Disability insurance protects your income in case you experience short- or long-term disability that isn’t covered by Social Security total disability benefits. Broadly speaking, there are two types of disability insurance: own-occupation (specialty-specific) or any occupation. Here’s what to know about your disability insurance as a physician and which one can be most valuable.
Specialty-specific disability insurance: What does it mean?
Specialty-specific disability insurance is a type of own-occupation disability insurance marketed toward physicians.
Own-occupation covers any disability that precludes you from working in your current occupation, or specialty, if you are a physician. It’s the more expensive type of insurance, but that’s because more ailments qualify as a disability, and policyholders use it more often.
For example, let’s say a surgeon gets into a skiing accident and breaks their wrist in multiple places, requiring several pins in their wrist. Their hand is still functional, it can open and close, but they can’t grip things tightly anymore. They have also lost a lot of their fine motor control.
It’s likely that in their line of work, they can’t operate with only one hand. In this case, the physician can work another job and their specialty-specific disability insurance policy would cover the majority of their lost income. Best of all, with insurance, this doctor could go skiing without worrying about potentially losing their home.
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Why you should avoid any-occupation disability insurance
Any-occupation disability insurance is much cheaper but only covers disabilities that stop you from doing any job you could do with your current education.
How easy is it to be considered disabled for your current job? If you work a desk job mostly filling out spreadsheets like I do, then breaking my wrist, like in the example above, wouldn't impede my ability to work at all in the long term.
To have a long-lasting disability under any-occupation coverage, I would likely need to lose both of my arms or permanently lose my eyesight and be unable to use Excel. These types of disabilities would apply to most jobs I could do, so any-occupation insurance makes the most sense for me.
In general, higher earners and those with occupations that involve very fine motor control, should pay the higher premium for own-occupation (specialty-specific) disability insurance. This includes, but isn’t limited to, doctors, dentists, veterinarians, pilots and musicians.
With disability insurance, doctors can go skiing without worrying about potentially losing their home if they lose their ability to practice.
Why disability insurance isn’t just another protection plan
Some high-income earners believe that, with Social Security total disability payouts and a life insurance policy, they’re shielded from the financial impact of the unexpected. However, disability insurance offers a different level of support by comparison.
Social Security total disability isn’t all it’s cracked up to be
First, to even qualify for Social Security disability at all, you must work a certain number of qualifying quarters, based on your age. Only worked for one year, and you’re 24 years old? You’re out of luck — you need another six months to be eligible for this benefit.
Then, you need to meet the Social Security Administration’s stringent criteria for disability. This disability must impede your ability to work for at least a full year and you don’t get paid for at least six months after your disability started. There are no partial disability benefits.
Worst of all, the payouts aren’t good. It varies by state, but the average is about $1,500 per month. Could you live off of $18,000 a year? If the answer is no, consider getting a quote for disability insurance.
Disability insurance can cover between 60% to 80% of your lost income during a period of disability, and it doesn’t have to be purely long term. You can change the elimination period (the waiting period after experiencing a disability before the policy starts replacing your income) to match your specific needs.
If a 180-day elimination period sounds too long, you can change it to 90, 60 or 30 days. However, shortening the elimination period increases your premium. There are also optional add-ons, called policy riders, that give you more flexibility.
One example is the residual disability rider. If you go back to work after experiencing a disability, but can only work reduced hours, this rider makes up some of your lost income. Usually, this kicks in if your income is at least 20% lower than it was previously.
Life insurance doesn’t protect you — it protects your loved ones
Disability insurance protects you, while life insurance typically protects others after you’re gone. If you lose an arm in an accident, you could use disability insurance to help pay off your mortgage. Conversely, if you died in the same accident, life insurance would be more beneficial for your spouse or surviving family so they can pay the mortgage.
If you have federal student loans, you wouldn’t need a life insurance policy to pay them off, as all federal student loans are eligible for death and disability discharge. However, if you have private student loans, sometimes a surviving spouse can be held liable for repaying. This particularly can come up if they cosigned the loan. Check the terms of your loan agreement to see if this is the case for you.
The payouts of both policies can be tax-free under the right circumstances. If you buy a disability policy yourself and not through your employer, the premiums you pay aren’t tax deductible. Any monthly benefit you receive in the future, however, isn't taxable. If you have disability insurance that’s employer-provided, like a group policy (if your employer is paying the premiums), the monthly benefits are taxable.
Life insurance payouts, called death benefits, are almost always not taxable. There are a couple of benefits exclusive to life insurance, like the ability to borrow a loan against the cash value of the policy and nonforfeiture. This means you can cancel the policy for a cash surrender.
Best disability insurance policy for doctors: What makes a policy stand out?
The best policy for most medical professionals would be a specialty-specific, own-occupation policy with a non-cancellable rider. “Non-cancellable” means that the insurance company can’t change your premium, and must allow you to renew the policy every year.
Of course, this combo also results in the most expensive policy in terms of premiums. There’s another rider that’s almost as good, called guaranteed renewable. “Guaranteed renewable” means that you’re guaranteed the right to renew your policy every year, but the premiums can go up.
The driving forces behind your disability insurance premiums
Most of the terms in a disability policy are adjustable and can result in an increase or decrease in its monthly premium. Some factors that impact your premium pricing include the:
- Benefit amount
- Benefit period
- Definition of disability
- Coverage duration (short-term or long-term)
- Future increase option
- Elimination period
- Optional riders (e.g., cost of living adjustment)
- Premium payment frequency (e.g., paying the premium once annually versus monthly; one annual payment might be less because it gives the insurance company more time to invest your money and make themselves money, too).
A good rule of thumb is if there’s a feature you want (e.g., shorter elimination period, higher benefit amount, own-specialty), you’ll pay more for it. If it’s something less desirable, it’ll cost you less.
Watch out for this hidden risk when getting a disability insurance quote
There is a type of insurance called Guaranteed Standard Issue, or GSI. GSI is a product that’s most often offered in medical residency programs. These programs partner with insurance providers to offer their students disability insurance, with no medical underwriting necessary. The insurer can’t reject an applicant for any preexisting conditions.
But there’s a catch — if you apply for another disability insurance quote and get rejected, you can no longer go back to the GSI as a fallback option, as insurance companies share this medical information via the Medical Information Bureau (MIB).
This can lead to cases where the applicant no longer qualifies for any disability insurance regardless of whether they apply to Guardian, Ameritas or any other insurance company. Always check if you have access to a GSI before getting an independent quote, especially if you have a preexisting condition, like epilepsy or seizures.
The real cost of a specialty-specific disability income policy
Be prepared to pay at least 2% to 4% of your annual income for a long-term disability policy. That might come as a shock, but from the company's perspective, insuring someone who has a $400,000 annual income until they’re age 65 is a risky proposition.
What are the odds that a person will use their policy at some point? Some studies suggest up to 1 in 7 physicians use their medical specialty short- or long-term disability insurance at some point during their careers.
The physician’s shortcut to getting the best price on disability insurance
There are five insurance companies, called “The Big 5”. Combined, these insurers account for most of the disability income policies in the U.S. The Big 5, in no particular order, are Ameritas, Guardian, Principal, MassMutual and Standard.
When shopping for disability quotes for your specific profession, you don’t have to apply to each company yourself. An independent insurance agent can provide you with quotes from all of these companies at once and explain the coverage differences that each offers.
If you’d like to compare disability insurance quotes to find your best match, fill out our short form to get started.