By Travis Christy, White Coat Insurance
The statistics from the Association of American Medical Colleges (AAMC) regarding student loan debt among medical school graduates are staggering. On average, medical school debt surpasses $200,000, not including undergraduate or other educational expenses. When tallying it all up, the typical medical school graduate faces a jaw-dropping quarter-million-dollar debt burden. This financial strain is widespread. Approximately 73% of medical school graduates carry educational debt, and roughly 31% also grapple with pre-medical educational debt.
To put things into perspective, medical school graduates end up owing four times more than the average college graduate. Moreover, a significant 70% of medical school students rely on loans specifically tailored for medical education. Given these figures, it's no wonder insurance companies have introduced disability products geared toward protecting physicians' ability to repay loans in case of illness or injury.
In this post, we'll dive into the mechanics of the “Student Loan Disability Rider” available as an add-on with some disability insurance company offerings and whether it merits consideration when you're looking into income protection. Discover which insurance providers offer this feature and understand the distinctions between it and government or private loan forgiveness programs. Let's unravel the details together.
What Is the Student Loan Rider on Disability Insurance Policies?
For physicians who have heavily invested in their education, the student loan rider is an option worth considering. This rider offers supplemental financial assistance aimed specifically at student loan payments, which can be particularly beneficial during a doctor's early career. By providing an additional monthly benefit amount on top of the basic coverage, it offers an alternative approach to addressing the financial strain of educational debt. The rider's payout is directly tied to the amount of coverage purchased and the monthly student loan obligations, offering a tailored solution to an individual's specific circumstances. Here’s an example of what a policy may look like with a student loan rider:
$5,000 base monthly benefit + $2,500 student loan rider benefit = $7,500 total coverage
Which Carriers Offer the Student Loan Rider?
Most of the Big 5 disability carriers have the student loan rider as an option on their policy. The only carrier not offering the rider is Principal.
More information here:
What Disability Insurance Riders Do Doctors Need to Buy?
Disability Insurance: The Vital Role of the Residual/Partial Disability Rider
How Does Each Carrier's Rider Work?
Ameritas
The Student Loan Protection Rider from Ameritas offers an additional benefit to help cover student loan payments during a disability. It can be added to existing DInamic Foundation policies at the policy anniversary, subject to underwriting approval. The rider requires a disability policy with a base benefit of at least $1,000, and it is available across various occupation classes. It provides coverage for up to five- to 15-year terms, and up to three student loans can be covered on one policy. The student loan rider benefit ranges from $100-$2,500 per month. Where Ameritas may have a competitive advantage with this rider is with a residual or partial disability. Under the policy, the rider reimburses up to 50% of the monthly loan payment (when the disability is residual or partial). Other carriers only pay under a total disability scenario.
Guardian
Guardian's Student Loan Protection Rider gives you the choice between a 10- or 15-year term. It kicks in only if you're totally disabled, and unlike Ameritas, it does not have any partial or residual benefit component. As a physician, you can receive monthly benefits ranging from $250-$2,500. It is reimbursement, meaning you must provide receipts and proof of your student loan payments to receive benefits at claim time. However, Guardian offers something called the Supplemental Benefit Term Rider as an option instead of the Student Loan Protection Rider. It costs more than the loan rider, because, instead of it being reimbursement, the rider is indemnity. That means Guardian will pay out the benefit directly without needing receipts. Plus, even if you manage to pay off your student loan early, you're still eligible to receive proceeds from the Supplemental Benefit Term Rider, as long as the term hasn't expired.
MassMutual
MassMutual’s Student Loan Rider (SLR) operates by providing a monthly benefit to cover student loan debt in the event of total disability. The coverage term can be either 10 or 15 years. Maximum benefit amounts range from $100-$2,500. You can opt for waiting periods of either 90 or 180 days, and it doesn't have to match the base policy. When it comes to reimbursement, you'll receive the lesser amount between the maximum benefit amount and the verified reimbursement amount. For example, if your verified student loan debt is $1,500 but the maximum monthly benefit is $2,000, you'll receive $1,500 as your benefit amount under the SLR (this works the same for the other reimbursement riders with the other carriers).
The Standard
The Standard's Student Loan Rider is designed for specific occupation classes and age groups, offering either a 10-year or 15-year term. To qualify, your base policy must provide benefits until either age 65 or age 67. Under this rider, Standard will reimburse you for your monthly student loan payments if you become totally disabled while the rider is active and you meet the conditions for total disability benefits. Additionally, you must fulfill the waiting period for student loan benefits, make monthly student loan payments before the rider expires, and provide proof of loss each month. The amount reimbursed ranges from $100-$2,500 per month.
More information here:
People Aren’t Buying Disability Insurance, But They Should
A Pain in the Butt – My Dental Disability Story
What About Student Loan Forgiveness?
You might wonder if there's any way out of debt through loan forgiveness. It’s possible with what’s called Total and Permanent Disability (TPD) discharge, but it comes with specific requirements. First off, your student loans need to be under a federal government loan program like the Federal Perkins Program or the William D. Ford Federal Direct Loan Program. Plus, you'll have to prove your total and permanent disability by submitting documentation from the Department of Veterans Affairs (if you're a veteran), the Social Security Administration, or a trusted physician to the US Department of Education.
The Bottom Line: Opt for a Bigger Disability Base Benefit Unless You’ve Maxed Out
If you've been following The White Coat Investor for a while, you probably know we're big on maximizing your base benefit before considering the student loan rider. When it comes down to choosing between the two, it's all about picking the option that sets you up for the most benefits in the long haul. Now, the student loan rider works as a “term rider,” meaning the coverage clock starts ticking as soon as you start your policy.
For example, if you grab a 15-year student loan rider and end up disabled after 10 years of having the policy, you've only got five years left for the rider to pay. On the flip side, if you beef up your base coverage, those benefits stick with you until your policy ends (until age 65 or 67). But if you've maxed out your base benefit and you still need more coverage—especially to tackle hefty student loan debt—grabbing the rider might be a smart move. And remember, you can always ditch the rider once those loans are all paid off.
Obtaining quality disability insurance is a must for any physician, so you can be sure to protect your hard-earned income. Get a quote from one of our recommended insurance agents and cross this task off your to-do list today!
What do you think? Would you consider buying student loan disability insurance? Why or why not?
[This updated post was originally published in 2017.]
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. 6/2025); Registered address: 10610 S. Jordan Gateway, #200 South Jordan, UT 84095. This does not affect the cost or coverage of insurance.
Like other types of insurance, disability insurance gets more expensive the older you get. Paired with the facts that, in general, your student loans are higher the younger you are, and your pay lower, it’s never too early to buy long-term disability insurance and protect yourself.
The only scenario I can possibly see an argument for this is if you bought own occupation bc if you simply lost your surgical abilities but could still work behind a front desk for example, I don’t believe the SSA would give you the permanently disabled classification. That’s what you need to get your federal loans forgiven. With private loans you have to get a judge to call you disabled and that’s also probably not happening if you have the capacity to work and do something even though you might not be able to practice in your specialty. But yeah I saw a mortgage that supposedly is designed to help you pay off student loans the other day. You’d be better off by buying less house and using the lower mortgage payment to retire the debt. Another point is that for federal loans income driven repayment is effectively fantastic insurance already. If your income plummets you’re covered and you can go for the 20 to 25 year forgiveness options.
I couldn’t agree with the comment more. Of major importance here to address the article AND your concern is that the language in Student Loan Protection DOES include a specialty definition of own occupation. So, if unable to perform ortho surgery but still able to see patients, the claim is paid like the top traditional policies.
Guardian has begun offering a Student Loan rider to their disability insurance, and I was actually questioning with whether or not to get it. It pays an extra $1000-2000 a month for a maximum benefit of $117,000. So essentially policy at the resident maximum of $5000 would payout that extra $1000 on top for student loans; essentially a $6000 policy. At least, this is my understanding of it. Any thoughts on if this is worth getting, and in order to keep the premium manageable, if it’s worth getting this and dropping COLA?
I wouldn’t drop COLA on a policy I bought as a resident.
As long as the student loan rider can be dropped and you can afford the extra premium, then it is probably a reasonable way to get more coverage as a resident.
Hello Adventure!
If one’s Government backed loan forgives the debt entirely upon disability, you are 1000% correct…why would anyone buy the student loan rider? if private, however, it could be critical.
What’s your overall opinion on what kinds of insurance and how much should be purchased by someone?
Some are mandatory (homeowners w/mortgage, auto insurance), most are optional. Working out the cost/benefits mathematically is an interesting exercises for comparing different companies, but it doesn’t really change the decision to purchase it or not. At the far ends of the spectrum, I understand life insurance can end when dependents aren’t involved and there’s enough left for your partner. Similarly, I’ve never bought gadget insurance from Best Buy since it’s comparatively expensive (like buying a lottery ticket) and can easily afford to replace the gadget.
That leaves a big chunk of insurance decisions in between. Evaluating risk is almost impossible for an individual situation vs. larger groups where statistics and actuarial tables can be used. Buying non-mandated insurance seems like an entirely emotional decision based on fear which is completely opposite of how I prefer to think about personal finance.
Insure against catastrophe. I’m a big fan of disability insurance, but this particular variation is too gimmicky in my opinion, like accident life insurance or cancer insurance.
So it’s sort of like a lump sum buyout disability policy. No surprise it’s expensive, but this seems particularly spendy.
Next year I’ll have to buy some fantasy football insurance.
You can take out $40,500 in Stafford loans each year and the remaining in Gradplus loans (slightly higher interest rate) up to the cost of attendance of your school (includes living expenses.) You really don’t even need to take out any private loans.
Since you say federal loans are forgiven if you have a disability, I bet hardly any people need this insurance.
I could be wrong, but don’t student loans disappear if you get disabled?
If not, why not just buy a disability policy for work which appears to be 10 times cheaper and a disability student loan policy.
FYI…..
https://www.chicagotribune.com/news/nationworld/midwest/ct-wounded-veteran-student-loan-debt-irs-20171020-story.html
Wounded Michigan vet gets student loan debt forgiven, but now IRS wants $62,000
Will Milzarski
Retired U.S. Army 1st Lt. Will Milzarski saw the federal government forgive his sizable student debt but now the IRS wants him to pay $62,000 in income taxes on the loan cancellation. (Matthew Dae Smith / Lansing State Journal via AP)
Associated Press
The IRS is asking a wounded veteran from Michigan to pay $62,000 in income taxes on the federal government’s cancellation of his student loans.
First Lt. Will Milzarski served two tours in Afghanistan that left him with a traumatic brain injury, post-traumatic stress disorder and hearing loss. The federal government canceled $223,000 in student loan debt after deeming him totally and permanently disabled.
The 47-year-old veteran, who said the debt is largely attributed to his law degree, told the Lansing State Journal that the IRS’ notice surprised him.
“One part of government says, ‘We recognize your service, we recognize your inability to work,” Milzarski said. “The other branch says, ‘Give us your blood.’ Well, the U.S. Army already took a lot of my blood.”
Michigan State University’s Low-Income Tax Clinic has agreed to take on the issue. Joshua Wease, a law professor from the clinic, said the tax in Milzarski’s case isn’t logical.
“If an individual has been deemed disabled and unable to pay their student loans, it seems incredible that they wouldn’t also be deemed unable to pay the taxes on the forgiveness of those same student loans,” Wease said.
Wease said the IRS rejected an offer to pay a lower amount and the clinic is appealing the decision, which may take months. He said the clinic is first working with the federal government because Michigan taxes are based on federal decisions about income.
Milzarski said he’s also turned to his state and congressional representatives about the issue.
Republican state Sen. Rick Jones said Thursday he’s drafting a bill that would exempt loan forgiveness for wounded vets under state law. The bill likely wouldn’t help Milzarski because it won’t be retroactive, but the veteran said he’ll be glad to see the legislation passed.
There is now a provider that offers the Student Loan Rider with Partial or Residual classification. As noted in previous comments the definition for Waiver or Discharge of Government Loans is “Total & Permanent” Disability. Which means no chance for recover or return to work…ever. If you were able to return to work at a lesser capacity nd possible lower earnings all of your loans would still be due. If you are considering having disability coverage as a matter of practicality, then it seems exploring the student rider option would be a prudent course of action.
I’d only consider that if I’d already maxed out the base benefit I could get and wanted more coverage. And then I’d drop that rider as soon as the loans were gone (or at least a fraction of their original size.)