Individual Disability Insurance for Doctors

The following article is a guest post written by Rick Warren, DIA, MBA. As I have stated previously, I generally limit guest posting and sponsored posts on The Motivated M.D. unless I find it relevant to my audience. However, I have interacted with Rick Warren and his team at Insuring Income on multiple occasions. I can say with complete confidence that their knowledge of disability insurance is second to none. As I work to build a group of financial resources for my audience, Rick Warren and the team at Insuring Income have solidified their position as the experts of physician disability insurance (in my book). As such, I was pleased to have Rick write this guest post titled: Individual Disability Insurance for Doctors. If you would like more information from their team, you can find Rick Warren’s information below. Enjoy!

Disability insurance for doctors 101

The purpose of this post is to focus on those individuals currently in medical school, residency, or fellowship.  Have you begun your first post-training position and are considering obtaining your first individual disability insurance contract?  Then this post is for you!  If you think back to the first day you walked into school when you were 4-6 years old, since then you have spent somewhere between 25-30 years (or more) in education, medical school, and training to get to where you are.  Your path has required sacrifice, opportunity costs, blood, sweat, and likely a few tears.  This is an investment that is unequivocally worth protecting.  That is where individual disability insurance comes in… Here is Individual Disability Insurance for Doctors!

What is a disability insurance contract?

A disability insurance contract generates income (the monthly benefit) for you and your family when a disability arises.  Formally, an individual insurance policy pays its benefit when an illness or accident prevents the policyholder (i.e. you) from performing their ‘material & substantial duties’ and income is lost.  Benefits from these plans are payable on a tax-free basis when the policyholder pays their bill with after tax dollars.  While the author of this post is not a CPA or a tax professional, it is highly recommended that the policyholder pays their bill with after tax dollars.

Can I tell if a potential plan recognizes my medical specialty (or specific occupation)?

The carrier will furnish a proposal to review and it will outline their definition of ‘own occupation.’  This can be listed as “true”, “pure”, “regular”, or “your” own occupation.  If that carrier’s proposal is unclear to you as the reader, ask your agent “is this their best definition of own occupation for the full benefit period and does it recognize my medical specialty?”

It is the opinion of the author that the definition of disability should not restrict you from earning income from outside your specialty/occupation during a disability, but all the carriers do have additional definitions of disability.

Which carriers offer this level of ‘own occupation’ specialty-specific language?

• Ameritas
• Guardian
• Mass Mutual
• Mutual of Omaha
• Ohio National
• Principal
• Standard

We recommend that you review options from at least four (4) of the carriers above.  Carriers will vary in terms of discounts available, contract language & provisions, and overall price.  Some carriers are more affordable for different specialties or occupations, without sacrificing contract quality.

Ok… I have all these proposals now… What should I be reviewing?

Core elements, at least at the initial review stage, should be uniform among the carriers’ proposals so you can compare them in an ‘apples-to-apples’ fashion.

The carriers’ proposals and specimen contracts provide the precise language – this run-through is a plain English summary of what these contract concepts will cover:

Non-Cancelable & Guaranteed Renewable (‘to age X’)

These contracts can be set to age 65, 67, and some even go to age 70.  There are shorter periods available as well.  The terminology ‘until age X’ means your policy cannot be canceled, premiums cannot be increased, and restrictions cannot be added as long as you continue to pay the premiums as they come due.  Kind of important… Make sure it is in there and clear.

Elimination Period

The elimination period is the period of time, stated in days, a policyholder must satisfy before the policy will look to pay claims.  The most commonly proposed elimination period is 90 days.  Shorter and longer elimination periods are available and will influence price.

Benefit Period

The benefit period is how long the policy will remain in effect and/or pay benefits.  The most commonly proposed elimination period is age 65.  However, Age 67, 70, or reduced payout periods such as 10 years are also available.  Pay attention.

Premium Structure

Here you will often see the term ‘level’ utilized.  A level is the premium for your original policy.  This remains static unless you make material changes to the plan.  Another term often used in the premium structure is ‘graded.’  A graded structure is when carriers offer graded or reduced premium structures in the early part of a policy.  This lowers monthly cost during residency/fellowship, as an example.  It is important to always review the graded premium schedule with your agent to fully understand the cost structure and changes over time.

Monthly Benefit

The monthly benefit is the amount the contract (your insurance policy) will pay for each month you are totally disabled (under the terms of the policy) due to accident or illness.  The most common amount proposed for medical residents/fellows will be $5,000.

Residual/Partial rider

A residual or partial rider is one of the most important riders in a disability contract.  This particular rider is what steps in to potentially pay partial, permanently partial, and residual claims.  Without a strong residual/partial rider the policy would effectively be rendered to a binary of “totally disabled” or “not disabled at all”.  Do you see how this could be important?

Future Insurability rider

The carriers vary on how they label their respective riders, but the central concept remains unitized.  Once you are approved for your disability plan and your future insurability rider, you can increase your coverage (with no additional medical underwriting) as your income grows, or if you lose your group benefits – subject to the carrier’s criteria and review process rules.  It is important to note here that right behind residual/partial riders, this rider is a critical element of a contract – especially for those currently in residency/fellowship.  Some questions to ask your agent or to review:

• Does this rider add cost?
• Does this rider have required reviews?
• What is the maximum this policy can be expanded to if I have the income to support it?

‘Mental/Nervous’ Provisions

Carriers will outline what their contract provides with regard to claims arising from; anxiety, depression, adjustment, mental/mood disorder, and substance abuse/recovery.  Each carrier has their own duration options, you will likely see carriers use ‘24 months’ or ‘Unlimited (to match the contract’s overall benefit period)’ 

These durations are telling you how many months of payment your contract will provide for disabilities in this domain.  Should the mental/nervous provisions be exhausted during the policy’s life cycle, the contract should remain valid and in place to provide for benefits arising from other illnesses or accidents.  For clarification… most carriers do not include Frontotemporal dementia, Parkinson’s disease, Alzheimer’s disease, stroke, or trauma in the mental/nervous category.

Discounts

Your agent should be exploring any/all discounts the carriers can afford you, noting that carriers vary on their discount programs and availability.  Not to be the bearer of bad news but “unisex” (gender-neutral) discounts are significantly rarer than they were just a few years ago.

Almost done, but there are a few key riders left to review…

Cost of living adjustment (COLA) rider

This is the contract mechanism that increases the monthly benefit paid for each annual anniversary the policyholder is on claim.  The carrier will lay out, in percentage form, either a simple or compound interest figure.  It does not adjust monthly benefit for those who are not on claim.

Catastrophic (CAT) rider

The catastrophic rider or ‘CAT’ provides an additional monthly benefit, on top of the contract’s stated monthly benefit, for catastrophically disabled policyholders.  The general criteria for catastrophically disabled is that the accident, illness, or cognitive impairment renders the policyholder unable to perform two or more activities of daily living.

Student Loan rider

Some carriers offer a rider that will pay an additional monthly benefit, on top of the contract’s stated monthly benefit, that is earmarked for the policyholder’s student loans.  Always review your student loan promissory note and supporting documentation to determine if your student loans would be forgiven in the event of disability (or death).

Other riders & Features

Each carrier will have their own embedded, as well as optional, contract features and riders – it is always a good idea to explore & understand these as well.

Ok so you reviewed your contract… Now how much disability insurance should you purchase?

While residents and fellows will often receive proposals for $5000 of monthly benefit, they are not “required” to purchase this amount.  $5000 is the upper limit threshold of what a medical resident can purchase during training, and it moves up to $7500 for a fellow in their final year of training.  Medical students can typically attain $1000-$5000, based on their medical school progress and the rules of the underlying carrier.

Purchasing disability insurance as a trainee

There are advantages to buying as much as you can as soon as you can because you lock in at a younger age as well as your current health.  On the flip side, a lot of trainees wait until May-June of their last year of training because they see disability insurance as too expensive.  It is an added cost and dollars are scarcer during training, but that does not mean the individual should wait until the last moment. 

A resident in their 1^st or 2^nd year of a four-year training program could buy a $1000-$2500 plan (with certain carriers) for a lot less money.  They then complete their remaining years of their training and still have a great plan with a future insurability rider to use when they move to Attending and may need to fill in a gap left by their group benefits.  It’s insurance, so of course there are nuances and rules and carriers vary in terms of their flexibility/options, but there are a lot more options to take step one than “buy $5000”.

Review the cost of the various rider options

Most riders add cost to a disability plan.  The more robust the provisions of the rider, the higher the cost.  The key is to make sure that your disability plan has the features that are most important to you.  We have found three (3) areas you can potentially curate.

1. Residual/partial rider

The first area you can potentially curate is the residual/partial rider.  Most of the carriers will have two options, “enhanced” and “basic”.  The enhanced version generally does not add a tremendous amount of cost for the additional policyholder-favoring language it provides.

2. Cost of living rider

The cost-of-living rider is powerful during a prolonged claim but the rider version can have a significant impact on cost, between 10-20% of the overall bill.

3. Future insurability rider

Lastly, some carriers have a line item cost for the future insurability rider while others do not charge for it.  The goal is to make sure you have enough future insurability without overspending.  Example, if you are reviewing a plan where the carrier charges for future insurability and your specialty doesn’t have the potential for $500,000 (or more) in income, you might not need to spend the money to buy an extra $15,000 of future insurability on top of your $5000 monthly benefit.  You may be well-served with $12,000 or $10,000 of future insurability.  The key is to work with your agent to make sure you have adequate capacity available to keep up with your earnings trajectory.

Whew… We made it!  That completes our buyers guide for individual disability insurance.  I hope you found this article informative and helpful.  Protecting your income is vital to solidifying long term success.  You owe it to yourself to sit down with a reputable agent and discuss these items line by line.  Your insurance agent should welcome this, and you will rest assured that you have protected yourself.  As always…

Stay motivated!

Rick Warren; DIA, MBA and the Insuring Income agent team have a combined 50 years’ experience in helping people protect themselves and their families via disability and life insurance. As independent agents for all the major carriers they work to find the best solution for each individual’s needs & circumstances. Based in the Greater Boston area, they operate & serve clients in all 50 states + DC.

You can request a set of personalized disability proposals HERE

Instant term life quoting is available HERE

Or, if you prefer to reach out directly to have a conversation first, email info@insuringincome.com

Disclosure from the author – please understand that this is a general article and not a prescription for you or your insurance plan.  Every individual and their overall circumstances are unique.  This article is not intended to recommend a particular carrier or their product, each carrier’s contract is the final contract language that will govern the disability policy and its performance.

I hope you found this article titled Individual Disability Insurance for Doctors helpful.  Also, make sure you also check out 6 Things to Ask About Your Disability Insurance Policy.  It would be very helpful if you would be willing to share this article with others!  You can find the share buttons located at the bottom of the article.  Also, it would be very great if you would be willing to follow The Motivated M.D. on social media!  Our social media accounts can be located using the sidebar to the right of your screen (on desktop) or below the article (on mobile devices).  Thank you!

What questions have arisen when you reviewed your disability insurance policy?  We would love to hear from you in the comments below!

Standard Disclaimer: None of the information on this website is meant as individualized financial or medical advice.  These posts may contain affiliate links.