I have written a lot about disability insurance for physicians in the past, but I haven’t written in years about this important financial topic. I have partnered with Pattern in providing this crash course video. The purpose of the rest of this post is to give a broad overview of the “must-know” information about this complicated type of insurance.
Top 10 Disability Insurance Questions
These are the most common questions I get from readers and listeners about disability insurance:
1. Who Do I Buy Disability Insurance From?
Disability insurance should be purchased from an independent agent. An independent agent can sell you disability insurance from any of the “Big 5” disability insurance companies. These include The Standard, Guardian/Berkshire, Principal, Ameritas/Union Central and Mass Mutual (+/- Ohio National.) Each of these offers a strong “own-occupation” disability insurance policy appropriate for physicians. I keep a list of those I consider the best disability insurance agents in the country. Save yourself the work of finding a good one you can trust and use the same agents that have been used by thousands of WCI readers in the past. You do not need someone local that you can sit down across the table from. It is better to have someone who has sold policies to hundreds of docs this year working with you by phone, Skype, and email than someone you can sit down with who has only sold four policies. In addition, if there is some issue with one of these agents, I can usually help you resolve it quickly.
2. How Do I Buy Disability Insurance?
The key is the independent agent. The agent is going to be paid a great commission by the insurance company no matter which policy you choose. Assuming policies with similar benefits, the commission isn’t going to be all that different. Plus, these agents get plenty of business and none of them are starving, so they have little incentive to sell you an inferior policy for a slightly higher commission. Their reputation is worth far more than a few extra dollars in commission. Since you are (indirectly) paying the agent a very nice commission, don’t feel bad about using their time and expertise to fully understand this complicated product. For most docs, this is a purchase that is only done once or twice in their life. Have the agent quote you policies from each of the Big 5 companies and show you the strengths and weaknesses of each. If you have a policy from work or your professional association, bring it in with you and have it included in the comparison. Then you can know you made an educated decision and you can buy it and forget about it. Also be sure to ask for a discount. The vast majority of doctors will qualify for a 5-30% association or employer-related discount and a top-notch agent will help you get that.
3. When Should I Buy Disability Insurance?
Luckily insurance companies don’t ask about extreme tubing
You should buy disability insurance just before you become disabled. Since you don’t know when that time could be, earlier is generally better. However, disability insurance is also expensive, and when you are young and poor you have lots of other great uses for your money. A good compromise is to buy a small policy as you enter residency and then upgrade it just before leaving residency. The younger you are, the healthier you are, and the fewer dangerous hobbies you engage in, the cheaper your premiums will be for the same benefit.
4. When Can I Quit Paying for Disability Insurance?
Disability insurance is a temporary type of insurance, like term life insurance. When you no longer have a need for it, or it is no longer a good deal, you should cancel it and use what you would have spent on premiums to save, spend, or give more than you now do. The idea is to have the disability insurance in place from the time you start earning money until the time when you no longer rely on that earnings stream. Since any type of insurance is, on average, a losing proposition, you should only insure against financial catastrophe. Acquiring a long-term disability while your family relies on your income is a financial catastrophe. Becoming disabled after you are already financially independent or for only a short period of time is not. So when you reach financial independence, you can cancel your disability insurance (and your term life insurance.) In addition, since most disability insurance policies only pay out until age 65 or 67, as you age, the possible payout becomes less and less. As you move into your 60s, you may decide it is no longer worth the premiums to only get a few years of benefits in the event of long-term disability.
5. What Is the Most Important Feature of Disability Insurance?
The most important feature is the definition of disability. Unlike life insurance, where life and death are pretty black and white, disability has fifty shades of gray. You want a policy with a strong, broad definition of disability that will cover any possible type of disability. That means “own-occupation, specialty-specific” and no limitations on things such as psychiatric conditions or addictions. This is the main difference between the “Big 5” companies and others. Even among the “Big 5” there are slight differences. It is okay not to purchase the policy with the very best definition of disability, but the weaker the definition, the bigger the discount you should expect.
6. How Much Disability Insurance Do I Need to Buy?
As a resident, you typically cannot afford to buy as much as you need, but you should be able to do so even as a brand-new attending. Basically, you need to buy enough to cover both your living expenses and your retirement savings if you were to work to age 65, but not your taxes. Disability insurance payouts are generally tax-free since they are usually paid with post-tax dollars. Note that how much you need has little to do with your income and everything to do with what you spend. The less you spend, the less insurance you need to buy. Insurance agents would love to sell you the largest possible policy (which usually works out to be about 2/3 of your gross income, but it is possible to combine two companies to get even more) so you’ll need to decide how much you need on your own. Resident physicians typically buy a $5K per month benefit and attending physicians typically buy a benefit in the $10-15K per month range, but there are plenty of docs who buy both more and less. If your plan in the event of disability is to rely on the income of your spouse, you may not need disability insurance at all.
7. How Much Does Disability Insurance Cost?
Unlike cheaper insurance policies like term life and umbrella policies, disability insurance is expensive, although not quite as expensive as your malpractice insurance. The reason it costs so much is it actually gets used. The likelihood of you acquiring a long-term disability during your working years is approximately 7 times as high as your risk of dying in those years. A typical policy bought on a healthy doc in her 20s or 30s will cost something between 2 and 6% of the benefit. So if your monthly benefit is $10K, expect to spend $200-600 per month for that. Perhaps the sticker shock you get upon being quoted prices will motivate you to reach financial independence as soon as possible so you can cancel the policy.
8. Which Riders Are Worth Purchasing?
Disability insurance is typically sold with a handful of riders, each of which comes with an additional cost (and commission for the agent.)
- Residual disability– This rider should be purchased by everyone. It covers not only a partial disability but also provides a partial benefit as you recover from your disability.
- Inflation Protection- This rider indexes your benefit to inflation, usually starting one year after you become disabled. This is a particularly important rider if you are disabled at a young age, so I recommend it for anyone buying a policy in their 20s-40s. If you are already 55, and the policy is only going to pay until you are 65, you can probably skip this rider.
- Future Purchase Option– This rider allows you to buy a larger benefit at a later date without any pesky questions about your health or hobbies. If you are in a position (such as a resident) where you cannot afford as much as you need, purchase this rider.
- Catastrophic Disability– This rider pays out an even larger benefit if you are REALLY disabled, usually defined as not being able to do 2 or more activities of daily living. Unless you are already up against the maximum amount you can purchase, I think you are probably better off just buying a larger primary benefit instead of this rider.
- Retirement Benefit- This rider, in the event of disability, causes the insurance company to put some money into some type of retirement vehicle for you in addition to paying your monthly benefit. Unfortunately, these are generally high-expense, insurance-based investing products and not the best way to save for retirement. You are better off purchasing a larger primary benefit with the money that would have gone toward this rider. Just don’t forget you need to continue to save for retirement using your disability benefit money since the policy will only pay to age 65 or you will be living only on your Social Security benefits.
9. What Is Excluded?
Disability insurance policies generally exclude any medical conditions you have at the time of applying for insurance. For example, if you already have chronic back pain, the policy will not provide a benefit if you are disabled due to a back condition. In addition, if you admit to participating in dangerous activities such as SCUBA diving, rock climbing, flying, and sky-diving, the policy will likely be issued with a rider that excludes those activities from coverage. Other exclusions may also apply, such as acts of war, normal pregnancy, and foreign travel.
10. Is My Employer’s Plan Good Enough?
The most important rule of disability insurance is that any disability insurance is better than no disability insurance. If you are disabled without disability insurance, you will be limited to what is offered by the Social Security Administration, which provides relatively low payouts and can be difficult to qualify for. My last Social Security statement says my disability benefit would be $2,471 a month. Living on that would be a dramatic decrease in our standard of living.
Many employers (and professional associations) also offer disability insurance. If your employer is paying the premiums, be sure to take advantage. If they are not, you will have to compare the group policy to the individual policies that an independent agent can sell you. As a general rule, individual policies have a stronger definition of disability and higher (but flat) premiums but can be taken with you from one job to the next. Group policies are less expensive (although premiums generally rise as you age), often don’t ask pesky questions about your health and hobbies, but cannot be taken with you when you leave. In some cases, an individual policy is best. In other cases, the group policy makes sense. Occasionally, it can make sense to have both. Owning a pre-existing individual policy may limit how much of a group policy you are allowed to purchase.
What do you think? What have you learned about disability insurance that everyone ought to know? How have you structured your coverage? Comment below!
Dr. Dahle,
I just finished listening to your ‘Mistaking a Salesman for a Financial Advisor – Podcast #104.’ In there you stated “It’s very rare that a disability life insurance sold to somebody by Northwestern Mutual agents is what they really want.” after Rikki’s call. I’ve been looking to get a quote for life and disability insurance, going through your recommended agents. Above it seems that you vetted Dr. Christopher Yerington, when I click on his name, on his site it states “Physicians Income Protection will cease operating as of May 6th, 2019. Dr. Christopher Yerington has joined Northwestern Mutual”. I was about to request a quote from him, but since he’s with NM, would you not recommend getting a quote from him or is he still vetted? Thanks.
I don’t recall ever vetting Dr. Yerington or approving him as an advertiser. I also don’t believe he has ever purchased advertising from us.
I certainly would not sell anyone employed by NML an ad nor recommend them to my readers. I think that’s a very poor decision for someone to choose to work for a company with their culture. Serious reputational harm there. In fact, it’s one of the questions on my application for just that reason.
There are many people who comment on blog posts and participate on the WCI Forum whose services I do not recommend, who don’t buy advertising, and who I have never vetted. My recommended insurance agents can be found here:
https://www.whitecoatinvestor.com/websites-2/insurance/
I hope I was clear enough about that. You can learn more about some of the issues my readers have had with NML here:
https://www.whitecoatinvestor.com/forums/topic/inappropriate-whole-life-policy-of-the-week/
ABJ,
Apologies for the confusion. Not sure whether the editor will publish this response but the truth is all doctors need all the information they can get presented by people who care… Dr. Dahle does this very well and somehow organizes it into approachable content which much of the financial world seems not to be able to do with both clarity AND truth. I have copies of his books in both my offices and I often have clients bring copies into meetings with pages marked or post-it notes sticking out. I do not know that I can compliment him more than my clients have.
I cannot reverse the tragedy in my own life from having my group disability insurance policy misfire upon my own claim due to being written with missing language. I cannot get back six years of uncertainty or a lost attempt at clarity through the American Legal System… which basically just was a soul-crushing experience. I can’t fix some of the uncertainty that still looms in my own life BUT I can very well teach, speak, advocate and advise other doctors and medical professionals to do better than I did. I started Physicians Income Protection in 2016 to advocate for physicians. While helping others, I have healed some of my own wounds. About eight months ago, my company, Physicians Income Protection, and myself, as a speaker and advocate for physicians were invited to consider merging with Northwestern Mutual. Initially, I passed on the offer, and… I passed on their the next offer, too. I’m a doctor, I know what many doctors say and feel about Northwestern Mutual.
I’m a disability insurance expert now (never wanted to be but becoming disabled made me that way) and I run into many Northwestern Mutual DI contracts. Sometimes it is because a doctor is disabled and going on claim and that is one of their policies. Sometimes it is from clients asking my opinion on this or that contract from this or that carrier and what makes sense to keep or not. Sometimes it is from a young doctor asking if they made a mistake buying a certain policy from a certain carrier.
I kept writing, speaking and advocating for physicians to understand that getting great individual disability insurance is critical as part of the underlying risk management for their career lives and their financial lives. Again, the offer of a kind of merger was made to take both my messaging and my services National in concert with Northwestern Mutual. I was already working on some of my financial certifications and will be earning my CFP and CLU in the next few years. This is to expand my scope of speaking and writing as a physician advocate. My practice was expanding as clients asked me to ‘quarterback’ other portions of their financial lives. I’m slowly becoming more expert in not only insurance planning, but investment and generally family and business financial planning.
I did, a year ago begin the process of becoming an advertiser on WCI. On the editor’s, Dr. Dahle’s, application is the question “Have you ever… Northwestern Mutual?” It is there for a reason. I know those reasons well from client-stories and articles, from history and the legal cases I’ve read (I attended Law School – I’m a complete geek, I admit it… but a lot of us doctors are geeks when it comes to information!) I agree for the most part with Dr. Dahle’s information on WCI. This blog has helped countless physicians do a better job with their financial lives and doing a better job of that along with some basic work/life balance brings lower stress and less anxiety into the practicing physician’s life. That leads to less burnout and all it’s symptoms.
I did, on March 9th, 2019, decide to merge my practice with Northwestern Mutual. I did this for many reasons, one was to offer Northwestern Mutual products to my clients. Northwestern Mutual would of course prefer for me to offer their DI product in a favorable light compared to other carriers, but they also have pretty much one credo above all others and that is to ask, “Is this right for the client?” I don’t really do ‘favorable light’ because I am a scientist at heart and trained that way like many of you. Either the data shows benefit or it does not. So, let’s just say I ‘challenge’ them a little bit when it comes to disability insurance and physicians. Hence, there are some compliance hurdles with this direction I’ve chosen to pursue. Going through the corporate compliance process has been eye-opening in many ways… I imagined about two weeks ago what some physicians face with hospital system compliance and the loss of autonomy in their lives.
Over these past few years I’ve been introduced to the ‘culture’ at most of the largest 6-7 carriers in the disability insurance space. I’ve helped dozens of physicians going on disability claim navigate understanding their life situation more clearly and part of that is assisting with the claims process, which can be onerous and overwhelming. My own experience with Lincoln (one of my two own personal carriers) was disastrous, deplorable and downright evil BUT having a front row seat to several other medical professional’s claims with Lincoln after my own – no problems. My personal experience with Principal, the other carrier I had when I went on claim in 2010, was flawless for me and in fact they felt bad for what Lincoln was doing at the time. My front-row seating gave me a look at a Principal claim that was bumpy for another doctor. I am speaking at a Principal event next week in the Midwest to an audience of financial representatives and members of their national claims team. I am honored to give a few words of perspective from a physicians claimant’s point of view.
While I am sincerely hoping not to do “Serious reputational harm” to myself by joining with Northwestern Mutual, I’ve done so for many reasons all while knowing everything the WCI editor knows about Northwestern Mutual and having many great physicians caution me with their own stories and stories of friends of friends… I still did it.
ABJ, I’d be happy to assist you with disability insurance. If the fact I’m expanding what I do with (6) national carriers to yet another national carrier, Northwestern Mutual, makes you pause, I understand. No worries. Scott Nelson Archer, CLU, ChFC at MD Financial Services is a colleague in the disability insurance space and does a fantastic job with his physician clients, I highly recommend him. Scott will not steer you wrong.
What I do is work one-on-one and doctor-to-doctor to educate, advise and advocate for great income protection, basic financial literacy and work/life balance in order to reduce stress, anxiety and burnout in the modern practicing physician. I also am available directly by mobile phone for any physician struggling with suicidal ideation or in crisis. I would not have merged my company, brand and practice with Northwestern Mutual if I thought what I do would be diminished by being backed up by the company in my endeavors. I sincerely hope I am allowed by the editor to remain a contributor on WCI, even if I am affiliated with Northwestern Mutual.
Again, apologies for the website confusion,
Sincerely,
Dr. Christopher Yerington
It’s your reputation. Do whatever you want.
You’re welcome to post comments here (like anyone else including many NML agents) but you’re going to get a lot of push-back on this one. I think you’ve made a terrible business move.
You said:
# 1 You wish to offer NML products to your clients? Which product do you think is so good that it is worth offering? I can’t think of a single one that is best in class for anyone. I mean, there’s got to be something for someone, but it’s so rare that it doesn’t seem worth associating yourself with a company that was listed by 45% of people who answered a Twitter Poll asking “An advisor from which of the following companies is most likely to give you bad advice?”
# 2 You’ve already experience the culture. You’re being pressured to make their less than ideal IDI policy seem better than it is. In fact, I suspect you’re going to be required to sell a certain number of them, no?
# 3 And this idea that NML’s credo is “Is this right for the client?” is not even close to accurate as evidenced by every other “advisor”/agent I’ve ever talked who worked or works for the company. The culture is the problem. Challenging them “a little bit” is hardly going to cut it. What you’re doing is trying to provide them legitimacy, but I have no idea why.
Good luck, but don’t expect much support from here if you persist in this direction.
How much of a difference does location make in the pricing? For instance I live/practice in the D.C. metro area. Would establishing a policy in D.C vs MD vs VA make a significant difference in pricing if I plan to apply for own occupational coverage and lock in rates? I read that insurance companies consider average salary and disability rates per state, but I wonder the degree to which that has a net effect in pricing all else held constant?
Any other policy differences to be aware of that vary by state when establishing a policy (if you have the option of considering moving locations prior to establishing a policy)?
The states that you mentioned don’t really have a pricing difference so you will be fine in each of them. The big states where there are price swings are CA and FL (they are typically higher by) or the mid-west like OH, ID, KY, MI, WI and a few others have a tendency to be priced below market by 5-10%.
D.C.MD,
California and Florida are the biggest States with pricing concerns for physicians moving into or out of those Stats during transitional times in their careers; graduating medical school, residency, fellowship or job changes during your career before the age of 52-55. Each one of those events ‘should’ trigger a revisit at one’s disability insurance because each one offers an opportunity for evaluation when meaningful action can most likely be taken.
Bear in mind, there can be some carrier to carrier pricing differences within the same State. My advice is to find someone (ideally an independent broker from carrier-determined obligations) who does this all the time for physicians, specifically. You would have an orthopedic surgeon do your shoulder who does (3) shoulders a year, but is great with knees… you want the guy who does (3) every other day.
Hope that assisted you,
Chris
A couple years back I was declined for disability insurance by two or three of the major carriers working with one of the WCI recommended agents. Unfortunately I developed some medical problems largely beyond my control (parathyroid adenomas, gout, ITP) before I knew what DI was. I ultimately got a policy through a local NW Mutual agent with a surprisingly good rate (compared to healthier colleagues with better policies through more reputable insurers). Should I re-apply for DI through an independent agent? Nothing has changed in my health history otherwise (normal BMI, BP, cholesterols, non-smoker, etc). I’ve read that being previously declined for DI is a death nail for a new application.
It never hurts to have a consultation and review where you are at along with your options going forward. Just be sure to have all of the past information ready (carriers interaction history and medical history) to share with the consulting rep.
Sure, it doesn’t hurt. But obviously don’t cancel the policy you have before you line up another one and don’t be surprised if that is the best policy for you going forward!
Uffda,
Time has changed, actually, even if your medical history has not. A denial of individual disability insurance can hurt further requests for disability insurance for a time, but if medical conditions and treatments are stable, then that offers the underwriters a different set of circumstances with which to evaluate risk. You’ll want to specifically work with a disability insurance consultant that will have you keep your current policy in force until an option is found that is in your better interest, if any, and one that will work through all your past available information: past medical history, current medical history, all applications to previous carriers in order to understand your best path ahead for your individual disability insurance. In circumstances where a doctor cannot improve their individual disability insurance protection, then often a more comprehensive evaluation of overall financial circumstances can lead to additional pathways to protect and secure income for one’s career and life.
Best of Luck!
~Chris