By Dr. Jim Dahle, WCI Founder
Doctors all think their financial questions are unique, but the truth is they're the same 50-100 (mostly 30) questions that every other physician must learn. One frequent question I get is about dual doctor couples and disability insurance.
How Should Dual Physician Couples Buy Disability Insurance?
Here's one question I received a few years ago.
“My husband and I are both physicians with high-earning potential, though I'm still in fellowship and will pursue an academic research job. I'm reading your Financial Boot Camp book, and Chapter 1 is the kick in the rear that I needed. I'm curious what level of disability coverage you recommend for dual-physician households. We will always be able to live comfortably on just one of our incomes, and disability in both of us would be quite rare. Would we miss one person's income if it were gone? Sure, but we live below our means, and we would adjust accordingly. Should we take our monthly coverage number and divide it in half? Or have my husband get more coverage since men are cheaper to insure?”
There Are Options for Disability Insurance Coverage But No Right Answer
I've never satisfactorily answered this question, and the reason why is that there is no correct answer. Actually, there is a RANGE of correct answers, and the range is incredibly broad. Let's talk about all of the options.
#1 Don't Buy Disability Insurance at All
Let's start on one end of the spectrum. This is the end where the two docs basically function as each other's disability insurance policy. If one of you becomes permanently disabled, well, you live on the other's income. No big deal, right? Clearly, disability insurance (at least prior to our becoming financially independent) was a much bigger deal in our household with one doctor and a teacher staying home to take care of our four kids than it is in the lives of this couple. It was a huge piece of the financial puzzle for us, but not so much for this couple.
Some people will be very comfortable with this option. Certainly, it has the advantage of thousands of dollars in saved premiums, and it avoids the hassle of applying for and qualifying for disability insurance. A two-doc couple should theoretically reach financial independence (where you can drop disability insurance anyway) much sooner than a single doc or a one-doc couple. Given typical doctor tax burdens, you don't even lose an entire second salary when one person quits working; you probably only lose 50%-60% of it. However, before going down this road, there are a few things to think about.
Considerations Before You Cancel Your Disability Insurance
First, some dual-doc couples cannot live on just one salary without a significant change in their lifestyle. If you're a super saver living on half of one of your incomes, no big deal. But what if it takes both of your incomes just to cover your rent in downtown San Francisco? That disability insurance no longer looks so unnecessary, eh?
Second, there are financial consequences to losing that income. Sure, maybe you can still maintain your lifestyle and maybe you can even continue to save for retirement adequately, but that additional income was going SOMEWHERE. Maybe additional savings for earlier financial independence, maybe to charity, maybe to a family member in need, or maybe to some really fun vacations. It might still be worth it to you to buy that insurance just to cover that stuff.
Third, life happens and things change. Maybe you start spending more in a couple of years. Maybe your investment returns are not as good as you hoped. Maybe you become a one-doc couple when one of the partners decides to stay at home with the kids. Maybe you get divorced. Maybe one of you dies. Maybe there is a huge lawsuit above policy limits that wipes out a lot of wealth. Maybe doctor incomes go to pot. Who knows? But buying more disability insurance could provide some additional protection in those situations.
Fourth, perhaps the disabled partner can no longer do their previous household duties. There is a cost to hiring those out as well. And imagine the disabled partner also needs an in-home medical assistant of some kind. Wouldn't it be nice if there was a ready source of income for paying for those things?
Fifth, and perhaps most importantly, what happens if BOTH of you get disabled at once in some fiery car wreck? While the odds are obviously much lower than the chance of one of you becoming disabled, the odds are not zero. Choosing to go without could potentially leave you with no coverage in the event of dual disability.
More information here:
How Much Disability Insurance Should You Buy?
#2 Buy Maximum Disability Insurance on Both Partners
Let's go to the other end of the spectrum now. That's to treat each doctor as though they are single and spend a large percentage of their income. The obvious advantage? If one of you becomes disabled, your income does not drop as much, and you are as protected as you could be from life changes. The obvious disadvantage? Individual disability insurance isn't cheap. It would not be unusual to pay 5% of the amount of money protected. If you were paying for a $15,000 monthly benefit on each of you, that could be something like $18,000 a year. That's nearly a 401(k) contribution ($18,000 a year at 8% for 30 years adds up to more than $2 million).
=FV(8%,30,-18000,0) = $2,039,098
#3 Buy Maximum Disability Insurance on One Partner
Naturally, many couples look at that disability insurance bill and try to figure out a way to at least decrease it—even if they are not comfortable eliminating it completely. One solution might be to just insure one partner. Then, if you are both disabled, at least there is still a single physician-like income to live on. Obviously, there is going to be some risk there that the “wrong” person gets disabled (or death or divorce, etc.), but it should at least cut the premiums in half.
Which person do you insure? Do you insure the one least likely to cut back on work or become a stay-at-home parent (usually the man in the US)? Do you insure the one most likely to get disabled (often the woman)? Do you insure the one who is cheapest to insure (usually the man)? Do you insure the one who earns the most? Do you insure the self-employed one or the employee? Those are some tough decisions that every couple is going to have to decide on their own. Just think through the consequences of each possibility and see what you're comfortable with.
More information here:
When Is It OK NOT to Buy Disability Insurance?
#4 Buy Some Disability Insurance Coverage on Each Partner
Here's another frequently chosen option. Consider our situation. We NEVER bought “maximum” disability insurance. We didn't think we needed that much coverage. I generally recommend you buy “enough” coverage. That is, enough to both cover your living expenses and save enough to meet your retirement/college goals since most policies stop paying out at age 65-67. You can usually buy enough disability insurance to cover 60%-70% of your gross income. Given that disability benefits are typically tax-free, that is MORE than enough income for good savers.
Two-doc couples can do the same thing, and they probably need even less coverage. This eliminates the possibility of the “wrong” person getting disabled. Plus, in the event of divorce, at least you each have some coverage going forward. Either way, the cost of the coverage is much lower.
There are lots of places you can skimp here. Perhaps you just use the group policies provided by your employers. That could reduce the cost of your coverage by 80% or more. Perhaps you're more likely to buy a policy with graduated (instead of level) premiums (since you'll hit financial independence earlier). Perhaps you don't buy some of the riders such as the Cost of Living rider, the Future Purchase Option rider, the Catastrophic Disability rider, or the Retirement Benefit rider. Perhaps you simply buy a smaller monthly benefit. Maybe you accept a two-year limitation on mental/nervous conditions, or you accept a policy that only has a five-year payment to lower premiums.
Lots of ways to skin this cat, and you'll have to do what you feel comfortable with. I suspect that many couples could drop the cost of coverage by 50%-75% from what “maximum coverage on both” would cost while still having coverage that would be acceptable to them.
More information here:
17 Physician Disability Insurance Mistakes to Avoid
#5 Buy Some Disability Insurance Coverage on One Partner
Here's another one that allows you to really cut back on the cost of coverage. Maybe you just get a group policy or a bare-bones policy on one of you. It includes some of the downsides of only buying coverage on one of you and some of the downsides of only buying limited coverage. But it does provide a little something in the event of dual disability.
Now you can see what I mean when I say there is no right answer. But there is a right answer for you, and when we first published this piece, I was curious what it was. We took a poll, and this is what you said.
What do you think? Are you part of a dual high-income couple? What was your solution to the disability insurance dilemma? What do you think about that poll? Comment below!
[This updated post was originally published in 2019.]
Of course I would hate for a disability to change my lifestyle but why would I expect it would not. If one of us became disabled we would absolutely reevaluate our spending and most certainly cut back. Paying for my kids college is a current goal of mine but it might easily not be if I lost my income. Could consider downsize on the house and cars but in our case there is not much to save there. There are lots of things we spend money on because it is “plentiful” right now. In lean times we would invariably cut.
Good thoughtful post. Thanks.
We were fairly naive. We thought as soldiers we had disability insurance. Now I realize VA disability would really be a drop in income even from our military pay. But in any case especially since there were many years during our travels with the military once I was out, when only one of us worked, we self-insured and decided that the consequence of one or the other of us becoming disabled would be that the healthy one would have to work. We have never considered both of us becoming disabled and the consequences to our kids and ourselves, or the issue of paying for our care if one or both were disabled.
Very good points, especially replacing the child’s caregiver and homemaker’s work for even a one income couple. Thanks to a financial advisor we went to about the time we had our second child, a good bit later than the first one, who brought up the concern that in the event of my death we’d need some money- we had thought we could let lapse the policy we’d gotten to last until the first kid was through college on me since I was working a lot less then and we were close to FI. The advisor pointed out that if I died leaving a baby or young child the family would have pretty high expenses replacing what I do and spouse might even want the option to quit work. Does anyone even sell disability insurance for homemakers? What do they consider 100% “income” replacement?
Which might also occur if either spouse became disabled- family might choose to cut back double doctor income to just the disability pay if that seems to be the best way for the disabled spouse to get proper care- the healthy spouse becoming a stay at home parent and caregiver.
I went into practice with my father. We always considered each other our insurance. If something happened to me he could work the practice long enough to get it sold. I never got around to getting disability insurance. I always kept enough term life to cover debt and a little more. My wife stayed at home , but could go back to work and make decent money. We lived within our means and by 50 I was debt free and enough packed away for 3 kids to go to school and a nice diversified retirement fund. Now I work because I like it.
Looking back, it was stupid not to have disability insurance.
I agree. Like many, you rolled the dice and got lucky. Or rather didn’t get unlucky.
This is something that I have struggled with for several years, so thank you for the post! My wife and I have opted for the “some coverage” for both of us. However, our newish employer has decent disability insurance (true own occupation, transferrable to an outside policy if we should leave or be fired) that is mandatory for us to purchase, so we have gone back and forth about whether or not we should get rid of our private policies. For now, we keep both. As we work closer towards FI though, I think we will drop the more expensive private policies. Thanks again for a great write up!
I’m in this situation. We’ve decided to (partly) insure just one of us. We also don’t (yet) have children, so maybe that plays a role in our decision?
We initially decided to not have any disability insurance at all, but that decision didn’t sit right with me. So for a couple of hundred dollars a month, I have bought a little peace of mind. And somewhere a broker in the mid-west is getting a little commission.
Strongly agree that there is no right answer…
Dual doc couple here, we opted for full coverage on one of us and limited coverage on the other. My husband has the more limited coverage from our private DI but better coverage through his job. I have full private DI although now I’m working less than him and making less money. Not sure when or how we will decide to change our coverage going forward…..
Lots of great information in this article.
On another note, I dig the beard in your photo, Dr. Dahle.
Thanks! They don’t last long on me. I’m doing well to go two weeks.
We got coverage for me till 67 and my wife for 10 years. This is in addition to employer coverage.
me and the wife as dual earners just do partial on both. Really only insuring for what we need, and if one of us gets disabled we would only give up a little of our lifestyle but have enough disability insurance to meet our goals.
I think you have to focus on if you can meet your goals based on your spending. If you can life off one income and still meet your goals, then unlikely you need disability at all (though if then one of you gets disabled then quickly need to insure the non-disabled spouse!). If you depend on a lot on both incomes and need both fully to maintain your lifestyle and meet your goals, then well need to fully cover both. And yes, does make sense to cover only the one partner fully if the other partner is not planning on staying in medicine long or is cutting back on work.
And Jim I too am digging the beard!
Dual income , no private DI. Both of us are covered in Ltd fashion through employers (not own occupation, capped). As we live on half our salary at present, seems the restricted disability pencils out to cover retirement and charity contributions planned with only a 3-5 year delay in our early retirement goals.
A catastrophic disability to both of us, however, would devastate us and our kids. In light of that, I try to make hay while the sun shines. Work hard. Try to reach the FI number early so I know my family will be provided for in any eventuality.
Only then do I break out the climbing gear and see if Jim wants to teach me the ropes.
We work with many physician couples (and in fact, both my wife and are physicians). Every family is different, but we usually encourage both spouses to get at least some coverage until they have saved enough to self insure. Having a severely disabled spouse at home is in many ways worse than having a death-the injured party is still around needing care and costing money. The non disabled spouse probably doesn’t want to work full time.
In addition, consider the possibility that both spouses are disabled (they travel together a lot, right?) and there are dependent children at home. I think that not having disability coverage for both spouses is a mistake.