Podcast #163 Show Notes: Guide to Physician Disability Insurance

If you are not financially independent, you need to have a disability insurance policy in place. About one out of every five doctors over the course of their career use a long-term disability policy. If you don’t protect your income, what really is protected? It is really foundational to your financial plan. You need to have a policy in place that will replace a large portion of your income if you get disabled so you can continue moving forward with your plan. If you get disabled and you can’t actually earn your income, then all of that effort you put into your financial plan goes out the window.

I have been collecting disability questions from you for several weeks. I brought Matt Wiggins from Pattern Insurance on this episode to help answer questions and give some additional information as an insurance agent. In this episode, we talk about the three D’s of disability insurance – definitions, discounts, and deadlines, pregnancy and disability insurance, the top insurance companies, how agents are paid, getting out of a bad policy, graded vs level premiums, and what riders may or may not be worth adding to your policy.

If you don’t have disability insurance you need to listen to this episode. If you aren’t sure your policy is adequate, you need to listen. If you have a great policy in place, pass this episode on to a colleague; you probably know someone that needs the push to get this in place.

Where do you find room in your monthly budget for disability insurance when you also have large student loan payments due?  I recommend checking out Student Loan refinancing with Splash Financial. Refinancing with Splash can save you a lot of money. Their rates are at historic lows, with June fixed rates as low as 2.88%.  Splash also offers special refinancing to residents and fellows AND a cash bonus for eligible White Coat listeners.  There is no cost to refinance your student loans.  Go to splashfinancial.com/whitecoat today to see how much you can save.

Quote of the Day

Our quote of the day today comes from Robert Doroghazi, MD. He’s a retired cardiologist who wrote a book. It came out before mine actually, about how physicians can become financially secure. But he said,

“Considering the average physician’s income, all that is required to live comfortably and retire when you wish is a little fiscal discipline and the avoidance of stupid mistakes.”

I totally agree with that. When you’re making income that’s in the top 1% to 2% of America, really all you have to do is manage your money well, and you should do very, very well.

Live Like A Resident

We have a promotion thing going on promoting you and what you have accomplished,  to use your experience to inspire your colleagues. If you have paid off your student loans, at some point in the last year or two or three, we want you to share it with us on social media. Use the hashtag (#) Live Like a Resident. But most importantly, submit a Google form with your picture, maybe holding a sign of how much student loan debt you paid off, and a little bit of information about you. We will promote you across our social media channels in order to inspire people to do the same thing you’ve just done. We want to celebrate your marvelous accomplishment with you.

Guide to Physician Disability Insurance

I have been collecting disability questions from you for several weeks. I brought Matt Wiggins from Pattern Insurance on this episode to help answer questions and give some additional information as an insurance agent. We start by talking about the basics of disability insurance. About one out of every five doctors over the course of their career use a long-term disability policy. If you don’t protect your income, what really is protected? If you get disabled and you can’t actually earn your income, then all of that effort you put into your financial plan goes out the window. You can have the fanciest financial plan or FIRE plan and it all goes out the window if you get your large income cut off early.

It is really foundational to your financial plan. You need to have a policy in place that will replace a large portion of your income if you get disabled so you can continue moving forward with your plan. Disability Insurance is the first chapter in my Financial Boot Camp book. If you are not financially independent, you need to have a disability policy in place.

Typically people pay their disability insurance policy premiums monthly. That premium entitles you to receive a certain amount of money each month in the event you become disabled. Generally, you have to be disabled for three months before a long term disability policy kicks in. From that point on, until you recover from the disability or until age 65 to 67, depending on the policy, it will pay you that benefit. А really good policy will pay you that benefit no matter what else you’re doing in your life. А less good policy may pay you less if you are able to do something, even if it isn’t going back to practicing medicine.

Three D’s of Disability Insurance

Matt says there are really three D’s in disability insurance. There’re definitions, discounts, and deadlines. There is a lot to know about this type of insurance. It is not an easy form of insurance to get your head around. But he would say if you know the definitions and if there are any deadlines or discounts, you’re doing pretty well.

Knowing the definitions in your policy really makes a difference between a bad policy, an okay policy, and a great policy. Part of the issue is that disability is so gray.  Life insurance is such a black and white thing. You’re either alive or you’re dead, but disability is 50 shades of gray. There are just so many ways to be disabled, and there is a continuum of how disabled you are. Because of that, the contracts have to be much, much more complicated. Also, because it is so much more common to be disabled during your career than it is for you to die during your career, it’s much more expensive. A lot of people get sticker shock when they go to buy these policies. They don’t realize that it’s pretty typical to be paying 2% – 6% of the amount that you are protecting. That means if you have a $10,000 a month benefit, you might be paying somewhere between $200 and $600 a month for that benefit. It’s not cheap stuff. But Matt reminds us that you have to think about the lifetime benefit of this insurance. If you’re getting $10,000 a month, that’s $120,000 a year that they would pay you tax-free if you become disabled. And a lot of these contracts are 20 or 30 years out.

There are also all deadlines and discounts to know about when you get your policy. Ask about what discounts are available to you and about deadlines for getting certain types of coverages.

“You’re not going to have a psychiatrist paying the same rate as a surgeon. If you do it early on in your career, there are discounts. Those discounts typically are based on your employer. Is it a big employer or not? Can you go in with several people to get it? There are all sorts of things you can do to get discounts. We find them for residents, for fellows, for attendings, who’ve been attending for 20 years. I mean, there are discounts out there for you most of the time.”

What Happens When Insurance Companies Go Bankrupt

A listener asked about getting a policy from a company that has been downgraded three times in a row in its bond rating. What happens to your policy if the company goes bankrupt? There are really 5-6 big disability insurance companies, The Standard, Guardian/Berkshire, Principal, Ameritas/Union Central, Mass Mutual, and  +/- Ohio National, depending on who you talk to.  Each of these offers a strong “own-occupation” disability insurance policy appropriate for physicians.

Matt said if an insurance company goes bankrupt there is a whole process by which their block of business gets transferred to a solvent company. It is an auction process and the government oversees that. While you don’t want to go dumpster diving for an insurance company, all 6 of those companies are well within the safe range.

“Now, if you can land with a company, that has much stronger ratings and the prices are pretty close and everything else. Absolutely. That could be maybe a deciding factor for you. If you’ve already got an Ohio National policy, or if you’ve got a quote that it’s 10% – 15% cheaper than the others, we absolutely think they’re one of the six and one you should consider going with.”

If a company goes under, there is this auction process. I asked Matt, are there ever policies that aren’t transferred or are they pretty much all transferred? And your policy’s going to work out the way you expected when you signed it?

“So that’s one of the main reasons that you buy a non-cancelable and guaranteed renewable policy. We think both of those are very, very important. If you have that kind of a contract, then when that changes hands from one insurance company to the other insurance company, the new insurance company can’t change anything. They can’t change the pricing. They can’t change the wording in the contract. It’s pretty bulletproof. I’d say every doctor should make sure they’re getting their policies to be non-cancelable and guaranteed renewable, and then you don’t have to really worry too much about that.”

Partial Disability Benefits

We had a question from a listener,

“I practice radiology. Specifically interventional radiology. However, as part of my job, I do practice some diagnostic radiology, as well. My question is if I were to become physically disabled and unable to practice interventional radiology, but still able to practice diagnostic radiology, would I still be able to receive a benefit or even a partial benefit? For example, if I were to become disabled and unable to practice interventional radiology, I may no longer have my current job.”

Matt said Guardian came out with a definition not too long ago that said, if you make 50% of your income or spend 50% of your time doing interventional procedures and you get disabled and can no longer do them, then they go ahead and consider you’re totally disabled and pay you the full benefit. They’re the only company that has really come along and drawn a hard line in the sand of the six true own occupation companies. With the other companies like Principal and Ameritas and some of the others, he says that it’s a little bit more nebulous. Sometimes that can be in your favor. Sometimes it’s not. They’re going to define it as the material and substantial duties of your own occupation that you’re doing at the time.

“If you’re kind of in that borderline 40% – 50% interventional duties procedures, and then you’re with one of those companies, they may look at you and say, since you can still do diagnostic, we’re going to pay you that 40% or 50% or whatever it may be of the benefit that equals the loss of income that you’ve experienced. That’s kind of something they could do. However, we have seen them in situations where you were doing 60% interventional, 40% diagnostic, something like that. And they went ahead and paid the full benefit. So, it really comes down to how they classify you and your duties. What percentage of your income was coming from it? The higher the amount of your income that is coming from it, the more likely they are to pay you a full benefit. But at least you know it. If you have those companies with those riders, those residual or partial disability riders, it’s absolutely important to get it on your policy, so at least you know they’re going to pay you an equal percentage of benefit to the income that you’ve lost and pay you a partial benefit, if they don’t go ahead and give you the total amount.”

Pregnancy and Disability Insurance

Let’s talk about pregnancy and getting disability insurance first.

“The way it typically works is if you are pregnant and you’re in the first or second trimester, they will go ahead and issue you a policy, but it’s going to have a pregnancy exclusion on it. Basically, any complications from pregnancy, labor and delivery, anything like that, they’re just not going to cover it until you have a normal birth, everything is healthy. And then they’ll go back and they’ll take that off after you’ve gone back to work post-pregnancy.

If you’re in your third trimester, they actually will postpone giving you a policy until you have then been back to work for a certain period of time. During those trimesters, it kind of does matter when you apply for the coverage and when you get it, whether or not you’re going to get it with a temporary exclusion or you’re going to get it postponed before they’ll give it to you.”

Matt points out that, after you have your disability insurance, it is important that you get it with the future increase options. Different companies call it different things: benefit purchase, future increase option, benefit update, etc. They all call it different things, but it’s basically the guaranteed right to increase your coverage in the future, regardless of any changes in your health. If you already have a disability policy, it doesn’t matter what happens in your health. As long as you have those riders you can increase your coverage. You could have anything happen, really, and they cannot change the pricing or the features or the definitions or anything in the coverage.

Maximum Amount of Coverage

The maximum amount of coverage you can purchase is based on your current salary. Matt said,

“When you’re in training, typically if you’re a resident, you can get up to $5,000 a month in coverage. Once you are in your final year, you’re about to transition from training to practice, you can get $6,500 to $7,500 a month in coverage. These are all special programs for you while you’re in training. Once you get out of training, the amount of coverage you can get is contingent upon two things. It’s contingent upon your amount of income and on how much other disability insurance you have, either other policies individually or group insurance from your employer.”

As your income goes up, they will decrease the amount you can get covered. At $400,000 a year in income, they might only protect 52% of your income. By the time you get to a million dollars in income, they’re only going to protect maybe 25% of your income. Once they determine the eligible amount is 50% – 55% or whatever it is, then they look at how much group coverage you have from your employer or any other policies and they subtract that. Then you’re able to get that on that next policy.

If you want more money than that, you have options. You can use some of the riders that I’m not a huge fan of, retirement riders, lump sum riders, student loan riders, catastrophic riders to maybe increase that coverage a little bit. Matt typically doesn’t recommend those unless you’re already maxing out the base benefit. I asked Matt to talk about the options for someone who actually wants more coverage than the company will sell.

“To tell you the truth, when we talk to certain specialties or subspecialties, if we’re talking to orthopedic surgeons, if we’re talking to neurosurgeons, most surgeons, interventional cardiologists, I mean, if we’re talking to the higher income earning specialties and subspecialties, sometimes we’ll recommend getting two policies. So, let’s say you’re in training and you get $5,000 a month in coverage. It might be best to get $2,500 from one company and $2,500 from another. It doesn’t really affect you much. You still have $5,000 a month in coverage. The price is going to be pretty comparable. But then you get the right to increase both of them up to a higher limit. This year, they have all gone up. They’re all setting it like $20,000 a month in coverage. Some of them will work together and get up to $35,000 a month in coverage. And again, that’s tax free.

At $35,000 a month in coverage, you pretty much have to be sitting at about that million dollars a year in income to get that with no other employer coverage. So, they can work together. You could have five policies making up that $30,000 a month in coverage. It’s not a number of policies thing.  They have issuing limits and participation limits. Issuing is how much each company will issue on their own. Participation is how much they’ll work together with other insurance companies to get you up to. So, it’s absolutely a viable way to do things.

Graded vs Level Premiums

If you are planning to become financially independent halfway through your career, should you go with a graded premium? How many years does it take to reach a break-even point with a graded premium?

Matt said Guardian has a graded premium option and that is who most people go with who want a graded premium. He has found that it is typically between years 12 and 14 where the annual crossover point is. So, once you get past that 12 to 14 years, you’re paying more on an annual basis. It typically takes about till you’re 18 to 20 before the cumulative amount that you’ve paid becomes more than you would have if it was level.

He said most of his clients get level premiums. It is hard to know the future.

“It gets really steep and expensive later if it’s graded. The last thing you want to do is get there and have this thing ballooning up and getting super expensive and causing you to make a different decision than you would have otherwise. To have that kind of locked in level, the peace of mind that’s there and keep as long as you want it, it doesn’t change. That peace of mind is good. But, like I said, if you’re the kind of person, I know there are guys in my office right now who are like, “I would never buy level. I would buy graded” and they’re more detail-oriented and they kind of map things out and they’re like, I know exactly how long I want disability insurance for. I think it’s perfectly fine. You just have to know if you make a mistake in that regard, it could get really expensive.”

How Agents Get Paid

Guardian tends to have the highest premiums for disability insurance. It may have the best definition of disability for physicians, especially for those that are doing procedures. It also has among the highest commissions in the disability world. A listener wondered if the increase in the price for the Guardian policy is worth it or if this is going towards the insurance agent’s commission.

“A lot of the insurance companies are going to pay the exact same commission first year. It probably gets up to about 70% of the first-year premium that goes to a broker. What happens after that is there are renewals that kick in. So, every year they get paid a little bit of something to service your policy. You kind of want them there in case you need to increase your coverage, you have questions about the policy, you need to make a claim. It’s good to have someone there who’s not at the home office of an insurance company.  So, you want to make sure you have someone on your side who is kind of looking out for you. They do pay a little something. But those can be quite different. Guardian typically pays a lot on renewals and not only that, it pays into perpetuity. It never ends.

Companies like Principal pay you close to the same amount as Guardian, depending on the level of volume that you do in selling this kind of product. But then at year 10, it literally drops to almost nothing. I think it goes from like 10%, 12%, 15% to 1%.

Now let me step in and say though, Guardian is the highest rated company of all the true own occupation companies. They have the longest tenure, the best track record in a lot of regards. But at the same time, you want to make sure if you’re talking to someone about a policy that you can ask him questions like this – “Well, how do you get paid? And are you being financially motivated in any way by this?”

Guardian has kind of a Cadillac package policy that’s super expensive. And all the Guardian Kool-Aid drinking brokers or agents out there want to sell you that because they’re saying – “You have to get the absolute, most robust top-level policy you can get.” And then they’ve got another policy that’s about half that price. It is still on par with others with a lot of features, so it’s not a bad policy. And I’ll tell you the truth. We work with a lot of doctors who take that one. They’re both still true own occupation with that 50% procedures definition. So very, very similar policies. But I would say that most of the good brokers out there are not selling it because it benefits them.

Disability Insurance for Procedural Specialist vs Non-Procedural Specialist

Does this process differ depending on your specialty? Everyone needs disability insurance. Psychiatrists, family medicine, and pediatricians get disabled just as frequently as surgeons and need to protect their income.

“But when you’re a procedural specialist, you’re relying on fine, fine motor skills that if you get disabled, let’s say you get into a car accident. And something happens where you develop some type of a tremor or you have persistent back pain or things like that. There are things that could knock you off your game. So, I think that being absolutely certain that you get a true own occupation policy is protecting your procedures specifically. And if it’s to the tune where obviously more than 50% of your money or time is coming from procedures, then you might want to think about  Guardian or someone who has some very specific language about procedures in there.”

75% of disabilities come from illnesses, not injuries.  Cancer is actually one of the top disabling things out there. Every doctor can become disabled regardless of their specialty. Disability insurance is a lot cheaper for a psychiatrist than it is for a plastic surgeon. They’re in different rate classes. So everyone needs it, and it will be cheaper for some specialties than others.

Getting Out of a Bad Policy

A listener asks,

“Is it better to keep an old disability policy with a good price that is not strictly own occupation or get a new one? I’m now 48 and the premium difference is greater than 50% of the premium to get a true own occupation policy?”

Matt said it depends on his financial situation.

“A lot of times the answer at that point in time is well, if you’ve got enough savings, you paid off all your debt, you’re in a good position where if you got disabled and they only pay you a portion of the benefit on top of the savings that you have along with no debt, and you could live off of that portion plus your savings with no debt. If everything’s lined up that way, then maybe it’s worth keeping and not paying more for that.

On the flip side of that, you’re also entering the years where I mentioned a statistic earlier on, that something like one out of every five doctors over the course of their career gets disabled. That’s coming from not a whole lot of doctors in their 30s and a whole bunch of them in their 60s. And so, the older you are, you’re also more likely, that’s why it’s more expensive, to experience an event where you become disabled.

It might be one of those things where you say, “Hey, my savings aren’t where they should be. Maybe I just bought a house and I’ve got some debt that I’ve taken on. Maybe now is the time to pay a little bit more, to make sure that I’ve got this true own occupation coverage. So, if something happens, I’m not dwindling away to savings that’s not even where it should be and I can’t pay this debt”. I hate to sound like a politician, ride the fence and say it depends on the financial situation, but it really does. But I hope that at least gives you some idea of things you should be thinking about. What happens if I get disabled? Do I need to have all of my income paid to me? Or can I take something proportionate from one of these policies along with what I’ve saved, if I’m in a good position with no debt? Or if that’s not the case, maybe it’s worth paying more and switching to a true own-occupation policy.”

Most importantly, never get rid of a disability policy until the other policy is in place and the first payment has been accepted by the insurance company.

Ending

We had a panel of three insurance agents at the conference in March. I tried to pull up some controversy in it and get some disagreement. Surprisingly, there was little. There are a few topics in disability insurance that are sort of controversial, but most of the time, these folks are really educated about it and really agree on all of the important stuff. Any of the agents on my recommendation page can help you get this important insurance in place. Call one of them today.

Full Transcription

Transcription – WCI – 163
Intro:
This is the White Coat Investor podcast where we help those who wear the white coat get a fair shake on Wall Street. We’ve been helping doctors and other high-income professionals stop doing dumb things with their money since 2011. Here’s your host, Dr. Jim Dahle.

Dr. Jim Dahle:

This is White Coat Investor podcast number 163 – Disability insurance. Welcome back to the podcast. We’re glad to have you here. Where do you find room in your monthly budget for disability insurance when you also have large student loan payments due? I recommend checking out student loan refinancing with Splash Financial. Refinancing with Splash can save you a lot of money. The rates are at historic lows with June fixed rates as low as 2.88%. Splash also offers special refinancing to residents and fellows and the cash bonus for eligible white coat listeners. There’s no cost to refinance your student loans. Go to splashfinancial.com/whitecoat today to see how much you can save.

Dr. Jim Dahle:
Our quote of the day today comes from Robert Doroghazi, MD. He’s a retired cardiologist who wrote a book. It came up before mine actually about how physicians can become financially secure. But he said, “Considering the average physician’s income, all that is required to live comfortably and retire when you wish is a little fiscal discipline and the avoidance of stupid mistakes”. I totally agree with that. When you’re making income that’s in the top 1% to 2% of America, really all you got to do is manage your money well, and you should do very, very well.

Dr. Jim Dahle:
Thanks for what you do out there. It is not easy work. It took a long time for you to learn how to do it. I know some of you are on your way in to work on your way home. Maybe working out, maybe on a walk, maybe out gardening. I don’t know what you do while you listen to this podcast, but thank you for your daily work. It’s not easy, whether you are in pharmacy, dentistry, medicine, law, whatever. Thank you.
Dr. Jim Dahle:
Couple of things I want you to know about, we have a promotion thing going on, but we’re promoting you. We’re promoting you and what you’ve accomplished and hoping to use your experiences to inspire your colleagues. What I mean by that is if you have paid off your student loans, at some point in the last year or two or three, we want you to share it with us on social media. Use the hashtag (#) Live Like a Resident. But most importantly, what we’d like you to do is submit a Google form with your picture of you holding up, maybe a sign of how much student loan debt you paid off, and a little bit of information about you. And we will promote you across our social media channels in order to inspire people to do the same thing you’ve just done. We want to celebrate with you your marvelous accomplishment. So, you can find that at whitecoatinvestor.com/debtfree.

Dr. Jim Dahle:
Also, if you are in the market for a new home, you may need to use a physician mortgage. If you have a better use for your money than a down payment. We keep a list of recommended physician mortgage providers that are available in every state. You can find that at whitecoatinvestor.com under our recommended tab, and you can just click on your state there and see what’s available. So, if you need that product, that’s a great resource to use to find people who are offering those products.
Dr. Jim Dahle:
Now keep in mind, it’s a little bit harder to secure any mortgage these days. Lending standards have definitely tightened up with the economic downturn due to the pandemic. So, don’t be surprised if they’re looking for a little bit higher debt to income ratios or a little bit lower debt to income ratios. If they’re looking for a little bit better credit scores then maybe they used to. It’s a little bit harder these days to get a mortgage, but these people can walk you through it. They’re used to working with doctors and can help you.
Dr. Jim Dahle:
If you are having any sort of an issue with them. I’d like to hear about it early in the process if possible. You’d be surprised how much can be resolved with a quick email from me. And that goes for anybody that we have on our recommended list, whether they’re doing student loan refinancing, or insurance or financial advising or whatever. If you’re having an issue with them, I want to hear about it. And hopefully we can get resolved to your satisfaction earlier, rather than later. Too often I hear a complaint after it’s all over with and there’s nothing I can really do to help you. I’d much rather hear about it early on.
Dr. Jim Dahle:
All right, today we’ve got the episode I promise to you a few weeks ago. We’re going to do an episode all about disability insurance. We get feedback from time to time that you guys want us to focus an episode on a single subject. Now we don’t plan to do that every week because I like having your questions on here. I like having what you’re interested in drive the content of the podcast.
Dr. Jim Dahle:
But from time to time, we’re going to have an episode that is focused on a single subject. And today’s subject is going to be disability insurance. And so, I have brought on a guest to help me with this. Obviously, I know a lot about disability insurance, but I don’t work in this field every single day. I don’t sell disability insurance. I don’t even have a disability insurance policy anymore. So, I thought it would be worthwhile getting somebody who actually does work in this field every day. So, I grabbed Matt Wiggins of Pattern Insurance. We’re going to bring him on and we’re going to talk with him about some of your questions about disability insurance. We have a number of questions that have been recorded on the Speak Pipe, sent in by email, even a few from the Facebook group that we’re going to try to answer during this podcast.
Dr. Jim Dahle:
If you are interested in learning more about Matt or engaging his services, you can find him at whitecoatinvestor.com/pattern. Yes, Matt is a paid advertiser at the White Coat Investor. But hey, why not get the best experts out there to partner with you for your business? It’s a win for him. It’s a win for us. It’s a win for you when we get you to a good agent. So, let’s get Matt on the program now.
Dr. Jim Dahle:
All right. So, I’m here with Matt Wiggins, Pattern Insurance, and we’re going to be talking about disability insurance. I wanted to start before we got into some specific questions, we took on the Speak Pipe over the last few weeks. I wanted to just spend a few minutes on the basics of disability insurance. Let’s talk a little bit about why someone would buy disability insurance, why they might not buy disability insurance, what it is, how it works, etc. Do you want to give us a rundown just for a couple of minutes about the basics of disability insurance?
Matt Wiggins:
Yeah, absolutely. And I’ll you. I started off in the financial world selling a lot more life insurance, working on investments. Disability insurance, I didn’t see it as that important. And so, as I began to work with more and more doctors and become more well versed on exactly the likelihood of disabilities, about one out of every five doctors over the course of their career uses a long-term disability policy. I started realizing how important this stuff is.
Matt Wiggins:
When we began working exclusively with doctors about 12 years ago, of course, it became a cornerstone of what we do because if you don’t protect your income, what really is protected? You think about retirement and everything else. If you get disabled and you can’t actually earn your income, then all of that goes out the window. You can have the most fancy financial planner, investment plan in the world. You can have this great FIRE plan and everything else. It all goes out the window if you get your income cut off short early.

Matt Wiggins:
So, it really is kind of very foundational to have this policy in place that will replace a large portion of your income if you get disabled. It can be an injury, an illness, anything that’s not self-inflicted. And it’s going to replace a large portion of that income and help you keep going on those plans that you have. So, we think it’s absolutely crucial.

Dr. Jim Dahle:
Yeah, I think it’s really important as well. In fact, it’s chapter one in my “Financial Boot Camp” book, just because I agree. You got to get it in place. If you were like most doctors, this is the largest piece of your financial plan is really your income. And you’ve got to protect it. It’s basically a policy. Most people pay their premiums monthly, campaign manually. But most people pay them monthly. And basically, that premium entitles you to a certain benefit, a certain amount of money you get every month in the event that you become disabled.
Dr. Jim Dahle:
Typically, you got to be disabled for three months before a long-term disability policy kicks in. And then from that point, until you recover from the disability or until age 65 to 67, depending on the policy, it will pay you that benefit. А рreally good policy will pay you that benefit no matter what else you’re doing in your life. А less good policy, that benefit may be lessened иf you are able to do something, even if it isn’t going back to doctoring.

Matt Wiggins:
And it’s important to know, I always say there’s really three D’s in disability insurance. There’s definitions, discounts, and deadlines. You were just talking about the definitions. Knowing the definitions in your policy really makes a difference between a bad policy and okay policy and a great policy. And then there are all these deadlines and discounts to know when to get the policies when you have certain discounts available, deadlines for getting certain types of coverages. There’s a lot to know. It’s not an easy form of insurance to get your head around. But I’d say if you know the definitions and if there’s any deadlines or discounts you’re doing pretty well.

Dr. Jim Dahle:
I think part of the issue is that disability is so gray, right? I mean life insurance is such a black and white thing. You’re either alive or you’re dead. I mean, I’m an emergency physician. I see all the gray between those two areas and it only lasts about 15 minutes. And then it’s resolved. You’re alive or you’re dead. But disability is 50 shades of gray. There are just so many ways to be disabled. It’s a continuum of how disabled you are. Because of that, the contracts have to be much, much more complicated. And because it’s so much more common to be disabled during your career than it is for you to die during your career, it’s also much more expensive. A lot of people get sticker shock when they go to buy these policies. They don’t realize that it’s pretty typical to be paying 2% – 3% – 4% – 5% – 6% of the amount that you are protecting. That means if you got a $10,000 a month benefit, you might be paying somewhere between $200 and $600 a month for that benefit. It’s not cheap stuff. It’s expensive.

Matt Wiggins:
That sounds about right. The bad thing too is whenever doctors go to get life insurance and disability insurance at the same time. Because you can go on and get a $5 million, 20-year term policy, fairly inexpensively. And then you show up and try to get $10,000 a month in disability insurance and to see is either the same or sometimes it could be a good bit more expensive. And they’re saying, wait, why is that? And you have to think about the lifetime benefit of that though. If you’re getting $10,000 a month, that’s $120,000 a year that they would pay you tax-free if you became disabled. And a lot of these contracts are 20 or 30 years out.
Matt Wiggins:
So, it’s the ones that are being millions of dollars they’re protecting you. And it’s a much likely scenario than you passing away. I think when you weigh the cost and benefit it ends up making sense, but you’re right. That initial sticker shock does happen sometimes.
Dr. Jim Dahle:
Yeah. Okay. Well, let’s get into some of the questions from the listeners here. Our first one comes from Ricky. He has a question about Ohio National. Let’s take a listen to that.

Ricky:
Jim, I thought this would make an interesting discussion as you’re asking for questions regarding disability in the upcoming podcast. I already had this question answered in a forum but I think it would be great for the podcast listeners to hear this. I got new disability insurance through Bob Bhayani. He was great. I had left Northwestern Mutual, which was awesome using your advice and great meeting Bob.
Ricky:
However, Bob, for my disability insurance did not recommend using Ohio National because of a downgrading three times in a row of its bond rating. It was still rated in the A range. I think it was the little A’s in Moody’s. And Bob said, this was really bad. And this company was possibly going to go bankrupt or something and then I would lose my disability insurance. I appreciate his honesty. He did not sell me the policy. I ended up going through some of his competitors that are advertised on your website because they still felt that Ohio National was still pretty strong financially.
Ricky:
Is this a real problem though, that Bob was speaking about? Should I be really worried that I went with Ohio National and its bond rating has gone down three years in a row? Also, I think on the form you had said that sometimes companies will pick up disability insurance if Ohio National, as a company goes under. Please let me know your thoughts. Thanks.

Dr. Jim Dahle:
All right. So, Ricky’s basically asking, is Ohio national a bad company to use due to their low bond rating? What do you think? Is that of the big five or six? Or is it not?
Matt Wiggins:
It’s a great question. We absolutely include them in the big six. They have a true own occupation policy. They really strengthen that by offering clarification letters about your specialty being what they are protecting. They even have some other documents they’ll send out if you want to have them to clarify how they pay own occupation claims. So, I do think the strength of their contract is just fine.
Matt Wiggins:
As far as the actual company, we do put a lot of precedent on having a strong financial company. I would say that from our experience, what we’ve seen, where we’ve seen insurance companies do through the years, I do think that it’s a company you could put your trust in. Also, the thing about insurance companies is if they ever become insolvent, in other words, they go bankrupt. They can’t meet all their bills and everything else.

Matt Wiggins:
There’s a whole process by which their block of business gets transferred to a solvent company. It’s got an auction process and the government kind of oversees that. And so, while you don’t want to go dumpster diving for an insurance company, they certainly are well within the safe range. Now, if you can land with a company, that has much stronger ratings and the prices are pretty close and everything else. Absolutely. That could be maybe a deciding factor for you.
Matt Wiggins:
If you’ve already got an Ohio National contract, policy, or if you’ve got a quote that it’s 10% cheaper, 15% cheaper than the others, we absolutely think they’re one of the six and one you should consider going with.

Dr. Jim Dahle:
Awesome. How does that process work? I mean, if a company goes under there’s this auction process. Are there ever policies that aren’t transferred or are they pretty much all transferred? And your policy’s going to going to work out the way you expected when you signed it?

Matt Wiggins:
That’s a good question. So that’s one of the main reasons that you buy a non-cancelable and guaranteed renewable policy. We think both of those are very, very important. Some agents are out there trying to strip away some of the things like guarantee renewable or noncan only type stuff.
Matt Wiggins:
But what happens is if you have that kind of a contract, then when that exchanges hands from insurance company to the other insurance company, the new insurance company can’t change anything. They can’t change the pricing. They can’t change the wording in the contract. It’s pretty bulletproof.
Matt Wiggins:
I’d say every doctor should make sure they’re getting their policies to be non-cancelable and guaranteed renewable. And then you don’t have to really worry too much about that. I think there was one case, maybe back in the 80s, sometime where a company became insolvent because of how they did it and how things went. The insurance regulators and the whole marketplace just said, “We’re sorry. All you folks are out of luck.” But it hasn’t happened since then. And there’s been a lot of companies that have become insolvent and it transferred very peacefully. But yeah, if you don’t have non-cancelable guaranteed renewable coverage, they can make some tweaks and changes for sure. That’s why we think you should lock that in.

Dr. Jim Dahle:
All right, let’s take our next question. This one comes in from Dave, who is an interventional radiologist.

Dave:
Hi Jim. I have a disability insurance question. I have two own occupational policies in addition to an employer policy. I practice radiology. Specifically interventional radiology. However, as part of my job, I do practice some diagnostic radiology as well. My question is if I were to become physically disabled and unable to practice interventional radiology, but still able to practice diagnostic radiology, would I still be able to receive a benefit or even a partial benefit? For example, if I were to become disabled and unable to practice interventional radiology, I may no longer have my current job.

Dr. Jim Dahle:
Okay. Dave doesn’t provide us a lot of specifics here, but he’s got three policies and is wondering how they’re going to pay in the event that he could still do diagnostic radiology, but couldn’t use his hands or whatever to do procedures. Do you want to take a stab at that one?

Matt Wiggins:
Yeah. I’ll take a stab at it. Without knowing all the details, obviously, I can’t give him anything to pinpoint, but here’s what I can tell you. Guardian came out with a definition not too long ago that said, “If you make 50% of your income or spend 50% of your time doing interventional procedures and you get disabled and can no longer do them, then they go ahead and consider you’re totally disabled and pay you the full benefit”.
Matt Wiggins:
They’re the only company that has really come along and drawn a hard line in the sand of the six true own occupation companies. With that one, it’s really easy. If you’re doing 30% interventional radiology and 70% diagnostic, and you get disabled, they’re probably going to pay you partial or residual claims. Maybe they’ll pay you 30% of the benefit that is equal to that 30% loss of your income.

Matt Wiggins:
If it’s 51% from Guardian though, and you have that definition, then you can bank on them going ahead and paying you the full benefit if you can’t do your procedures anymore. With the other companies like Principal and Ameritas and some of the others, we have found that it’s a little bit more nebulous. Sometimes that can be in your favor. Sometimes it’s not. They’re going to define it as the material and substantial duties of your own occupation that you’re doing at the time.
Matt Wiggins:
If you’re kind of in that borderline 40% – 50% interventional duties procedures, and then you’re with one of those companies, they may look at you and say, since you can still do diagnostic, we’re going to pay you that 40% or 50% or whatever it may be of the benefit that equal the loss of income that you’ve experienced. That’s kind of something they could do.

Matt Wiggins:
However, we have seen them in situations where you were doing 60% interventional, 40% diagnostic, something like that. And they went ahead and paid the full benefit. So, it really comes down to how they classify you and your duties. What percentage of your income was coming from it? The higher amount of your income is coming from it, the more likely they are to pay you a full benefit. But at least you know it. If you have those companies with those riders, those residual or partial disability riders, absolutely important to get on your policy, at least you know they’re going to pay you an equal percentage of benefit to the income that you’ve lost and pay you a partial benefit. If they don’t go ahead and give you the total amount.

Dr. Jim Dahle:
That’s helpful. All right, our next question came in via email – “I’m currently a resident. I’m thinking about trying to become pregnant and ideally having a baby around the time that I finished residency. I currently have disability insurance that is own occupation through one of your recommended people. Thanks for that. For the normal amount that residents are able to get. I did not have any health problems or high-risk hobbies when I bought disability insurance and still do not. Are there any considerations that I need to think about as far as pregnancy and disability insurance?”
Dr. Jim Dahle:
“For example, if I developed a pregnancy complication, would this affect my ability to increase and or change my disability insurance for more coverage or different riders when I transitioned from being a resident to an attending? Would this count as a new health problem? Does pregnancy by itself pose any sort of an issue as a preexisting condition for disability or life insurance? I’m wondering since the time I am thinking about having a baby will be the same time that I would expand my insurance. And I just wanted to make sure I can anticipate any problems that might come up. I plan to talk with my insurance pro about this, but maybe there are other women who might benefit from this information”.
Dr. Jim Dahle:
So, let’s talk about pregnancy and disability insurance.

Matt Wiggins:
Absolutely. Well, first of all, they’re a lot of questions in there. So, I think what I’m going to do, what might be helpful for the listeners is just to be able to talk about pregnancy and disability insurance kind of in general. And I think it’ll answer all the questions. But this is a touchy subject. First of all, congrats on being pregnant, congrats on getting disability insurance in one of the own occupation companies. That’s awesome.
Matt Wiggins:
Let’s talk about pregnancy pre getting disability insurance. If you’re thinking about getting disability insurance and you’re thinking, “Well, I’m either pregnant or I’m going to be pregnant”. The way it typically works is if you are pregnant and you’re in the first or second trimester, they will go ahead and issue you a policy, but it’s going to have a pregnancy exclusion on it. Basically, any complications from pregnancy, labor and delivery, anything like that, they’re just not going to cover it until you have a normal birth, everything’s healthy. And then they’ll go back and they’ll take that off after you’ve gone back to work post-pregnancy.
Matt Wiggins:
If you’re in your third trimester, they actually will postpone giving you a policy until you have then been back to work for a certain period of time. During those trimesters, it kind of does matter when you apply for the coverage and when you get it, whether or not you’re going to get it with a temporary exclusion or you’re going to get it postponed before they’ll give it to you.
Matt Wiggins:
After you have your disability insurance, absolutely imperative that you get it with the future increase options and different companies call it different things. You have benefit purchase with Rider, future increase option with Guardian, benefit update with Principal. They all call it different things, but it’s basically the guaranteed right to increase your coverage in the future, regardless of any changes in your health.

Matt Wiggins:
If you already have a disability policy, it doesn’t matter what happens in your health. As long as you have those riders to increase your coverage, you could go through about some type of cancer. You can get pregnant and have complications. You could have anything happen really, and they cannot change the pricing or the features or the definitions or anything in the coverage.
Matt Wiggins:
So that’s why we absolutely say when you’re getting these policies, you want to make sure you get the right increase, no more medical questions, physical labs, nothing asked again in case something like that happens.
Matt Wiggins:
So pre getting the policy, absolutely. It can matter. It can affect you getting that policy. And post getting the policy, it shouldn’t have any impact on you being able to increase your coverage.
Dr. Jim Dahle:
Awesome. Let’s go onto our next here. This one’s anonymous, but also about disability insurance. Let’s go ahead and listen to that one.

Speaker:
Hi, Dr. Dahle. I’m in the process of purchasing an individual disability insurance policy. My insurance agent has told me that there is a maximum amount of coverage I can purchase and that amount is based on my current salary. Is this accurate? Thanks.

Dr. Jim Dahle:
Basically, talking about the maximum amount you can purchase and how that’s calculated and where that comes from? Do you want to talk about that?
Matt Wiggins:
Yeah, absolutely. So, the way that it works. And there’s a lot of confusion out there about that. When you’re in training, typically if you’re a resident, you can get up to $5,000 a month in coverage. Once you are in your final year, you’re about to transition from training to practice. You can get $6,500 to $7,500 a month in coverage. These are all special programs for you while you’re in training.
Matt Wiggins:
Once you get out of training, the amount of coverage you can get is contingent upon two things. It’s contingent upon your amount of income and how much other disability insurance you have. Either other policies individually, or group insurance from your employer.
Matt Wiggins:
What happened was back in the Wild, Wild West of the, I think it was the 80s. And essentially a doctor could go in and be making $200,000 – $300,000 a year. And they could apply for $500,000 a year in disability benefits. But what do you know? A lot of doctors and a lot of people were getting disabled more than the norm. And so, the insurance industry kind of came in and said, “Hey, look, how do we do this in a way that really helps people need to be helped without creating this kind of almost like a marketplace for, hey, let’s go get a bunch of coverage and then let’s get disabled and try to make ourselves get disabled”.
Matt Wiggins:
What they do is they look at your income. And let’s say, you’re making, this goes way down the list. Let’s say you’re making like $50,000 a year. They’ll cover 60% of your income and that’s tax free. So, it should make up almost all of your post tax income.

Matt Wiggins:
Once you’re making $300,000 – $400,000 – $500,000, they begin drawing that down. And so, at $400,000 a year in income, they might only protect maybe 52% of your income. By the time you get to a million dollars in income, they’re only going to protect maybe about 25% of your income, maybe 30% at best. And the reason they do this is because if you have a doctor making a million dollars a year and you keep them on that 60% benefit calculation, that same doctor was working their tail off to make a million dollars a year, he was going to say, “Hmm, I’m taking home about $600,000 after tax, or somewhere around there. I can get disabled and bring home $600,000 after tax. Which one are you going to do?”
Matt Wiggins:
They do decrease the amount you can get. And then whatever they determine your eligible amount is 50% – 55%, whatever it is they’re going to cover, then they look at how much group coverage you have from your employer or any other policies and they subtract that. And then you’re able to get that on that next policy.
Matt Wiggins:
A lot of doctors come to us and say, “Hey, I’m making this big salary. How come my quotes are only for this much?” And we have to talk about, well, first of all, they’re only covering 50% of your income. And then you’ve got this other policy from your employer. So that leaves you with $10,000 a month in coverage or whatever it may be. Long winded, but I hope it really gives you a good sense of it. There are very specific calculations that go into how they do it, but it absolutely, especially after training, it’s going to be dependent on your income.

Dr. Jim Dahle:
Let’s talk about the options if you want more than that. I mean, a lot of times you can go to a second company and get a little bit more, or perhaps you can use some of the riders that I’m not a huge fan of, retirement riders, lump sum riders, student loan riders, catastrophic riders to maybe increase that coverage a little bit. Can you talk about those options for someone who actually wants more covers and the company that will sell?

Matt Wiggins:
Yeah, absolutely. And to tell you the truth, when we talked to certain specialties or subspecialties, if we’re talking to orthopedic surgeons, if we’re talking to neurosurgeons, most surgeons, interventional cardiologists. I mean, if we’re talking to the higher income earning specialties and subspecialties, sometimes we’ll recommend getting two policies.
Matt Wiggins:
So, let’s say you’re in training and you get $5,000 a month in coverage. It might be best to get $2,500 from one company and $2,500 from another. It doesn’t really affect you much. You still have $5,000 a month in coverage. The price is going to be pretty comparable. But then you get the right to increase both of them up to a higher limit. This year, they have all gone up. They’re all setting it like $20,000 a month in coverage. Some of them will work together and get up to $35,000 a month in coverage. And again, that’s tax free.

Matt Wiggins:
At $35,000 a month in coverage, you pretty much have to be sitting at about that million dollars a year and income to get that with no other employer coverage. So, they can work together. And you know what? Honestly, you could have five policies making up that $30,000 a month in coverage. It’s not a number of policies thing. It’s just a certain cap on what they call.
Matt Wiggins:
They have issuing limits and participation limits. Issuing is how much each company issue on their own. Participation is how much they’ll work together with other insurance companies to get you up to. So, it’s absolutely a viable way to do things. And then if you want to add some rider, if you max that out, you can get a retirement protection rider that will put money directly into a retirement trust for you. That allows you to continue saving for retirement beyond the benefit that you’re getting.
Matt Wiggins:
There are also student loan riders, where you can have money going directly to your student loan providers or servicers dealt with student loans if you have them. We typically don’t recommend those unless you’re already maxing out the base benefit. Because honestly, we’d rather you just get as much base benefit as you can, protect as much as of your income and don’t have it where it’s funneling to a trust or to a servicer. Have it come to you and then you decide what your biggest need is at that time.

Dr. Jim Dahle:
I think that is good advice. I’m not a big fan of those riders either, but it is a way that if you’re already at the maximum amount of coverage and you want more, you can get a little bit more. All right, let’s take our next question. This one comes from Steven.

Steven:
Hi, Dr. Dahle. I have a question about disability insurance. For someone who plans on becoming financially independent and can get disability insurance halfway through their career, do you recommend a level-premium or graded-premium? The second question, how many years does it take to reach a break-even point with a graded premium? Thanks for all you do.

Dr. Jim Dahle:
Okay. Steven drank the Kool-Aid, right? He’s been reading the physician on FIRE blog. He’s just been doing all the White Coat Investor recommendations. He’s planning on becoming financially independent halfway through his career. And he’s thinking maybe he can save some money on a graded premium policy. Let’s talk about graded premium versus level premium policies. How many years it might take to break even, which companies offer them, etc.?

Matt Wiggins:
Sure. Well, here’s what I’d say. This is from my standpoint. I worked with thousands of doctors through the years and this isn’t one of those things that the proverbial he’ll die on for us. We’re happy if you get graded or level, depending on what your plans are. What we have found, typically, Guardian has a graded premium option. That’s the one we see most people use it. If they’re going to do graded, it’s with Guardian.
Matt Wiggins:
And we’ve done a lot of calculations. What we found out is typically between years 12 and 14 is where the annual crossover point is. So, once you get past that 12 to 14 years, you’re paying more on an annual basis. It typically takes about till you’re 18 to 20. Years 18 to 20 before the cumulative amount that you’ve paid becomes more than you would have if it was level.

Matt Wiggins:
So, for some people who say, “Hey, look, halfway through my careers, 15 years down the road, you could probably save some money going graded”. The one thing we always bring up and I will go ahead and self-disclose and say, most of our clients, they do get level. I think the reason is that I just asked them one question. I say, look, there are some people who know exactly. They’re very convinced that they know exactly what life is going to look like for the next 20 to 30 years. And they’re very solid on their plans and they know, all that kind of stuff. But then there’s a lot of people who say, “You know what? How I feel about taxes, how I feel about lifestyle, how I feel about being insured could be very, very different 15 years from now”.
Matt Wiggins:
And so, I may get there. And even if I become financially independent, I may look around and say, “Yeah, but for $200 or $300 a month or whatever it is because you got it way back, long time ago, when you were healthy and young and had discounts, I really couldn’t replace this just yet”. So even though I’m financially independent, maybe I want to keep a little bit of disability insurance.
Matt Wiggins:
The last thing you want it to get there and it gets really steep and expensive later if it’s graded. It’s the last thing you want to do is get there and have this thing ballooning up and getting super expensive and causing you to make a different decision than you would have otherwise. So, it’s kind of one of those things. You’ve got enough stuff in your life that’s kind of different. It’s changing on you, shifting sand all the time. The medical world in general is.

Matt Wiggins:
And so, to have that kind of locked in level, the peace of mind that’s there and keep as long as you want it, it doesn’t change. That peace of mind is good. But like I said, if you’re the kind of person, I know there are guys in my office right now who are like, “I would never buy level. I would buy graded” and they’re more detail oriented and they kind of map things out and they’re like, I know exactly how long I want disability insurance for. I think it’s perfectly fine. You just have to know if you make a mistake in that regard, it could get really expensive.

Dr. Jim Dahle:
So which company? Is it just Guardian? That’s the only one that offers it?

Matt Wiggins:
Guardian is the only one that we’ve done a graded option with. I’m pretty sure that MassMutual offers a great option, although we’ve never really used that with them. And I think there’s some stair stepping that Standard has done in the past too, but Guardian’s only one that we’ve done.

Dr. Jim Dahle:
All right, let’s talk about Guardian actually. This next question comes from Ron, who wants to hear about Guardian. Let’s hear what Ron has to ask.
Ron:
I have a question about disability insurance. Guardian tends to have the highest premiums for disability insurance. I read online that is because Guardian has the best definition of disability for physicians, especially for those that are doing procedures. And I’ve also read online that the Guardian has among the highest commissions in the disability world. I’m wondering if the increase in the price for the Guardian policy is worth it and that it’s worthwhile in regards to the veteran definition of disability, or if this is going towards the insurance agents commission.
Dr. Jim Dahle:
All right. Ron wants to know why the Guardian costs the most. Because it’s the best or because it pays you the most? Let’s talk about commissions and how they vary between companies and then about Guardian specifically.
Matt Wiggins:
Well, I’m going to peel back the curtain here. This is why you come to White Coat Investor and you try to get the truth about all of this, right? A lot of the insurance companies are going to pay the exact same commission first year. So, they’re going to pay 50% plus some overrides of what they call it. It probably gets up to about 70% of the first-year premium. And that goes to a broker. Someone who helped you hopefully do a good job of checking out all your options in an unbiased way like we do at Pattern and make sure that you get the right policy in the right price.

Matt Wiggins:
That’s how they get paid. What happens after that is there are renewals that kick in. So, every year they get paid a little bit of something to service your policy. You kind of want them there in case you need to increase your coverage, you have questions about the policy, you need to go on a claim. It’s good to have someone there who’s not at the home office of an insurance company. If they’re calling there, you know they’re looking out for the insurance company.
Matt Wiggins:
So, you want to make sure you have someone on your side who is kind of looking out for you. They do pay a little something. But those can be quite different. Guardian typically pays a lot on renewals and not only that, it pays into perpetuity. It never ends.
Matt Wiggins:
Companies like Principal pay you close to the same amount as Guardian, depending on the level of volume that you do in selling this kind of product. But then at year 10, it literally drops to almost nothing. I think it goes from like 10%, 12%, 15% to 1%.
Matt Wiggins:
So, there are definitely some people out there and I know them. I get invited to all of these swanky events with all of these insurance companies. And I kind of, I can’t stand them too much, but I go to them anyways. And sometimes I even speak at them, but I hear these people who drink the Kool-Aid from any of these companies. And all of the companies have Kool-Aid drinkers. Oh, we’re the best because of this. We’re the best because of that. And when I get down to it, your question’s kind of insightful. There are a lot of financial reasons that certain companies are sold above others.
Matt Wiggins:
Now let me step in and say though, Guardian is absolutely, it’s the highest rated company of all the true own occupation companies, the big six. And they have the longest tenure, the best track record in a lot of regards. So, there’s some Kool-Aid to be drunk there. That’s not bad Kool-Aid. It is pretty good. But at the same time, you want to make sure if you’re talking to someone about a policy that you can ask him questions like this – “Well, how do you get paid? And are you being financially motivated in any way by this?”

Matt Wiggins:
If someone’s telling someone your Guardian policy, they should tell you, “Well, they pay me the first year the same amount and for 10 years about the same amount, but they’ll pay me more beyond that to keep servicing your policy”. And so hopefully that’s not going too much into their reasons for their motivation for recommending Guardian.
Matt Wiggins:
They have two different policies. Guardian has kind of a Cadillac package policy that’s super expensive. And all the guardian Kool-Aid drinking brokers or agents out there want to sell you that because they’re saying – “You have to get the absolute, most robust top-level policy you can get”.

Matt Wiggins:
And then they’ve got another policy that’s about half that price. And it’s still at that half price point that the less robust policy, it’s still on par with Principle and Meredith and some others with a lot of features. So, it’s not a bad policy. And I’ll tell you the truth. We work with a lot of doctors who take that one.
Matt Wiggins:
So, I would say when you’re thinking of Guardian, absolutely top notch. Certainly, you want to know the two options between their most expensive and their least expensive option. They’re both still true own occupation with that 50% procedures definition. So very, very similar policies. But I would say that most of the good brokers out there are not selling it because it benefits them. But some of the long-term folks are in this for the long haul. They see the benefits of selling it. They might be doing it because of those renewals lasting all the way up to it.

Dr. Jim Dahle:
I think that’s helpful in helping people understand what the conflicts of interest are there. Particularly with Guardian specifically.
Matt Wiggins:
I’m peeling back the curtains a lot more than most folks would, but I’ve just found this. Especially the folks who come to White Coat, the traditional of all these other places, they want to know what’s going on. And I think the best decisions can be made, the more knowledge doctors have on their smartphones. They just need to be given the information so they can make good decisions.

Dr. Jim Dahle:
We got a few more minutes here and I got a couple of questions on Facebook last night that I think are worth probably talking about. I didn’t give you any advanced warning of these, but I’m sure you can handle them. None of them are too bad. The first one is, “Could you touch about procedural subspecialists, such as GI or cardiology in terms of what specifics to look for in disability insurance?” Is this process different if you’re a procedural specialist versus non procedural specialist? I think it is really what the question comes down to.

Matt Wiggins:
That’s a great question. I mean, I get asked all the time by psychiatrist or family medicine docs or pediatricians, like, “Do I really need this?” And I’m like, “Yeah. You guys get disabled just as frequently and you need to protect your income”. So that’s a conversation I have all the time.
Matt Wiggins:
But when you’re a procedural specialist, you’re relying on fine, fine motor skills that if you get disabled, let’s say you get into a car accident. And something happens where you develop some type of a tremor or you have persistent back pain or things like that. There are things that could knock you off your game, not being able to do those fine motor skills and do those procedures that would knock you off your game as far as like I said, being maybe a pediatrician. As long as you can see patients, maybe manipulate the young patients or whatever a little bit here and there. You need to physically have dexterity, but not quite the fine tune motor skills of a procedural specialist.
Matt Wiggins:
So, I think that being absolutely certain that you get a true own occupation policy is protecting your procedures specifically. And if it’s to the tune where obviously you’re doing more than 50% of your money or time is coming from procedures, then you might want to think about a Guardian or someone who has some very specific language about procedures in there.
Matt Wiggins:
Because at the end of the day, the difference between you being able to do your procedures and the money you can earn over the course of your career versus if that it gets taken away and what you can still do more generally, the difference is very, very great. So, I’d say you’re looking for the same things, but the cost of making a mistake in the definitions or the policy you get, or the riders or the things you need to have on there, the cost can be much higher in that situation.

Dr. Jim Dahle:
Yeah. A related question is what about psychiatrists? How worthwhile is it to even get disability insurance? As most of these are specialty specific geared to physical ailments? What do you tell those that truly do no procedures at all?

Matt Wiggins:
Well, here’s what I say. I say the majority of disabilities, there’s been different studies out there, but I think 75% of disabilities come from illnesses, not injuries. And I’d say a psychiatrist is just as likely to become ill. Cancer is actually one of the top disabling things out there. They’re just as likely to get any of those things as a procedural specialist.
Matt Wiggins:
So, I’d say the likelihood of something happening that could potentially disable them is just as important as just as likely. And then I’d say, on top of that, if you can’t communicate, if you can’t sit or stand for long periods of time, listen to your clients, something happens.
Matt Wiggins:
There are so many different things you don’t think about that they need to be able to do to take in the information to ascertain what’s going on to communicate things back. If something happens cognitively, there’s so many things that can happen.
Matt Wiggins:
And if you get cancer and you’re just straight going through all that that you go through and you can’t work, you can’t see people, you’re sick. Then again, you could be a psychiatrist or you could be an interventional radiologist and you’re going to go on a disability claim.
Matt Wiggins:
So, I just always tell them, especially if they’re younger, especially if they don’t have a lot of savings and things like that, it’s probably prudent for them to get it. If I’m in their shoes, I’d rather pay 2% to 3% of my salary. I’d rather bring home 97% of my salary and know that 60% of it, almost a 100% of my take home pay is protected in case something happens then to think, “Hey, I saved 2% or 3% of my income and something happens and I don’t bring it home”. So, I just think it’s super important to protect the income, even for a psychiatrist or anybody that’s non procedural.

Dr. Jim Dahle:
And I think it’s worth pointing out that they get a big discount too. I mean, this stuff is a lot cheaper for a psychiatrist than it is for a plastic surgeon. It’s just a lot cheaper. They’re in different class of occupation.
Matt Wiggins:
Yeah. And the thing is, as you said, discount, actually it’s just rate classes. They have different rate classes. Someone who is some type of interventional procedural type person is going to be like a 3M or a 3AM. And then the numbers go up from there. They get up to 6M, 6AM, whatever the company is using. And as the different rate classes go up, actually that means it’s cheaper and cheaper and cheaper.
Matt Wiggins:
So, you’re right. You’re not going to have a psychiatrist paying the same rate as a surgeon. And then if you do it early on, then you’re also going to have the opportunity to get discounts. And those discounts typically are based on your employer or their discounts set up. Is it a big employer or not? Can you go in with several people to get it there? There are all sorts of things you can do to get this account. But yeah, you’re getting a cheaper rate as a psychiatrist or someone who’s not doing procedures. And then look for discounts. We find them for residents, for fellows, for attendings, who’ve been attending for 20 years. I mean there are discounts out there for you most of the time.

Dr. Jim Dahle:
Okay. Last set of questions. And these are related. “Is it better to keep an old disability policy with a good price that is not strictly own occupation or get a new one? I’m now 48 and the premium difference is greater than 50% of the premium to get a true own occupation policy?”
Dr. Jim Dahle:
And the second related question is, “Should I drop my Northwestern Mutual disability insurance that I just bought recently?” Obviously, that’s also not a true own occupation policy. So, can you talk about what to do if maybe you didn’t buy an own occupation policy, what to do now?

Matt Wiggins:
Yeah, that’s a great question. I do think that this comes into the whole realm of financial planning. If you’re 48 years old and the difference is going to be huge and that’s just based on age. If your health has changed at all, you might ended up in a position where it’s even bigger than you’re thinking, or you may be denied by the ability to get another policy.
Matt Wiggins:
A lot of times the answer at that point in time is well, if you’ve got enough savings, you paid off all your debt, you’re in a good position where if you got disabled and they only pay you a portion of the benefit on top of the savings that you have along with no debt, and you could live off of that portion plus your savings with no debt. If everything’s lined up that way, then maybe it’s worth keeping and not paying more for that.

Matt Wiggins:
On the flip side of that, you’re also entering the years where I mentioned a statistic earlier on something like one out of every five doctors over the course of their career gets disabled. That’s coming from not a whole lot of doctors in their 30s and a whole bunch of them in their 60s. And so, the older you are, you’re also more likely, that’s why it’s more expensive to experience an event where you become disabled.
Matt Wiggins:
It might be one of those things where you say, “Hey, my savings aren’t where they should be. Maybe I just bought a house and I’ve got some debt that I’ve taken on. Maybe now is the time to pay a little bit more, to make sure that I’ve got this true own occupation coverage. So, if something happens, I’m not dwindling away to savings that’s not even where it should be and I can’t pay this debt”.
Matt Wiggins:
I hate to sound like a politician, ride the fence and say it depends on the financial situation, but it really does. But I hope that at least give you some idea of things you should be thinking about. What happens if I get disabled? Do I need to have all of my income paid to me? Or can I take something proportionate from one of these policies along with what I’ve saved, if I’m in a good position with no debt? Or if that’s not the case, maybe it’s worth paying more and switching to an occupation policy.
Matt Wiggins:
One caveat though, never get rid of a disability policy until the other policies in place and the first payment has been accepted by the insurance company. That’s when it becomes enforced is when the first payment has been received and applied to your policy.

Matt Wiggins:
Otherwise, doctors in the past have gotten rid of their old policy and then went from the new one only to find out, in some set of labs they had to go through because they were older that they maybe couldn’t get coverage or it was twice as expensive as they thought it was going to be. You should always hold on to that old policy until you get the new one completely enforced.
Dr. Jim Dahle:
That is good advice.
Matt Wiggins:
And Northwestern Mutual. I jumped to that really fast. It’s kind of the same thing. If you just bought one though, and you’re young and you’re healthy and you probably have discount opportunities, don’t get rid of it until the new one gets put in place. But I would absolutely consider swapping.
Matt Wiggins:
First of all, the price difference, you may end up saving money by switching to one of the true own occupation policies. I’m going to say most of the time doctors saved money when they switched to one of the big six, true occupation policies from Northwestern Mutual. They’re typically expensive or you’re on a graded premium with them and their steps up are pretty heavily. So, I think you will potentially save money and get a better policy if you just bought that one. If it’s been years and years, that can be different sometimes. But if it’s just happened, it’s probably a good idea to switch.

Dr. Jim Dahle:
I sure appreciate you being on the White Coat Investor podcast, Matt. That’s great having you on here. For those who don’t know, you can get more information. You can get a second opinion on your disability insurance.
Dr. Jim Dahle:
If you don’t have this critical coverage in place, you can contact Matt and actually get it in place – whitecoatinvestor.com/pattern will take you right there and you can get a quote and get on the phone with him and talk to him about your options.
Dr. Jim Dahle:
Anything you’d want to say? You got the ear of 25,000 or 30,000 high-income professionals here. Anything else that really, they need to know about disability insurance before we let you go?

Matt Wiggins:
Yeah. I think disability insurance, it’s complicated. And some of the stuff we talked about today, I tried to be as plainspoken as I can, but honestly, it’s insurance and it’s complicated insurance. The whole reason we exist is to take something that’s complicated and make it as simple and easy as possible.

Matt Wiggins:
So whether you’re going for a second opinion on what you have, whether you’re looking into it for the first time, if you want to get someone to give you unbiased advice, someone who’s worked with group worth of thousands of doctors through the years, and really take the time to educate you on this and make it as simple and easy as possible. That’s what we get. The feedback we get is, “Hey, you made this simple and easy for me”. That’s the best compliment we can get because that’s what we’re shooting for.
Matt Wiggins:
So just keep Pattern in mind. We’d love to help anyone, look at your policies or even if you’re taking a crack at it the first time. Getting it right the first time is super important. If you don’t and you have these questions, “Should I switch? Should I do all this?” it gets kind of messy. So, I’d say get it right the first time.

Dr. Jim Dahle:
Thank you very much, Matt, for being on the podcast.

Matt Wiggins:
Sure. Thanks for having me.

Dr. Jim Dahle:
All right. That was great having Matt on. We had him at WCIcon back in March as well. We had a panel of three insurance agents and it was really fun. I tried to pull up some controversy in it and get some disagreement. And surprisingly, there was little. There are a few topics in disability insurance that are sort of controversial, but most of the time, these folks are really educated about it and really agree on all of the important stuff.
Dr. Jim Dahle:
Don’t forget. If you have paid off your student loans recently go to whitecoatinvestor.com/debtfree. Tell us your story, help us use your story to inspire others to do the same. If you need a physician mortgage, check out our recommended mortgage page. Thanks for those of you who’ve left us a five-star review and told your friends about the podcast.
Dr. Jim Dahle:
If you still have student loans, they may be getting in the way of buying your disability insurance. I recommend you check out Splash Financial. They can help. Their refinancing rates are at historic lows with June fixed rates as low as 2.88%. Splash also offers special refinancing to residents and fellows and the cash bonus for eligible White Coat listeners. There’s no cost to refinance your student loans. Go to splashfinancial.com/whitecoat today, see how much you can save. That is splashfinancial.com/whitecoat.
Dr. Jim Dahle:
Head up, shoulders back. You’ve got this and we can help. We’ll see you next time on the White Coat Investor podcast.

Disclaimer:
My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author, and podcaster. He’s not a licensed accountant, attorney or financial advisor. So, this podcast is for your entertainment and information only and should not be considered official personalized financial advice.