Disability insurance can be costly, but likely worth the added expense

The most valuable asset a physician has is their ability to practice and earn a significant income in their specialty. Physicians can make millions of dollars during their career, and this income is often relied upon to save for important goals like retirement, funding their children’s college educations, and purchasing a new home. What would happen if a physician became sick or disabled and were unable to continue practicing? Without disability insurance, many of that physician’s life goals may need to be sacrificed. Disability insurance can be a significant expense, but it can also ensure many goals are still achieved.

Disability insurance typically covers up to 60-70% of a physician’s pre-disability income. If a physician were to suffer a long-term disability, the policy will pay out a monthly benefit amount. These funds can be used to pay for necessary expenses and save for important financial goals. Here are a few key terms to pay attention to when shopping for a disability insurance policy or reviewing an employer provided plan.

• Elimination period: This is the period of time the insured must be sick or disabled and not working before the policy will start paying out a benefit. Common elimination periods are 90, 180, and 360 days. Most people try to align their elimination period with the length of time their emergency fund will last.
• Benefit period: This is the maximum length of time a policy will pay out a monthly benefit. Benefit periods could be shorter, in the 3- 5 year range, or up to retirement ages between 65 and 70. A physician should always consider a benefit period up to the age they expect to become financially independent.
• Definition of Disability: Definitions of disability can vary widely. For example, an any occupation definition of disability only pays out if the insured is unable to work and earn income in any type of work. An own occupation definition of disability will reduce or eliminate the benefit the policy pays out based on the income the insured is able to earn in any other line of work. A true own occupation definition of disability will pay out the full monthly benefit even if the insured is able to earn income in another line of work. A true own occupation is a specialty specific policy and provides the greatest level of protection. Physicians should prioritize getting true own occupation policies.

If a physician needs disability coverage, they should consider getting that coverage as soon as possible. The premiums are lower the younger you are when you get a policy. There is also less likely to be red flags in your medical history which could lead to not being approved for a policy. Additionally, if you are a medical resident or fellow, many insurance companies offer discounts as high as 20% if you get a policy while still in training.

Most people don’t enjoy paying for insurance and some don’t see the importance of having coverage. However, disability insurance protects your most valuable asset---your ability to practice and earn income in your specialty field. It can be the difference between accomplishing all or most of your goals or accomplishing none of them.

Jeff Witz, CFP® welcomes readers’ questions. He can be reached at 800-883-8555 or at witz@mediqus.com.

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