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Protecting Your Most Important Asset - YOU: A Primer on Disability Insurance

  

Your ability to work is the foundation of your financial plan. In previous blog posts we have discussed student loan management and how to plan for retirement. This post focuses on protecting your ability to execute those well-thought-out career goals and financial plans. The bottom line is that you must protect your most important asset – you. By Shyamal R. Asher, MD, MBA


Disability insurance provides you with an income if you become disabled and can no longer work. Just like any other insurance, you hope not to use it at all, but you want it in place before the need for it arises. Anesthesiology, in particular, is a procedure heavy specialty. Most of us spend the day on our feet, using our hands to intubate patients, place lines or perform interventional procedures. A disability may limit or prevent your ability to perform the duties of an anesthesiologist.

 

Why should I get a disability policy?

Residents and early career physicians are cash strapped and disability insurance is not cheap. Young and healthy physicians are tempted to skip or delay obtaining disability insurance as long as possible. However, the best time to get disability insurance is when you are young and healthy. Not only do residents/fellows often qualify for discounted rates, but a healthy physician is more likely to obtain an unrestricted policy that can be renewed in the future without new medical exams. The incentive to purchase disability policy as a young physician is not due to the risk of becoming disabled. However, the motivation of securing a disability policy early is to obtain an unrestricted policy before developing any major medical conditions.

For example, Jane Doe, a CA-1 resident, has no medical conditions but develops a knee injury while participating in recreational sports. She requires medical attention but recovers from the injury completely. Later, Jane decides to apply for disability insurance. However, with the knee injury as part of her medical record, she now may have an exclusion placed on her policy where any claims related to the injured knee are not covered. As you know, her anesthesia job involves being on her feet all day and a limited disability policy is not ideal for Jane. Had Jane purchased a good disability policy as an intern, she could have increased her coverage at a later date without new medical exams or new restrictions. Moral of the story and overall bottom line – get your disability insurance policy in place when you are healthy.

 

How should I get a disability policy?

The best way to obtain a disability policy is through an independent insurance agent. Independent insurance agents are not tied to one company. Therefore, they can provide quotes from multiple companies and help you compare the features of the different policies. A good independent insurance agent will also take into account your employers group disability policy and help you understand the different features of each policy.

As you can imagine, using an insurance agent has its pros and cons. An Insurance agent has an inherent conflict of interest since they benefit from selling you the maximum allowable policy. They will also likely talk to you about other financial products too. On the other hand, independent agents offer the advantage of being able to provide you with discounts on your policy and serving as your advocate if the need arises to enforce your policy in the event you were to become disabled. 

Ultimately, it is your decision on how much of a policy to purchase based on your individual circumstances. If you are a cash-strapped resident, a smaller policy in place is better than no policy at all.

 A reasonable course of action is to use one of a number of online physician finance resources that list independent disability insurance agents that often work with doctors to find 2-3 agents. Get some quotes and advice on your unique situation and pick a policy that provides the best value to you.

 

What kind of policy should I get?

Now that you have decided to obtain a disability policy, there are some key insurance terms and features of the policy, called “riders,” that you need to become familiar with. Below are a few examples of these important terms:

  • Definition of Disability: This is the most important part of the disability policy. This definition will determine when the insurance policy will pay you. The strongest definition of disability is specialty specific, own occupation or regular occupation. This means that the policy will pay you if you are unable to perform “the material and substantial duties of your occupation.” In addition, the policy will continue to pay you, even if you are able to transition to a new occupation. For example, if an interventional pain anesthesiologist becomes physically disabled and is unable to perform procedures, but is able to consult with a pharmaceutical company and earn an income, the disability policy will continue to pay the full benefit with no penalty for the consulting income.
  • Residual/Partial Disability Benefit Rider: This comes into effect if, after becoming disabled, you are able to continue to work in your own specialty but only to a lesser extent which leads to a loss in income. For example, an anesthesiologist gets a back injury and is no longer able to perform long cardiac cases which leads to a loss in income. The presence of this rider will allow the policy to pay you to make up for the lost earnings.
  • Future Benefit Increase Rider: This feature gives you the option to buy more insurance in the future, without additional medical exams, when your income increases. This is an especially important feature for young physicians who may not be able to afford a large enough disability policy right away. This feature allows you to secure a disability policy while you are relatively healthy and then increase the coverage when you are at your peak earning years.
  • Cost of Living or Inflation Rider: This feature ensures that your disability payments increase with inflation every year. It is important to note that this rider only kicks in after payments on the policy have occurred for at least one year and does not affect your initial payment amount. This feature can be important for a young physician who is at risk for becoming disabled early in their career and needs the inflation adjustment to ensure that the disability payments are inflation adjusted.

 

I have disability insurance through my employer. Is that enough?

Many employers offer group long term disability plans that you will note as part of your benefits package. There are some important differences between “group” and “individual” disability policies. Group policies are not portable, have a defined maximum benefit that is lower than your salary, the benefits are taxable, and the definition of the disability is usually not “own occupation.” Benefits of the group policy include being significantly cheaper than individual policies and generally no medical exams are required to obtain coverage. However, most young and healthy anesthesiologists should obtain an individual policy as described above. An individual policy can provide more coverage for your income, give you the benefits in after-tax dollars and provide you with an “own occupation” definition that stays with you even if you change jobs. Nevertheless, there is a role for group disability policies for individuals who are subject to restrictions on their individual policies. Talk to an independent insurance agent about your own unique situation.     

 

I have decided to obtain an individual disability insurance policy. What else should I know?

There are a number of factors that determine the cost of your individual disability policy. Age and current state of health, including smoking status, are the most obvious. A young, healthy, non-smoker will overall get a cheaper policy. Gender also affects the cost of the policy with females paying significantly more for their disability coverage. The opposite is true for life insurance, where females pay significantly less than males for the same life insurance coverage. There are some circumstances where a unisex rate for disability insurance can be found but these seem to be phasing out. In addition, factors such as state regulations and the number of riders on the policy will also affect the total cost of the policy. Lastly, when applying for a disability policy, expect a thorough assessment of your medical history, including a review of medical and pharmacy records as well as a home health checkup involving vital signs and blood/urine samples.

In conclusion, disability insurance forms the backbone of the financial plan for an early career anesthesiologist. Establishing an individual, “own occupation” disability policy as early in your career as possible will provide you with financial coverage in the unfortunate event of a disability. No one expects events leading to a disability to happen, but we must be prepared if they do. You have worked too hard not to focus on your most important asset – you.



Shyamal R. Asher, MD, MBA, is an anesthesiologist at Rhode Island Hospital and an Assistant Professor of Anesthesiology, Clinician Educator at The Warren Alpert Medical School at Brown University in Providence, RI. Dr. Asher specializes in cardiac and thoracic anesthesiology and is a member of ASA Committee on Young Physicians and ASA Committee on Global Humanitarian Outreach.



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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