Financial Planning for Doctors

Pattern InsuranceFor readers familiar with my origin story, you are aware of my disability insurance debacle.  In short, I cannot get personal disability insurance to this day because an insurance agent had me apply for disability insurance as a medical student when I had no business applying.  This has the potential to be a catastrophic mistake in the future should I become disabled. For this reason, I am passionate about teaching about disability insurance for doctors. In this post, we will go through ten of the most common questions about disability insurance that I get from readers.

I’ve partnered with Matthew Wiggins from Pattern with the following informational video that serves as a great primer on disability insurance.  Consider using Pattern as one of the three insurance agents you use (as outlined below) to get quotes for your disability and life insurance needs, and you’ll help support the charitable mission of this site.

1. Who Should I Buy Disability Insurance From?

The short answer is that you need to buy disability insurance from an independent agent who has experience working with physicians.  I maintain a list of the top insurance agents for physicians. Given my experience above, it is important to me that this list is trustworthy.

What exactly does “independent” mean?  Essentially, it means that they are not tied to or employed by one specific company. They are able to offer you disability insurance from any of the “Big Six” companies that offer true own-occupation, specialty specific disability insurance.  These six companies include Ameritas, Guardian, Mass Mutual, Principal, Standard, and Ohio National.

As you’ll read below, I recommend getting multiple quotes from multiple independent insurance agents. This reduces the possibility of conflicted advice, and increases your chances to get the best product at the best price.

2. How is “Disability” Defined?

Some people don’t know to ask this question, but it is by far the most important questions about disability insurance.  Not all disabilities or disability insurance products are created equal. (Not all insurance agents are equal, either). How disabled do you need to be to receive a benefit?  What if you can do part of your job, but not all of it? What is you can work as a physician, but not in your specialty?

In the end, you want a disability insurance product that protects you from any disability that prevents you from doing your specific job or any part of it.  This has a name: own-occupation, specialty specific disability insurance.

Many disability insurance policies require you to be “flat on your back” disabled in order to qualify for the benefit. What if you are in a procedural specialty and 80% of your income comes from doing procedures and you get an accident that leads to a traumatic amputation of your arm?  If you have the “flat on your back” kind of disability, the insurance company will tell you to go work in clinic. You can still do your job!

That is why you want the broadest definition of disability that applies to your occupation (physician) and is specialty specific (e.g. neurosurgeon, pediatrician, internal medicine, etc).  That way, if you can no longer perform your specific job, you should qualify for disability insurance.

3. How Do I Go About Buying Disability Insurance for Doctors?

When you go to buy any insurance product (term life or disability insurance) you should request multiple quotes from multiple insurance agents.  I recommend picking three from the list on the recommended insurance agent page.

After talking with a few agents, it is then up to them to get you the best product at the best price.  I recommend getting quotes from at least three insurance agents.

Make sure to tell them about your medical history.  Be honest with them so that they can make the best recommendation for you.  Additionally, you should ask for all of the available discounts, though the agents on the list above should give them to you regardless.

As a side note, you should know that these insurance agents will make commission from selling you these products. That is how insurance works.  You might as well purchase it from someone who is inclined to offer you the best product at the best price.

4. When Should A Doctor Get Disability Insurance?

For those who do not have any health problems, this is going to sound snarky.  You should get disability insurance when you are healthy and before you get disabled.  It’s that simple.

Since you and I don’t know when that will be, you should get it as soon as you can afford the monthly payments.  For most, this will likely be at the beginning of residency.

If you have medical problems like I do, then lend me your ear.  I recommend that you see if your hospital offers a “guaranteed issue” disability insurance product.  This kind of insurance does not require a medical underwriting (i.e medical history or exam). This insurance is more expensive, but you will be able to get it with pre-existing medical conditions.  

Once you have a guaranteed policy in hand, you are free to apply for less expensive policies.  At that point, if your history gets you denied, you can still keep the guaranteed policy. No big deal.  If you get accepted, you can get rid of the more-expensive guaranteed policy.

For example, I have an essential tremor for which I take propranolol.  I should have waited until intern year, and purchased the guaranteed disability insurance product. After getting that, I could have applied with the most appropriate company (some are better than others for those of us with medical problems) and hopefully obtained a less expensive policy.

If not, I could have kept the guaranteed policy.

5.  How Much Disability Insurance Do Doctors Need?

The goal for disability insurance is to replace all of your current post-tax income.  That said, it depends on your situation. If you are married to another high-income earner, and live below your means, you may not need to replace all of your income.

However, if you are the major breadwinner in your family, replacing your full post-tax income is a good goal. This is often done by combining a personal disability policy purchased in training and a group policy through your employer or group.

For example, if your post-tax monthly income is $15,000 you might try to get a $5,000 personal disability insurance policy to supplement the $10,000 group policy provided by your employer.  

Remember: personal policies are often paid with post-tax money.  Therefore, the personal disability benefit is post-tax (no more taxes are paid on it).  However, group policies are often paid with pre-tax money. So, in order to get $10,000 post-tax from your group policy, you will need a policy that provides more than that each month.  Alternatively, you could get more personal disability insurance to off set the problem.

6. I Have a Group Disability Policy, Isn’t that Enough?

For three reasons, the answer is no.  This is another one of those questions about disability insurance people don’t think to ask, though. 

First, group policies are highly unlikely to replace your entire post-tax income.  For example, my group disability insurance policy provides 66% of my base salary up to a certain monthly limit that is less than what I make each month.  So, if I were to become disabled my group policy would not replace my full-income. This is how most group policies work, and why you need a supplemental personal policy.

Second, the definition of disability in a group policy is often more narrow than a personal disability insurance product.  If you have income coming from other sources, they may deduct that amount of money from your benefit. If you can do any (but not all) part of your job, they will likely ask you to do that.  It is not often not a true own-occupation, specialty specific definition.

Third, it is not portable.  In other words, you cannot bring it with you.  What if you leave your job and work somewhere else that does not offer a group policy? Or perhaps you start doing locums work and are paid on a 1099.  In this situation, you are responsible for your own disability insurance, because there is no employer to provide one for you. The portable nature of a personal disability insurance policy is key.

7. Which Riders Should I Purchase?

Insurance product often come with multiple provisions or riders that you can purchase for an additional cost.  Some of them are quite fancy. You certainly do not need everything that is out there. So, here are the salient ones that are worth your consideration:

Residual Disability:  This rider allows you to claim a disability that impacts part of your job, but not the entirety of it.  Take for example a surgeon who performs work in both the clinic and in the operating room. If a disability occurred that disabled the surgeon from surgical work, but not from clinical work… you want to get a disability benefit for the residual part of your job you can no longer perform.

Future Purchase: The future purchase rider allows you to purchase additional insurance without a new medical underwriting process (i.e. no new medical exam, history, etc).  The reason to purchase this is when you are a resident who cannot afford the entire amount you will need someday, but can afford to pay for some amount now. This allows you to increase to an “attending” benefit when you start earning an attending paycheck.

Cost of Living Adjustment (COLA):  This rider increases your benefit each year to hopefully keep up with inflation.  

There are other riders that you can purchase.  The residual and future purchase riders are “must have,” in my opinion.  I am plus or minus on the COLA rider. And I certainly don’t see any reason to buy riders for bad retirement products, your student loans, or catastrophic disability.

8. How Long Does it Take For My Long Term Disability Insurance to Kick In?

Larry KellerSome people do not realize this, but your long term disability insurance (which is what we have been talking about) does not kick in for some time.  How long depends on what you purchased in your product, but it is typical for long-term disability insurance to kick in after 90 days.

For this reason, it is important to have a bridge to that benefit. Some people choose to purchase short term disability insurance (or this is provided by their employer).  

Regardless of your options, this is one of the reasons it is good to have enough money in your emergency fund that you can cover the gap between a disability and your disability insurance benefit hitting your bank account.

9.  When Should A Doctor Get Rid of their Disability Insurance Policy?

I am a big fan of self-insuring.  I don’t purchase insurance products on my phones and purchase high-deductible insurance for my car and home.  If you are a high-income earner, your emergency fund should serve as a form of insurance for these kinds of things.

Similarly, you should keep disability insurance until you can insure yourself.  The point at which that happens is called financial independence. This is the earliest point at which I’d consider getting rid of disability insurance.

That said, if you get disabled right after you become financially independent and get rid of your disability policy, you might find that your annual spending is much higher with a disability than it was without.  At that point, you would no longer be financially independent (because of the increase in annual spending) and you would also be without disability insurance.

So, get rid of it when you don’t need it, but erring on the side of caution is probably reasonable when it comes to getting rid of your disability insurance.  

10. Should I Pay a Level or Graded Premium?

Many residents feel like they cannot afford disability insurance premiums.  One option here is to get what is called a “graded” premium where the premiums start low and gradually increase.  This also gives you additional money each month to put towards your student loans, if you have them.

Obviously, at some point the graded premium is going to be more expensive than the level premium.  If your plan is to get rid of it in your mid 40s or early 50s, this seems like a no-brainer because that is likely when it will cost substantially more.  If, however, you plan on keeping it til age 60 a level premium may be the better option.

Do the math and make the best decision for you and your personal situation.  

Take Home: Disability Insurance for Doctors

I hope this answered your questions about disability insurance!

Get disability insurance when you need it, how you should get it, and from the right agent and company.  Use the recommend insurance agent page, pick at least three agents and get quotes from all “Big Six” companies (or the companies that each recommends to you).  

Then, compare the prices and buy the best product for you at the best price.  

Do you have any other questions about disability insurance?  Have you had your own disability insurance debacle? What else would you recommend? Leave a comment below.

TPP

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