You finally finish residency or your fellowship and you sign on with a great medical group or large hospital. Or perhaps you’re mid-career, changing jobs, and wondering if you really need that private disability insurance policy still. As part of your benefits package you’re offered disability insurance through your employer. Before you call it a day and try to save yourself a few thousand dollars by forgoing a private disability insurance policy, there are a few things you need to (strongly) consider.
*Disclosures: I do not sell insurance or accept any commissions. This is my professional opinion and it may not apply to your personal situation. Please do not make any changes without consulting your financial planner or insurance agent.
1. You need a true own-occupation definition of disability
An own-occupation (“own-occ”) definition of disability means that if you are unable to perform the duties of your job you can receive disability income payments even though you may still be able to work in another capacity. While not everyone needs an “own-occ” definition of disability, for many physicians getting started it’s an important coverage.
Let’s say you are an ophthalmologist who (pre-disability) spent the vast majority of their time performing eye surgery. If you are no longer able to perform eye surgery, but could lecture at a medical school, with an own-occ disability insurance policy you could continue to receive disability insurance benefits to supplement your new, lower income.
You’re likely an industrious person, you might prefer to work if you could. However, if you have large private student loans you may not be able to afford them on your new salary in your new profession.
While some group disability insurance plans offer an own-occ definition of disability, it’s typically capped at two years. After two years, if you can work in some other capacity, you could lose your disability insurance benefits and have to go back to work in any occupation.
Make sure your work records accurately reflect how you spend your time. If you have to file a total or partial disability insurance claim, the insurance company will most likely want proof that you actually spent significant time performing the job duties that you are now no longer able to perform.
2. Group policies may not have an inflation rider.
This may not seem like a big deal, but over time even low amounts of inflation can eat away at your purchasing power. Not to mention, if you are receiving long-term disability insurance benefits you may have higher medical costs. Over the last 50 years healthcare inflation has trended well above core inflation which makes an inflation rider on your disability insurance policy even more important..
3. Watch out for group policies that don’t have robust mental health coverage.
As you likely already know, physicians are at an increased risk for depression. Working long hours under stressful conditions can lead to anxiety and depression that often goes untreated due to the social stigma and perceived career risk. Clearly, no one thinks they will ever experience mental health troubles, yet depression is one of the leading causes of disability worldwide according to the World Health Organization. So be sure you have sufficient coverage under your disability insurance policy.
Different insurance carriers treat mental health claims with varying degrees of coverage. Don’t simply assume that because you have a private disability insurance policy that you have full mental health coverage. Watch out for 24 month caps, particularly 24 month “in aggregate” caps.
Some insurance policies cap any claims relating to mental health (depression, anxiety, substance abuse disorders, etc.) to a total of 24 months worth of coverage per claim. If a policy caps mental health claims at 24 months in aggregate that means across your entire working career you can only claim 24 months of long-term disability benefits for a mental health issue that prevents you from working in your chosen career.
4. Your group policy may not cover all of your income
While disability insurance is designed to only cover a portion of your income (people need an incentive to return to work), did you know that not all disability insurance policies cover all types of income? Does your policy cover bonus income? K-1 or partnership income? Be sure to read the fine print.
5. Leave your job, lose your coverage
While your current employer may offer a long-term disability insurance benefit, perhaps even a great one, your next employer may not. If you have to go to the private market in your late 40s and purchase a private disability insurance policy, you may be surprised by the price. Typically, the older you are when you go through underwriting the more expensive your disability insurance policy will become.
Something to consider as you think about cost.
If you are working with an insurance agent, you may receive a proposal that includes a permanent life insurance policy and a smaller disability insurance policy or a policy that is not a true “own-occ” policy. Consider purchasing a 30 year term life insurance policy and repurposing the premium dollars saved to purchase a better disability insurance policy. A financial planner can help you review your options and personal risk exposure.
Early in your career it may be tempting to skip private disability insurance. After all, you may have put off a lot in your life to go to medical school and get through residency. However, this stage of your career may be the riskiest point for you. You may have loads of medical school debt and a family that relies on your income.
As you reach financial independence you can reevaluate whether certain policies or riders are worth continuing or if those funds could be better used elsewhere. Your financial planner can help you work through these scenarios to help you make a decision that makes the most sense for your personal situation.
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Questions for Lauren?
Financial planner and advisor, Lauren Zangardi Hayes, CIMA®, CFP®, works with families and couples in Williamsburg and Richmond, VA. She offers comprehensive financial planning services so you can live your dreams.