What is Disability Insurance?
Disability insurance is designed to protect you in the event you become disabled and are unable to work, either temporarily or permanently. There are many stories of physicians who became disabled before their peak earning years and either had no coverage or were underinsured. Human nature is to think about it once you're sick or injured but by then it's too late. It similar to homeowner's insurance in that you pay for it year after year just in case but hope you never actually have to use it. It's not only protection for you but also your family.
A professional has a greater statistical probability of suffering a severe disability that impedes their ability to work, rather than to die prematurely.1
There are two types of disability insurance, short term disability (STD) and long-term disability (LTD). As the names would imply, each are intended for different circumstances. STD is sometimes offered as an added benefit through your employer and is intended to replace between 60-80% of your income due to a temporary disability for a short period of time. Typically, this benefit is generally only available for 3-6 months at most although some policies will cover up to a year.
LTD coverage is intended for more severe or permanent impairments. This too can sometimes be offered as part of a group or practice but the benefit available is typically limited. Most physicians will purchase an individual policy to either supplement a group policy or as standalone coverage. It is important to note that premiums will continue to increase as you get older, so it is important to secure coverage earlier in your career to keep coverage affordable and protect future income potential.
Why is it important to you?
As a physician, your most valuable asset is your ability to earn an income. After spending four years in undergrad, spending another four plus years in medical school and then spending at least three years in residency, you’ve out a lot of time and money into your craft. If you suffered an impairment that prevented you from working tomorrow, would your family be able to continue living the same lifestyle they are accustomed to?
Key Components of Disability Insurance2
- The benefit: The amount of disability income you get each month you are unable to work. In an individual long term disability insurance policy, the monthly benefit usually isn’t taxed (unless paid for with pre-tax dollars); in a group STD plan paid for by your employer, the monthly benefit will most likely be taxable.
- The benefit period: The total length of time you can receive benefits.
- The waiting period: Also called an elimination period, it’s the amount of time after becoming disabled until insurance companies pay benefits. For STD plans, the typical waiting period is 14 days – but it can range from 7 to 30 days. For LTD, 3 to 6 months is typical, but depending on the policy, it can be as little as 30 days or as long as a year.
- The definition of disability: Every policy has a specific definition of disability insurance , stating what is needed to qualify for benefits. A long term disability policy further distinguishes between own-occupation disability (you qualify if you can’t work in your specialty or field) and any-occupation disability (you only qualify if you can’t do any work at all). A disability insurance for physicians policy should have a true own-occupation definition of disability.
If you have questions or would like to learn more, please reach out to us!
1. Understanding disability insurance for physicians - https://www.ama-assn.org/residents-students/career-planning-resource/understanding-disability-insurance-physicians
2. Guide to Disability Insurance for Physicians - https://www.guardianlife.com/disability-insurance/physicians