Disability insurance is one of the most important financial products for doctors, as it protects their income in case of illness or injury that prevents them from working in their specialty. However, buying disability insurance can be confusing and overwhelming, as there are many options, features, and terms to consider.
In this article, we will explain how to buy the best disability insurance for doctors, based on the advice of White Coat Investor, a popular blog and podcast that provides unbiased financial education and resources for physicians.
What is Disability Insurance and Why Do Doctors Need It?
Disability insurance is a type of insurance that pays you a monthly benefit if you become disabled and unable to work in your occupation.
The benefit amount is usually a percentage of your pre-disability income, up to a maximum limit. Disability insurance can help you cover your living expenses, pay off your debts, and save for your retirement, while you focus on your recovery.
Doctors need disability insurance because they have invested a lot of time, money, and effort in their education and training, and they rely on their income to support their lifestyle and financial goals.
According to the White Coat Investor, the greatest financial risk for physicians is losing the ability to turn their knowledge and skills into a huge pile of money by working in their profession for decades.
Insurance companies estimate that as many as one in seven doctors will be disabled at some point during their career. While many imagine this will occur in a sudden traumatic accident, medical illness is actually a more common cause of disability that prevents a doctor from working.
How Does Disability Insurance Work and What Does It Cover?
Disability insurance policies vary in their definitions, benefits, and exclusions, but they generally have some common elements, such as:
This is the waiting period between the onset of disability and the start of benefit payments. The elimination period can range from 30 days to 720 days, depending on the policy. The longer the elimination period, the lower the premium, but the longer you have to wait for the benefit.
This is the duration of benefit payments once you become eligible. The benefit period can range from 2 years to lifetime, depending on the policy. The longer the benefit period, the higher the premium, but the more protection you have in case of a long-term disability.
This is the monthly amount you will receive if you become disabled. The benefit amount is usually a percentage of your pre-disability income, up to a maximum limit. The percentage can range from 40% to 80%, depending on the policy. The higher the percentage, the higher the premium, but the more income replacement you have.
Definition of disability
This is the criteria that determines whether you are eligible for the benefit or not. The definition of disability can vary from policy to policy, but the most common types are:
- Any occupation:This means you are disabled if you are unable to work in any occupation for which you are reasonably qualified by education, training, or experience. This is the most restrictive and least favorable definition for doctors, as it may not pay you a benefit if you can still work in a different field or a lower-paying job.
- Own occupation: This means you are disabled if you are unable to work in your own occupation, regardless of whether you can work in another occupation. This is the most favorable and preferred definition for doctors, as it protects your ability to work in your chosen specialty. For example, if you are a surgeon and you lose your hand, you may still be able to work as a consultant or a teacher, but you would still receive the benefit because you cannot perform surgery.
- Modified own occupation: This is a variation of the own occupation definition, which adds a clause that reduces or eliminates the benefit if you are working in another occupation. This is less favorable than the pure own occupation definition, as it may penalize you for working in a different field or a lower-paying job.
- True own occupation: This is another variation of the own occupation definition, which adds a clause that allows you to receive the full benefit even if you are working in another occupation, as long as you are not earning more than your pre-disability income. This is the most favorable and ideal definition for doctors.
What are the Disability Insurance Riders for Doctors and Which Ones Should You Consider?
Disability insurance riders are optional features that you can add to your policy to enhance your coverage or customize it to your needs.
However, riders also increase your premium, so you should weigh the benefits and costs of each rider carefully. Some of the most common and recommended riders for doctors are:
This rider allows you to increase your benefit amount in the future without having to undergo medical underwriting or prove your income.
This is especially useful for residents and young doctors who expect their income to grow over time, and who want to lock in their insurability and rates at a younger age.
The rider usually specifies the amount and frequency of the increases, and the conditions under which you can exercise the option.
This rider increases your benefit amount annually to keep up with inflation.
This is important for long-term disabilities, as the purchasing power of your benefit may erode over time.
The rider usually specifies the percentage and method of the adjustment, and the duration of the increase.
This rider pays you a partial benefit if you suffer a loss of income due to a partial disability or a reduced work schedule.
This is helpful for doctors who may be able to work part-time or with limitations, but still experience a significant income drop.
The rider usually specifies the percentage and formula of the partial benefit, and the minimum loss of income required to qualify.
This rider pays you an additional benefit if you suffer a severe disability that results in the loss of two or more activities of daily living (ADLs) or cognitive impairment.
This is useful for doctors who may incur extra expenses or need more assistance due to a catastrophic disability.
The rider usually specifies the amount and criteria of the additional benefit, and the duration of the payment.
How Much Disability Insurance Do Doctors Need and How Much Does It Cost?
The amount of disability insurance you need depends on your income, expenses, savings, and financial goals. In general, you should aim to replace at least 60% of your gross income with disability insurance, as this is the maximum amount that most insurance companies will offer.
However, you may need more or less depending on your personal situation and preferences.
The cost of disability insurance depends on several factors, such as your age, gender, health, occupation, income, policy features, and riders.
In general, the younger, healthier, and lower-risk you are, the lower your premium will be. However, the more coverage and benefits you want, the higher your premium will be.
According to the White Coat Investor, the average cost of disability insurance for doctors is about 1-6% of their gross income.
However, this can vary widely depending on the individual and the policy.
READ MORE: How Much Does a Disability Lawyer Cost?
How and When to Buy Disability Insurance for Doctors?
The best way to buy disability insurance for doctors is to shop around and compare quotes from different insurance companies and agents.
You should look for policies that offer a strong own occupation definition, preferably true own occupation, and that include the riders that suit your needs and budget.
Also look for discounts and unisex rates that can lower your premium.
You can use online tools and calculators to get an estimate of your coverage and cost, but you should always consult with a licensed and independent agent who can provide you with personalized and unbiased advice.
The best time to buy disability insurance for doctors is as soon as possible, preferably during residency or early in your career.
This is because you can lock in lower rates and better terms when you are younger and healthier, and you can avoid the risk of becoming uninsurable or paying higher premiums due to age or health issues.
Moreover, you can take advantage of the special offers and discounts that are available for residents and young doctors, such as the future purchase option rider and the unisex rates.
Disability insurance is a vital financial product for doctors, as it protects their income and lifestyle in case of a disabling illness or injury.
However, buying disability insurance can be a complex and daunting process, as there are many options, features, and terms to consider.
Therefore, doctors should educate themselves on the basics of disability insurance, compare quotes from different insurance companies and agents, and seek professional and independent advice.
By following the guidance of White Coat Investor, doctors can buy the best disability insurance for their needs and budget, and enjoy peace of mind and financial security.