Top Ten Questions Physicians Ask About Disability Insurance
[Editor’s Note: This is a sponsored post from White Coat Investor Scholarship Platinum Sponsor ($3500+) Michael Relvas with MR Insurance. Michael has been a long-time advertiser here at the White Coat Investor and has helped hundreds of readers with their term life and disability insurance. Thank you Michael for sponsoring the scholarship!]
# 1 Is It Cheaper to Buy Disability Insurance During Training?
It could be, but isn’t always. To properly address this question, it is important to first clarify that disability insurance pricing is based on several factors:
- State of residence
- Medical specialty
- Health, and
- Features/discounts included with a policy
The transition from training to attendinghood, itself, is not a factor that causes a price difference.
Age changes can impact pricing by ~2-5% with each year that we age, depending on the insurer. The difference between buying coverage as a PGY-1 versus PGY-6 can be substantial, but primarily because of the 6-year age difference. The difference in purchasing coverage as a graduating resident/fellow or first year attending physician may not be any different if there is no age change and all other factors remain constant.
Although the cost of disability insurance is identical in most states, it can be drastically different in certain states like California (CA). For trainees who plan to move following graduation, an evaluation should be made to determine which state is less costly. For anyone finishing their training and moving to a state like CA, the most expensive state for purchasing disability insurance, substantial savings can come from securing coverage before moving. Likewise, a physician completing their training in CA and moving to a less costly state may experience substantial savings by applying in that new state. Again though, it isn’t the physician’s training status that causes this pricing difference, it’s the state of residence.
There are several professional association discounts that are available regardless of a physician’s specific employment affiliation, some of which even offer gender-neutral pricing in select states. However, the discounts available based on one’s employer or GME affiliation are generally still the most desirable because they’re more easily accessible and offer greater discounts in some circumstances. This is an important factor to consider for a couple reasons:
- GME-affiliated discounts for residents/fellows may be more or less favorable than employer-affiliated discounts for attending physicians. For that reason, all applicable discounts should be considered. GME affiliated discounts offered to residents/fellows are available for 60-90 days beyond residency completion, depending on the insurer. We always get calls on this the last week of June, but GME affiliated discounts do not go away the day after residency/fellowship completion.
- Depending on a physician’s work situation following training, employer affiliated discounts may not be available at all (for example: those working in small group practices, as solo-practitioners or as independent contractors). In those cases, it would likely be more favorable to secure coverage with a GME affiliated discount during training.
In summary, an evaluation of all factors impacting pricing must be made to determine whether it is more favorable, cost-wise, to secure coverage during training or after. There is no rule of thumb here and the following factors should always be considered:
- Age changes (DI pricing increases with age)
- Moving to a new state (The cost of buying DI can vary from state to state)
- Discounts available as a trainee and attending physician (discounts available based on one’s employer affiliation should be evaluated for your employer as a trainee and as an attending physician if applicable)
These factors should not only be looked at independently but also jointly. Imagine an individual who is moving to an independent contractor position (no employer affiliated discounts available) in a high-cost state and has a birthday in June. The effects of three combined changes like this could make it hugely beneficial to secure coverage while in training.
# 2 What About a Subspecialty?
Consider the following two definitions:
Total Disability means that, solely due to injury or illness, you are not able to perform the material and substantial duties of Your Occupation.
Your Occupation means the occupation (or occupations, if more than one) in which you are gainfully employed during the 12 months prior to becoming disabled.
These policies cover people based on the occupational duties they’re performing at the time of claim. If your policy includes an own-occupation definition of total disability, like the one above, and you are exclusively performing the customary duties of your medical specialty or sub-specialty at the time of claim, then yes, the policy will cover you when unable to perform your specialty or sub-specialty. If you have transitioned into a different role or expanded into a new career path that requires much less direct patient contact or procedural duties, you may no longer be considered totally disabled when unable to work in your specialty or sub-specialty. This is because Your Occupation(s) involves additional material and substantial duties, no longer limited to the performance of your medical specialty or sub-specialty. In these instances, you may be considered partially disabled or not disabled at all, depending on the exact circumstances.
# 3 Which Riders Do I Really Need?
Individual disability insurance is pretty expensive for a lot of medical specialties, so my approach is to cover the most critical risks before adding bells and whistles. The four riders I typically recommend are:
- True Own-Occupation Definition of Total Disability: I personally feel that the true own-occupation definition of total disability is the most favorable definition of total disability available. As such, I automatically include it with every proposal I send to prospective clients. Some companies will include this definition as a part of their base coverage, but others offer it as an optional rider (Principal, MassMutual, Standard’s Platinum Advantage, Ohio National’s ContinuON). With these companies, a Regular Occupation or Own Occupation rider must be included if the true own-occupation definition of total disability is desired.
- Partial Disability Benefit: The partial disability benefit enhances one’s policy so that benefits may be claimed for partial disability in addition to total disability. Without this feature, the insured must be totally disabled to satisfy the elimination period and receive benefits. Some insurance companies include partial disability benefits as a base feature in their policy and others offer it as an optional rider. Some insurers also allow consumers to select between enhanced and basic versions of the rider. I encourage everyone that I work with to include a provision for partial disability.
- Future Purchase Option: This rider goes by several different names: Future Increase Option, Future Purchase Option, Benefit Update rider, Benefit Purchase rider or Benefit Increase rider depending on the insurance company you’re considering. Simply put, these features are intended to allow policy holders to increase their coverage in the future based on financial eligibility, but without requiring additional/updated medical screening. This is particularly important for medical students, residents, fellows and attending physicians who anticipate sizable salary increases in the future.
- Cost of Living Adjustment (COLA): COLA riders are intended to help maintain the purchasing power of one’s monthly disability benefit during a long-term disability claim. This optional rider increases one’s monthly benefit each year that a claim continues, starting after the first 12 months of benefits being paid. I believe that COLA riders are particularly important for young physicians who are early in their career. Since this feature increases the monthly benefit throughout a long-term disability claim, and serves the primary purpose of protecting against inflation risk, its value diminishes as one approaches age 65. I would generally recommend this rider for a 30-year old, but not a 55-year old.
For those who are already buying the maximum monthly benefit available, including each of the appropriate riders listed above, and are still in search of more coverage options, I would suggest considering Catastrophic disability riders, Student Loan riders when applicable, or possibly an increased benefit period (Age 67 or 70 opposed to Age 65).
# 4 Can I Add or Remove Riders and Exclusions Later?
The rule of thumb for policy adjustments is that you can reduce the insurance company’s liability without needing additional underwriting. In other words, you can reduce your coverage level or benefit period, increase your elimination period or remove optional riders with a simple change application that does not require additional underwriting. Anytime you want to increase their liability however, such as when adding riders, increasing coverage levels or removing medical exclusions, they’ll want to review updated information.
Medical exclusions are added to individual disability insurance policies when a person has a pre-existing health condition that the insurance company wants to exclude from being covered. Medical exclusions can sometimes be removed at a later date, depending on the medical history. For example, it is not likely that someone issued a policy with a spine exclusion, due to degenerative disc disease, will successfully get that exclusion removed. However, someone who is issued coverage with a spine exclusion due to a recent short-term muscle strain that is fully resolved with no residual symptoms or treatment, is likely to have the exclusion removed at some point. Underwriters often provide some indication on whether medical exclusions can be reconsidered, and if so, at what point.
It is my experience that when insurance companies indicate willingness to reconsider exclusions, they actually do it. It may seem as though there would be little interest in removing exclusions once a policy is sold, but that is not my experience at all. Insurers are interested in retaining business, and they know people would apply elsewhere if they refuse to remove the exclusion without cause. This should not mislead people into believing every exclusion will be removed, because many will not. Those that should be removed though, generally are.
The concept of removing riders and reducing coverage is important because a physician’s disability insurance needs are likely to change throughout his/her career and life stages. A new physician’s need for disability insurance is generally much greater than one who is 20-years into attendinghood. New physicians may select larger benefit levels and include optional riders, like a COLA rider, that become less valuable with age. The flexibility in removing optional riders and reducing coverage allows physicians to slowly adjust their coverage as needed, opposed to dropping all coverage at the same time.
# 5 Are Guardian’s Policies Really Better?
Guardian offers policies through its subsidiary, Berkshire Life Insurance Company of America, and allows for substantial customization with their individual disability insurance policies, not all of which are created equal. So, Berkshire’s policy could be better but is not always. For the context of this question, my comments are specifically regarding their Provider Choice Premier and ProVider Plus policies.
For many medical specialties, Berkshire’s top-tier plan (Provider Choice Premier or ProVider Plus, depending on resident state) is commonly considered the “Cadillac” policy. This is because these policies allow consumers to combine a True Own-Occupation definition of total disability, with one of the best partial disability benefits, Cost of Living Adjustment, Future Increase Option and Catastrophic Disability riders available, while also maintaining un-restricted benefits for claims related to mental and/or substance-related disorders. (Policies issued in CA or to anesthesiologists/anesthetists, emergency medicine physicians, pain management physicians, and nurse anesthetists will have a limitation for mental and/or substance-related disorders.) While other insurers allow for similar policy design, the features and optional riders may not be as favorable as those offered by Berkshire.
With that said, there are several exceptional policies offering a true own-occupation definition of total disability to physicians at this time. My opinion is that decisions should be made based on a thorough evaluation of the features and cost of each policy, given an individual’s specific circumstances. In the end, there is no single right answer – some physicians will secure Berkshire’s premier policies and others prefer to accept a few limitations in exchange for lower premiums.
# 6 Should I Consider Northwestern Mutual Policies?
Northwestern Mutual Life is a highly rated financial institution with an extensive history in the insurance marketplace, so I can definitely appreciate the curiosity/interest to include them in one’s search.
That said, the individual disability insurance policy that Northwestern Mutual currently offers physicians does not include a True Own-Occupation definition of total disability. Physicians who are exclusively interested in securing a policy that includes a True Own-Occupation definition of total disability may not find as much value in this policy as they would with other carriers.
# 7 When Should I Buy Disability Insurance?
Many doctors wonder if they should buy disability insurance as an intern, just before residency graduation, or just after. Every situation is unique, but I generally advise physicians to secure coverage as young as possible, while they hopefully still have their good health. It doesn’t hurt that the premiums are generally lower for younger applicants but I believe the most valuable benefits are qualifying for coverage without requiring increased premiums or exclusions for pre-existing medical conditions and securing one’s medical insurability for future benefit increases. Not everyone will be eligible for exclusion-free coverage, but it’s generally more common among younger applicants.
It goes without saying that the other benefit is having income protection. Residents and fellows are susceptible to disabilities too and although they clearly don’t earn as much as attending physicians, there is a substantial earnings potential that should ideally be insured.
# 8 Do I Need To Buy an Individual Policy If My Residency Provides One?
The group LTD policies offered by most GME programs cover 60% of a resident’s base salary and include numerous limitations when compared to individual plans. Everyone is entitled to their own opinion and some people may truly feel that a group policy adequately protects their family’s financial goals and obligations. For most residents/fellows however, I believe there is a strong argument for individual coverage and an interest in having higher quality coverage. The years a physician spends in training and shortly following training are the years when he/she stands to lose the most from a disabling injury or illness. While you may not have pursued your interest in medicine for the financial benefits, it’s an important part of the decision in buying disability insurance. The word “need” carries a different meaning to different people, so I won’t go as far as saying residents need to buy an individual policy. However, it is my belief that most should.
# 9 How Do Group and Individual Policies Work Together?
IDI policies pay separately/independent of employer group LTD policies and employer group LTD policies pay separately/independent of IDI policies. As a result, group LTD coverage is typically considered during the underwriting process when applying for individual coverage and will generally reduce the amount of IDI coverage available. Employer group LTD is not considered when applying as a student/resident/fellow or first-year attending (with most companies).
# 10 How Much Disability Insurance Do I Really Need?
The amount of disability insurance one should have is clearly dependent on his/her circumstances. Here are just a few things I believe should be considered in determining an appropriate amount of coverage:
How old are you?
The earlier a person is in their career and asset accumulation phase, the more insurance they generally need. This is when people typically depend on their income the most and have the lowest amount of accumulated assets (if not a negative net worth) to help with offsetting income loss. If there is ever a point when physicians should have the maximum amount of coverage available to them, it’s during training and likely the first 5-10 years after training. Affordability is obviously an issue though, particularly throughout training, so starting with a lower benefit level would still be better than not having coverage at all.
How much do you spend?
-If a person knew they would need to collect benefits from these policies, they would obviously buy as much coverage as possible. That’s not the case though and most people can’t imagine ever needing to claim benefits. For that reason, I completely understand why someone who lives below their means wouldn’t necessarily want to maximize their coverage, especially if their earnings allow for upwards of $15,000 or $20,000 in monthly benefit. It’s OK not to buy the maximum available to you so long as you’re still buying a reasonable amount that truly reflects your spending and savings habits/needs.
Households with two high-income earners are unique because they organically have some household income protection. If one person becomes disabled, the other can still work. Going from two high incomes to only one could still be impactful though, especially for those who are early in their careers, living in high cost of living areas, or simply dependent on a greater portion of their incomes for whatever reason. For those households, there is often still a need for coverage on each spouse. For households who could live comfortably and save adequately on either spouse’s income, there may not be a need for insurance at all.
In a way, we only get one chance at making the right decision. Once a person is disabled, no insurance company will be interested in selling them more coverage. I think this is an important part of the purchasing process that should not be taken lightly. Be honest with yourself and truly consider what would be needed to cover your monthly expenses and savings, with some margin for error. At the end of the day, it’s your personal spending and savings that dictate the amount of coverage you need.
Legal stuff: *These are the personal views of the author and may not represent the views and opinions of The Guardian Life Insurance Company of America or its subsidiaries or affiliates thereof.
*Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America (BLICOA), Pittsfield, MA. BLICOA is a wholly owned stock subsidiary of and administrator for The Guardian Life Insurance Company of America, New York, NY. Optional riders are available for an additional premium. Product provisions and availability may vary by state.
*Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
*Michael Relvas, Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 1901 Research Blvd Suite 400, Rockville MD 20850, 240-683-1400. Securities products and advisory services are offered through PAS, 240-683-1400. Field Representative, The Guardian Life Insurance Company of America, New York, NY (Guardian). PAS is an indirect wholly owned subsidiary of Guardian. M.R. Insurance Consultants is not an affiliate or subsidiary of PAS or Guardian.
PAS is a member FINRA, SIPC
2017-46084 Exp. 9/2019
What do you think? What questions have you had with disability insurance? Have you used MR Insurance? What was your experience like? Comment below and be sure to thank Michael for sponsoring the scholarship!
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