By Dr. James M. Dahle, WCI Founder
A few months ago I read an article written by emergency physician Mark Borden in Emergency Medicine News in which Dr. Borden argues against buying disability and life insurance. Today, I'm going to point out the flaws in his arguments.
Before we get into it, I should probably make a few disclosures. I'm a fan of buying disability insurance. I bought a policy as an intern, increased it twice using the future purchase option, made payments on it faithfully for years, never collected any benefits from it, and canceled it at age 43 when I became financially independent. I also have vetted advertisers who sell disability insurance, giving me a conflict of interest in this regard. However, the flaws in the linked article are so large and so easy to debunk, that I don't think you will have any difficulty looking past my conflicts of interest.
While the article does not go into details on Mark's story, it sounds like he bought a Northwestern Mutual disability policy, paid the premiums for years, then felt he was disabled and discovered that Northwestern Mutual would not pay him the promised benefit. He doesn't mention what his disability was, but presumably it was something like a psychiatric condition or a chronic pain condition that falls into the gray area where policyholders and insurance companies fight over whether someone is really disabled. Needless to say, he was unhappy enough about it to write this article naming his insurance company.
Unfortunately, the article makes a number of poor arguments that ought to be debunked (and one really good argument which I totally support). There are 18 total, some explicit and some implied. Let's go through them all one by one.
Argument #1 – You Shouldn't Buy Disability Insurance Because the Agents Prey on Your Fear
His first argument is as follows:
“I have nothing to gain in this big money insurance world. I searched for an argument against disability insurance and could not find one. The arguments for disability insurance sounded good to me 25 years ago, but they are not convincing now….Young doctors are the ripest of the low hanging fruit for insurance sales agents. Early in their training, friendly insurance salespeople track physicians like a pack of slobbering hounds. They play on their insecurities, and are willing to sell as much insurance as they are willing to buy.”
The argument is that you should not buy insurance because agents really want to sell it to you. That's a pretty weak argument. Realtors really want to sell you houses, car salesmen really want to sell you cars, snowblower salesmen really want to sell you snowblowers, and insurance agents really want to sell you insurance. That's not a reason to avoid buying any of those items. If you need something, buy it.
Argument #2 – Cancel Your Insurance When You No Longer Need It
His second argument is the one I actually agree with. When you reach financial independence, you no longer need term life or disability insurance.
“While you are young, a term policy is not too expensive, and it is probably a good idea until the potential benefit doesn't seem important to you anymore. Re-evaluate your need every five years, and drop it as soon as your financial position is strong enough. I dropped my life insurance a few years before I dropped my disability. I should have dropped it sooner. At that point, the benefit was no longer a make-or-break amount of money to me and my family.”
Argument #3 – The Return on Insurance Premiums Is Negative
The next argument, while true, is not a reason to avoid needed insurance.
“Insurance is a gamble, and the house (the insurance company) almost always wins. How big of a spread is there between what we get (benefits) and what we pay? The spread (the insurance company profit) pays for billions of dollars in annual insurance advertising, more than $2 billion annually in political lobbying, billions in real estate for offices, and the wages of more than two million industry employees. Gambling at a casino results in a much better return on investment on average than buying insurance.”
This is a great reason to avoid insurance that you don't need. On average, insurance IS a losing proposition. It must be. The insurance company cannot pay out more in benefits than it takes in in premiums or it will quickly go out of business. Premiums must cover the cost of benefits paid out, the cost of running the insurance company, the commissions for the agents, and maybe even some profit for the owners of the company (unless mutually owned). However, none of that is a reason to avoid buying insurance that you do need. You don't get the average outcome. You either have something bad (such as death or disability) happen to you, or you do not. If you cannot afford the consequences of that something bad happening, you should insure against it. Not everything you buy has a positive return, and that's okay.
Argument #4 – Insurance Is Just Peace of Mind
Next, he says this:
“Will buying disability insurance buy peace of mind? Peace of mind is important. As long as I had insurance and never needed it, I had peace of mind. This peace lasted until I needed to file for disability.”
This is a bit of an ad hominem attack, basically saying those who buy insurance are weak-minded and just need someone to tell them everything will be okay. While obviously a policy that does not pay out when it should provides a false peace of mind, that's not a reason to downplay the mental benefit of actually being protected.
Argument #5 – My Policy Didn't Pay Out So You Shouldn't Buy One
This one is a real whopper, but seems the motivation behind the whole article.
“I then came to realize that my Northwest Mutual occupation-specific policy for which I had paid hundreds of dollars each month for more than 20 years was difficult to redeem, essentially impossible without legal help, and not worth the effort in the end.”
He then goes through a scenario where it seems he is generalizing what happened to him to every possible disability insurance claim. That scenario contains a lot of other arguments which will also need attention, so let's limit this counterargument to the above.
First, I'm not going to defend Northwestern Mutual nor its disability policies. I don't think they're very good and the ones currently being sold are not true own occupation policies. I would not buy any policy from the company nor send my worst enemy to them for their insurance needs. Okay, maybe my worst enemy, but not most of my enemies. I also find most of their policies (particularly term life) to be somewhat overpriced and the worst part is that no matter what you buy from them, you get the hard sell to buy whole life insurance.
That said, there is only one reason a disability insurance policy is difficult to “redeem”, and that reason is that your disability is not obvious to everyone. If the insurance company disagrees with you, you may indeed need legal help. But bear in mind there are plenty of disabilities which are pretty obvious. I have met many doctors who are now living on their disability insurance benefits. They certainly feel it was worth their effort in the end.
Argument #6 – All Policies Are Bad Policies
“In actuality, here's how it will probably go. You buy a great policy, paying monthly premiums of at least several hundred dollars for many years. As the years go by, it gets more expensive and becomes more restrictive, with small changes that you try to watch carefully.”
No. Most solid disability insurance policies do not become more expensive nor more restrictive as the years go by. Nor do they make “small changes” you need to “watch carefully”. They're legal contracts and they don't change. What is clear to me, however, is that Dr. Borden did not actually buy a “great policy”.
Argument #7 – Paperwork Is Hard
“But you should know that the paperwork is long, complex, and challenging.”
Heaven forbid the company wants you to actually document your pre-disability income and your actual disability. I don't think having to do some paperwork is too much to ask. Now, are insurance companies incentivized to make the paperwork hard? Of course. Does NML have harder claim paperwork than other companies? Perhaps. But I don't think “having to do paperwork in the event of disability” is a reason to avoid buying a policy.
Argument #8 – The Salesperson Doesn't Handle the Claims, Nor Does a Doctor
“You won't be speaking to the helpful salesperson but to a claims agent who specializes in not paying out money if at all possible. The person assigned to me had no medical knowledge. She did understand, though, that every single form needed to be filled out completely before the claim could be considered. You will need to submit the last five years of taxes to prove you have been making a normal income as a physician and to prove a substantial decrease in that income.
You will need to submit the medical records of physicians, primary and specialists, certifying your disability. This may be harder if you have been toughing it out while asking your fellow doctors for advice. The diagnoses will be closely scrutinized, and you will be considered for percentages of disability.”
I don't think it is reasonable to expect the same person who sells the policies to process the claims. I do think it is reasonable to receive good service in the event of a claim. I would not necessarily expect that from NML given the many stories I have heard about that particular company. I certainly don't expect the person handling the claims to be a physician. Imagine how much your policy would cost if the claims department were staffed completely by doctors. In my experience, your agent (assuming he or she is still around working) actually can help you get the claim done, even if they're not your primary contact for it. It would be nice if there were somewhere you could get reviews about the claims process on each company.
As mentioned before, imagine how much your premiums would have to be if the company didn't expect those who became disabled to prove both their loss of income and their disability? That's not unreasonable.
Argument #9 – Disabled People Have a Hard Time Doing the Tasks Required to Prove They're Disabled
This one isn't a bad argument.
“Remember, you may not be in the best condition to fight for justice at this point, and it will fall on your loved ones and the attorney they will almost certainly be required to hire….A head injury could qualify, but if it is at all subtle, proving disability will be a long, tough road, which will require your brain to be working 100 percent. See the problem?”
I'm not sure much can be done about that, other than getting a policy from a company that provides good service. But I'm a little skeptical that someone who can continue to work shifts in a busy ED somehow can't get the disability paperwork done:
“Knowing I would receive no payment without continued work, I went to my shifts with complex lacerations, fresh fractures (including a painful pelvis), broken ribs (twice), and other painful things I won't mention.”
Argument #10 – It's Hard to Be Disabled Longer Than Three Months & Argument #11 Only a Truly Severe Injury Would Count
“As an emergency physician who commuted by motorcycle and trained horses as a hobby during 20-plus years of practice, I suffered numerous painful injuries. With two MCAs and being thrown more than a dozen times, I never came close to three months of downtime. Knowing I would receive no payment without continued work, I went to my shifts with complex lacerations, fresh fractures (including a painful pelvis), broken ribs (twice), and other painful things I won't mention but that would never last the three-month minimum.
It will need to be a rather unusual injury. Losing a leg won't do it. Losing both legs won't, either. In those cases, you will adapt to using a prosthesis or a wheelchair and three months of no payment. Losing one arm or most of your vision will make intubation and suturing difficult, but you can still work in a multiple-cover ED where your fellow doctor can handle the procedures. A head injury could qualify, but if it is at all subtle, proving disability will be a long, tough road, which will require your brain to be working 100 percent. See the problem?”
A 90 day waiting period is a 90 day waiting period. If you want short-term disability insurance, buy short-term disability insurance. Don't expect a long-term disability policy to pay you a benefit for a fracture that is going to heal up in a couple of months. That isn't what you (should have) bought it for; that's what your emergency fund is for.
It's also absolutely ridiculous to claim that losing an arm or your vision is not going to be considered a disability under a true, specialty-specific, own-occupation policy. I suspect that has never happened, but the burden of proof of this allegation doesn't fall on me. Dr. Borden – can you provide a single example of this occurring, much less multiple? I doubt it.
It's also an easy argument to make that an emergency physician who cannot use one arm cannot perform their occupation, even if there is someone else in the ED who can. That's dumb. (And I say that having worked double coverage with partners with one arm in a sling for a few weeks.)
Argument #12 – You Shouldn't Buy Disability Insurance Because You Don't Want to Be Disabled
The arguments start getting more bizarre.
“Now picture this. Do you really want to be disabled? If you lose both legs, an arm, and an eye, you can still earn more by consulting online than your best disability policy will pay. Not only that, you will feel useful and productive.”
Again, we see what happens when you don't buy a true own-occupation policy. With an own-occ policy, you can still have a second job as a consult, receive all of the pay from that work AND still receive your full disability benefit. There are plenty of disabilities out there that will keep you from earning 5 figures a month “consulting online”. Lots of doctors have policies that will pay 60% of their pre-disability income. Good luck making anywhere near that as a surgeon doing telemedicine. It's not about whether or not you want to feel useful and productive. It's about whether you're actually too disabled to work. Look, if you can still work (and feel useful and productive) then go work. The disability insurance is for when you actually cannot do that. He seems to be saying that working is still an option. When you're truly disabled, working isn't an option.
Argument #13 – Doctors 50+ Can't Work at Night
“Losing the ability to work well at night won't do it (we all will lose that after 50) because you can still get day shifts somewhere if you try hard enough.”
Good luck claiming “I can't work at night very well” as a disability. At any rate, very few like working at night. And I agree night shifts get harder as you get older. But to say that doctors can't work at night after 50 seems a bit of a stretch given how many are doing it.
Argument #14 – Disability Insurance Is Expensive
He argues further that disability insurance is expensive stuff.
“You will save $300 a month by not paying for disability insurance.”
I agree. Lots of doctors get sticker shock when they realize they will have to pay 2-6% of the amount of income insured every month. However, the reason disability insurance is expensive is NOT that nobody uses it, but because it does get used. If these companies never paid anything out on these policies, they would be cheap to buy, like an umbrella policy. However, when you need something expensive (and valuable), you don't lower the cost by not buying it. You lower the cost by not needing it for as long of a period of time. If you really want to ditch your disability insurance, do what your favorite physician bloggers do—become FI ASAP. This doc kept his policy to age 54. You could reasonably drop your policy a decade sooner if you are a good saver.
Argument #15 – There Are Other Options
His next argument:
“What are the other options? First, what will you do with the $300 a month you will save by not paying for disability insurance? You will want security with this money, so a good route is an investment account with dividends automatically reinvested. This will be an account you will not touch unless absolutely needed. The numbers will be much larger if you deposit a few hundred dollars extra each month into this account initially. These numbers are conservative. I calculated how much I would have now if I had invested in myself rather than in disability insurance, and it was $400,000! I paid $170 a month in the beginning and $600 at the end. Now, at age 54, my policy had been trimmed to a benefit for a maximum of three years, and I was still being charged $600 a month! Had I become disabled, my maximum total payout would have been gradually trimmed, and the still-expensive policy would actually have been less than $300,000 dollars spread over three years.”
Basically, he's saying it is better to invest than to insure against a possible catastrophe because investments can grow to be a lot of money. While I agree it is good to invest, to invest a lot, and to invest early, that does not take the place of insurance when insurance is needed. Imagine getting permanently disabled at 30. Sure, you invested $300 a month for six months before getting disabled, so now you have $2,000. A fat lot of good that is going to do for you over the next 35 years.
He also demonstrates once more the folly of buying a crummy policy. Top-quality policies bought from top-quality companies do not limit your benefit to just three years starting in your 50s. That said, there probably does come a time (usually in your 60s), when the possible benefit may not be worth the premiums anymore since policies generally only payout for the maximum of 2 years or to age 65 or 67. But that time isn't 54 with a typical solid policy like those I advocate you buy.
If there were other options, one of them would certainly be to spend less time doing things that are likely to result in your disability, like commuting by motorcycle.
Argument #16 – You Should Use a Broker for Advice
“My investment broker did the calculations.”
First, don't take financial advice from brokers. Second, if you need someone else to run simple future value calculations for you, you probably should not be writing an article giving out financial tips. Third, your broker has a conflict of interest in recommending against you spending money on insurance since he can only get commissions on investment products he pitches you.
Argument #17 – You Should Not Buy Life Insurance Either
I understand he is mad about not getting the disability benefits he thought he was due. But he seems to use the same arguments for life insurance.
“I suppose it is fairly easy to collect life insurance money when someone dies, but I hope it is easier than collecting disability benefits.”
Yup, it's really easy to collect term life insurance benefits. If they're dead, you can get a death certificate. That's all you need to collect. Again, know any life insurance beneficiaries who had to hire a lawyer to get their payout? I don't, either.
Argument #18 – You Should Bet On Yourself Instead of an Insurance Company
His next argument is a false dichotomy. After throwing out some random financial advice (start an orchard!) that is apparently what he considers “betting on yourself”, he says this:
“You have the choice. You can bet on the insurance company, or you can bet on yourself. As a rational person, you should clearly know that the odds are massively in your favor if you bet on yourself.”
Guess what? You can still invest your money, start businesses, and buy rental properties while having a solid insurance plan in place. They are not mutually exclusive. If a few hundred dollars of your $25,000 per month salary is keeping you from investing, you have a spending problem, not an insurance problem. Yes, the odds are with you. You only have a 1 in 7 chance of acquiring a long-term disability during your career. But that's not a reason to skip out on insuring against it.
Overall, I fear articles like this one will do more harm than good by talking physicians out of buying insurance that they really should buy. The most valuable asset a young, poor physician family has is the ability of that doctor to turn their time into money at a very high rate. It should be insured. Yes, that insurance should be dropped upon reaching financial independence. Yes, the potential payout from long-term disability insurance becomes less and less as you approach age 65. But these are not good reasons to avoid buying it in the first place.
If you're wondering if your policy is as bad as this doctor's was, or if you still need to get this critical coverage in place, check out one of our recommended independent agents today.
What do you think? Was it a responsible article to write? Was it irresponsible for Emergency Medicine News to publish it? What do you think of his arguments? Comment below!