply discussed his profile and medical history with all the carriers in the marketplace. It took about 72 hours and a couple phone calls to have two carriers for him to choose from.
Success lesson: Do not accept exclusions and limitations on a disability policy until you know that every stone has been turned over in the marketplace. Your agent should be reviewing your case with other own occupation carriers to see if there is better offer out there. Beware of any agent who only shows you one carrier.
Julie and the Move to California
Finishing her fellowship in North Carolina, Julie had locked in a great contract with a large healthcare organization in California and was looking forward to starting with them. She was firm on purchasing a particular carrier due to their unlimited mental/nervous (anxiety, depression) contract language and their name recognition within the marketplace.
Considering she was covered under her GME disability coverage, she figured she would wait until she was settled in California before locking down a disability contract. What Julie was not aware of was that this particular carrier’s pricing is higher for California residents.
We helped her secure her coverage while still in North Carolina which afforded her; a lower premium cost on her base policy and reduced future costs when exercising options from her future increase option pool (she will be able to add all coverage under the increase rider as North Carolina rates).
Success lesson: It is better to get started sooner rather than later. This allows a client and their agent to develop a game plan and to have a thorough understanding when it comes to a disability contract. Get your coverage early.
Jessica and Unisex Pricing
Just after starting at a new facility as an attending, Jessica decided to look into protecting more of her income than her group long term disability would cover (it capped at $10,000 per month). Jessica did some research and requested disability quotes from a couple of insurance agencies, including from us.
A couple of days after reviewing the quotes, she sent us a very simple email, “Why do a couple of your quotes use a unisex price structure instead of female pricing and also include a “multi-life” discount? The quotes from the other brokers for the same carriers do not?” We explained the how and why and Jessica moved forward with us to secure a policy.
Success lesson: There is never a promise of a discount, but your agent should be exploring every possibility that is out there so you don’t spend one extra penny on disability insurance.
Jake the Military Man
Jake was/is an Army physician who wanted to secure additional disability coverage but had thrown his hands up to the whole process because he was told, “no one will give you a policy as long as you are in the military”. Originally in the market for laddered term life, Jake decided to also pursue disability insurance with insuringincome.com.
During underwriting, he mentioned his frustration that he couldn’t protect as much of his income as he wanted to because there were no disability insurance options for him. He was rather surprised to learn that there is a carrier that will accept active duty military physicians (as long as stationed in the US) and more than one carrier that will accept medical residents that owe the military 4 years of service when they graduate.
Jake entered into underwriting and placed his policy with us just before Thanksgiving. He will have high quality own occupation DI as long as he is in the military (not deployed), and beyond.
Success lesson: The disability options for our respected members of the military are a bit limited, but there are high quality options. The plan that these military physicians can get end up being issued with the same riders that civilian physicians can obtain (specialty protection, residual, COLA, FIO, etc.) A little additional upfront discussion can remove a ton of frustration with finding the right carrier for any occupation/employer.
We consider these to be success stories about our clients, not about us as agents. We work for our clients, not insurance companies.
Finally, a couple stories from Scott Nelson-Archer, CLU, ChFC of MD Disability Quotes
A client of mine worked for a large group that had ‘good group disability coverage’, so he thought he was protected. Of course, ‘he’ was not going to be the one who gets disabled, but he agreed that an extra $2,500 per month would be good. Well, fast forward about 10 years to 2013 and he finds himself with failing lungs to point where he was put on the lung transplant list and finally received 2 new lungs October of 2014.
His Disability plan kicked in and paid like clockwork, and all is good….until it was not. November 2016, he received a letter from the group disability insurance carrier stating that he had exhausted his Own Occupation period, and thus it was now determined that he could go to work in ‘something’ because his contract said ‘any reasonable’ occupation.
Being as though a reasonable occupation might be working at home, doing something regardless of actual employment, but due to the language of the contract, the carrier had the right to terminate benefits.
Now his physicians all say that he should not work due to the chance of upper respiratory infection but the terms of the policy say ‘after 24 months he is required to do anything reasonable’, so work at home in today’s work environment is reasonable. He has not been able to find an employer that would hire him to work at home.
The contract we put in for him to supplement this policy was small, only $2500 per month, ‘because it was not going to happen to him’, but because it has a true own specialty definition, it is still paying and will pay until he is age 67 regardless of what else he does and regardless of what amount of income he then goes and makes.
This situation is a real stressor to him and his family, but it underscores why you need to think about things, the language in your policy, and have the realization that bad things don’t always just happen to someone else.
How much is enough?
We often talk about how much coverage one needs versus how muchone wants and certainly those with the independent mind or DIY mindset typically opt for less coverage which is fine if you understand the pitfalls.
One set of my clients is a dual physician household both with about $350k of income and have a family budget of about $20k per month with everything included (house, cars, private college education for 2 kids and the such). Both have $10,000 of monthly benefit for disability since that is enough because the other can still work.
Well, I had a call a while back telling me that the husband had been involved in a pool accident while on vacation and had broken his neck. It turns out that as he fell into a pool he hit a concrete pool side bar stool (the ones that are submerged so you can sit in the pool at a bar) and as of yet (10 months later) has no feeling/use of his lower extremities.
We have a tendency to think abstractly about how a disability plays out in a clean and unemotional environment when discussing disability. The discussion typically goes something like this, “the non-injured spouse will work and all is fine with the disability payment of $X). Now that sometimes works and sometimes does not.
The reality in this situation is he has been out of work for some 10 months, and his wife is with him, not at work. This injury to one is causing both to be out of work. The reality today is now in month 10, with a 6-month waiting period, they have burned through what they thought was a ‘healthy’ emergency fund of $150,000 (6 months of $20k and now another 3 months of $10k per month of augmentation to his $10k of disability).
His wife is struggling with what to do, go back to work or spend time with her loved one? If she does the latter, she either needs to dramatically change the lifestyle and tell the kids they need to transfer schools, dig into their retirement accounts to augment their disability payment for their lifestyle (that is really punishing long-term) or go back to work.
What is the right thing to do? Blow up the retirement account? Cut short the kids’ dreams that you have been telling them they can go to any college for the last 18 years, or leave your loved one in the care of a home health care attendant and head back to work?
There are always tough choices in life but when something happens to a loved one we don’t always say “good luck with your illness/injury” and drive off to work uninhibited. In addition, we rarely rollover in bed to find our spouse dead to then call the morgue on the way to work so that we don’t miss a beat financially. Think about these things, and some might be right for you, but others might want the option instead of the obligation to get back to work.
If we can help review your situation, you will get a fair and honest evaluation of how things would work at claim time, please let us know.
[PoF: There are a number of lessons to be gleaned from our panel of experts. First, an adequate, true own occupation / own specialty policy is unimportant until you become disabled. Then, it’s vital.
Second, it’s important to find a broker who will work with you to find the best policy for your specific situation. State of residence, career stage, military service, and exclusions all play a significant role in the policy that may be best for you.
Finally, becoming disabled can create enormous stress on you and your family, but it doesn’t have to create undue financial stress. I’ll admit I didn’t enjoy forking over about 1% of my salary to have solid disability coverage, but it was a small price to pay for that peace of mind. If you don’t want to cover that cost indefinitely, get on a fast track to financial independence.]
See our additional posts on the topic before consulting with one of our vetted, independent insurance agents who regularly work with physicians.
28 thoughts on “Successes and Failures in the Land of Disability Insurance”
Could you please discuss what it means to be “self-insured”? Thanks!
Great question, Audrey.
In general, it means you have enough money to replace the item in question you might otherwise insure. When you’re worth thousands, you can self-insure for cell phones and electronics. No sense in paying for insurance on something you can afford to replace (unless you’re really rough on phones).
With more money, you can raise deductibles and self-insure for the first $5,000 or $10,000 in home damage, lowering your home insurance premiums.
With a lot of money, i.e. financial independence, you can self-insure for death and disability. If you’ve got enough money to support your current lifestyle without working, there’s really no need to insure against losing the ability to work. It’s redundant insurance at that point.
What should I do if I have a good policy with true own occupation but I’m going to be changing fields, from surgery, to a combination of surgery and informatics? At what point would my Own Occupation change? Should I just continue to carry the policy but realize that Own Occupation will change?
You do not need to do anything if you are changing fields. Own occupation will cover you in whichever capacity or specialty you are working in at the time of claim, even if that differs from where you were at the time of application.
i purchased two separate disability policies at the end of my residency. fast forward to age 62 and i had a knee surgery gone bad and 10 surgeries later i am 63 and don’t believe i will be able to go back to my own occ. I have been collecting on my policies for the past year and will start collecting on my employer’s long term disability policy. mine are both tax free but the work one is taxable. i will only be able to collect for 3 years but it will be a huge help in making the transition to social security and drawing from my retirement account and help us learn how to live more frugally. my three policies together will pay me about $220k post tax a year and that is invaluable moving forward. i almost canceled at age 60 but decided i made it this long i had better keep it going and i am so glad i did. no one wants to have to take disability as their retirement but if you do it is easier to get an income until you reach 66. If this had happened to me at a younger age with kids in college I don’t know how we would have survived. we never practiced frugality. we basically made a lot of money and spent most of it.
I’m sorry to hear about your health troubles, but I’m glad the insurance helped soften the landing for you. It would be unwise to go bare without coverage unless you are comfortably financially independent.
I like this site but some of this seems like an advert for your sponsor
My wife and I double income cardiology and ob/gyn
My wife suffered an ulnar nerve injury and could not operate/delivery/do a basic exam. She had both a group policy from her hospital employer and private primo policy from a very well respected insurance company.
What a nightmare….They paid her for about a year then both decided to drop her after hiring sleazy private investigators to follow her and our kids into stores videotaping her shopping. She can shop she just can’t hold a scalpel or catch a baby. We ended up hiring an attorney who specializes in disability and he told us this was standard operating procedure. After suing both companies we settled on a lump sum payment. luckily we had my income to support us as it took almost 2 years and of course the attorney took his large cut. My accountant told me has 3 other physician clients who went through the same abuse and I have a friend who is a radiologist loosing his vision and dealing with the same thing with his disability company.
I am grateful we have the coverage but it was not easy to deal with the companies who we had been paying hefty premiums to for this cadillac speciality specific coverage.
I agree this can happy to any of us. I would suggest that you pay premiums with after tax dollars as if you pay with pre-tax dollars the disability is subject to income tax. It is not that much more and it makes a huge difference if you do need it.
Finally, most policies make you apply for SSDI and deduct that from what they pay you so don’t count on adding SSDI to your disability income from the policy.
I first had a policy with NWM sold by a “friend” then he went to Guardian and sold me a different policy, stating the one from Guardian is true own occupation. After reading these stories (and knowing years later he was a insurance salesman, not a financial advisor) I’m skeptical. Does anyone know if Guardian has a good policy or how I would find out if I’m carrying the right policy?
Disability insurance is extraordinarily complex, particularly if one is partially disabled. I had a very legitimate short term disability and learned that insurers, even the best will try to avoid payment, your agent is legally responsible to the company ( not to you) and there are competent attorneys and advisors who will help you if needed.
As a young resident and in my early practice years, I divided my personal and overhead disability insurance among several major carriers.
I would recommend the same to everyone .
I suggest this for three reasons:
1. smaller claims are more easily paid
2. You don’t have all your eggs in one basket
3. You have more than one agent for advice ( albeit limited)
If you are in private practice, young physicians should also obtain overhead insurance. You need to be able to pay your staff , rent etc if you are disabled.
(As an aside, when I was having difficulty with insurers I called Lawrence Keller( who advertises on this site) who gave invaluable advice. I am not a shill for him and he is not my agent.
I’ve never had a policy outside of one provided by work. I have no regrets whatsoever. I’ve always self-insured and invested the difference. I think most people would be better off this way. Unfortunately the insurance companies never tell you the statistical likelihood that you will actually ever be paid on the policy. The truth is the vast majority of individuals cannot be paid or the insurance company would never pull a profit. So you are betting against yourself if you buy one of these policies. That is my own opinion and same with life insurance.
It’s best to keep your spending under control. If you are spending 20,000 per month you have a real life style inflation problem.
Great job Jamie & Scott, it’s great to be able to share and read stories.
It’s amazing to see the number of truly unique situations where we need to get a review done with underwriting or to look for a special program. You just never know what might come back.
I suppose that the point of all this is to remind people (and myself) to make sure you continue to update your coverage. Income changes and health changes for the better could mean that more coverage can be added under a future increase option rider. It also can mean that an exclusion that is on a policy could be taken off.
Set an annual reminder to chat with someone about your term life and DI and you will be in the best place for if an injury or sickness comes along.
Nice being a part of the PoF community! Thanks PoF!
Nice stories. I actually have had a friend out for a year due to a neck fracture. Checking the limitations/exclusions is quite important. Hopefully one day we can all be financially independent like PoF and get rid of disability, for now – Stay insured.
Good timing on the post. On my blog today I posted about insurances we should all get (home, auto, term life, and ….disability)!
Ouch! I hope neck fracture was not among the exclusions!
A solid insurance plan is an important defense for your investments and livelihood.
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Thanks for sharing this, PoF… I need to adjust my disability insurance because my income has gone up quite a bit in the last few years and I didn’t adjust my level of disability insurance.
I did update my term policy because my wife is staying at home with our first little one, so I am covered there!
That’s a good reminder to alter policies with major life events.
These are all great stories illustrating various scenarios. It’s important to learn from other people’s experiences. So many people think it will never happen to them, including those highlighted.
Thanks for sharing!
Nice job Jamie.
Unfortunately early on in my career I ignored disability insurance. Thankfully I ended up not needing it. However if I went back I would get it in a heart beat. These days I have a small work policy. It covers enough that my expenses would mostly be covered. I’m also knocking on the financially independent door. As such we’ve decided to forgo anything more then that minimum policy and self insure instead.
Better lucky than good!
I got my true own occ policy as a resident and carried it for about 10 years. I begrudgingly paid the monthly dues of about $300, but if I had become disabled, I would have had a $10,000 monthly payout, tax-free. There was some real peace of mind in knowing that.
SS Disability does help (and is more than most people think) but the definition of disability is far stricter compared to a good individual policy.
Does Social Security Disability Insurance help out in all of these scenarios?
Thank you to each of the insurance agents for sharing their stories. Disability insurance is complicated and we only have to purchase it once, so it’s important to work with an agent who is knowledgeable and can give you the most appropriate disability insurance for their situation.
Thanks Wall Street Physician. We urge people to come to the web to find qualified experts. Jamie, Rick, Scott, and I understand the options and can help.
I think that the worst thing that a physician can do is to blindly follow the advice and recommendations of an insurance agent that is roaming the halls of their hospital. Wolf in sheep’s clothes more times than not. You don’t know but they are just looking to sell their home company X’s policies because they are brainwashed. People find out years later that they bought the wrong thing.
If people come to PoF first and interact with colleagues they are much more likely to get the right thing the first time. Buying it once in your life is the way to do it. People that replace the first plan are usually replacing it because something was not shown to them the first time.
The military thing is mixed. While there are carriers that will provide disability coverage it is limited to something like $2000 a month. You are salaried as a physician in the military and have to go through a lengthy process to get medically separated. Further, you will now get an endless stream of disability benefits, regardless of whether you recover from your disability or not. Future purchase riders are contingent on you not being disabled, so there is limited future upside to getting a policy with the exception of getting the exclusions built in up front (guarding against the development of future problems that might result in more exclusions if you wait). If you’re only a few years to go until you get out I can’t imagine the premiums will be grossly different, plus you’ll have saved those few years of premiums to make up for it. Thoughts?
Not sure where you saw that $2000 was the max limit. You can get more – it is based on your specific earnings for rank in the military, physician bonuses, and other comp. We wrote one plan on an Army physician that had a monthly benefit of $6000 about 2 years ago. It is possible.
Timely! I’ve just completed my search for a new life insurance policy and need to start the search for disability insurance since we’re not at FIRE yet.
Annoying to find, though I guess I shouldn’t be surprised, that living in CA probably means higher premiums. And thanks for the many mentions of own occupation, it’ll help to know what to look out for.
Hello Revanche. Stop on by at insuringincome.com and request a quote. There are things that we can do to help you in CA. We could just end up using a different carrier but in the end you get high quality disability insurance. Take care.
Depending on the carrier it is only about 12-15% more in CA vs. other states once we use the 15% discount.