By Dan Miller, WCI Contributor

Protecting income is one of the most important aspects in the financial lives of many physicians and other high-net-worth individuals. Once you have the basics of your finances in place, you'll next want to ensure that you have adequate protection in place, including the use of disability insurance policies to protect you if you were to become disabled and couldn't work. This can help solidify your future financial plans, especially if you have a spouse, children, or others who depend on your salary for their support.


Can You Collect on Two Short-Term Disability Insurance Policies?

As with most things related to insurance, the answer to this question will depend on the exact terms of the short-term disability policies that you purchase, but generally yes, you can collect on multiple short-term disability policies. However, it's not very usual you'll run into this situation which is more typical with long-term disability contracts. What is more common is having one short-term disability contract and multiple long-term disability policies. This is referred to as stacking disability insurance.

It is so named because you are stacking together multiple insurance policies (often from different providers). These different policies often have different lengths, payouts, and riders that can complement each other. Stacking your disability policies can give you the best parts of multiple different policies.


How to Stack Your Disability Insurance Policies (Short- and Long-Term)

Many disability insurance policies have conditions or clauses that make them less than perfect, or, if you find a policy that has everything you're looking for, it may be priced higher than your ability to pay. Stacking disability insurance is one way to get around this conundrum by combining the best parts of two or more different disability policies to get a level of coverage that you're comfortable with and that you can afford to pay.

A quick reminder on the difference between short-term and long-term disability insurance.

  • A short-term disability policy generally begins paying as soon as you get disabled and then pays for a maximum period of 3-24 months. Short-term disability, while inconvenient financially, is not generally a financial catastrophe for a physician saving for retirement with an emergency fund. As a result, many doctors do not buy short-term disability policies at all. Short-term disability policies are generally offered through an employer, not purchased in the marketplace.
  • A long-term disability policy generally does not pay immediately but only begins to pay after a waiting period ranging from 1-6 months to as long as 1-2 years. Then, the policy will continue to pay you a benefit each month until age 65 or 67, depending on the policy, as long as you meet the definitions of disability in the contract. Since losing your ability to earn a living for the rest of your life is a financial catastrophe, any doctor who is not financially independent should buy a long-term disability insurance policy. Long-term disability can be offered through an employer or, unlike short-term disability, can be purchased on an individual basis.

Having multiple disability insurance policies works both for short-term and long-term disability coverage. Stacking or staggering policies also can be a great solution for life insurance, though that is a topic for another day. When considering how to optimally stack your disability insurance policies, you want to take a look at the cost, terms, and benefits of each of the different policies.

Many physicians take out a smaller, cheaper disability insurance policy early on in their career (such as when you're a resident). Then, once they have progressed and are making more money, they supplement that existing policy with another policy with additional benefits. Combining both policies allows you to get the best of both worlds, and it's often cheaper than if you canceled your first policy and replaced it.


Should Physicians Have Short-Term and Long-Term Disability Policies at the Same Time? 

Most White Coat Investors don't need a short-term disability policy. But if they decide to have a short-term disability policy, they may find it advantageous to stack it on the front end of their long-term disability policy. It depends on a variety of factors, including your total income, other assets you may have, whether you have dependents, and your overall risk tolerance. It may make sense to forgo the short-term disability policy and instead opt for building an emergency fund that can last the duration of a long-term disability elimination period. Also of note, short-term disability plans are typically offered through employers and are not available to purchase individually. However, it's always good to consult one of WCI's vetted insurance agents to see what options there are.

With that being said, stacking two long-term disability plans is not uncommon for physicians. As we've mentioned already, stacking policies like this is a way to combine the best parts of multiple different policies to find a situation that matches your risk tolerance. One reason that physicians might want to consider having multiple long-term disability insurance policies is that it is common for carriers to have a maximum benefit amount they will issue, and that may not be sufficient for physicians and others with high incomes.

Something to be aware of is that many disability insurance policies have a limit on the maximum benefit amount that you can collect if you're disabled. So while you may have multiple disability insurance policies from different carriers, you still may be subject to a combined maximum amount. Check with your trusted financial advisor or an insurance agent to find the best policy or combination of policies for you.

stacking disability insurance


Why You Should Stack Your Disability Insurance Policies

There are a couple of different reasons why you should consider stacking your disability insurance policies. One reason is to get around the fact that many insurance carriers cap the total benefit amount that they are willing to write a policy for. If that amount is lower than the monthly income you would need to replace if you become disabled and can't work, you may want to get an additional policy.

Another reason to stack policies is if your employer offers short-term and long-term disability policies that don't meet your coverage needs. Many plans have what are called “benefit caps and maximums” and will only cover a set amount of income. Additionally, if the employer is paying the premiums the benefits are generally taxed at claim time, which reduces their take-home value. In that case, you may want to supplement your employer's group coverage with an additional policy that you pay for. If you do end up purchasing multiple disability policies, make sure you understand any combined maximum amounts on each policy.

Nearly every high-income professional in their first decade or two out of school should own a disability insurance policy. Your most valuable asset is your ability to work. If you do not own a disability insurance policy, you need to go get one now—even if money is tight as a resident. When you become financially independent, you might not need disability insurance anymore.

But until then, collecting on several disability policies is a common strategy for high-income individuals. Stacking your disability insurance policies is a way to get around maximum benefit amounts on certain policies or to combine the best parts of policies from different carriers. If you do decide to have multiple disability insurance policies, make sure you understand how they might work together, including any total maximum payout amounts. Consult with a trusted insurance advisor to learn more and to see what might work best for you.


Have more questions about disability insurance and what kind of policies would be the best for you? Hire a WCI-vetted professional to help you sort it out.


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