#How #to #buy #disability #insurance
How to buy disability insurance
How To Buy Disability Insurance
I publish lots of guest posts about disability insurance. There are a lot of frequently changing details in this area, so it’s tough for me to keep up to date since I don’t sell the policies nor have access to all the information that a good independent agent does. However, every now and then it’s good to write an article about it if for no other reason than to provide an opinion on these expensive policies from someone who doesn’t sell them. My November article in ACEP Now describes how to buy disability insurance. If you already have a good policy, feel free to skip it. If not, and you need one, read the article now and then call a good independent agent (I suggest the ones who support this website, as I know and trust them) and get yourself a policy. Yes, it’s expensive, but unless you’re already financially independent, it’s really important.
Here’s an excerpt:
QUESTION. I kept hearing that I should buy some disability insurance, so I got a quote on a policy that will cost $500 per month for a $10,000 per month benefit. That seems really expensive. My employer offers a group policy, and it is a lot cheaper. Is this disability insurance policy too expensive? I want the coverage, but I don’t want to be ripped off.
ANSWER. Unlike term life insurance, which can be ridiculously simple to evaluate and purchase, disability insurance is a very complex financial product. This is primarily because deciding if someone is dead is a rather black-and-white process compared to evaluating a disability, where there are at least 50 shades of gray. The contracts are necessarily complex because disabilities are complex and often temporary. Disability policies also tend to be more expensive than a term life policy primarily because a young, working physician is far more likely to become disabled than to die. Term life insurance is only necessary if you have someone else depending on your income, but nearly every physician who is not yet financially independent should have disability coverage.
I hear variants on this question frequently from physicians. This is not only a result of the sticker shock most doctors get when they first obtain a quote on a solid individual disability policy but also because these physicians have not followed the appropriate process in purchasing their policy. It is impossible for me to say if this particular policy is too expensive for you, but I can describe the process to follow so you can find out for yourself if you’re paying too much. There are five steps involved in this process….
Figure out how much income you want in the event of disability, realizing that it will cost real money to protect this income (about 2–5 percent for docs in their early 30s, or up to $500 a month to provide a $10,000 a month benefit). You are usually limited to a maximum of 60–70 percent of your current gross income. However, because this benefit, at least for non-employer-provided policies, is tax-free [unless you write off the premium cost as an expense, making the proceeds taxable], that is usually plenty of coverage and sometimes far more than is needed. You should purchase an amount that will provide for your expenses, not necessarily replace any particular percentage of your income.
Read the rest of the article here, then come back and leave a comment to answer the poll and let me know what you thought. Agree? Disagree? How much coverage do you have and why? Comment below!
disability ins is a must have
look into longer waiting periods to reduce the premium if you have assets to cover your expenses for 180 days
Definitely must cover you if you cannot do clinical medicine-definition of disability has to be clear and also covered for partial disability
You need the coverage for the worst case scenario;permanent disability
Most can get by with a limited time away from work
Good article and it definitely outlines the process well. Other than pricing, which can vary greatly from company to company for several reasons, policies today are very similar to each other in terms of contractual provisions. A few of the big areas that differ to keep in mind when comparing policies are:
1. How are claims for mental/nervous and/or substance abuse disorders handled. Some carriers have a limitation for these types of claims (24 months over one’s lifetime or per period of disability) while others handle them in the same way as any other accident or illness.
2. Foreign residency. Some carriers will allow an insured to reside outside of the United States while collecting benefits. Others have limitations for these types of claims or certain requirements that must be met.
3. Increase Options. This is a must for young physicians who expect substantial increases in income. This allows an insured to purchase additional coverage regardless of their future health based only upon their then current income and other disability insurance coverage inforce (employer provided, association and/or individual policies).
How often can an insured exercise their increase option? Are there limits to the amount that can be exercised per option? When the increase option is exercised, is it an amendment to the existing policy or is a new policy issued? Are the discounts that were part of the original policy also applicable to the additional coverage when it is purchased? Can the contractual provisions for the new coverage differ compared to the original policy that was purchased? Are there requirements in order to maintain the increase option on the policy?
4. How is Residual Disability triggered? Some carriers require a loss of income of 15% while others require 20%? Do carriers calculate Residual Disability differently or do something different for the first 6 or 12 months of a Residual Disability claim.
Finally, another reason that disability insurance is more expensive than term life insurance is the amount of benefit than can be paid out. Monthly disability insurance benefits can be very large and if they are payable to age 65 or longer, this can translate to much more money than a simple term life insurance policy for $1,000,000 or $2,000,0000. Additionally, with a COLA Rider included, the benefits payable will only increase while term life insurance benefits remain level (and actually decrease when inflation is taken into consideration).
Hope this helps.
Good points. I disagree that a young physician expecting substantial increases in income must buy an increase option. You don’t have to protect all of your income. You need to protect enough to cover your expenses. If I need $15K a month to live on, and my income goes up $100K a year, I don’t have to insure that. However, if my desired expenses go up, I need to insure that, even if my income hasn’t changed.
Second, while carriers might differ with 15% vs 20% as the trigger for residual disability, in practical terms, how many docs really lose 15-20% of their income such that one company’s policy would cover it and another company’s policy would not? It can’t be that many. It just doesn’t seem like that big of a differentiator to me.
Keep in mind that any one carrier will only provide insurance for $15,000-$17,000 month. I was thinking more along the lines of a resident, fellow or “New In Practice” physician that is purchasing coverage for the first time.
I agree that 15%-20% does not make a difference in reality but that is one of the areas in which policies differ today. Along the same lines, Berkshire and MassMutual use dollar for dollar income replacement and not percentage of income lost for the first 12 months of a Residual Disability claim.
I mention these areas as they differ and most of the other policy provisions are similar from one carrier to another.
Therefore, the purchaser should look at the differences in coverage, determine what is important to them and then determine if the cost to have those provisions warrants the additional premium they must pay for them based upon their individual needs, goals and budget.
Sure, if they won’t sell you as much insurance as you need, or if you can’t afford it, then a future purchase option is a good deal.
Just because there are differences between policies, doesn’t mean that they mean much in the real world of trying to collect benefits. Some of the differences mean a lot more than the others, but it’s easy for a purchaser to get lost in all the complexity.
I also agree with WCI that the Future increase is not a “must” have. It all depends on the doctor buying the contract, really the it depends on the specialty and future income expectations.
A recent pediatrician client just purchased the maximum $6,500 benefit from me. This is the max allowed right out of residency from the carrier. She already had a contract to earn $135,000 per year in a new group. The new employer has group coverage of 60% up to $10,000 per month. The option with the university was only $5,000 but had the increase option for another $8,000, you know, as long as she qualifies financially. That option is almost worthless for this physician. It only comes into play if she leaves her group and goes someplace where there is no group coverage. Even under this scenario she wouldn’t be able to buy the maximum under the contract. The contract she bought with me has the option but I explained to her that those options are not what people think they are.
What is important is COLA, as long as the buyer is young. I created a spreadsheet that highlights what I think are important for the young physician and Future Option is list as a nice benefit but not a must have. I have heard certain agents say that COLA wasn’t important but FIO was, that was their way to sell their contract without COLA because it is so expensive for some companies.
i am part of a 2 physician family, and an early career physician. My husband has a 8000/ mo own occupation policy from AMA, and it is really quite expensive. The question that we are grappling with is at what point are we overinsured. Truly, to support our family, disability would be really important if we were both disabled with no income. when I stack those odds on, I have no data to say which is favored- buying some insurance or not worrying about it because the family major expenses could be covered by the one policy and in most other instances, we are each others insurance. it would seem more optimal to invest the money elsewhere.
The amount of insurance that you carry is really a personal decision.
However, if you are early career physicians, I would find it hard to believe that between student loans, mortgage payments, saving for retirement and funding for college education(s), you could survive on less than $8,000 month. Of course, this is all subject to your lifestyle, your spending habits and your state of residence.
Are you both earning similar incomes? Are you living on both incomes? If one of you was disabled, would you be able to reach your financial goals? Typically, it comes down to either people at work or money at work. If you do not have enough savings to generate the income that you need to meet your expenses, you need disability insurance.
As for the AMA policy, if it is their association plan and not an individual policy with an association discount, it is not true “Own-Occupation”. Additionally, there are also several other shortcomings associated with that policy.
I did a post regarding these types of policy and also reviewed the AMA Plan in the comments section. https://www.whitecoatinvestor.com/association-disability-plans-all-that-glitters-is-not-gold/
As you are a dual physician couple, you might also consider extending the waiting period on your policies, eliminating the COLA Rider or a combination of the two in order to make things more affordable.
I figure that there are 3 strategies with disability insurance.
1) Insure for catastrophe- just enough to pay the mortgage so you don’t have to sell the house in a down market, can still send a child to public school instead of private etc. Spouse may have to work a little harder, plus some major lifestyle changes. This has the benefit of saving a lot more on premiums for investments and other spending while avoiding over insuring.
2) Insure for the status quo- enough to pay the loans, all fixed expenses and a bit extra too so that with disability not much would have to change. Probably the safest middle ground.
3) Insure for the lottery- max out the coverage so that disability can be a pretty sweet deal financially and your spouse can take time off to care for you, more money for other caretakers. Doesn’t seem to make financial sense to me.
Another consideration that doesn’t get talked about much is family support. Most of these posts assume only an individual’s income. A high earning spouse can really lower the amount of coverage you need. Additionally, parents or siblings can also lower your dependence on insurnace only, as would social security payments if you are truly disabled in a catastrophe. In the event of catastrophic long term disability for example, I know that I could move in and get support from my sister or parents- all of whom are financially independent. We all get along wonderfully and while I would never want to be a burden that was another decision point lowering the total cost of coverage I elected. I got more coverage for a 10 year period (far more likely) and less coverage to age 65 (hard to hit that niche and be disabled for this time frame without death, and also to the point your couldn’t work in another field after 10 years of rehab and readjustment, but still good to have just enough insurance to age 65 to prevent outright catastrophe).
Another strategy due to the higher likelihood of shorter term disability is to save the
25% increase for the cost of living adjustment riders and instead opt for a 25% increase in initial coverage. It would take more than 10 years of disability before your monthly benefit with the COL rider would exceed your original one- and if you were diligent about investing the extra 25% you would well come out ahead.
Many two physician couples are their own disability and life insurance. There is, of course, the risk that both of you are disabled or die, but it’s obviously lower than for a single physician family like mine. You could buy no insurance, buy a small policy on each of you, just insure one of you, use less expensive policies like group policies, or go full board and buy a fancy-schmancy individual policy for both of you. It’s really your decision. Just understand the risks you’re running.
I have 60% gross income taxable coverage through my group disability policy, through age 65, I believe. I also have an individual, non-taxable (since premiums paid with post-tax money) policy for $5k/mo for 5 years duration.
It’s expensive to be prudent, especially if one has lax joints. Apparently that makes insurance companies worry greatly about cardiac issues, even with now 3 normal echoes at my grand old age of 33.
Not affiliated with site (one of your advertisers), but I don’t think you can really get more than 30k/month (and then only if you’re really doing well in your practice).
While I think that figure is more or less true, who needs more than $30K a month in tax-free income? That’s got to be the equivalent of a salary of something like $550K. Oh, whoa is me, I’ve been disabled and am now only raking in a half million every year from now until I’m 67. Seriously, I feel like I’m overinsured at just over half that. That’s $360K and you have much less need to invest any of it (since it will likely pay until long after you would have been financially independent) or pay taxes with any of it. I don’t know. I guess if you make $1.5 Million a year, have a $3 Million house and have a million in student loans, it isn’t that much. But I could have a heck of a life on half of that.
With MetLife as one of the carriers, a physician can have up to $30,000 month of individual coverage (up to $35,000 month including group LTD).
One can then go to Lloyd’s of London and protect up to 65% of earned income minus the existing coverage.
You are correct that assuming there is no group LTD inforce, one must earn $1,220,000 in order to have $30,000 month of individual coverage.
I think another step to consider is whether or not if you are disabled, could you legitimately envision taking up another job where you would earn just as much as you would as a physician and where something more than transition-own occupational disability insurance would make sense. For instance, in fields like internal medicine, pediatrics, allergy, or psychiatry, I can’t envision being able to take on another job where you would earn more than what you make as a physician and still be able to perform the functions of that job. At that point, you might save a lot of money in premiums going with a transitional own-occupational disability policy as opposed to a true own-occupation disability policy.
I ended up going this route through Principal–using the unisex rate and also getting rid of the mental-nervous 24-month exclusion–and saving more than 40% off the premiums from Guardian and Standard.
For a surgeon, a gastroenterologist, or an interventional radiologist–fields that require fine motor movement and dexterity–I could very easily see an administrative job in the future (not requiring fine movement and dexterity) that might merit purchasing a full own-occupation disability policy.
Is it a good idea to purchase a policy as an EM intern? I’m currently 26 years old, no serious health problems and I know that it does get more expensive as you get older. Is it worth waiting until I’m a PGY2 or 3?
If you have enough money to purchase a disability policy I think it would be a good idea. You will want to see what coverage you have through your employer and then get a policy that has a rider to increase with future earnings. I didn’t start until I finished residency but I want to say someone marketed a plan to me that would adjust to an attending level of income after my residency would have finished in the event of disability during residency…but I’m not sure what kind of rider that would take, how much it would cost or if it is even real.
If you have debt like most people do, protecting your future income should start as soon as possible.
I wouldn’t wait. The younger you are and the fewer assets or more debt you have, the higher your risk. Your risk is probably HIGHEST as an intern. Get something in place.
So I spoke to a CFP that I was recommended to by a family friend and these are the riders given in the proposal: (this is MetLife)
Option to apply for additional coverage every year up to age 51 without
medical underwriting. (Says Unit increase $1000, total available $10,000) – I should probably ask but this seems to me that I’d have to wait 10 years to increase my coverage to 10K a month right?
If disabled more than one year, your benefit will increase each subsequent
year you remain disabled by 3% of your base monthly benefit at the time of
Pays you an additional monthly benefit for more severe, or catastrophic
Pays a benefit, subject to certain conditions, if a residual disability causes you to lose 15% or more of your earnings.
Am I missing anything? They are starting me out at 5K a month after 90 day elimination period. If I take coverage until I’m 65 it would cost me 128.91 a month which seems reasonable. The agent told me that when I become an attending I can apply for the increased coverage and my premium would just go up based on the new # not based on age or medical screening exam.
What do you mean missing something? Did you have him show you options from all the other companies too and explain why he thought this was the best option for you? If so, what do you see as the downsides of going with the Metlife proposal? If you don’t see any downsides, chances are you need more information to make your decision. No policy is better than all the other policies in every way.
I guess what I mean is it seems reasonably priced so I was wonder if I was missing any particular riders or whatnot you thought are important for an ER doc. And you know what he didn’t show me any policies from the other companies I’ll have to ask him about that.
No. You would not need to wait 10 years in order to increase your coverage. MetLife has an advanced option benefit which allows you to apply for any amount of increase up to the maximum total increase until the later of the third option date or your 40th birthday.
Are you looking at the 3% Compound COLA Rider or the 3% Simple COLA Rider? I would suggest the 3% Compound on MetLife’s policy.
Are you looking at the Enhanced Residual Disability Rider? MetLife has 3 Residual Disability Riders.
As for the Catastrophic Disability Benefit (CAT) Rider, MetLife’s is the most restrictive compared to the other carriers. While it is not the reason to purchase another company’s policy alone, keep it in mind when comparing MetLife to the others.
Is the policy being shown to you with a 10% discount? If not, it should be.
Generally, I have found the Emergency Medicine Physicians either go with Standard Insurance Company as the “best” (there is no limitation for claims related to mental/nervous and/or substance abuse disorders) or the least expensive carrier as they will have a 24 month limitation (similar to the MetLife policy you are considering) for those types of claims.
You might want to look at Berkshire’s ProVider Plus Limited Policy in addition to Principal’s policy – especially if discount plans are available via your hospital affiliation before you make your final decision.
Thanks! One last question, why should I have a 10% discount?
MetLife provides a discount via the AMA. Not all agents show it or know that it exists. The ones that work in the medical market routinely know to provide it!
I agree with WCI. I have seen too any young physicians wait and become uninsurable or develop medical conditions that require exclusion riders being placed on their policies and/or having their policies modified as a result.
If you are healthy, the time to purchase is now. If the premium is an issue, you can modify the policy to meet your budget.
As for the Transitional Occupation definition of total disability, it is not quite as simple as earning the same income elsewhere.
Unless you are in New York, any wmoyer provided group LTD coverage (that you might not have now but may if you change employers), will also be taken into consideration in terms of the amount of money you can earn before your disability benefits are reduced or eliminated.
In that case, you may be paying 100% of your premium to receive less than the full benefit (or worse, no benefits at all).
Unless you are female, the cost savings will not be nearly as high as 40%.
The most important thing about disability insurance, at least for someone who isn’t financially independent, is to have something in place. We argue all the time on this site about the merits of this or that feature, but truthfully that’s all minor compared to the big picture- is there a policy that is going to pay your living expenses in the event of most disabilities? The optimizers will wade into the weeds. The satisficers will get something in place and move on to the rest of their life.
Thank you for this article and many others that have been published on this site about disability insurance. I spent a couple of hours reading them earlier and have a much better idea about what I might need and why.
I’m a new attending in psychiatry (started first job several months ago), have a significant student loan burden where the monthly payment is more than my other fixed costs of rent, utilities, food, paying for the cost of owning a car, intermittent costs of things like license renewals or other costs associated with being a physician, etc.
My question is, if I buy a policy that is true own occupation and non-cancellable/guaranteed renewable, and I decide to re-enter training and I change my occupation to another specialty (medical genetics), would something like a true own-occupation policy that I buy now have to be repurchased on the basis of the occupation change? Also, if the cost of working in a different field could get me a lower premium a few years from now, would I just cancel a policy that I buy now and get a new one?
It’s a situation that I’m really considering, which is why I’m asking. Thanks in advance.
I’m obviously not a disability insurance agent, but my understand is that no, you wouldn’t need a new policy. Most of these policies price it based on your current occupation, but the wording of the policy is that your occupation is what you are doing at the time you are disabled. So you could buy it at psychiatry rates, and then be covered for general surgery work! Of course, medical genetics and psychiatry rates are probably about the same, so no big deal for you.
Chances are the effect of you getting older would more than cancel out any difference you might get for changing to a less risky specialty, but every situation is different.
On a related note, while it’s important to have a career you love, given the loan burden you describe, can you really afford to go back into training, especially for a separate but approximately equal paying specialty?
As a “New In Practice” Psychiatrist, most companies will allow you to purchase $6,500-$7,500 month regardless of your earned income. However, it will be important to know if your employer provides you with any Long-Term Disability coverage. This, along with your earned income, will ultimately determine the amount of individual coverage available to you.
If you purchase your policy while you are practicing psychiatry, the premium rates will be based upon your age, gender, occupation class for psychiatrists and your then current state of residence. If you subsequently change medical specialties, the policy will remain the same. However, the definition of total disability will be based upon the duties that you are performing at the time of claim.
In fact, unless you increase your coverage or go on claim, there would be no need to even notify the insurance company of your change in occupation unless your new occupation is considered to be more favorable than that of a psychiatrist. In that case, the premium rate would be lower and you would want to upgrade the occupation class on your existing policy.
Of course, if you can do better elsewhere and are equally as satisfied with the contractual provisions of another policy, and you are still healthy, you could potentially replace the existing policy in favor of a new one.
Since your student loans are an issue and you might re-enter training, you might want to consider a policy that allows for a lower initial premium payment until your income rises again (using a graded, step rate or level premium term structure).
As a Psychiatrist, you will also want to think about how important coverage is in terms of mental/nervous and/or substance abuse disorders. Some policies treat these conditions in the same way as any other accident or illness while others have a limitation for those types of claims.
Hope this helps.
Thanks to both of you for the replies.
WCI, yes, I agree, two additional years of training (plus the costs associated with applying) would be financially much more difficult than continuing to earn an attending salary. It is a barrier. With a high debt burden, I really would not want to delay my time to financial independence by taking a pay cut, but, the trade-off could be having a career I am better suited for. Regardless of future career decisions, I plan to purchase disability insurance soon. I’m glad I found this site!
Mr. Keller, yes, I saw other posts on this site about how options for psychiatrists, compared to physicians in many other specialties, are limited to fewer companies/policies that offer no time restrictions on mental/nervous/substance claims. I had been wondering whether, if I bought a policy now, and if I changed specialties in the future to a field that is deemed less risky, I could get lower premium without having to seek out a new policy, so thank you for addressing that.
Is the option to pay into the Future Benefit Increase Rider typically a matter of personal preference as well? I use Principal, and I turned down the option to increase my coverage (by a marginal amount) at the expense of increasing my annual premium. I was offered another increase a year later, and now my notice states that if I do not pay the increase, my Rider will be terminated.
Even if I terminate my Future Benefit Increase Rider, will I still be able to increase my coverage when I get a significant increase in salary?
The Future Benefit Increase (FBI) Rider allows you to increase your coverage by 4-10% based upon changes in the Consumer Price Index (CPI-U) for the first six policy years and can be done regardless of your earned income or other disability insurance inforce.
Principal’s Benefit Update (BU) Rider allows you to increase your coverage very three years up to the maximum that Principal will offer based on their Issue and Participation (I&P) Limits.
However, unlike the other companies, you must check-in with Principal every three years in order to keep the BU Rider on your policy. If you do not send in the application to increase your coverage, after multiple attempts, it will be removed from your policy permanently.
If you do send the form back (as you should) and do not qualify for additional coverage, you will be declined from a financial underwriting perspective and will go through the same process three years later.
If, however, you do qualify for additional coverage, you must purchase at least 50% of the eligible amount or, again, the BU Rider will be removed from your policy permanently.
So, you need to send the Benefit Update Rider back to Principal in order to maintain it on your policy and subsequently purchase at least 50% of the amount of additional coverage in which you qualify for, if any. Otherwise, it does not matter how large a jump you have in salary and you will not be able to increase your coverage (unless you purchase a new policy or do an adjustment application – both of which require medical underwriting).
Hope this helps.
Thanks. Very helpful. I’ll definitely fill out and return the forms.
Interestingly, I am going on my third year with the policy. This is the second time that I’ve gotten a chance to “decline” the increase of my policy in three years. On the forms, it states that my rider will terminate if I decline twice within 6 years. If I decline now, it seems like I wouldn’t even make it to the 6 year point!
If you are only on policy year two, that is for the Future Benefit Increase (FBI) Rider.
Correct. If you decline it twice, it will be removed from the policy. However, the Benefit Update (BU) Rider will remain. This is the rider that you want to keep on the policy to allow you to increase your monthly benefit as your income rises.
Even if you don’t accept the FBI increases, you can still potentially reach the (current) $15,000 maximum if your income and other inforce disability coverage (group, association or individual) allow for it.
Makes more sense. The renewal form that I received is labeled “FBI/BU”. So I suppose that they use the same form for both. Seems even a little bit deceptive to me, although everything was in fine detail before I had signed up for insurance.
Yes, the same form is used for both the FBI and BU Riders. If you are going to accept the FBI increase, you don’t need to do anything.
However, if you want to apply for more than the amount offered (4%-10% based on the Consumer Price Index), you can apply for up to an additional $500 monthly benefit prior to your Benefit Update Rider being available (although you can exercise the BU Rider in advance if you meet certain criteria.
I am sorry if I am bringing OWN occupation subject again . I am internal medicine hospitalist which I have been working for few years.
I have LTD through principle where they give 60% of my income at high rate more about 330 per month .
I switched to a new employer and which a group plan through cigna .
I was going to cancel principle LTD when they sent me an email notifying about the coverage I will lose if I switched.
“benefits end on the earliest of the following dates
a. the date you earn from any occupation, more than the percentage of Indexed Earnings set forth in the definition of Disability applicable to you at that time you have to choose between working or taking the disability benefit
b. the date we determine you are not Disabled in contrast, Principal assumes permanent disability with the exception that you return to the normal duties of your occupation
2) – You are considered Disabled if, solely because of Injury or Sickness, you are:
a. unable to perform the material duties of your Regular Occupation; and
b. unable to earn 80% or more of your Indexed Earnings from working in your Regular Occupation
3) – Definition of regular occupation:
a. The occupation you routinely perform at the time the Disability begins. In evaluating the Disability, we will consider the duties of the occupation as it is normally performed in the general labor market in the national economy. It is not work tasks that are performed for a specific employer or at a specific location.
Now as being a hospitalist let’s say I damaged my hands . I still diagnosis patients or work as administration and still able to make good money . I don’t require fine motor skills . Do I really need the more coverage expensive principle one ?
The only good thing I see from principle is that unless your do your own job they will still give money even if you are making more money in other occupations ( I wonder what could be that ?)
The most important thing with disability insurance is to have something in place and enough of it. Most disability policies are going to pay in most circumstances. If you want one that is going to pay in more circumstances, the individual policy will be better. You basically get what you pay for when it comes to group vs individual policies. You also get portability, which is even more important for a hospitalist.
But put the two policies side by side and compare the wording and talk to a good independent agent to decide if you’re willing to give up those few situations where the individual policy is better in order to save premiums.
I would strongly suggest that you keep your individual Principal disability insurance policy.
Group Long-Term Disability (LTD) insurance is less liberal in terms of contractual provisions. It does not contain a true “Own-Occupation” definition of total disability (in your case, you must be unable to perform your duties as a Hospitalist and also have a loss of income of at least 20% compared to your pre-disability income), it typically does not include a Cost Of Living Adjustment (COLA) Rider to help your disability insurance benefits keep pace with inflation after you are disabled and, if the policy is provided to you at no cost (and the premium paid by your employer is not added back to your taxable income), the group LTD plans benefits would be taxable to you upon receipt.
Other potential problems might include a limitation for claims related to mental/nervous and/or substance abuse disorders (this is also common in many individual policies today, including Principal’s) or limitations for “Self-Reported Symptoms”.
Group LTD policies also have a “cap” on the monthly benefit. While this varies between employers, it is typically $10,000 or $15,000 per month. As a result, if your earnings are in excess of the maximum monthly benefit, you may find yourself underinsured. Finally, some group LTD plans do not cover bonus income. If a large portion of what you earn is based on productivity and the group LTD plan does not cover it, again, you may find yourself underinsured.
According to disability insurance attorney Michael Quiat (http://www.uqur.com/attorney-profiles/michael-quiat/), as important as the coverage distinctions are, “it is the claims procedures themselves that make group policies much less attractive to claimants. This is because most group policies are covered by ERISA (the Employee Retirement Income Security Act of 1974), which provides a very limited and unbalanced claims adjudication procedure which always works to the disadvantage of the insured. Further, you are entitled to virtually no discovery if your claims goes to court, and the carrier’s denial of your claim will be upheld unless the court finds that the decision to deny benefits was arbitrary and capricious. What this means is that even if the court disagrees with the decision by the carrier, and may believe that you have proven your disabled status under the terms of the contract, the court will nevertheless affirm a denial of benefits unless there is no evidence in the record which would reasonably support that denial”.
While you might believe that you are overinsured, your individual policy will make up for the taxes that would be lost on the group LTD plan’s benefits, as well as, make up for any earnings that you have in excess of the “cap” on the group LTD plan’s monthly benefit.
The worst thing that can happen is that the group LTD plan does not pay and your individual policy does or in the event that you drop your individual policy, leave this employer, and need to purchase individual coverage again in the future, it will likely be more expensive and you would need to go through medical underwriting all over again.
While group LTD coverage does have its place – especially for those that are uninsurable or participate in certain hazardous activities, I believe, it should not be the foundation of a physician’s disability insurance protection.
Thank you for your replies .
I would like to know about the statistics regarding disability how many physicians got injured and what are their stories that would be tremendous help in term of giving real scenario picture .
I do believe disability insurance is very important, but at the same time it is like a gamble, so statistics will be very helpful in this case…
Insurance companies do not publish those statistics – especially not for specific occupations or medical specialties. You can go to http://www.disabilitycanhappen.org/ to get
Yes, insurance is like legalized gambling. I can tell you that if it happens to you the statistic is 100%.
Here is something that one of my fellowship-trained physician clients that is currently disabled and receiving benefits under his policy sent to me – “The insurance policies that I complained about having to purchase, believing I was probably never going to need them, became of utmost importance. Like most physicians who deal with disabled patients, I found it hard to believe that I had become one of them. The monthly income from my disability insurance policy saved my life. Without my disability policy, which I did not want to buy and cursed every time I paid a premium, I do not know how my family and I would have survived. I am so glad I never had to find out”.
Hopefully, this helps. I think the most important thing about it is that it is not written by me from an academic perspective. Rather, one of your peers from his personal experience.
I am in the mid thirties healthy , I do not drink or smoke . Active in sports. I will keep it both of them for now since the one is free . I would like to ask you if GOD forbids and I became disabled will both the insurance companies will pay ?
From a pure anecdotal standpoint, I know at least 6 doctors personally, through my wife, that are on claim or would have been on claim if they had a policy. I am not sure if you will be able to find specific stats on the number of MDs who are on claim but Principal has a nice piece on claims, its only one page and a couple of the claims are doctors. My most recent anecdotal story is my wife’s good friend from medical school, she was just diagnosed with MS, I think this is often diagnosed after age 35. Another MD I know had a residual claim for subtance abuse/ alcohol, and another was driving to work and had seizures and was injured in an auto accident.
How old are you? If you are in your early 30s then I say keep the policy until you are at least 40. Your body seems to break down more and not recover as quickly after you hit 35. I am a living testament to that. As a hospitalist I am sure you see people in their 30/40’s that were not planning to be in the hospital when you saw them.
That being said, the only reason to buy disability insurance is because it happens and is a real threat. Don’t be one of those who don’t buy/keep a policy only to end up with an illness/ injury that would have put you on claim.
I think you are making a wise choice.
Yes, as long as you meet the definition of total disability under both policies, both policies will pay benefits.
I am trying do decide on buying disability insurance as an intern (medicine) vs. resident (dermatology). I will be doing my internship in MA but residency in CA. Will the rates vary greatly depending on the location where I buy the disability insurance?
Yes, they vary by location, specialty, age, gender, and health. Best to get a good independent advisor to help you sort out the best policy for you. If they’re not showing you 3+ policies and explaining the pluses and minuses of each one for YOU, then you probably need someone willing to work a little harder for the big commission you’re paying them.
If you are doing a Transitional Year Residency, you will want to note that you will be going into Dermatology.
You will also want to make sure purchase your coverage in MA as, generally, policies in CA are more expensive and the contractual provisions are more restrictive.
It should be noted that CA is the worst state in which one can purchase disability insurance.
Im buying disability insurance, and am given the option between a set premium (5k/yr) vs a graded premium (starts low, approx 2k, and increases yearly, crossover where you lose money is at about 50 yo… im 32 yo).
The graded premium is very enticing… especially given that by the “crossover” year, I hope to be financially at the point where I no longer need the protection..
Worth the gamble?
Yes, I would if it were an option for me (and I could do it all over again.)
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