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Disability Insurance: Why You Can’t Just “Take It or Leave It”

  

Disability insurance maybe the furthest thing from your mind right now but, without it, you may be creating a major gap in your overall financial plan that could quickly dissolve your savings and future. By Chelsea Altinger Casey, MD



It’s one of those things you know deep down to be true but do your best not to think about: Something as small as a hand injury could be financially ruinous without proper disaster planning.

My objective is to offer an introduction to disability insurance (DI), define confusing terms, and provide you with some confidence and knowledge as you prepare to shop for the best plan. I do not claim to be a financial specialist, an insurance agent, or the White Coat Investor.  I encourage you to explore more after reading this basic introduction. Bottom line is YES you need it, YES it is shockingly expensive, and if you do need it, it is priceless. You are not getting any younger and there are discounts and benefits worth pursuing while you are still in training. Now is the time, take it or leave it.

When shopping around, you should have an independent agent, who can quote you different policies, show you strengths and weaknesses of different companies and plans, and individualize your needs. Ask for discounts, as the majority of physicians will qualify for 5-30% association or employer related discounts1. Premium is the monthly payment. The younger you are, the healthier you are, and the fewer dangerous hobbies you engage in, the cheaper your premiums will be for the same benefit. You can lock in a premium now, with a small plan, and upgrade to additional coverage when you finish residency, provided you have a future purchase option, which is referenced later. You need to evaluate the amount of coverage. Insure for what you need, or project to need, not necessarily your full salary. You will need to cover your living expenses and retirement savings until age 65, but not your taxes. Physician DI payouts are paid with post-tax dollars, and therefore not taxed. This is a good time to make a budget! What you need, and what you spend can vary. Generally speaking, a typical policy bought on a healthy doc in her 20s or 30s will cost something between 2% to 6% of the benefit. If your monthly benefit is $10K, expect to spend $200-600 per month on DI1

The most important definition for today is disability itself, what is disability? You want a policy that covers for any type of disability, with no limitations on things such as psychiatric conditions or addictions. Own Occupation, specialty specific protection ensures that disabled physicians who can work in other occupations, or even other specialties still receive benefit payments. Own occupation says if you cannot perform the specific duties of your medical specialty (anesthesia), you will be paid full benefit. Without it, your benefits will quit if you can do any job outside of your disability. Out of 28 disability companies, there is 12 that offer own occupation specific verbiage, and only 6 cover truly own occupation specific policies. The big 6 are Ameritas, The Standard, Principal, Guardian, Ohio National, and Mass Mutual2.

Riders and which are worth purchasing? COLA rider is designed to help your DI benefits keep pace with inflation. It is an adjustment to your benefits, usually a fixed percent, and only kicks in after you have been disabled for 12 months. COLA can provide significant increase to your monthly benefit and is recommended if you were to be disabled early in your career. Residual Disability should probably be purchased by everyone, and covers not only partial disability, but partial benefits as you recover. Future Purchase option allows you to upgrade to a larger policy without questions later. If you are in a position (resident) where you cannot afford as much as you project to need, do this. Catastrophic disability rider pays off a larger benefit if you are severely disabled, as in cannot perform more than 2 ADLS. Not recommended unless you are already up against the max benefit, and probably better using the extra cost to upgrade to a larger primary benefit. Retirement benefit rider will prompt the insurance company to put funds into a retirement account in the event of disability. These are generally not the best way to invest in retirement as they are usually high expense, insurance-based investing products. DI only pays to age 65, so remember you will need scrape some benefits over into retirement funds, unless you want to be living on social security after age 65. And if you are female, you may want to look for a pregnancy rider.

Exclusions is an entertaining read. Insurers don’t like people who engage in risky behavior, including SCUBA, mountaineering/climbing, piloting, and skydiving. Surprisingly bungee jumping and skiing are ok, driving a car is ok. Be careful, but honest what you disclose to insurance company. They are interested in what you have done in the past three years, and what you have planned for the next three months.  Best time to apply is during a busy time in residency or fellowship when you haven’t done any risky activities in a year or two so you have nothing to disclose3. Get insurance before you take up a “dangerous hobby.” Of course, more obvious exclusions include normal pregnancy and medical exclusions. If you have heart disease at the time of issuance, and it leads to you being disable 5 years from now, you will not get disability benefits3. Others include war or act of war, active military duty, foreign travel, or mental/nervous system disorders. Read the fine print and consult an independent agent to shop around based on your individual needs.

Lastly, is employer DI enough?  Generally, it is usually not own occupation specific, and is not usually portable or secure. For example, you cannot take it with you, and they can remove it at any time, leaving you to start the underwriting process over when you may have more exclusions. If your employer is paying for it, that lends the benefits taxable to you, leaving you to cover income tax.


References:

  1. https://www.whitecoatinvestor.com/disability-insurance-to-cola-or-not-to-cola/
  2. https://www.whitecoatinvestor.com/what-you-need-to-know-about-disability-insurance/
  3. https://www.whitecoatinvestor.com/disability-insurance-part-2


Chelsea Altinger Casey, MD, is a member of ASA’s Committee on Young Physicians. She practices in Texas.

The ASA Committee on Young Physicians is pleased to present this monthly article series on personal finance. These articles are not written by hedge fund managers or real estate tycoons but by practicing physicians. Some have business degrees and some do not – but every contributor is an anesthesiologist who has some guidance to offer the rising generation of attending physicians. It is not the intention of the committee to offer definitive financial advice, but rather some pearls of wisdom to consider while developing a personal fiscal plan.


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ASA Community Blog is published as a benefit for ASA members. The views expressed on this blog are those of the individual contributing writers only and do not necessarily represent the opinions of ASA.

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