I am a firm believer that one should not insure something you can easily afford to replace. It’s just not a wise use of money.
I don’t insure my phone or any consumer goods. The odds are, over the long run, I’d spend more on insurance than occasionally something that gets broken or lost, and that’s coming from someone rather adept at breaking and losing things.
I do insure my vehicles, but mainly for the asset protection benefit. I can repair or replace the car when a wayward deer makes a bad choice, but accidents involving people can lead to lawsuits for amounts that far exceed the value of the vehicle. The same goes for our home and properties.
If anyone besides you depends on your income (i.e. a spouse and/or children), term life insurance is essential until you’re financially independent. If you die, your heirs will receive a sizable payout.
There’s always at least one person depending on your income, and that’s you. As such, it’s vital to insure your income from the beginning of your career until the time comes when no one, not even you, are dependent upon that income.
We call that point financial independence, and it means that you don’t need a paycheck to support your desired standard of living. Until you have that (and some would argue for a little while after that point), true own-occupation physician disability insurance is what you’ll need to insure your income and ensure that you’ll be able to pay your living expenses if you’re unable to work.
Why You Should Insure Your Physician Income with Disability Insurance
As a resident, I purchased a true-own occupation long term disability insurance policy. I had $4,000 worth of coverage as a resident, and I was able to add an additional $6,000 in disability benefits once I graduated from residency and had a higher income as an attending.
I paid the premiums out of pocket (not as a deductible business expense) so that any benefit I might collect would be tax-free.
Eventually, I had an employer that also gave me a group policy that covered short term disability, although it wasn’t really necessary since I had an emergency fund that could cover such an event on 90 days or fewer. It’s the long term disability that can get you, and the average length of disability claims last for 2 to 2.5 years.
Fortunately, I never had to use either policy, but as the sole breadwinner with a family of four, I was happy to have insured my income when we were dependent upon that paycheck.
I’ve invited my friend Matt Wiggins of Pattern to detail why it’s a good idea, how it could save you money, and when you might actually be better off waiting.
You may remember Matt from a previous guest post on The Top 5 Mistakes Doctors Make with Disability Insurance. Pattern is one of our recommended insurance agents offering disability and term life insurance, and I do have a referral relationship with them; if you work with them, you will be supporting our charitable mission.
Thank you for taking the time to chat with us once again, Matt!
Disability Insurance Premiums
PoF: Is it true that lifetime premiums will be lower if you obtain a policy before finishing training?
Matt: Most of the time, this is true for three reasons: Discounts, age, and health.
While you are in training, there are some unique discounts, sometimes up to around 40% off, available to you that will most likely not be available as an attending.
Also, age always affects pricing with insurance so the younger you are, the cheaper the rate.
Finally, pricing can become more expensive if you develop health issues (including mental health), experience physical trauma, or gain weight. So, since while you are in training you have the discounts available to you and are younger and likely more healthy than you’ll ever be the rest of your life, rates should be much cheaper if you get a policy in training.
Since these rates are typically locked in for the amount of coverage you obtain at that time, you will save a lot of money over the course of your career.
Moving Your Disability Insurance Policy Across State Lines
PoF: I understand that the cost of disability insurance varies by state. What happens when you obtain a policy in one state and promptly move to another?
Matt: The good news is that when you lock in the rates for a policy, the rates will not change if you move to another state. That is, unless you want them to.
For instance, if you live in California (by far the most expensive rate state) and you move to a different state after only a year of purchasing your disability insurance policy, you might want to look into re-applying in the new state. Of course, never cancel an old policy until a new one is completely in place and you have paid the first premium.
On the flip side, if you move to a more expensive state, your rate will not increase on the amount you’ve already purchased but it may be more expensive when you go to increase your coverage.
Some companies force you to take the rate in the new state of residence where other companies let you choose the rate of the new state or the rate for the state where you first initiated the policy. So, basically, if you are planning to move, consult with a really experienced disability insurance agent about the timing of when to obtain or increase your coverage based on your unique situation.
Physician Disability Insurance Riders
PoF: I recall being presented with the option to add on certain “riders” to my disability policy. I chose some and declined others. Are there any riders you would recommend? Any riders you’d consider completely optional or straight-up avoid?
Matt: I get asked this question all of the time and I basically break most of the rides down into two categories: Essential and optional.
The essential riders are true own-occupation riders and the partial/residual benefit riders. Some policies have the true own-occupation definitions built into their contract language. With others, you need a rider to add this language.
In either case, whether built in or added as a rider, a true own-occupation rider makes it where the specific duties or procedures of your medical specialty or subspecialty are protected and you will be paid the full; benefit after a disability even if you can do another job. This is the most important part of any physician disability insurance policy so please make sure it is present and be aware that some insurance companies and agents try to “sell” you coverage that isn’t true own-occupation like it is.
The second essential rider is the partial/residual benefit rider. This feature allows you to receive a partial benefit if you are partially disabled. Partial disabilities include situations where you have a partial income loss from wither being prevented from doing some part of your duties or if you are not able to do your duties full time. Since some studies show that around 70% of all claims are partial and not total, this is a must-have.
The optional riders are the Cost of Living Adjustment, Catastrophic Benefit, Student Loan, and Waiver of Premium. The cost and value of each of these riders is different depending on each persons individual situation and should be evaluated on a case by case basis. They are all helpful and worth the cost to some doctors, and not helpful or worth the cost to others.
[PoF: I agree on the two essential riders, and would personally shy away from most of the optional riders.
Your need for coverage should decrease as your career progresses and your net worth increases. Therefore, the cost-of-living rider can be considered redundant. Your own savings should more than make up for increasing inflation.
The student loan and waiver of premium waivers are similar. If you opt in and pay extra for them, you won’t be on the hook for your disability policy premiums or student loan payments while disabled. It’s best to save up enough so that you could cover those payments with or without income from your job. The student loan rider might make sense if your payments are several thousand dollars a month or more and you are early in your career.]
When Not to Get Disability Insurance
PoF: Are there any circumstances in which you’d recommend waiting until after residency or fellowship to obtain a policy? Assume someone will be graduating soon and currently has no policy in place.
Matt: There are situations but they are rare.
If a resident is graduating and moving to a significantly cheaper state for fellowship or their first attending job, it might be prudent to wait. However, even if this is the case, it may also be prudent to get a small policy in your training state that can be increased with no future health reviews.
You can always re-apply in your new state and replace that first policy but if you get in an accident during the move or something changes in your health and you don’t already have a policy, you could be left without the ability to get any coverage regardless of state and rate.
If you have just had a medical procedure or health issue, you may have to wait as the insurance company may require a certain amount of time after the event or issue before they will consider you for coverage.
Finally, if you have already signed a contract for your first job after training, you will want to learn about the disability insurance benefit they may offer you. It is almost never a reason to forgo getting your own coverage (group insurance is typically not true own-occupation coverage, not portable, taxable, and striped of key features) but it may influence how much of your own coverage you get while wrapping up training.
PoF: Has the COVID-19 pandemic altered the process of obtaining disability insurance? Do you foresee any additional changes in premiums or other aspects in the near future as a result of the pandemic?
Matt: There have been quite a few changes with disability insurance since COVID-19 entered the marketplace. Most of them are positive.
Insurance companies are allowing doctors to obtain higher amounts of coverage without labs or physicals being required, they are extending grace periods for anyone who can’t pay their premiums, and they are tending to be more flexible with their underwriting decisions as they are down on business and need to be very competitive to maintain their profitability.
Also, since the process of obtaining disability insurance is now being done exclusively online, it’s more important than ever for doctors to make sure that they are dealing with agents who have provided seamless online processes for some time to ensure they will get accurate and timely help.
Regarding prices, they have not changed and it is impossible to predict if COVID-19 will cause that to happen in the future. It’s probably safe to say that if any changes happen, they will most likely cause prices to increase as a new risk has presented itself and made quite an impact on the marketplace.
In other words, I’m not saying rates will be higher in the future, but it is very possible and doctors on the fence or waiting for “the right time” should probably go ahead and get their disability insurance at the current, historically low rates.
Requesting a Quote
PoF: What happens when one requests a disability insurance quote from Pattern?
Matt: Shopping for disability insurance can be complicated and time consuming, even more so in the midst of the current world events with COVID-19. Pattern believes doctors have more important things to do than spend hours sorting through numerous insurance options.
PoF: Is there anything else you’d like physicians and trainees to know about disability insurance?
Matt: If I can pass along anything to residents and fellows it would be the three most important numbers to know in disability insurance: 6, 3, and 1.
There are 6 true own-occupation disability insurance companies at this time and they are Guardian (aka Berkshire), Principal, Ameritas, Standard, Ohio National, and Mass Mutual. If someone tries to sell you a policy from ANY other company, it is not a true own-occupation policy and you should look elsewhere.
There are 3 D’s when evaluating the timing and quality of disability insurance: Definitions, Discounts, and Deadlines. The quality of the protection provided by a disability insurance policy is always driven by the definitions in the contract. Make sure you understand what the contracts say and how they will protect you before purchasing.
Discounts are available in training and in some cases after training. Be sure to check for discounts before buying a policy. Many of the discounts, rates, and even special programs to get coverage without a physical are based on deadlines. Be sure to check out your disability insurance options as soon as possible to learn about your deadlines and how they might affect you.
Finally, the number one represents getting it right the 1st time. I can’t tell you how many doctors get sold the wrong policy the 1st time and by the time we talk to them they’ve experienced an age change, change of state, change of employer, or change in health that precludes them from switching to the right policy or requires a much higher rate to accomplish. Find someone with the experience to teach you about all of this and the easy online processes to help you get it done right the first time!
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See our additional posts on the topic before consulting with one of our vetted, independent insurance agents who regularly work with physicians.