As a doctor, you already know you need disability insurance. But it’s hard to know where to start when it...
Published December 09, 2021
Here’s a simple guide to what doctors need to know about disability insurance so that you can make sure you’re buying just enough.
You may have wondered why disability insurance is so ubiquitous for doctors. Other professions, even high earning ones, rarely face the same pressure to buy individual disability insurance.
As a doctor, you’ve trained for years to be a high-earner within a highly specialized field. Medical professionals tend to have a large amount of student loan debt, and it’s difficult for doctors to find a similarly high-income replacement career.
This combination of factors makes it absolutely essential that doctors are well covered by disability insurance.
The best thing you can do for your long-term disability insurance needs is to make sure you’re covered ASAP. That doesn’t mean signing up for the first plan you see, but choosing the right plan with some appropriate riders means that you can make your disability insurance last your whole life if you’re lucky.
Not only does that save the hassle of going through the underwriting process multiple times, it may keep your premiums down and — most important of all — will ensure you have consistent coverage starting before any medical issues creep up.
Disability insurance coverage comes in different forms. Some will only pay out if you are too disabled to do any job at all. On the other side of the scale, some will cover you for not being able to perform specific types of the work you do in your specialty.
For doctors, it’s essential to get coverage that is specifically “own-occupation, specialty-specific” coverage. That means even if you can still work, but it’s not in your specialty, it will be deemed a disability and covered under your insurance.
Group disability insurance from your employer tends to have a few major disadvantages compared to individual policies.
However, the major benefit of group plans is that they usually have lower premiums, and sometimes your employer will subsidize the premiums. Whether group insurance offers enough coverage, or you decide to choose individual insurance instead, or as a supplement, will depend on the policies available to you.
Typically, doctors are encouraged to buy disability insurance that covers 60-65% of their after-tax salary and most policies won’t let you buy significantly more than this. The higher end for purchasable coverage is typically around 80% of your income.
Another guideline is that you should budget between 1-4% of your current income on disability insurance, although this may be slightly higher for residents.
When you’re going through any major life change, it’s important to reevaluate your disability coverage and make sure it still suits your needs.
When you jump from resident to attending your disability insurance policy does not automatically jump too. The coverage that you purchased, or were eligible to purchase on a resident’s salary, will not be enough to cover replacing 60-65% of an attending salary. You’ll need to supplement the rise in income via additional coverage.
This works both ways, later in your career if you find yourself working and earning less it may also be appropriate to lower coverage.
With every major milestone, your financial needs will change, and the amount of disability coverage you need may change as well.
Do you still need long-term disability coverage if you already have short-term disability coverage? In brief: Absolutely.
Short-term disability insurance, which many doctors get through their employers, is a great supplement to long-term disability insurance, but it offers coverage for different scenarios.
As the name implies, short-term disability insurance will protect you if you have an injury or illness that you are likely to recover from within a few months, such as breaking a bone. Most short-term disability insurance claims end after six months, although some may extend as far as two years.
Long-term disability insurance is what will protect you if you have an injury or illness, based on policy qualifications, that keeps you out of the workforce for many years, or even the rest of your life. These catastrophic scenarios, more than a gap of several months of unemployment (which should be coverable by your emergency fund), are the true utility of long-term disability insurance.
On the subject of emergency funds, you’ll notice that most long-term disability policies don’t kick in right away and may not pay a benefit for anywhere from 90-180 days. Your emergency fund can help supplement this window of time.
You should buy disability insurance from an independent insurance agent who specializes in working with physicians.
An independent insurance agent won’t be tied to a specific insurance company, and will instead be able to sell you the most suitable package from any of the major companies that provide true own-occupation, specialty-specific disability insurance for physicians.
Disability insurance is expensive on a resident’s salary. One way to mitigate the cost is to get a “graded” premium rather than a level premium. A graded premium will start low and gradually increase over the course of your career, versus a level premium which will stay the same throughout your career.
If you plan to keep the same disability insurance through your 60s, a graded premium will eventually end up being more expensive than a level premium, but it might be worth the trade-off of being able to pay off student loans and start saving money in high-yield accounts early on in your career. The math will depend on your specific situation and premiums.
Disability insurance is most necessary when losing your income would be catastrophic to you and your family. Early on in your career, disability insurance is vital to ensure you don’t drown in student loan debt if your income is lost; later on, you may be thinking about childcare costs, or the college educations of your children.
But eventually, there should come a time when disability insurance is no longer necessary. That time is known as financial independence — when you have enough in savings (and predictable future growth) to live the rest of your life without your salary. At that point, it’s not necessary to have disability insurance because even in the event of a disability that stopped you from working permanently, you would be financially secure.
You may also find you don’t need disability insurance if your spouse is also a high-earner and you could live comfortably on their salary alone.
Finally, with age, disability insurance premiums go up and their claims payouts go down — most disability insurance will only continue claims until age 67 at the latest. By about age 60, with retirement approaching and premiums at their highest, it may not be worth it to carry disability insurance.
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