By Dr. James M. Dahle, WCI Founder
I had an interesting opportunity a while back to attend a conference that few insurance agents and even fewer docs ever attend. It was the annual meeting for the International Disability Insurance Society. It was inexpensive and it was in Salt Lake City, so when I was given an invite to attend, I decided, “Sure, why not?” This industry group is small, but it has a mission to promote disability insurance.
As the society writes on its website,
“The International DI Society (IDIS) is an organization whose members dedicate themselves to providing disability insurance to individuals, families, business owners, and employers to afford financial security in the event that an unforeseen disability occurs. We are devoted to growing consumer awareness and enhancing the disability insurance industry by expanding our members' resources, remaining current on industry trends, and providing a community for producers, distributors, underwriters, and carriers to establish relationships and drive innovation.”
The people at the conference (and who are members of the society) are primarily representatives from the carriers (i.e. the insurance companies) and the insurance Brokerage General Agencies (BGAs, sometimes called wholesalers.) You probably don't know about BGAs, but they provide a lot of the back office functions for an insurance agent and provide value to both the independent agents/brokers and the insurance companies, getting paid with a small slice of the commissions for their efforts.
People Aren't Buying Disability Insurance
There was a lot of hand-wringing at the conference. Apparently, there is dramatically less disability insurance being sold now than there was 30 years ago. The main buyers of this insurance, especially when we're talking about individual policies, are physicians and dentists. Many employers of all kinds offer group policies to their employees, but it's apparently fewer than it used to be (it should be noted that these group policies often have weak definitions of disability and don't properly insure anywhere near enough of the employee's income).
More information here:
How Much Disability Insurance Should You Buy?
The Problems with the Way Disability Insurance Is Sold
As a big fan of disability insurance (at least until financial independence occurs), I was surprised and a little worried to see that less of it is being sold/purchased. The conference dove deeply into all kinds of reasons why this is occurring. A lot of the blame falls on the insurance industry, but some also falls on employers and consumers themselves. Some of it is probably just historical accident, too, and some is inherent to the nature of the product. Let's discuss each of these.
Insurance Industry Problems
The insurance industry carries a lot of the blame here. While people are far more likely to be disabled than to die young, the vast majority of marketing budgets are going toward life insurance sales, not disability insurance sales. Disability is the major risk we face. Companies have also been way too slow to streamline their processes and to adopt technology. One of the biggest complaints I get from white coat investors is that it takes weeks to months to buy a disability insurance policy. We're used to buying on Amazon with a single click, but buying disability insurance generally requires meeting with an agent; getting blood drawn; filling out a huge application; having that agent fight their way through a byzantine bureaucracy of underwriters; and, assuming you're still interested two months later, getting you to sign a policy and WRITE A CHECK.
What else do you write a check for these days? Katie and I go most months without writing a single check, yet it's the only way to buy disability insurance. No credit card, PayPal, Venmo, or ACH transactions. The industry needs to fix these issues. Its failure to do so is literally hurting American families, because it is keeping them from buying a necessary insurance product.
Employer Issues with Disability Insurance
Employers sometimes provide disability insurance to their employees. But the truth is that they do a poor job of it. It's often left to a lowly HR professional who may not understand its importance or, worse, the company decides to skimp on it and ends up providing a lousy policy. Employers actually can provide a relatively strong, own occupation policy. They just don't. And when they do, they do a lousy job of educating employees on the value of this important benefit. I mean, which is more important? A $1,000 annual match on a 401(k) or something that would allow the employee to have a dignified standard of living for decades in the event of permanent disability? Some employees don't qualify to buy individual policies. If their employer doesn't provide a group policy, they don't get anything at all. If the employer provides a crummy policy, all they get is a crummy policy.
Consumer Issues
As a general rule, consumers don't value their benefits package as much as that package costs their employers. Here at The White Coat Investor, we have the world's best 401(k). And we make sure our employees know it and value it. Because we're spending A LOT of money on it (as employer contributions, not necessarily fees) instead of paying them more in salary. Employees need to actually understand the value of their benefits packages.
There's more to it than that, though. People don't understand the value of their various assets and the importance of protecting the most valuable ones. Consider the assets of a typical 35-year-old doctor:
- Older Car: $15,000
- New Tesla: $80,000
- Retirement Account: $120,000
- Brokerage Account: $150,000
- House: $750,000
- Future Earnings: $9 million
- Total: $10.1 million
Future earnings represent 90% of the assets of this doc. It's not even close. But I bet they have full coverage on those cars. And the house is probably insured very well. They'd even consider insurance on the portfolio if it really worked and was available for a fair price. Yet they balk at buying disability insurance.
“It's so expensive!”
Well yeah, because look at the value of what's being insured. Plus, it actually gets used. Statistics suggest that between 1 in 4 and 1 in 7 people will get disabled at some point during their career. (The risk is about twice as high for physicians and dentists as the average person.) The average disability claim lasts 3.8 years, but many people are permanently disabled.
Obviously, being permanently disabled is a financial catastrophe. But even being disabled for 3.8 years would have a devastating effect on most of our nest eggs. Imagine you have an $800,000 nest egg at 40 and end up not working for four years before reentering the workforce. For those four years, you can't make additional contributions to your retirement savings. In fact, perhaps you withdraw $120,000 a year from it to cover your spending. You've dramatically reduced the size of your future nest egg. The combination of not contributing and withdrawing from it reduces your nest egg at 65 by 47%.
Now, there are other risks to that future earnings stream. You could die, so you should buy some term life insurance to protect against that risk. You could also become burnt out. Though you can't buy burnout insurance, we offer what we think is the closest thing to it. If you're feeling crispy, you ought to check out Burnout Proof MD.
But disability is a huge risk that should be insured against. This should not be a product that has to be sold. It should be a product that is purchased willingly, that people are banging on the door to buy.
Historical Accident
It used to be that there were many insurance companies, and they all had lots of captive agents out there selling their products, including disability insurance. Consolidation in the industry has made it so there are dramatically fewer insurance companies out there and, correspondingly, fewer captive agents. The disability insurance industry is a pretty tiny thing. The conference included pretty much all of the carriers and BGAs, and I don't think there were even 100 people in the room.
Most of the policies are sold by a tiny percentage of the agents out there. Just about all of the major players in the medical space (which is the biggest space) are on our recommended independent agent list. They all know each other, and they are on a first-name basis. The fact that there are so few of them, however, means that there are a lot of people out there who don't even know disability insurance exists or how big of a risk they are running by not having it. These folks should not be spending any of their time marketing at all. They should literally be spending all day just writing up applications as fast as they possibly can to get everyone insured that should be insured.
The Nature of the Product
Of course, part of the issue is simply the product. Life insurance is easy to understand. You're either alive or dead. If you're alive, it doesn't pay. If you're dead, it does. And there is actually a certificate produced when somebody does die attesting to that fact. It's black and white.
Disability, unfortunately, is 50 shades of gray. So naturally, the policies protecting against that risk are dramatically more complicated and harder to understand. Also, proving you've been disabled and that you are still disabled requires time, doctor visits, and sometimes the assistance of attorneys. This makes it a harder product to sell and buy. It just requires more time, attention, and effort by the agent selling it and the consumer buying it. It could be streamlined a bit by better standardization in the industry, but I wouldn't hold your breath as every business wants to differentiate itself. This obstacle is not going away anytime soon.
More information here:
What Disability Insurance Riders Do Doctors Need to Buy?
Education, Education, Education
Over and over again, this theme came up at the conference. People just need to know more about disabilities and disability insurance. It is a product that ought to sell itself. It should be bought, not sold. Insurance agents need to know more about it. Financial advisors need to know more about it. And consumers need to know more about it.
I guess that's where we come in as white coat investors. As you talk to your peers, colleagues, and trainees about finances, make sure you're also talking about disability insurance. And when it comes time for someone to buy it (which is as soon as they're earning money), be sure to send them to the good guys in the industry to make sure they are buying the right policies at the best possible price.
Get your current policy evaluated or get this critical insurance in place today!
What do you think? Why are so many people uninsured when it comes to disability? What can be done about it? Comment below!
Where do you get your statistics on getting disabled? I can’t say I’ve known a doc becoming disabled but maybe it’s sample bias.
You don’t know anyone who was off work for a heart attack, stroke, cancer, a skiing accident, tweaking their back or a bad car crash?
Yes, I know some colleagues that have become disabled. Nerve damage in their hands or arms and can’t practice anymore. Another was involved in a bad biking accident and couldn’t practice anymore. It’s all based on luck.
It must be. I’ve met a lot. But I do talk to a lot of docs about finances.
If you rely on your job to provide income for you and your family, you need Disability insurance. No ifs, ands, or buts.
Disability insurance can be confusing when you first research it. But you’ll understand the terms better once you dig more into it.
I wonder whether the decreased purchase of individual insurance is due to more docs being employees.
People who are covered at work may not buy their own policies.
I know plenty of docs who have gone out on disability, some permanently. One that I know about was quite disappointed when they realized how little their employer plan paid.
Along those lines, I rarely see discussions of how much people should buy. WCI has talked a bit about when to drop insurance. How much one needs comes out of comprehensive planning.
Good thought. I’m sure it’s contributing but I have no idea how big of a factor it it.
Agreed that you need enough to cover your spending AND your savings.
While there are definitely issues with the underwriting process; mainly how long it takes for most medical facilities to release medical records of the proposed insured to the underwriter, one doesn’t have to write a check to pay for a policy. There are electronic fund transfer (bank) forms one can complete and sign electronically which sets up automatic bank debits for the premiums.
Sticker shock is real. People expect it to be priced similarly to a 20 year term life insurance policy, but it is much more likely to pay out (remember these policies also pay for partial loss of income due to disability) compared to a term life policy, and is thus priced accordingly.
If the cost is an issue, an experienced agent will be able to suggest alternate plan designs that can reduce the premium by 20-30% or more while still providing adequate coverage.
You should mention that to the carriers at the meeting because they don’t seem to be aware of it!
When they make the insurance product so difficult to understand for the average person, specifically as it relates to what is really covered and when, e.g., when is the policy truly an own occupation policy and then make it really difficult to make a legitimate disability claim i.e., “…sometimes (needing) the assistance of attorneys”, I can understand why the product is a hard sell.
I agree that employers need to do a better job at providing quality disability coverage. I am a permanently disabled pharmacist. Fortunately, as a co-owner of the pharmacy, we purchased decent short- and long term-disability products years ago. We now have a second pharmacist employee that has been out on disability for nearly a year. More and more people dependent on an income are becoming employees. As mentioned, a number of individuals can’t purchase an individual policy at any price. Employers need to do better than a crummy policy.
I had no clue about why I should get it when we were Army docs. Always thought we wouldn’t likely be covered anyway since military- but should have considered it for owning prior to leaving military in case we were not able to get a policy by the time we left the Army, and finding a policy that’d cover all but acts of war isn’t impossible (though I bet it’d subtract any VA disability?). Have to admit I considered us self insured by being two docs- but family would’ve really suffered had we both been disabled (like maybe when driving in the same car?).
This is a great article but the conversation about the role of disability insurance in your financial plan is incomplete. The role of DI is not only to replace your future earnings. You also need to plan for increased expenses in the case of catastrophic disability. You will encounter major expenses that are not covered by your medical insurance. Additionally, you need to consider the value of your partner’s time. If you become severely disabled is your spouse going to continue working full time while raising children and caring for a disabled partner? That sounds like a nightmare scenario to me and we account for that in our financial plan.
Planning for disability really challenges the imagination because there is such a huge spectrum of disability. Certainly, if you become unable to earn an income due to disability, it’s nice to replace that income through insurance. If your disability is mild then you may still be independent in your daily activities and maybe can even help care for family members and maintain the family home. But as physicians we know that life can change in an instant and we know from our clinical work to always consider the worst case scenario. If you lose independence in your ADL’s, someone is going to need to take care of you. Please think through the worst case scenario carefully and make sure your financial plan can provide for your family even if you can no longer care for yourself.
I fit in the category of not being able to get adequate disability insurance due to a congenital condition found out during medical school. Unfortunately I was never educated about it early enough in medical school before being diagnosed in my second year so I lost out. Now I have to rely on group policies. My group policy seems decent but I’m definitely become more reliant on m early FI as my policy. Thankfully now, should that happen, while not fully FI I will be able to do fine with the money I have, the side hustle income, and the group policy. But note to others, get your policy started asap.
Azrad… I thought I’d add some additional information that may be helpful. I’m new with White Coat Investor and have been combing through things and came across your comment. There are many in your same situation that are unable to qualify for additional income protection. Recently we had a case similar to yours where we showed a doctor a strategy where he could get additional disability insurance without a medical exam. It’s called “Guaranteed Issue Multi-Life Disability Insurance.” If you have a pre-existing condition you may be able to qualify for an individual supplemental disability policy without any exclusions or the chance of getting declined despite any health challenges. It would require an employer to offer the plan to a group of physicians working for the same facility. Feel welcome to reach out to me if you have any questions. [email protected]
I completely agree with the blog post on the importance of buying disability insurance. As a society, we tend to focus on protecting our assets and income through life insurance and other financial products, but we often overlook the importance of protecting ourselves in the event of a debilitating injury or illness.
Overall, I believe that the blog post effectively highlights the need for individuals to take responsibility for their own financial security and invest in disability insurance. It is a crucial step in protecting oneself and one’s family in the event of a debilitating injury or illness.
It really comes down to two things. The first is price tag. Its expensive. I personally think it should be purchased but the cost is eye opening to the uninitiated. The second is that unless you come from a family of doctors or lawyers then pretty much everybody you know has never considered buying individual disability insurance. Some how the majority of those folks did ok but this salesman wants me to pay how much and by the way if its guardian they also trying to force whole life down your throat. You get turned off. People just take their chances. If you happen to know someone close to you that became disabled and they werent doing something stupid that resulted in the disability then it does wake you up a tad. But still its typically just one person so many people can ignore it.
Absolutely the manner in which insurance companies present the product with its riders and what covers what, greatly undermines confidence in buying. Insurance companies came up with group insurance with all its loop holes and it doesnt give you a warm fuzzy when someone has sold your company crap but the same company says hey this individual policy is gold. No loop holes in this one we promise. Group actually needs to be a stronger product. Agents like to blame it on company owners but frankly i have yet to meet a company owner (who didnt also have individual) who understands they bought crap. They are told they are buying good stuff for their employees.
Its never going to happen that insurance companies greatly shorten the time to get disability insurance. They want it this way. The old joke for life insurance is if someone calls up wanting to buy its bc they are in an ambulance going to the hospital. A very similar phenomena happens with disability. You hurt your back just a bit and then you want to purchase. It takes a good deal of time to populated the databases the insurance companies use. They want a few months to see what pops up. The number of people who try to game disability isnt insignificant if you havent noticed in your own patient populations.
In regards to what % are disabled well although not exact but if you take the cost and the amount of benefit you get an idea of what % could be on claim. Thats rough finger tip math that doesnt include any of the commission or other costs to the insurance company but also doesnt include return on their investments. Most of these are not going to be permanent. Personally i would be okay with retaining risk of disability for up to a year (you have to wait 90 days typically any way). That would be hard but it is doable. Id guess about 2% are disabled to a time period that i would be trying to protect against and i do think thats still worth doing.
In the end the people who jump through the hoops will wait longer honestly. If you have gotten to the application process and are serious about purchasing then it could be 4 months wait and the percentage wouldnt change.
In case it isnt clear, i recommend buying own occ disability insurance. I probably wouldnt use ohio national any more. Its not that i doubt they will meet the guarantees but i bet service goes poorly over time given the new structure.
My recollection from the days when I bought DI had the premium substantially lower with an elimination period of 6 months over 3 months. I do not remember what happened at longer periods. Might be worth checking if you are in the market
Not all group coverage le is bad. I bought a policy through a professional organization that was identical to an individual policy I also had. The only difference was the discount for going through the group. My coverage at work also is as good as an individual plan, at least as far as the terms in the document. It is through our doctor-run physicians organization. We have a good rate on “excess” coverage for higher income docs who want to get to a higher percent of total income than the base plan provides. Also a plan that covers retirement contributions.
You need to read carefully to see what you have. Do not just assume that all group plans are inferior.
Part of that is the litigation process is different for group vs individual. In essence with group they have less to lose.
Most group just don’t have own occ indefinitely as the problem but that’s in the contract for one to check.
The difference isn’t so great especially as u go over 6 months if I recall .
The big break point in cost savings for the elimination period is going from 60 days to 90 days. That will often cut the premium by 30% or more. The savings going from 90 days to 180 days is much less dramatic (usually less than 15%).
My critique about DI is the following:
1. Pre-existing conditions are outrageous. Have you had a X-ray? Chances are you have disc degeneration. We all know this is age appropriate. However to the insurance companies this is cause for an exclusion.
2. Did you ever have a one off illness? If so good luck convincing the insurance company you have fully healed and there’s no impairment of ADL. One time vertigo? Broken toe? Too bad. Premiums will be jacked up.
It is sad.
I bought an “own occupation” level premium policy in my first few years in practice. It was (and is) about $2200 a year.
Because I pay for it with after tax dollars, I was told the benefit would be tax free. I’m not sure if this is still true as the government changes tax laws all the time.
The benefit $9000 almost made sense in 1995 when I was making $180,000 a year. As time went on, I never upgraded to a larger benefit. Luckily, I was not disabled as the benefit was too low, and laughable after my wages almost doubled from inflation alone.
Now that I am semi-retired, the benefit level makes sense again. I will still be paying my $2200 a year for the 30th year at my age 60 it seems.
Total cost will have been about $66,000 for my career for an insured amount of about $108,000 untaxed dollars per year (this is about equal to $144K taxable).
Had I become disabled in my early fifties when my wages topped out, even if I also qualified for SSD, we would been on a tight budget.
So, I underinsured myself and got lucky that I didn’t have to pay for that mistake.
Yes, it still works that way tax-wise.
Underinsured is better than uninsured. I met one doc who was living on a $2500 benefit and very happy to have it.
Really interesting perspective. The problem with employer-sponsored disability policies is very real. Few HR people understand or care what the terms in the LTD policy are – so employees wind up with crummy policies. Of course, HR will tell their employees that they offer LTD benefits and that if you can’t work because of a disability, the insurance company will take care of you . . . only when it’s too late does the employee find out what a crummy policy their employer bought. There are other reasons group insurance is low quality (ERISA – the law that those policies falls under, favors insurance companies, among other reasons), but suffice it to say group insurance is far inferior to the disability insurance you can (and should) buy on the private market.
Via email:
I thought disability insurance was crazy. Spending over $1000 a month on a policy that I would never have to use. See, I played soccer in high school, and college for four years each. I never came out of the game.
During residency, I trained for a half marathon, and was also part of the five at five club. (That’s where you run 5 miles at 5 AM)
After that I gave birth to two beautiful amazing children. I’ve almost never missed a day of college, med school, or residency due to illness. So it seemed absurd to pay double the amount that my first house mortgage was, (you see we bought a small starter house. Three bedroom one bathroom less than 1000 feet. We lived there for 10 years. The mortgage was $536). So you can imagine the sticker shock when I started paying disability insurance.
But our friend/insurance agent was insistent. I went ahead with it, he seem to know what he was doing.
Fast forward 10 years. My back goes out (undiagnosed scoliosis), I go from making $600,000 + a year as an attending to barely making 200k/yr. Even though I am a robotic certified, but there’s still a lot of Expenses to a practice so my income dropped significantly. I paid $1000 a month for 10 years. That’s a lot of money. …
But, wait for it, after all of the paperwork was completed and went through …I started getting $17,000 a month (post tax dollars) after six months of disability. I continued to receive this higher amount for about two years.
So, all of that disability money that I paid I got my money back in the first year. 😃
I have continued to receive disability payments for the past five years. Due to partial disability. My monthly EOB ranges from 8000 to 12,000, (remember…post tax dollars) every month. That’s a lot of money. A lot more than $1000/mo that I have paid in. I’m only 46 so I have 20 years more of practice. That is a lot, lot of money.
My two cents
Thank you for all that you do!
My personal impression with the disability insurance company is that 1) they will try best not to give you any money 2) they will harass you, come to your house for inspection and interview, make you see “independent” medical examiners who may or may not have your best interest and are PAID by the insurance company 3) reimbursement process takes a long time 4) failure to provide medical records on time or not receiving them falls on the patients who may not have ability to do so. I do believe in DI, but the process can be brutal.
Agreed.
Does anyone know anything about laddering disability policies? How easy is it? Is it worth it? How do we get around the 20k/month benefit limit?
I know a doc who recommended laddering disability policies from multiple companies because the 20k/month benefit doesn’t go that far nowadays, less so in the future with inflation. I believe that if a doc can make 400-600k, laddering might be worth it?
Work with an independent agent. It often requires too policies but my understanding is that it can now often be done with just one and that there are plenty of people getting benefits of $30-40K+.
“Laddering” doesn’t really make sense when it comes to disability policies. Laddering TIPS, CDs, or life insurance is when you buy multiple securities/policies that end at different times. You’re just buying multiple disability policies. That’s not laddering.
Should a military resident get a disability policy? We get a group policy through the VA. If not, perhaps as a military attending?
If you can, yes. https://www.whitecoatinvestor.com/disability-insurance-for-military-physicians/
Ohio National had an ACH form to bind coverage and collect first months premium. They just announced they are no longer writing any new policies effective July 2023 though. I wonder if there will be any carriers left!?
And another one bites the dust…
That’ll leave:
Berkshire
The Standard
Principal
Ameritas
Mass Mutual
+/- the new NML policy
A couple of other issues to be aware of with group LTD:
If the employer pays the premium for the employee – which is common – the benefits are taxable income when on claim.
ALL employer-sponsored group LTD plans offset to Social Security Disability Income benefits.
If you’re maxed out on group LTD, with a benefit of $10,000/month for example, and you qualify for the maximum SSDI benefit of $3,627 in 2023, the group LTD plan will only pay the difference up to $10,000 – you don’t get $10,000 plus SSDI.
I learned through personal experience with my expensive Guardian disability plan that collecting on a disability insurance policy is an uphill battle. You have to prove that you went from being a high-earning physician practicing his/her specialty to being disabled and then repeatedly prove that you continue to be unable to perform most tasks in your specialty, even with special accommodations.
Insurance companies have many tools in their toolbox to shield themselves from having to pay out: (1) sending private detectives to perform video surveillance, (2) demanding to come into your home for an interrogation with “field agents” (usually retired law enforcement officers) to get you to say something that can then be mischaracterized to void the claim, (3) making you see adversarial medical examiners hired by the insurance company, (4) pressuring your personal physicians by repeatedly burying them with pages of forms with dubious questions, (5) demanding several years worth of your patients’ billing records (yes, they want a list of every CPT code billed, how much was billed, and how much was collected, even if salaried by a large healthcare organization), (6) claiming that you were uncooperative with their investigation if they are missing any requested data, and finally (7) burying you in legal fees.
Ultimately, it often becomes necessary to retain a disability attorney to help support your claim for as long as you are trying to extract payment from the insurance company (25%-40% of any payouts for the duration of your disability).
That doesn’t sound very fun. What’s the nature of your disability?
Do you think people should buy a larger disability benefit in order to be able to share it with an attorney and still support oneself?
If I were counseling employers, there are options that would minimize their legal and financial exposure yet demonstrate concern for workers. Unfortunately, many employers do not see the need for coverage, or worse, they have discontinued offering it as an employee benefit plan (maybe only offering it as a voluntary benefit) because of the excessive level of litigation. LTD claims are the most frequently litigated benefit claim.
I would be happy to counsel your clients on why LTD coverage is necessary, and how to minimize legal and financial exposure through:
– The definition of disability,
– The funding structure,
– The benefit determination/formula/offsets/elimination period/pre-ex,
– Cafeteria plan provisions,
– Associate communications,
– Appropriate eligibility provisions,
Deployment of automatic features/behavioral economics concepts, processes, etc.
Happy to discuss if you want to sell more coverage through employers to workers.