Disability Insurance Guide for Physicians

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By: Jerry C. Thomas, CFP®

Jerry started his career in 2009.  Jerry's skills include insurance planning, business risk planning, and underwriting. Jerry has presented to various industry professional groups on advanced planning and underwriting topics.  Some of these groups include; NAIFAFPASFSP, and IBNO.

Our Disability Insurance Guide for Physicians is here to help you understand the ins and outs of disability insurance planning. We know you got a lot on your plate between your 80-hour-a-week shifts, studying for boards, interviewing for a fellowship, and trying to manage your practically non-existent personal life.

Disability insurance is an essential factor in your overall financial well-being. It's the building block of a solid financial plan.

Doctors spend years developing the skills and knowledge they need to create a career, and losing those abilities is a huge financial risk. Disability insurance is even more important when saving up an emergency fund is not an option—and it may not be for many doctors.

Here, we walk through some need-to-know information about disability insurance for physicians. We answer some of your most pressing questions and give you the information you may not have even known you needed.

Disability Stats

The Council for Disability Awareness reports that only 40 percent of US households have enough funds in the bank to cover three months of expenses. However, only 28 percent can cover six months of expenses.

In fact, three out of ten Americans cannot cover a $400 bill without borrowing the money. When you also consider that 51 million Americans do not have disability insurance, these statistics are scary—it means that if they are injured, they have no way to pay for their regular expenses.

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Professionals, like doctors, have unique needs when it comes to disability insurance. Many doctors have high incomes but also high expenses. The Bureau of Labor Statistics reports that, as of 2020, the median pay for a physician or surgeon was roughly $208,000 annually.

As of December 2021, the average medical student graduates with $241,600 in student loan debt. For many doctors, a sudden disability might lead to defaulting on their loans and falling way behind on their regular bills.

What is disability insurance?

Disability insurance provides replacement income if you suddenly find yourself unable to work because of an injury or illness. If you become disabled, your disability insurance policy provides a set amount of funds every month for a specific period of time.

That amount of time can be a certain term, such as a matter of months or years, or it can continue until you are no longer considered disabled. The amount and number of payments you can receive will vary based on your policy.

How does disability insurance work?

Disability insurance for doctors is pretty straightforward. It involves purchasing a policy and paying the monthly or annual premium. If you become disabled (as defined by the policy), then you make a claim on the insurance. Your physician will likely need to assist you with filing a claim.
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Once the claim is approved, you will receive a set amount of disability benefits. The benefit amount is often derived from your prior income, but not always. Those benefits continue for the full term of your promised benefits based on your policy or until you are no longer disabled, whichever comes first.

What does disability insurance cover?

Disability insurance replaces a percentage of your income while you are disabled and unable to work. It does not cover medical expenses or any other bill you might face because of your disability—it focuses only on income replacement. That money can be used for anything you might need, including regular bills and household expenses.

Examples of events that might trigger disability insurance include:

  • Cancer
  • Heart attack
  • Physical injuries
  • Parkinson's Disease
  • Respiratory disorders
  • Musculoskeletal system disorders
  • Mood and physiological disorders
  • Intellectual disabilities
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The amount of money you receive through your disability insurance policy will vary based on the specific terms of your policy.

In most cases, the amount of your benefits does not depend on the type of disability you have. Therefore, you only need to be considered "disabled" based on the definition in your policy for benefits to start.

Why should a doctor buy disability insurance?

The likelihood that you develop a disabling condition that limits your ability to work is higher than you might think.

The Social Security Administration has reported that roughly 25% of today's 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach retirement.

About 5% of the working population experience a short-term disability every year because of an illness, injury, or pregnancy.

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Although these statistics are general, they are especially concerning for doctors, who often have high debt loads because of medical school.

Roughly one in seven doctors will become disabled at some point in their careers. 

If you suddenly cannot work, do you have a plan for how you will address household expenses and debt payments?

Disability insurance provides a good stop-gap measure when you do not have the savings to address a short-term disability. It also provides a fallback in the event of a long-term disability. Ultimately, disability insurance for doctors provides peace of mind if an illness or injury causes a disability.

When should a doctor buy disability insurance?

There is really no wrong time to purchase disability insurance, but the sooner, the better. The healthier and younger you are, the easier it will be to qualify for a policy (both long-term and short-term policies). As you age, the premiums will increase, and if your health deteriorates, the premiums will likely rise as well.

That means that getting disability insurance (and keeping it) at the start of your career is a good idea. This time period is also often when doctors have the highest debt load from medical school as well, so having that income replacement is especially important.

Which companies sell disability insurance for doctors?

Below are companies that offer disability insurance for physicians. Physicians need an "Own Occupation" definition of disability. These are the only companies that provide that option.
Ameritas Disability Insurance for PhysiciansGuardian Disability Insurance for PhysiciansMass Mutual Disability Insurance for PhysiciansOhio National Disability Insurance for PhysiciansPrincipal Disability Insurance for PhysiciansThe Standard Disability Insurance for Physicians

  • Ameritas, Guardian, Mass Mutual, Ohio National, Principal Financial, The Standard.

If you are reviewing options with another company not listed above, that policy does not carry an "Own-Occupation" definition. This means the policy is not in the best interest of a physician.

Why does your "disability definition" matter as a doctor?

To receive benefits for a disability, you have to meet the definition of "disabled." You may assume that if you cannot work, you are automatically disabled, but that is often not the case in most disability insurance policies.

The definition of disability is even more important for doctors. In general, being a doctor does not require the same level of physical strength or movement that would be required in a labor-based occupation (like welding, carpentry, or even working in a factory).

As a result, the injury that causes a doctor to be unable to work is likely going to look very different compared to an injury that would cause a blue-collar employee to be unable to work. In some situations, that can mean that qualifying for disability benefits can be harder, especially if you get disability insurance that is not geared toward doctors.

What are the different disability insurance definitions?

Below are some of the need-to-know policy definitions that you should review before purchasing any new disability insurance policy. Keep in mind that the broader definition of "disability" you have in your policy, the more the policy will cover, and the more the policy will cost.
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Regular Occupation

A good disability insurance policy for a doctor will be occupation-specific. Doctors have unique skills and abilities, and they depend on that knowledge to do their job properly. Cognitive disabilities are certainly a consideration, but you should also think about physical disabilities as well. For example, if a surgeon loses their index finger in an accident, that will significantly affect their job—it might not affect someone else as much if they drive a truck or a forklift.

A policy that covers your "regular occupation" will address any disability that inhibits your ability to continue to work in the medical field. However, it will not address specialty-specific disabilities; those are covered in "own occupation, specialty-specific" policies. In more restrictive policies ("any occupation"), they might require that you cannot work at all in any occupation or field. However, the most beneficial policy for a doctor is going to be one that focuses on that specific occupation.

For example, a "regular occupation" policy might also pay benefits if you can continue to work in another field, such as if you have to go down a completely different career path because of your disability. Keep in mind that some policies start out in "own occupation," but then they transition to "any occupation" after a specified number of years. If you get this type of policy, you should be aware of this transition and plan accordingly.

Modified Own-Occupation

This policy will cover a disability that occurs and keeps you from working in your own occupation. However, there is an additional caveat—you also are not working in another field. This policy does not require you to be unable to work, but you are not allowed to work and get benefits at the same time.

In "regular occupation" policies, you can work outside your field and still get benefits. A "modified own-occupation" policy requires that you cannot work in another field at all to receive benefits.

Transitional Own Occupation

This policy allows you to work in another field while receiving benefits. However, if you earn more money in your new field than you did in your previous field, then your monthly benefit from this type of policy will decrease.

Own Occupation Specialty Specific

A policy that covers "own occupation" and is specialty-specific is perhaps the broadest form of coverage you can have. It allows benefits if you can no longer work in your specialty area. That means that if you can still practice medicine but no longer be a surgeon, you will receive benefits. This type of coverage is a good option for those in highly paid, specialty areas.

Disability Policy Exclusions and Limitations

Every disability insurance policy for doctors has its own limits and exclusions. Therefore, you should review the policy carefully to determine what exclusions are included in the policy. While exclusions can reduce the premium you pay on the policy, they can also significantly limit coverage.

Some of the most important exclusions and limitations that physicians should consider are set out below.

Medical Conditions (Pre-existing)

Many policies will not cover pre-existing medical conditions. If you have a known and treated medical condition before you got the policy, there is a good chance that your benefits will be limited as to that particular condition.

To be "pre-existing," a condition must have occurred within a lookback period or waiting period. These periods vary, but they can be as long as a year. In general, if there are any medical records that reference the condition or provide treatment, it will be considered "pre-existing."

Mental Disorders

Some policies do not cover mental disorders; they only provide coverage for physical limitations. Examples of conditions that might fall under this exclusion include:

  • Depression
  • Anxiety
  • Stress

If the policy provides coverage for mental disorders, the benefit period might be limited to a shorter period of time compared to physical disabilities.

Substance Abuse

Alcohol and substance abuse conditions are considered mental disorders under the most current condition of the Diagnostic and Statistical Manual of Mental Disorders. For this reason, they are often treated as mental disorders, with exclusions and limitations that might apply.

Xtreme Sports

Disabilities caused by participation in Xtreme sports might be completely excluded or limited. The rationale behind this exclusion is the fact that you are putting yourself intentionally at risk by participating in these activities, so you should not have as much coverage for being reckless.

Act of War

Injuries that were caused by acts of war might be limited or excluded. Because of current conflicts, this exclusion might have a broad interpretation in some cases.

Active Military

If you are injured while in service, your coverage might also be limited. Thankfully, however, you should be able to get some benefits from the VA and related services.

Normal Pregnancy

Because pregnancy is a normal process, there are limitations on coverage for this type of medical condition. But a medical complication resulting from pregnancy, in most cases, will not disqualify coverage.

Foreign Travel

Injuries that occurred because of traveling abroad might also cause some restrictions on coverage.

Mental/Nervous Disorder

Like mental disorders, nervous disorders might also be limited in both scope and time in your policy. Because doctors report higher than average rates of depression and anxiety (29%, which is about twice the rate of average adults in the United States), this exclusion could cause serious problems for practicing doctors.

Disability Policy Features and Riders

Disability insurance for doctors should focus on a few key areas that are "problem areas" in this profession. Below are just a few features and riders you might want to consider adding to any policy you purchase.

Residual Disability Rider

The term "residual disability" essentially means that you are only partially disabled. This additional rider will cover partial disabilities in addition to the total disabilities described above. Essentially, it will apply if you are limited in the amount of time that you can work or the type of work you can do. It also provides a partial benefit while you recover as well.

Inflation Protection Rider

This rider is just like it sounds—the amount of benefit will increase to keep up with inflation. It is sometimes referred to as the "Cost of Living" or "COLA" rider. This provision is especially helpful if you purchase your policy at a young age, but you are not disabled until years down the road.

Most inflation options are a fixed amount like 3% or 5% and increase annually once benefits start.

Future Purchase Option

A future purchase option allows you to buy a larger benefit in the future without going through underwriting again. If you cannot afford as much of a benefit as you would like right now (such as while you are going through residency), this rider will set you up well to increase your coverage in the future when you become an attending physician. This is extremely beneficial if you develop a medical condition, as you will not receive an exclusion or be declined benefits.

Non-Cancelable and Guaranteed Renewable Rider

Not every policy will be renewable, and you might need a special rider to avoid provisions where the insurance company can cancel the policy under certain conditions. If you have this rider, the company cannot change anything about the policy, from the premiums to the amount of coverage.

Graded vs. Level Premiums

A level premium means that your premium will stay the same for the life of the policy. A graded premium policy will start with a lower premium, but it will gradually increase over time. Level premium policies are easier to budget for and handle, but they can be costly at the outset compared to a graded premium. Although a graded premium may look appealing during residency, it will end up costing you a significant amount in the long run.

Elimination Period

The elimination period is the time between the onset of the disability and when you start receiving benefits. The standard time period is 90 days, but you can increase or decreases this time frame. In general, the shortest option available will be 30 days and the longest 365.

Group Disability vs. Individually Owned Disability

Definition Differences

An employer generally offers group policies, but for doctors, these benefits and policy features are limiting. Group policies are usually less expensive, but their coverage might not be as extensive.

In most cases, an independent policy will have a broader definition of disability, but they are usually more expensive.

Portable (Can you take it with you?)

Group policies generally cannot be taken with you if you leave an employer. An independent policy is completely dependent on you, so it is portable.

Social Security Disability Benefits

Social Security Disability (SSD) can provide some coverage for disabilities. The amount of benefit you can receive will vary based on how long you have been working and how much you earned while working. As a rule, you have to contribute to Social Security for at least 20 quarters over the last ten years, but there are some exceptions.

In most cases, the amount of SSD you will earn as a doctor is not going to be nearly as much as what you were earning while working full time. You cannot rely on SSD to replace your income in the same way that you can from private disability insurance. At most, it could supplement your benefits from private disability insurance.

How do taxes affect disability insurance?

As a rule, individual policies are paid for with post-tax dollars so that you can receive benefits tax-free. There is no tax deduction for paying for disability insurance, but you get the benefit of tax-free income in the event that you become disabled and receive benefits. However, the rules are slightly different depending on what type of disability insurance coverage you have.
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Group Policy

In some situations, your employer will pay the full premium value in a group plan without including the cost in your gross income. If that is the case, the benefits you receive in the future will be taxed as ordinary income.

Individual Policy

As long as you pay the premium with after-tax dollars (and you likely will in an individual policy), then the benefits that you receive from the insurance will be tax-free.

How much disability insurance do I need?

Ultimately, how much disability coverage you need is up to you. However, as a rule for doctors, it is a good idea to get enough coverage that you can cover your living expenses and retirement savings until the age of 65.

Keep in mind that this number is not necessarily the same as your total income—it is costs plus retirement. You can reduce the amount of benefit you need by scaling back your lifestyle in many cases.

Most policies will pay out about two-thirds of your income. However, you can sometimes get more than one policy to increase the benefit amount. As a rule, resident physicians will usually get around a $5,000/month policy, while attending physicians will often get a $10,000 to $15,000/month benefit. The benefits you need might be within or outside of these general guidelines.

What features do most physicians purchase on their policy?

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Own Occupation

Most doctors will get "own occupation" disability insurance coverage. You will recall that this policy will pay benefits if you cannot work in your occupation or specialty, even if you can work in another field.

In general, "own occupation" coverage will apply to whatever work you are doing at the time you become disabled. That means that if you are a specialist in a particular field, it will apply to your specialty occupation.

Benefits paid to Age 65

You can get a policy that only pays over a certain term, regardless of your age. However, for doctors, it will usually make more sense if you can get a policy that will pay you benefits until your retirement age (usually age 65).

Cost of Living Adjustment

Cost of living adjustments are very valuable for physicians under the age of 50. There could be a significant difference in the value of the dollar from age 30 to 65, for example, so having a COLA built into your benefits plan can help combat this issue.

Future Increase Rider

Many doctors start out making significantly less income than they will make after years of experience. This is especially true if you are getting disability insurance while you are doing your residency. Having a future increase rider allows you to get a lower-cost policy now and then increase the benefits later. It not only allows you time to make more income, but you can also increase the policy without having to go through underwriting and proving insurability.

Residual Disability

As a doctor, you might want to consider a policy that provides coverage for residual disability. It will apply if you become partially disabled, such as when you cannot work as many hours or take a pay cut to ensure you meet certain medical restrictions. This type of coverage will help make up the difference between your prior income and the income you are earning for your partial disability.

How much does disability insurance cost?

The short answer is—it depends. The type of policy you have and personal health factors will all play a role in determining how much disability insurance might cost. Compared to other types of coverage, like umbrella or term life insurance, disability insurance for physicians can be pricey. The extra expense is simply in response to the fact that it is far more likely that you become disabled compared to passing away during your working years.

As a rule of thumb, a health doctor in her 20s or 30s can expect to pay somewhere between 2% and 6% of the total monthly benefit. However, many other factors affect premium costs.

What factors determine your disability insurance price?

Age

The older you are, the more likely you are to develop a disability. That means that the cost for older doctors will be higher compared to younger physicians.

Gender

In general, women will pay more for disability insurance simply because they are statistically more likely to be disabled compared to men. On the flip side, female life insurance rates are lower because they statistically live longer.

Current Health

If your current health is poor, then you have an increased chance of becoming disabled. Your health at the time you apply for a policy and any chronic conditions you may have will have a direct impact on the price of your disability insurance policy.

Medical Sub-Specialty

The type of medicine you practice can also affect premiums. Surgeons, for example, are at a higher risk of developing a disability compared to family doctors.

Benefit Amount

The amount of disability benefits you can receive is based on your income. However, as those benefit amount increases, so will the total cost of the policy.

Length of Benefits

Of course, if the policy pays out for a longer amount of time, then it will have higher premiums to reflect this potential increase in cost for the insurance company. If the term is shorter, lower premiums will likely result.

Elimination Period

If you want to decrease the elimination period from the standard 90 days, that will likely increase your premium as well.

What discounts are available for physician disability insurance?

Discounts can help decrease your premiums. Look for the following discounts that are available to doctors to decrease the costs of your policy.

Unisex Discounts

Because females will pay higher premiums compared to males, having a unisex policy can help decrease the cost of your policy. It can be worth up to 30%, depending on which company you use to get your policy.

Multi-Life Discounts

If you work with three or more other doctors to get insurance, you can sometimes get a discount. These doctors do not even have to know each other or apply at the same time. Instead, they might need to work at the same hospital and ask for a policy within a certain amount of time (such as within a six-month period). This discount is usually agent-specific, so you do have to find an agent that works with others in your area to take advantage of this type of discount.

Institution Discounts

These discounts are usually the same as a multi-life discount it has just been established with the employer. Your employer (or the location where you have privileges) might also offer a discount for certain types of disability insurance. The discount will often require you to go through the institution to get benefits, so be aware of any hoops you need to jump through to get this discount.

Association Discounts

You can also sometimes get discounts from an association where you are a member. The AMA offers some discounts, many of which are state-specific.

What is the application and underwriting process?

You must apply for disability insurance benefits. The underwriting process involves reviewing your application to determine the final terms and conditions of your specific policy based on the information you provided in your application.
In general, you can expect the application and unwriting process to involve the following steps:

1. Review Your Insurance Options

Take the time to review the various options and policies you have available to you. Select the plan with the most benefits to fit your needs.

2. Complete the Application

The application will ask you for general information about you and your health and wellness history. You will likely also have to provide current wage information as well.

3. Complete a Phone Interview

You might also be required to complete a phone interview to go through your application with an insurance underwriter.

4. Complete a Physical Exam (If Needed)

Some policies will require that you go through a physical examination as part of the application process, especially if you have not had a physical for some time.

5. Review the Insurance Policy "Offer"

Once you get through the application process, you will receive an insurance offer. Keep in mind that this is still an offer, and you can reject the policy if it does not have the terms and conditions that you requested.

6. Put the Policy In Force

Lastly, you will accept the disability insurance offer you like, and start making premium payments on it.

Conclusion

Disability insurance for doctors can be confusing and a bit overwhelming, but once you have the right policy in place, you will be glad you did. Take the time to find a policy that fits your specific needs, and you will have peace of mind in the event of a crisis that causes a disability.

Disability Insurance FAQs