What is disability insurance?
Disability insurance, sometimes referred to as income protection or disability income insurance, is a financial safety net designed to replace a portion of your income if you become unable to work due to illness or injury. It ensures that you can continue to meet your financial obligations, even when your medical practice is put on hold.
Why do doctors need disability insurance?
Doctors, like any other professionals, are susceptible to accidents or health issues that may render them unable to work. Disability insurance is especially crucial for physicians because your income is a significant asset, and losing it can have a severe impact on your financial well-being.
Types of disability insurance
There are two primary types of disability insurance:
Short-term disability insurance. Provides coverage for a short duration, typically up to six months. It’s ideal for temporary disabilities.
Long-term disability insurance. Offers coverage for an extended period, often until retirement age, in case of severe and long-lasting disabilities.
Factors to consider
Employer-provided coverage. Check if your employer offers disability insurance. While it’s a great benefit, it may not be sufficient to cover all your financial needs. Consider supplementing it with a private disability policy.
Income replacement percentage. When choosing a disability insurance policy, understand what percentage of your income it will replace. Most policies aim to replace around 60-70% of your pre-disability income.
Definition of disability
Review the policy’s definition of disability. Some policies require you to be unable to perform your specific medical specialty, while others may only consider you disabled if you can’t work in any occupation.
Elimination period. This is the waiting period before your disability benefits kick in. A shorter elimination period means you’ll receive benefits sooner but may result in higher premiums.
Benefit period. Determine how long the policy will pay benefits. Ideally, it should cover you until your expected retirement age.
Additional riders. Consider adding riders to your policy for extra protection, such as cost-of-living adjustments or future purchase options that allow you to increase coverage as your income grows.
When to buy disability insurance
1. Early in your career. It’s advisable to purchase disability insurance early in your medical career when premiums are lower and you’re likely in good health. Locking in lower rates now can save you money over the long term.
2. Before major life changes. If you’re planning to get married, start a family, or take on significant financial responsibilities, consider purchasing or increasing your disability coverage to ensure your loved ones are protected.
When to add additional coverage
When your income increases. As your income grows throughout your career, it’s essential to reevaluate your disability insurance needs. You may want to increase your coverage to maintain your standard of living.
When you change specialties. If you transition to a different medical specialty with a higher income, make sure your disability insurance coverage reflects your new earnings.
Before retirement planning. As you approach retirement, you may want to add a retirement protection rider to your disability insurance policy. This ensures you continue to receive benefits even after retirement age.
Costs and benefits
Premium costs. The cost of disability insurance varies based on factors like your age, health, occupation, and the coverage you select. While premiums can seem high, consider the financial security it provides during a disability.
Tax benefits. In most cases, the benefits you receive from a disability insurance policy are tax-free. This means you can use them to cover your living expenses without worrying about additional tax liabilities.
Peace of mind
One of the most significant benefits of disability insurance is peace of mind. Knowing that you have financial protection in place can reduce stress during challenging times, allowing you to focus on your recovery.
Take the time to assess your current disability insurance coverage, consider your future needs, and make informed decisions about additional coverage. With the right disability insurance policy, you can continue to pursue your passion for medicine without the added worry of financial uncertainty.
Invest in your financial security, just as you invest in your patients’ health. It’s a prescription for peace of mind.
Amarish Dave is a board-certified neurologist with over 20 years of experience in both neurology and active stock investing. In addition to his medical career, he holds a background in business from the University of Michigan and has successfully passed the SIE exam administered by FINRA. Dr. Dave is founder, FiscalhealthMD.com, a website dedicated to educating doctors at all stages of their careers, ranging from residents to retirement, about financial planning.