This is the third in a series on disability insurance. Part one can be found here and part two here.
Disability insurance differs from life insurance in numerous ways, but none is more significant than in defining exactly when you become disabled (and when you become enabled again.) The broader a definition of disability you get in your policy, the more the policy will cost.
Own-occupation, Specialty-specific
Probably the most important aspect of the definition for doctors is that it be specific to your occupation. For instance, if I lost my left thumb, there are a number of procedures in emergency medicine that I would no longer be able to do. I would be completely disabled from managing a busy emergency department by myself. But I could probably still go do urgent care work. A specialty-specific definition of disability in my policy would provide me my full disability payments in addition to the money I make at the urgent care. Sometimes the “specialty-specific” clause is inherent to the policy, and at other times it is an additional rider (piece of paper added to the policy for which you pay an additional premium). Either way, you almost surely want to get this in your policy.
Here’s the way the clause reads in my current policy (Standard Insurance):
Total Disability/Totally Disabled – Because of Your Injury or Sickness:
1. You are unable to perform the substantial and material duties of Your Regular Occupation; and
2. You are not engaged in any other gainful occupation
The definition of “Regular Occupation” in the policy reads this way:
Regular Occupation – Your occupation at the time Disability begins. If You have limited Your practice to a professionally recognized specialty in medicine or law, the specialty will be deemed to be Your Regular Occupation.
If you read the above carefully, you’ll notice that the policy won’t pay me if I am able to go work at an urgent care or some other job – i.e. “engaged in any other gainful occupation.” Because I wanted a stronger definition of disability, I purchased an “Own Occupation Benefit Rider” which says this:
This rider changes the definition of Total Disability/Totally Disabled in the policy’s DEFINITIONS section to read as follows:
Total Disability/Totally Disabled – Because of your Injury or Sickness:
1. You are unable to perform the substantial and material duties of Your Regular Occupation
That particular rider costs me about $455.70 per year, or about 0.5% of the income protected ($7500/month). The whole policy costs me about 4% of the income protected, so this particular rider is responsible for about 13% of the cost of the policy. Is it worth it? I thought so.
Mental Disorders/Substance Abuse
Many policies will only cover mental illness or substance abuse related disabilities for a period of two years. I know an attorney who became unable to practice law due to developing bipolar syndrome in his 30s. It took over a decade to get it under control. He had a policy that covered mental illness indefinitely, which prevented financial catastrophe from striking him and his family. You’ll need to decide whether this is a risk you’re willing to run or not. If you want mental illness covered like every other illness, you’ll be paying more. I opted not to pay for this in my policy, but I based that decision on my personal history of mental illness (or rather lack of it), a lack of family history, and the fact that I don’t smoke, drink, or use drugs and don’t plan to start any time soon. So my policy only covers 2 years.
Presumptive Total Disability
As you well know, disability can be defined in many shades of gray. In the event of your disability, you can expect a bit of a paperwork fight between you, your physician, and the disability insurance company. However, most policies contain a section that defines “presumptive total disability” where you can be assured there won’t be much arguing from the insurance company. My policy reads like this:
Presumptive Total Disability – Your total and permanent loss, because of Your Injury of Sickness, of one of the following:
1. Speech;
2. Hearing in both ears, not restorable by hearing aids
3. Sight in both eyes (see below);
4. Use of both hands;
5. Use of both feet; or
6. Use of one hand and one foot.
Total and permanent loss of sight in both eyes means: Both eyes must measure at or below 20/200, after reasonable efforts are made to correct their vision, using the most advanced medically acceptable procedures and devices available.
Anything short of that, and you’re going to have to get your doctor to certify your disability and get the insurance company to accept it. At times this can involve visits to multiple specialists and even hiring an attorney.
Cosmetic Surgery/Transplant Surgery
Some policies will cover you if your disability is the result of cosmetic surgery or the result of donating a kidney or other body part to someone else. Mine happens to cover this. Be aware that some may not. Read the fine print.
Exclusions and Limitations
We discussed many of these in part two, but keep in mind that most policies do not cover you if your disability is the result of you committing a felony, your active participation in a riot, disability occurring while you are in jail, or an intentionally self-inflicted injury. So if you’re going to try to commit suicide, realize that while your life insurance will probably pay (at least after the first two years of the policy), your disability insurance isn’t going to pay if you only manage to disable yourself.
Residual Disability
Residual disability refers to being only partially disabled. This may occur from the initial injury or illness, or be part of the process of recovery. You generally need to buy an additional rider to cover this. Read this rider carefully, it can be a bit complicated. My definition of residual disability is listed here:
Residual Disability/Residually Disabled – Residual Disability means You are not Totally Disabled, but because of Your Injury or Sickness:
1. Your Monthly Earnings are reduced by 20% or more of Your Indexed Prior Monthly Earnings; and
2. You are under the regular care of a Physician appropriate for Your Injury or Sickness; and
3. You are able:
a. To do some, but not all, of the substantial and material duties of Your Regular Occupation; or
b. To do all of the substantial and material duties of Your Regular Occupation, but not for as long a time or as effectively as You did immediately prior to Your Injury or Sickness.
Imagine developing painful lumbar radiculopathy that keeps you from working more than 20 hours a week. This is the part of your policy that will cover that. This rider will also explain how much you get if you are partially disabled. My policy pays the whole benefit (total disability) if I can’t earn at least 20% of my “indexed prior monthly earnings”, which is basically the money I earn at my job. It doesn’t count my investments, other disability income policies, rent from a rental property, or my nonvocational activities (like this blog.) It doesn’t pay anything if my earnings aren’t reduced at least 20%. If I am making between 20% and 80% of what I made previously, I get the total disability benefit times the ratio of my loss of income for that month divided by my indexed prior monthly earnings. An example:
Say a physician earns $20,000 a month. He has $7000 of that income covered by disability insurance. He becomes partially disabled, such that he can only make $15,000 a month. Since this is more than a 20% loss, the residual disability rider kicks in. His loss of income is $5000. Divided by the indexed prior monthly earnings of $20,000, the ratio is 0.25. Multiply 0.25 by the $7000 benefit, and he gets $1750, for a total income of $16,750. That will help soften the blow a bit. If the physician had $15,000 of income covered by disability insurance, he would have the same ratio, but would multiply it by the $15,000 benefit, giving him a disability payment of $3750, for a loss of income of only $1250 a month from his previous amount. Like with most aspects of disability insurance, you get what you pay for.
The good news is that just like you (hopefully) your disability insurance company wants you to go back to work full-time. So part of this rider is usually a recovery benefit. My policy will give me a lump sum of up to $45,000 (6 times the basic monthly benefit) to go back to work after being partially disabled.
A residual disability rider isn’t as expensive as the last rider we discussed. On my $7500 policy I pay about $241.45 per year, or about 0.27% of the income protected, or about 7% of the cost of the policy.
In part four I’ll discuss some other important riders to have on your policy including future purchase options, cost of living riders, and the noncancelable policy rider.
What do you think? How important is the definition of disability to you? Comment below!
Your website is great! Just what I was looking for, from another physician. I feel much more informed and comfortable making the changes I need to my current coverages.
Glad to be of help.
Curious to know if you can add a rider on the presumptive total disability for the loss of one limb, as you know, it’d be damned difficult to be an ED physician with only one arm or one leg
You don’t need a rider, you just need a strong disability definition that says if you can’t be an emergency doc you get paid. Who needs to lose a limb when thumb ought to do it?
What is the specific language in your policy that addresses:
“So part of this rider is usually a recovery benefit. My policy will give me a lump sum of up to $45,000 (6 times the basic monthly benefit) to go back to work after being partially disabled.”??
Also, do you consider the language above, “1. You are unable to perform the substantial and material duties of Your Regular Occupation.” coupled with the definition of Regular Occupation as stated above, “Regular Occupation – Your occupation at the time Disability begins. If You have limited Your practice to a professionally recognized specialty in medicine or law, the specialty will be deemed to be Your Regular Occupation.” to be a sufficiently strong disability definition for Josh, the emergency doc who commented on 1/13/2014?
REsidual disability rider.
Yes.
Thanks so much for your reply. It’s the “recovery benefit” that confuses me…I have not seen that language anywhere. In the residual disability riders, I see language about partial disability, but nothing about a lump sum for returning to work. Will you please show me the specific “recovery benefit” language in your policy that leads to the lump sum payment for going back to work as you described? Thanks!
I’m not sure how the language in my policy that I bought in 2004 is going to help you. But I’ll humor you. Here is the language in my policy:
Recovery Benefit: You will be eligible for a lump sum recovery benefit if immediately after your disability ends:
You are not eligible for a disability benefit and
You are engaged at least 30 hours per week in your regular occupation or in any other occupation immediately following a disability for which residual disability benefits under this policy were paid.
The amount of the recovery benefit is a lump sum equal to the lesser of:
Four times the basic monthly benefit or
The total amount of residual benefits paid during the continuous residual disability preceding this benefit or
The number of months remaining in the maximum benefit period as of the time of your recovery times the basic monthly benefit.
I’m actually kind of happy I went back and got that out. Two of my policies say 4 months and one says 6 months. So it would be a little less than $45K for me, probably around $40K, at least if anyone goes back and reads the fine print there.
Cathy,
The policy that WCI has is just one specific policy. Based on the description provided, it sounds like he has the Protector Plus policy from Standard. This policy isn’t even offered any longer, unless you are applying under one of their Guaranteed Standard issue GME programs. They now offer the Protector Platinum policy which provides recovery benefits for up the maximum benefit period.
In case you are in the market and comparing your options… Most of the leading policies offered today provide full recovery benefits to age 65. They do not limit them to 6X the monthly benefit like Standard’s Protector Plus policy did. CA is the only exception to this as many of the policies offered in CA are different than those offered in the majority of other states.
If you want to elaborate on the root of your question, perhaps we can help more effectively.
Hi WCI,
I’m re-reading all your posts about Disability Insurance (so far just got through part 1-3 from 2011), as it’s helpful for me to re-evaluate the two policies that I have from 5 years ago. So far, two questions have come up:
1) It seems there is about 5% savings for me to pay yearly instead of monthly. So far I’ve been paying monthly. Would you switch to yearly?
2) At which point would one stop having the need for disability insurance? I’m not there yet, but I want to plan for this (don’t want to pay an extra 15 years of premiums, for not much gained benefit). Would it be something like net worth = (25 to 33) * (insured income)? I’m basing this on “safe withdrawal” of 3-4% of net worth yearly. Is there a better way to estimate this?
Thank you for recommendations!
1) Yes. I do.
2) When you are financially independent. I think you can estimate it better with your living expenses x 25 than your insurance amount x 25, although the numbers are probably in the same ballpark if you bought your insurance properly, except you might also have needed enough insurance to include retirement savings.
Just found answer to question 1 in part 5 of your series.
I am curious about your thoughts on cancelling disability policies as you near retirement. I am a 55 year old surgeon who pays $12,000 for my disability policies. If I get disabled before age 60, the policies pay for life ($175k per year). However, if I am disabled from age 60-65, the policies only pay until I am 65. After 65, they are worthless.
I am in a financial position (from having a philosophy similar to the one you develop here) where I would be fine without the disability income even if disabled tomorrow. However, I might have to sell some assets later in life to do so. When does the cost of disability insurance outweigh the benefits?
That’s weird policy. Are you SURE it would pay for life? A typical policy pays to 65 or 67, but with a minimum of 24 months of payments or so.
If you’re financially independent, drop the policy. $12K per year seems like a ton to me. I’m not paying half of that for more monthly income, although my policy doesn’t pay for life.
Mike,
It sounds like your policies include a graded lifetime benefit feature. This was much more popular 10-15 years ago when it only required a 10% increase in premium, but the cost has increased substantially since then. Depending on when your coverage was initially purchased, this feature could account for a decent chunk of the premium you’re paying. If you are close to being completely comfortable without the coverage but not quite there, perhaps you can start by modifying the policies in order to reduce premium while still maintaining some protection. For example, you might be able to remove the graded lifetime benefit feature and reduce your cost by 20%. You might also consider removing other optional riders (Cost of Living Adjustment rider, Catastrophic Disability rider, etc.), extending the elimination period or reducing the benefit amount. These modifications aren’t going to drastically change the cost, but even 20-30% is substantial when talking about a $12k annual premium.
I’d be happy to take a look at your policies and offer a second opinion if you’re interested.
Do you have suggestions for where to shop for disability insurance, similar to the online suggestion for life insurance? I recently met with an agent from Finity group (an agency in the Pacific Northwest that seeks physician clients by offering residents services free for the duration of their training) who wants me to get disability insurance through him, but he doesn’t meet your criteria for hiring a financial planner (young, fee-based, no education behind BS, etc).
You don’t have to buy disability insurance, just an independent agent who won’t push a whole life policy on you. Here’s a list of them:
https://www.whitecoatinvestor.com/websites-2/insurance/
There are a number of insurance agents listed under “Recommendations” at the top of this website. Several of us are also active participants on the blog as well as paid advertisers and supporters of the site. As one of those paid advertisers (my banner is the disability insurance one on the top right of each web page), I can assure you that WCI has a process in determining who gets to advertise. If you need help or simply want a second opinion to determine whether the advice you were given is sound, feel free to email me at [email protected].
Is it typical for the policy under total disability to say “If you are not able to perform the material and substantial duties of your occupation, even if you are gainfully employed in another occupation. Your occupation means the occupation in which you are gainfully employed during the 12 months prior to the time you became disabled. If you have limited your occupation to the performance of the material and substantial duties of a single medial or dental speciality, we will deem that speciality to be your occupation”
So if I left er and did urgent care for 12 months say if I had kids and just wanted to work a little bit while they were young with plans to go to the ed in 1-2 years and say I got hurt during that time, would I still be covered if I say could continued to work in the urgent care but my injury prevented me from going back to work in an ed?
Do you suggest a rider to this like the above UC example I gave? Just a thought. Thanks as I definitely could use some clarification.
The definition you referenced here is what you’ll find in every True Own-Occupation policy. The wording may be slightly different, but they all apply similarly in a claim. Here are three variations you would find in reviewing policies from the Big 6:
– Your occupation means the occupation in which you are gainfully employed during the 12 months prior to the time you became disabled.
– Your occupation means the occupation in which you were gainfully employed immediately prior to becoming disabled.
– Your occupation means the occupation or profession you were working in at the start of your disability.
The insurers each use different wording, but all make the same point. I’m not sure if I understood your question entirely, but there is no rider that can be added to modify this provision in the way you’d like it modified.
If you left the ER and started working in an urgent care for a couple years, the determination of eligibility for you to collect benefits under total disability would be based on your ability or inability to perform the material and substantial duties of a physician working in an urgent care facility, not in an ER.
Yes, that’s the typical wording. In fact, that sounds awfully familiar. I think that’s exactly what my policy (Standard) reads. And it seems reasonable to me. I mean, why should a policy cover you if you’re doing dermatology and become disabled such that you cannot do GI? At any rate, if you think of the list of disabilities where you could do urgent care but not EM, it’s a pretty limited list, no? Not a lot of risk there in my opinion.
I’m looking at a MetLife disability policy right now that will be in addition to my group plan with the hospital. I’m finishing up residency in a couple weeks and will be starting with my next practice in August ’16. The insurance agent said that since I’ll just out of residency MetLife will only offer “Starting Practice Limits” policy. Initially the agent said it would be a Benefit Amount of $7,500/mo with the all the important riders mentioned in this series of posts you wrote. The monthly premium was $178 and since 178/7500=2.4% I was going to go with it. However, today he mentioned that he ‘misspoke’ and because this Individual Disability Income policy is being paired with my group plan, I am only eligible for a benefit amount of $3,200/mo and the premium is now $78/mo. My group plan will pay 60% of my salary up to $10,000/mo but has ‘own occupation’ language only for 24 months then the definition of disability is vague. 78/3200=2.4% as well so I guess the ratio is still good, but does this make sense that they would limit my Benefit Amount to this degree because it is being paired with my group plan?
I would still have the Guaranteed Insurability Rider that will allow for increases of $1000 up to $9600, so maybe it’s not a big deal?
I wish I could get the $7500 right away but maybe this is a standard problem when pairing IDI with group plans. I’d appreciate your thoughts!
I don’t sell it, so I don’t know all the ins and outs, but I’d buy as much as they’ll sell you from a good independent agent who is showing me multiple policies and explaining the pluses and minuses of each clearly.
MG,
The agent you’re working with is incorrect. Employer-sponsored group disability insurance is immaterial when applying under Starting Practice Limits. As a graduating resident/fellow or first year attending, you can absolutely qualify for the $7500 monthly benefit with MetLife. It was great of you to question this, because that opportunity of applying under Starting Practice Limits only exists for up to one year post-training.
I am a graduating fellow and do breast imaging (which includes diagnostic reads and procedures/biopsies/drainages etc). I have heard that if you get IR occupation specific insurance, then, if you can’t do procedures you will get full disability, and still can do diagnostics. An insurance agent told me that at the time of the claim, they insurance company will pull your CPT codes and only consider you disabled if you have been doing 60% procedures within the past year. If it is less than that you won’t qualify if you are still able to do diagnostics. In that case, only if your income is reduced by 15-20% it will be considered partial disability. Is this true, as a biopsy can take up to an hour, while you can do 10-20 screeners in that same amount of time, so of course you will have >60% in diagnostics every year, but not being able to do procedures will affect my ability to do breast imaging as biopsies are an integral part of it. You can of course just work at an outpatient center and only read screening mammography but it is equivalent to a mammographer and not full-fledged breast imager/interventionalist. In addition, premiums for an interventionalist are higher.
Hi WCI,
I’m just about to graduate from my FM residency program and entering a sports medicine fellowship so I’ve been looking at the nuances of DI. With regards to the regular occupation vs own-occupation, would this make any difference to an FM doc? I can see how it could affect say, a surgeon or someone more specialized, but if I’m unable to perform FM duties I would also presume that the disability would preclude me from sports med as well as any other specialty duties. Basically, is own-occupation worthwhile for the FM doc? Thanks!
Johnny
Obviously less valuable than for a surgeon, but whether it is worth it for you or not is really a personal decision. I think you can justify it either way.
Could use some help clarifying what my policy includes, and if it is own occupation/specialty specific.
I’m a little confused by the article — are “own occupation” and “specialty specific” separate things, and is it possible to have a policy that has one but not the other?
My MetLife Policy defines Total Disability and Regular Occupation as:
“Regular Occupation means your usual occupation (or occupations, if more than one) in which you are gainfully employed at the time you become disabled. We will consider the material and substantial duties you are performing, including those of a professionally recognized specialty in medicine or dentistry immediately prior to the time you become disabled”
“Total Disability — Due to solely impairment caused by injury or sickness you are 1) Prevented from performing the material and substantial duties of your regular occupation and 2) receiving appropriate care from a Physician who is appropriate to treat the condition causing the impairment”
thanks!
All specialty-specific policies are own occupation but not all own occupation policies are specialty specific. With any occupation, if you can work doing anything it doesn’t pay. With own occupation, if you can practice any specialty it doesn’t pay. When your occupation is defined as your specialty (specialty-specific) if you can’t do your specialty, it will pay.
That metlife policy is own occupation and specialty specific.
I recently had an insurance agent tell me that there is only a “Big 6” that has true own occupation disability insurance, and he listed them as “Guardian, Standard, Mass Mutual, Principal, Ameritas and Ohio National.”
Is there any truth to this? I have MetLife and it reads as own occupation/specialty specific, but is not on the list..
Metlife was considered one of the Big 6, then they stopped selling disability insurance. Don’t worry, your policy is fine, they’re just not selling new ones.
Thanks again for the help.
Is there any reason to worry about my old policy if they no longer sell new ones? Is there customer service going to go in the tank or will they eventually try to find a way out of the old policies?
I haven’t heard of an issue with this.
How common is it to require a lawyer to get your disability claim approved? Is this common enough that I should almost expect it if I have to file a claim that is not something obvious (such as paralysis or blindness)?
Good question. My impression is a minority of cases, but we can see if an agent can give you a more definitive answer.