My Disability Policy Has An Exclusion: What Now?

May and June bring a rush of residents and fellows across the country looking to secure disability insurance with their training discounts – which can be as high as 40% off premiums for the life of the policy).

In most cases, disability insurance is something physicians only want to buy once, so getting it right the first time is important.

Disability insurance is foundational in achieving a FIRE lifestyle, which is why it’s so important to talk to an independent broker willing to help you understand all of your options. Ideally, residents and fellows would protect their insurability and purchase early on in their training to keep the cost of their policy low.

What are GSI Policies?

A handful of training programs have the option of a Guaranteed Standard Issue (GSI) policy. These policies are ideal for people who have pre-existing conditions or want to get disability insurance with the “easy button.”

These can be a good option if you already have medical issues that might create an exclusion or a decline on a private disability policy.

GSI policies have limited medical questions, but they’re typically more expensive and have limited features compared to policies on the open market.

However, if you have a medical issue that would cause an exclusion – you still need disability insurance. An exclusion means that the insurance company would not pay the claim if work was missed due to the existing ailment. 

Private Disability Policies and Exclusions

Private disability policies come with a review of your health history and offer their coverage based on what they find. These offers are good own-occupation policies, but can have language limiting or excluding the disabling event they’ll compensate you for. 

Common examples of an exclusion would be:

• Mental/nervous exclusions, for instance, because of a history of anxiety.
• Pregnancy exclusions due to pregnancy during the application process.
• Migraine exclusion because of a history of migraines.

You can avoid exclusions by buying disability insurance earlier on in your career, but many don’t go this route. Most residents and fellows are on a tight budget, and adding another bill isn’t palatable until their attending salary is confirmed with a contract.

Once they know their future salary, there is a rush to get a policy before training discounts expire.

If you find yourself in this situation and have medical issues in your past that could cause an exclusion, there are a few important points to keep in mind:

Firstly, remember that your income is your biggest asset – protecting it correctly early in your career is wise.

A physician’s liabilities are usually highest early in your career. Relying only on your employer-provided long-term disability insurance will leave you grossly underinsured. Even with an exclusion, a limited own-occupation policy is better than not having private coverage.

Speaking of which; employer-provided and group long-term disability policies don’t exclude pre-existing conditions the way a private policy may, but a private policy is still needed.

While Employer and Group LTD provide limited coverage, you at least wouldn’t end up homeless if the pre-existing issue were the cause of a disability.

Moreover, for a private policy with a medical exclusion, the cause of a future disabling event is still taken into consideration.  

In the unlikely event that you miss work because of the excluded item, the carriers look at the reason for the exclusion in the first place. For example, a spine exclusion should still receive benefits if a car accident caused a separate disability to the back.

Sprains, strains, or surgeries with no accident involved would likely fall under the original exclusion.

Private policies can also be improved and shopped out for better terms later on – but any private coverage you purchase is locked-in for your benefit and can’t be changed by the insurance company.

Exclusions can’t be added to your policy once you’ve purchased it, so your situation can’t worsen should something else happen – that’s another reason that getting your training discounts while they’re available is so important.

Why Exclusions Shouldn’t Discourage You

Exclusions on disability insurance can be a sensitive subject, and it’s not uncommon for physicians to take the medical underwriting personally.

Remember, the insurance carriers base their decisions on risk pooling. You may be in excellent health for someone with mild sleep apnea, but if there’s a 10% higher chance that people with sleep apnea go on a disability claim, that risk is taken into account by limiting the policy.

This proposition can leave some thinking, “Why should I get this? If anything disables me, it’ll be the arthritis I already have!”

Yes, the insurance company feels similarly, and that is why it’s excluded. But what about the infinite number of accidents, cancers, and illnesses that could affect your livelihood?

It’s easy to imagine a disability being caused by something that has already scared you once. If it’s that worrisome to you, lifestyle changes may be necessary. In either case, proper income replacement is still the most important tool to preserve wealth throughout your career.

Don’t Wait to Apply

Sadly, I’ve had clients walk away from a policy with an exclusion. They say they’ll wait a few years and work towards improving their health so that the new policy won’t have the same limitations.

The error in that way of thinking seems obvious when you don’t take underwriting personally. There’s no guarantee that something else won’t happen while you’re working on improving your health.

Disability insurance with exclusions is better than not having disability insurance when you need it.

I’ve also had clients who would love to sign up for a policy with exclusions, but instead, they are declined from coverage due to the extent of their medical issues over time. The value of income insurance becomes more obvious as we get older.

When we’re 30, it’s hard to imagine much besides an accident being the cause of a disability, even though 90% of claims are illnesses.

However, the same policy that may exclude a childbirth-related disability (because you are pregnant when you sign up) is the same policy that will pay you for an unexpected cancer claim when that child is attending an expensive college.

Waiting is almost never the best option.

A good online broker, who is independent and unbiased, will work with you to make sure that you’re getting the best offer available and also help you strategize correctly. Some carriers look at health issues differently, so working with someone with experience makes a difference.

Final Thoughts

Residents and fellows should strongly consider disability insurance. Early purchase during training offers significant cost advantages and protects your future income.

Even with exclusions, a private disability policy provides valuable financial security. Consulting an independent broker ensures you get the best policy for your needs.

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