As resident physicians with a tight budget, one of the last things on our mind is paying for added insurance. Trust me; I get it. However, as a [future] high-income earners, long-term disability insurance is essential. It may not be at the top of our priority list, but it should be.
What is it and who needs it?
Unless you are already financially independent or were lucky enough to have a trust fund in your name, disability insurance is a must. Although we’d like to think we’re invincible, we are not. If some unfortunate event occurred that caused you to become disabled and prevented you from doing your job, you’d still need a way to support yourself. You can’t predict whether you’ll be disabled in the future so you must insure against that risk right now. It may be tempting to wait to purchase this coverage when you make more money, but I’d caution you against that. The younger, healthier, and earlier in your career you are, the more important disability insurance is. You have your whole life ahead of you with decades of potential high earnings, long-term disability insurance protects you in case this were to change.
Do I still need it if I have a group policy through my employer?
More than likely. Long-term disability insurance may be offered by your employer, but that policy may not offer sufficient coverage. Most hospital group policies only pay out 60% of your income if you get disabled, up to a certain maximum per month. The amount they provide may not be enough to cover your monthly expenses, pay back your student loans, and still allow you to save for retirement.
Secondly, group policies may be less likely to pay out if you do become disabled because their definition of disability may be too broad. In other words, it may be harder to meet your hospital’s definition of disability to even apply to receive the benefit. As doctors, we need “own-specialty” disability insurance so that if we are unable to meet the demands of our own specialty (i.e., surgery) we will still get compensated, even if we can technically still do the work of another specialty (i.e. family medicine). As a family medicine resident who plans to do sports medicine, I still purchased own-occupation disability insurance.
What to look for in a good policy?
A “good” individual long-term disability insurance policy has three components: enough coverage, a specific definition of disability tailored to your own occupation, and additional riders for added protection. Let me explain.
Riders are added protections you pay for (in addition to a standard policy) to ensure that you have all the coverage you need. Examples of riders you should consider purchasing are the: cost-of-living-adjustments (COLA) rider so that your payout will increase with inflation each year, residual and recovery rider so that you are compensated for any partial disability until you are back to your full productivity, and a future purchase option so that you can purchase more disability insurance later as your salary increases. Of note, the amount of disability insurance you can purchase is limited by your income. As residents, the max benefit we can purchase is $5,000 per month for a total coverage of $60,000 for the year. (Insurance companies won’t let us purchase more because they don’t want to incentivize us to hurt ourselves.) Thus, resident physicians need a “future purchase option” so that we can get more coverage when our salary increases as attending physicians without being denied or charged outlandish rates because of our age or medical condition(s).
How do you purchase it?
As an incoming resident physician, I knew I needed disability insurance. I emailed a few vetted brokers/agents from the White Coat Investor list and entered some basic information on their websites to get quotes. Once I found a policy that had the benefits I wanted with riders I needed and an own occupation form of disability, I then chose the cheapest policy.
My agent then asked me a bunch of medical questions as he filled out the application on my behalf. He inquired about my hobbies, medical history, and travel plans to discern my “disability risk” as requested on the form from the insurance company. I then reviewed the information in a secure portal and signed the form online. I was approved within 24 hours.
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