The vast majority of physicians and other high-income professionals should and do buy a disability insurance policy at some point during their careers. Despite the presence of plenty of information about doctor disability insurance on the internet, too many of them are still doing it wrong. In this post, I'm going to address 17 common errors that doctors continue to make with disability insurance.
Top 17 Ways Doctors Screw Up Their Disability Insurance
#1 Didn't Buy Disability Insurance
Far and away, the biggest mistake made is that doctors don't buy disability insurance at all. You want to see a financial catastrophe? Take a look at a doctor who became disabled early in their career after spending 10-15 years of their life and hundreds of thousands of dollars investing in their future ability to earn money. This is your most valuable asset. Insure it.
More common than becoming disabled is becoming uninsurable or less insurable. People develop medical problems all the time in their 20s, 30s, and 40s. These folks often discover that they cannot buy insurance at all, or if they can, they end up paying a bunch of money for a policy riddled with exclusions for the medical conditions most likely to disable them or perhaps even their favorite hobbies. If you're making this mistake right now, please, please, please . . . go get yourself a disability insurance policy.
#2 Didn't Buy Enough Disability Insurance
Only slightly better than not buying it at all is not buying enough. I once met a doctor who bought a policy with a $2,500 per month long-term disability benefit while he was in residency. No Future Purchase Option. No Cost-of-Living rider. He didn't bother increasing his benefit after residency. Then he became disabled. He and his family then lived off of $2,500 per month. That's $30,000 per year.
Now, some people in this country live off of $30,000 per year. But it would be a dramatically different lifestyle than you and your family expected, especially as those kids get bigger and inflation gradually erodes the value of that $2,500.
Do yourself a favor and make sure you buy a large enough policy to pay all of your living expenses AND save for retirement (remember these policies generally stop paying at age 65-67). Then buy a little more, just in case.
#3 Missed Out on Medical Residency Discount
I frequently see doctors ask whether it is better to buy a policy at the end of residency or at the beginning of attendinghood. I want to smack them upside the head, because they're already several years too late and ran a risk they should not have run. Buy a policy as an intern, even if you cannot afford a policy as large as you need, want, and eventually can afford. Get something in place. (Even $2,500 is better than nothing.) Residents get a discount compared to attendings. It is often extended for 3-6 months after residency. But if you're asking yourself this question, you've already screwed this up. You've gotten lucky so far. Stop rolling the dice and get that policy in place.
More information here:
Top 12 Reasons to Buy Disability Insurance as a Resident
Should Medical Students Buy Disability Insurance?
#4 Didn't Buy Before Changing States
Some people don't realize the price of insurance varies significantly by state. For example, disability insurance can be 20%-30% more expensive in California than in New York. If you expect to move soon from one state to another, check with an independent disability insurance agent to find out which state is cheaper. Buy it there, or at least swap policies once you get to the new, cheaper state.
#5 Didn't Get the Partial/Residual Disability Rider
The most important rider on a disability insurance policy is the Partial/Residual Disability rider. Many reputable agents won't sell a policy without it because they know how important it is. This rider provides a benefit if you are partially disabled and as you return from disability. Make sure your policy has this benefit.
#6 Didn't Buy the Future Purchase Option Rider in Residency
Another disability insurance rider that is important for a resident, a military doctor, or anyone who expects to soon have a larger income and increased lifestyle spending is a Future Purchase Option rider. This rider locks in your ability to purchase more disability insurance, no matter what medical condition you may develop or what dangerous hobbies you may take up. You probably don't need it if you are buying a policy at age 45, but a resident almost surely does.
#7 Didn't Buy a COLA Rider as a Young Doc
Inflation has been around for a long time. I don't expect it to go away, especially since the Fed actually targets a 2% inflation rate. A Cost of Living Allowance (COLA) rider allows your disability insurance benefit, once it starts being paid, to increase each year with inflation, usually up to a maximum of 3%-6% per year. This preserves your spending power. Again, you may do fine without this rider if you're buying a policy at 50 or 55, but if you're buying one at age 28, I'd get the rider.
#8 Spent Money on Unnecessary Riders Instead of a Larger Base Benefit
Plenty of other riders exist. These bells and whistles can be expensive and unnecessary. I include riders like student loan riders, retirement riders, lump sum riders, and catastrophic disability riders in this category. I get lots of questions from doctors about these riders, but they're usually thinking about this the wrong way. They're wondering, “Should I spend money on this rider or not?” Instead, I ask them to ask, “Is it a better use of your disability insurance money to buy this rider or to simply buy a larger base benefit?” Most of the time, getting a larger base benefit is a smarter move. Unless you're already buying the maximum benefit the company will give you, I'd usually spend my money there instead of these riders. In fact, I'd look into adding on a second policy from another company before buying gimmicky riders that only pay out in certain circumstances or force you to use less-than-ideal savings vehicles.
#9 Bought Maximum Insurance as a Two-Doc Couple
In a two-doctor couple, each member of the couple could effectively function as the other's disability insurance policy. Many of these couples still opt to buy some type of disability policy for each of them. I think that's reasonable. But the fact remains that their need for disability insurance is dramatically lower than that of a doctor married to a stay-at-home spouse. Yet the price is exactly the same. This is not quite the no-brainer it is for a single doctor or a doctor married to a non-earner. Thus, if you are going to buy policies anyway, don't buy the maxed-out policy with all the bells and whistles. That's a mistake. I'd aim to spend about the same amount of money a single-doc couple would spend on disability insurance, or less.
More information here:
Disability Insurance for Physician Couples
The Physician’s Guide to the Best Disability Insurance Companies
#10 Mistook the Agent for a Financial Advisor
I like independent insurance agents. I have partnered with many of them for years here at The White Coat Investor, and I consider them friends. Selling necessary insurance is a noble profession that protects families from financial catastrophes. But insurance agents are not financial advisors. Like any commissioned salespeople, they are experts at the products they sell, and they can help you decide between them and make an informed decision about your insurance options. But don't mistake them for a financial planner or an investment manager. That's a good way to end up with a potpourri of commissioned products in your portfolio, including whole life insurance and loaded mutual funds.
#11 Didn't Buy Specialty-Specific Coverage
Own occupation, specialty-specific coverage. That's what you want. The definition of disability is all-important. The most important aspect of a policy is that it actually pays you when you become disabled. This is particularly important for surgeons, dentists, and other procedural specialties, but most specialties do at least some procedures. You don't want a policy that incentivizes you to not do any work at all after a disability or, worse, won't pay you because you can still do some sort of work you don't actually want to do. There's a reason people have to hire an attorney to get their Social Security disability benefits. With a strong definition of disability, you won't have to do that. Yes, it costs more to get a top-notch policy from one of the Big 5 disability insurance companies (Ameritas, Guardian, MassMutual, Principal, and Standard). But you get what you pay for.
#12 Bought a Group Disability Policy Because It Was Cheaper
Many employers and professional organizations offer disability insurance as a benefit. It is sometimes even specialty-specific. However, it is generally not portable and often contains other weaknesses. If a policy costs 1/10th as much, don't expect it to perform in the same way.
Now, there are reasons to have a group policy. The best one is if someone else is paying for it, like your employer. But it often also comes without a medical exam or doesn't ask any pesky questions about dangerous hobbies. That might be a good reason to have a group policy in addition to your individual policy or because you can't get an individual policy. But just because it is cheaper? That's a mistake.
#13 Bought Short-Term Disability Insurance
Long-term disability insurance policies generally don't start paying out until you've been disabled for 3-6 months. But you can buy a short-term disability policy to cover that period. However, a three-month disability isn't really a financial catastrophe. You should be able to cover that period with an emergency fund of 3+ months of living expenses. Sure, you might not yet have one of those if you're a new intern, but hopefully, within a year or two, you will have that saved up and no longer need to ever pay for short-term disability insurance.
As a general rule, insurance is a losing proposition. Since some portion of your premium dollar must go to pay for the expenses (including agent commissions) and profits of the company, the company cannot possibly pay it all back out in benefits and stay in business. It's a losing bet on average. It must be, or insurance companies would not exist. So, you should only buy the insurance that you need.
#14 Didn't Buy Disability Insurance Before Getting Pregnant
Pregnancy is not a disability, but a complication of pregnancy is. You are far more likely to become disabled while pregnant than you were a month before you got pregnant. Unfortunately, if you go to buy a policy during the first or second trimester, you may find that pregnancy or complications of pregnancy are excluded, postponed, or limited until after delivery. If you buy a policy during the third trimester, you will find that the policy may not be issued at all until 30 days after you deliver. There is a proper order to this process. Buy insurance. Then get pregnant.
#15 Didn't Pause It During Deployments or Active Duty
MassMutual is the only company that sells disability insurance policies to active duty military doctors. If you own a policy before going on active duty, be sure to discuss it with your agent or the company itself when you go active duty and especially when deployed. If it will still cover non-act-of-war disabilities, you may wish to keep it in force while serving. If it will not cover that, you may wish to put the policy on hold. That allows you to keep the policy in place for when you leave active duty but not pay any premiums during that time period. It's possible that you could even get your premium money back afterward if you were deployed recently and did not pause the policy, but it would be best to arrange this in advance. Bottom line: there is no point in paying for insurance if it doesn't provide any protection.
#16 Didn't Cancel It Upon Reaching Financial Independence
The idea behind disability insurance and term life insurance is to use them to protect against financial catastrophe—i.e., your disability or death during your working career up until the time your portfolio can sustain you and your family for the rest of your life. If you are financially independent, you no longer need disability or term life insurance. Perhaps if you are a particularly risky person (i.e., just got diagnosed with cancer), it is still a “good bet” at that point, and you may choose to keep it. But most of the time, paying the premiums on a disability insurance policy after you reach financial independence is an expensive mistake.
More information here:
Why I Dumped My Disability Insurance Policy at 43 Years Old
#17 Didn't Buy It from an Independent Agent
I often have doctors ask me if the disability insurance policy they just bought was a good deal. If they had purchased it in the proper way, they would already know that they had the best deal available to them. The proper way is to go to an independent insurance agent (i.e., not a captive agent—an agent who only sells policies or primarily sells policies from one company) and evaluate all of your options together. For a doctor, this usually means looking at your current policies, policies from each of the Big 5 companies, and any policies available from your employer or professional organization. The agent will help you to compare pricing and features, allowing you to make an informed decision. Then you will know that you own the best policy for you.
These disability insurance mistakes are unfortunately much too common. If you have found that you have made one of them, get it fixed ASAP.
What do you think? What mistakes did you make with your disability insurance? Have you had to make a claim with it?
[This updated post was originally published in 2021.]
The White Coat Investor may receive compensation from White Coat Insurance Services, LLC; licensed in all states including MA and DC; CA license #6009217; NY license #1758759 (exp. 6/2027); Registered address: 10610 S. Jordan Gateway, #200 South Jordan, UT 84095. This does not affect the cost or coverage of insurance.