By Dr. James M. Dahle, WCI Founder
There are situations where it does not make sense to purchase disability insurance. However, it is pretty unlikely that a resident or young attending is in one of those situations. Today, we’ll walk through what you need to consider about this type of insurance policy and define the situations where buying disability insurance doesn't make sense.
Disability Insurance IS Expensive, But It IS Worth It
Disability insurance is expensive. The typical rate for a resident or young attending buying a solid, portable, individual disability insurance policy is 2%-6% of your benefit. In other words, if your benefit is $10,000 a month expect to pay $200-$600 per month for it ($120,0000 per year for $2,400-$7,200 per year). If your policy is 4% ($1,920 per year for a $48,000 benefit per year), that's certainly within the expected range. You could save a little bit by dropping a rider or two or going with a different company, but don't expect to get it for a dramatically lower price. The reasons they are expensive is that they are highly likely to pay if you actually become disabled and because those who purchase these policies become disabled relatively frequently.
(Plus you have to pay the agents a commission to sell these things and the insurance company has expenses, and unless it is mutually owned, its shareholders expect a profit each year, etc, etc. But mostly, the policies actually get used.)
If you want a dramatically lower price, you need to look into a group policy. It will not be portable, and it will likely be significantly weaker. It may not have level premiums, but it will probably be a lot cheaper. I owned both an individual and a group disability policy for many years, but I canceled both when I became financially independent.
Insurance Is About Risk, Not Return
Like with term life insurance, disability insurance is all about mitigating risks that you cannot afford to self-insure against. It doesn't make sense to calculate your return because you really do have a need for this insurance. If you become disabled as a resident or young attending (or even an older attending who is not yet financially independent), it is a financial catastrophe. Even if the insurance costs twice as much, that doesn't change your need for it.
Don't Count on Another Way to Earn
While we're all worried about losing our left thumb and thus our ability to intubate, operate, or suture, the truth is that most disabilities that keep you from practicing medicine are also going to keep you from doing anything that is going to earn you anywhere near the same amount of money. Most doctors, unfortunately, aren't qualified to do anything that pays anywhere near the same salary, so I think relying on anything but a passive or mostly passive income to replace disability insurance is probably a mistake.
Is Disability Insurance Worth It? Seven Times When It Doesn't Make Sense
Disability insurance is worth it for the vast majority of doctors, but there are some occasions where it truly doesn't make sense to buy.
#1 Financially Independent
If you can afford to self-insure a risk, it is always cheaper, on average, to do so. There are costs of insurance, including commissions and profit, and so an insurance company (at least one that wants to stay in business) always takes in more in premiums than it pays out in benefits. If you are financially independent, you are no longer depending on your income as a physician, and thus, you no longer have an insurance need. It's very reasonable to drop a policy at that point.
#2 High-Earning Spouses
If your spouse is also a high earner and you are both comfortable living on just one income, it's OK to forego disability insurance. There is a risk that both of you become disabled simultaneously, but that seems far too low to justify the price of two full-rate policies. I do not know of a company that offers a “second to become disabled” (similar to second to die life insurance) policy for a much cheaper rate. That product would make sense for a two-doc household. Keep in mind that if one of you is a pediatrician working part-time and the other is the owner of a very successful plastics practice, it may still make sense to buy some disability insurance on the surgeon.
#3 Military Docs
The military does provide a disability benefit, including VA benefits. It is not nearly as good as the individual disability policies that most civilian docs buy, but it is better than a kick in the teeth. (It pays ~$3,200 per month for a 100% disability if you're married with children.) Unfortunately, it is also particularly difficult for active-duty military folks to purchase individual disability policies. Combine these two issues and it may make sense for an active-duty military doc to not own disability insurance.
#4 OK with Social Security Disability
Most disability insurance agents like to gloss over the fact that we all have a disability policy. It isn't a particularly great one and the benefit isn't very high, but there is a policy included in your Social Security benefits. If you are particularly frugal or have a significant nest egg already AND you're OK that this policy is much less likely to pay than a typical individual disability policy, then it may make sense to skip a disability policy. But when I say “frugal,” I really mean it. I recently saw my Social Security disability benefit and it's less than $3,000 a month. That's not going to cut it for most attendings, including me.
My family relies on both my income and my belaying skills. I back up both whenever possible.
#5 Family Assistance
A “trust fund” is an exception since that would make you financially independent, and you would not need disability insurance. However, there are other types of family assistance that may fill your need for disability insurance. If your parents would support you and leave you most of their assets or if you have a rich uncle or sister who would provide for you if you were disabled, then you can probably get away without insurance. I wouldn't do that to my family members, but in the right family . . . it would be far cheaper to rely on each other than to each individually insure against risks like disability.
#6 You're Broke
While the need for a medical student or resident to have disability insurance is probably never higher, the fact is that income is limited. An attending can afford to spend 2%-3% of her income on a “luxury” like disability insurance. Most residents can, too. But sometimes, when you're choosing between rent, food, and medicine, it isn't unreasonable to delay the purchase of disability insurance until the completion of training. It's a big risk, but I can understand somebody running with it. I suppose if you were really ill and the price at which disability insurance was offered to you was ridiculous, that might also not be worth purchasing. But in general with disability insurance, preexisting conditions are simply excluded rather than used to increase your price.
#7 Late 50s and 60s
Most disability insurance policies only pay to age 65 or 67, or for a year or two—whichever is greater. However, as you get into your late 50s and early 60s, those premiums aren't getting any cheaper. In essence, you're paying the same amount of money for 10 years, five years, or even one year of benefits as you were paying in your 30s for 30 years of benefits. At a certain point, that just doesn't make any sense, even if you're still not quite financially independent. You would really have to be in pretty bad shape (physically or financially) to continue a policy very far into your 60s.
As for me, I originally anticipated letting go of my disability insurance policies by age 50, but after I felt comfortable that I had enough money that I didn't need it anymore, I dropped it even earlier than that.
Have more questions about disability insurance and if you actually need it? Hire a WCI-vetted professional to help you sort it out.
Those were all the exceptions I could think of. Can you think of any more reasons not to buy DI? Do you agree with these exceptions? Why or why not? Comment below!
[This updated post was originally published in 2015.]
I would also add that the kind of work one does is also important in considering whether or not one should roll the dice and not buy disability insurance. For instance, as a psychiatrist I am much more comfortable taking that risk than I would assume a surgeon or obgyn doc would be. Flawed thinking?
Yes, your thinking is flawed. While you might use that rationalization to avoid spending money on insurance premiums, it really is not justified.
While we like to focus on “Own-Occupation” and if you are disabled in your specialty you can work in another occupation or medical specialty and continue to collect disability insurance benefits,no matter what you occupation or medical specialty is, if you are working because you need income, you need disability insurance. It is that simple.
Thanks for this post. I have just been writing the check for my disability policy without thinking about it since I started practicing. I’m sure it made a lot of sense for most of my career, but with the kids through school now and a substantial retirement account balance, at age 59 I’m sure I don’t need it any more. Funny that I dropped my life insurance quite a while ago (when the 15-year level term period expired and the premium went up 5x, I figured that the family wouldn’t benefit enough from the extra money on top of the retirement plan balances), but I never thought about using the same thought process with regard to disability insurance that costs significantly more.
Your blog just paid for itself ;-).
I think I might fit in to exception #2. My wife and I would be comfortable living off one income, but we wouldn’t be comfortable paying off my students loans with one income.
All my loans are through the government and I consolidated with fed loan servicing. If I die my loans will be forgiven, but what happens if I’m disabled?
Depends on degree of disability, but I’m not sure of the nitty-gritty. A kid from my high school had a significant stroke intern year, never returned. Loans were discharged.
Depends on the lender; read the fine print. Federal loans are generally forgiven for permanent disability, but you’d best look into the definition of disability used.
I wonder if any of the agents on this blog have rough data about the percentage of claims in which the disabled physician is able to go on claim due to “own-occupation” definition and continues to work in a different capacity? I’d bet its a small percentage. My guess most claims are not simple loss of limb, but more likely severe brain injury or cancer.
I have a NWM policy that doesn’t have “own-occupation” language. But the more I thought about it, for someone like me who could technically do my job with as little as one eye and one hand to operate a computer mouse, I’m not sure own occupation is necessary.
Thoughts for those of us in more hands off fields like radiology and pathology?
https://www.whitecoatinvestor.com/does-own-occupation-really-matter-with-disability-insurance/
#7 is one of the reasons I went with a Graded, not level premium payment (that plus when I first got out of Residency I could hardly afford the level premium).. Now that it’s been a few years I am wondering if I should switch to a level premium. The cost is about 50% more currently. Has anyone figured out a good way of comparing if one should choose a level vs graded payment structure?
Yes. If you look at your original illustration or request a graded to level premium comparison from your agent, you can see when your increasing annual premium will surpass the level premium on both a an annual and cumulative basis.
Keep in mind that this comparison does not include a time value of money. Therefore, if you took the difference between the graded and level premium structures and assumed a rate of return, that would take the “break even” period out further.
Generally, physicians are best off with a level premium rate for the long-term as it will be the least expensive way to own your coverage over your career.
This is very different from the Wall Street guy that will have his/her “FU Money” put aside very early in their careers. As a result, the odds are very good and they will not need their disability insurance throughout their entire career. As a result, they would most likely only purchase a plan with a graded premium structure and not feel the need or justification to convert to a level premium structure as they will most likely cancel their policy prior to the “break even” period.
When do you plan to drop the policy? What will the graded premium be compared to the level premium at that time? The breakeven should be relatively easy to calculate with Excel.
I think lots of docs continue to pay disability insurance premiums out of habit. I discontinued mine in my mid to late 40s when I realized I had enough money to retire if I wanted to. I originally thought that I would use the money to purchase LTC insurance but now I think self insurance is better for me. The way I look at it is if you are truly disabled you are probably not going to live to 95 any way. l know several docs in their late 50s or early 60s who still pay it. I think this is critically important in the early career years for most of us but it really needs to be reassessed every few years.
Question for WCI:
So if I have a side medical business paid through an LLC, would it save more obtaining insurance via business and deduct through LLC as business expense? My concern; if I drop out of main jobs plan they wont let me back in, so saving would have to be significant.
For federal income tax purposes, LLCs are generally treated as Partnerships.
As such, premiums for an individual disability insurance policy are not income tax-deductible (IRC Sec. 213 (d)(1)(c) 162, and 265 (a)(1).
However, the benefits received are income tax-free IRC Sec. 104 (a)(3) Rev. Rul. 66-262 1966 – 2 C.B. 105; Rugby Productions, Inc. v. Commissioner, 100 TC 531 (1993).
I found I couldn’t deduct my disability premiums. But there is a good reason not to deduct them even if you can- the benefits become taxable whereas if you had not deducted the premiums, they’d be tax-free.
Surprised to hear WCI is planning to keep his until age 50…Given what you have written about your economic standing, and the sucess of this website, I would think you can about drop it now. Then again, the ironic thing with disability is the less you need it (more financial independence) the easier it is to pay for it.
I suppose if WCI keeps paying me what it is paying me, I am now FI. But otherwise, I’m not. So I keep it for now. I doubt I’ll have it after 50, but it seems worth it for now.
“Those who purchase this policies become disabled relatively frequently.”
“Mostly, the policies actually get used.”
This really leads me to believe that disability policies are ripe with fraud (the cost of which is passed on to the consumer, the policy holder). I wonder, do people who are more predisposed to disability obtain policies? Or, after years of paying high disability premiums, do they begin to study their coverage for a way to cash in?
I remember I asked my agent why policies for females were so much more expensive, and he explained that women are more likely to become disabled, citing things like fibromyalgia.
One of my clients has a business partner who went nuts (or is simply the biggest jerk in the world, but I digress). The company had a disability policy for its officers and it was a lengthy battle to get the insurer to pay, but they eventually did. That was a few years ago. Now he is suffering from some debilitating back pain (I suspect because his 24mos of mental coverage finally ran out). Of course this is an anecdote, but it’s one that I have observed personally and has affected me.
Women also tend to get pregnant, which is often considered a disability (political rant: our country has a messed culture of maternity/paternity leave….), and is covered under most plans. My wife’s plan is MUCH higher than my quoted plan because she has to cover her potential pregnancy, even though that will never happen. We asked if we could prove that she’s not going to have a kid in order to lower the premium and the policy provider rejected us. I believe the reasoning was something along the line of: some states allow pregnancy disability to be taken even in the case of adoption, or something like that, not sure, not an expert.
It just comes down to morbidity vs. mortality. Women are more likely to become disabled for a numbers of reasons. As such, they pay more for their disability insurance. However, since they generally live longer, they pay less for their life insurance policies. The reverse is true for males.
The “Holy Grail” for a female is a disability insurance policy with a unisex rate and permanent premium discount. This can reduce their premium rates by 40-50% off of the normal female rates.
There are many ways to obtain this – especially for those that are in training or employees of hospitals or large practices. In many cases, these “multi-life” discounts already exist.
It is just a matter of doing your homework before purchasing a policy.
Complications of pregnancy and child birth are definitely contributors to the increased pricing for women. According to the 2014 CDA Long Term Disability Claims Survey, these conditions account for ~6% of new Long Term disability claims.
Aside from pregnancy related issues though, I believe it is the combination of women going on claim more often AND remaining on claim for longer, that really raises their rates. According to the same study noted above, women make up ~55% of new claims and men 45%. Unfortunately, the study does not provide information on claim duration by gender, which would be interesting to know.
Ahh yes, unintended consequences. Gotta love em.
Not my point with those comments. My point was that disability is a relatively frequent occurrence. That’s all.
A vote for buying level-premium disability policy as young as possible.
Personally, have story of incompetent salesperson who sold me a policy LAST YEAR without Own Occ Rider.
However, it is $2k less per year to add Own Occ to the existing policy than to start afresh with a new policy. Simply, an additional year of life which makes the premiums higher. So, lock in $160/month now with FIO, you will be saving thousands down the road.
Are there any recommended places to shop for disability insurance? I recently received mail from AMA regarding their disability insurance, and I honestly had a) no idea they even offered disability insurance and b) how to go about shopping for disability insurance.
I would be happy to help you. Feel free to give me a call or send an email to [email protected].
You definitely want to avoid the AMA plan. You can read the details in the comments section of this post https://www.whitecoatinvestor.com/association-disability-plans-all-that-glitters-is-not-gold/
I personally work with the Big 6 carriers and would be happy to help you evaluate your options. You can feel free to email me at [email protected].
I’m certain Mr. Keller would also be happy to help, as would the firms that advertise disability insurance services on this site (several banners on the left side of the page).
I was diagnosed with a rare sarcoma my PGY-4 year in my upper thigh. I had already purchased a private disability policy for ~ 5000/month with plans to increase based on my group disability policy at whatever future job I ended up at. I had a 66 of my income policy through my training institution, so I was not going to be living the high life, but I would have ~ 8 k a month until age 65.
I was very lucky in that my cancer was localized and I have no loss of function, but all I can say is that having a life insurance policy and a disability policy was worth its weight in gold for the peace of mind I had knowing that if the worst case scenario happened my wife and two children would be as well taken care of as possible.
I can’t speak for the 50 year old docs, but for this 30 year old I would be VERY careful about canceling a disability or life policy until you are absolutely sure you are protected from this risk. I had some dark days in there, but it would have been much worse without adequate insurance coverage…
I am in a unique and tough situation regarding disability insurance. I am a surgeon and recently out of training. I have a chronic medical condition since birth and most insurance companies don’t want to touch me, even though it has no affect on my physical ability and strength to perform my job. I am healthy otherwise. The companies that have made offers are expensive and will only pay me out for 5 years if I become disabled. I did not think it was worth it given the price.
However, I am concerned about freak accidents causing injury as I have a young family to support. Do you know of any products out there that will cover physical injury only, regardless of medical problems?
You may have options via a Guaranteed Standard Issue (GSI) plan (depends upon where you did your residency/fellowship and when you graduated).
Other options would be either a graded benefit disability policy or an accident only disability policy.
If you email me, I will ask you a few questions and provide you with any potential options available.
Reading that email, it seemed to me that the guy pretty much already knew the answer to his question. What’s weird is that he should have obviously concluded that he should have it (unless he has far more risk tolerance than the average human being).
Like CC, the only individual disability policies offered to me were expensive and 5 years duration. I paid the premium duly for a year then canceled. Now I rely entirely on my group disability policy:
http://www.cu.edu/sites/default/files/long-term-disability.pdf
Premiums paid by my employer. 60% pre-tax salary coverage (so not bad for a radiologist!). 2 years own-occupation as defined by one’s medical license’s scope, whatever that means, then any-job coverage. Even if I’m “forced” to work at some other job I’ll still get that 60% as long as this other job doesn’t replace more than 40% of my current income, as I read it.
It’s not an ideal policy. It’s worlds better than what was offered to me on the individual market, on the other hand. (For the record it was unfounded concerns of cardiac issues stemming from joint laxity that torpedoed my application–underwriters are stupid/overly cautious!)
I wish I was smart enough to buy the graded premium policy as a resident/first yr attending, knowing I’d likely drop the policy in my 50s. Just figured the Berkshire agent was trying to rip me off. Same thing for annual renewable term life. Seems a no-brainer for physicians with motivation to maintain a high savings rate. WCI, do you recommend graded DI?
For a supersaver, I think both graded DI and annually renewable term life can work out very well.
Second that.
I have seen Standard’s level disability policy without the non-cancelable rider to be a competitive option to Guardian’s graded DI.
It’s expensive, but a necessary purchase for most young attendings. I pay about $300/month for about $10k/month of good-quality own-occ disability and about half of that for laddered term life insurance policies for me and my stay-at-home spouse. I can’t wait to be financially independent and able to stop writing those checks. Like WCI, I hope to reach that point prior to age 50 and I also hope to never use any of these policies.
Great post. Currently a 2nd year resident with a husband who is a midlevel provider as well. A couple quick questions for WCI and Mr. Keller.
1) I currently have a non-cancellable, guaranteed renewable policy through Northwestern mutual for a benefit of $6000/month costing me ~$120/mo. The policy does have a future purchase option without needing a future physical. Does this sound like a good policy or should I be searching again for other policies?
2) I rarely see Northwestern mutual listed amongst your disability options? Is there something wrong with their company and/or policies? They seem like a reputable company and several of my attendings seem to have them as well. Should I look elsewhere?
3) Does it make sense to get disability insurance for spouses who are the breadwinner currently but in a short amount of time won’t be. Any suggestions as to how much makes sense in those types of situations, if at all?
Thanks.
Northwestern Mutual does not make the list of recommended disability insurance carriers for physicians as they have not offered their Extended Initial Period (“Own-Occupation” definition to age 65 or longer) to physicians since September, 1997.
At $120 month for $6,000 month benefit, I suspect that your policy has an Annual Renewable Disability Insurance (ARDI) premium structure (similar to Guardian’s premium structure).
Your policy also may be Guaranteed Renewable only (and not Non-Cancellable and Guaranteed Renewable).
Your policy may only include the Future Increase Benefit (FIB) Rider and not the Additional Purchase Benefit (APB) Rider.
At best, your policy contains the “Medical Occupation” Definition of Total Disability which is essentially a “Loss of Earnings” policy. While this will adequately protect your income, it does not adequately protect your medical specialty.
You can read more about NML’s policy by going to https://www.whitecoatinvestor.com/why-not-northwestern-mutual-physician-disability-insurance-friday-qa-series/
If you would like, I would be happy to review your policy, as well as, let you know how it compares to other options available in the marketplace.
I posted this above but didn’t get any comments, what do you think Lawrence?
I have a NWM policy that doesn’t have “own-occupation” language. But the more I thought about it, for someone like me who could technically do my job with as little as one eye and one hand to operate a computer mouse, I’m not sure own occupation is necessary.
Thoughts for those of us in more hands off fields like radiology and pathology?
While you might think it is unnecessary, here are a few things to consider:
Generally, I do not like policies that are tied solely to your income loss. As such, you must document your income on an ongoing basis to the insurance company in order for them to calculate your loss of income in order to determine what amount of your disability insurance benefits are payable.
The difference in cost of an “Own-Occupation” policy compared to a “Loss of Earnings” policy is minimal. In some cases, a “Loss of Earnings” policy is actually more expensive. If you have a “Loss of Income” policy and decide to work in another occupation or medical specialty, you can potentially be penalized for your efforts.
If an insurance company is going to potentially buy you out of your policy during a claim, you will more likely receive an offer (or a better offer) with an “Own-Occupation” policy if the insurance company knows that your accident or sickness will not allow you to return to performing the duties of your occupation. If you have a “Loss of Earnings” policy, unless your disability is total and you can’t do anything else, they will assume you will ultimately return to work in some capacity. If you do, and earn and income doing it, they will potentially be able to reduce or even eliminate your monthly benefit.
If you take the “Own-Occupation” definition of total disability out of the equation for a minute, you would then want to purchase a policy that is the most liberal in terms of other areas:
Northwestern Mutual’s policy is typically expensive. Yes, dividends can potentially reduce the cost, but they are not guaranteed and can be reduced or eliminated in the event of poor claims experience.
A 20% loss of income is required to collect under the Proportionate Benefit (Residual Disability Rider). Many companies require a 15% loss of income to trigger these benefits. Their policy also requires an 80% loss in order for your full benefit to be paid in any given month. The other carriers typically require a 75% loss of income.
Their policy has a limited Recovery Benefit (Transition Benefit) of 12 months compared to other carriers that offer an unlimited Recovery Benefit.
Their policy has a 24 month limitation for claims related to mental/nervous and/or substance abuse disorders. Other carriers do not have this limitation.
A new policy is issued when you exercise the Additional Purchase Benefit (APB) Rider, if it is included in your policy. As such, there is no guaranteed that the new policy’s provisions will be the same, the cost will be similar and the same discounts, if any, that were part of your original policy will be applied.
While NML is a fine insurance company, I don’t think their offering to physicians is attractive compared to what was available in the past.
Hope this helps.
I can’t comment about the Northwestern Mutual, but I’ll comment on the one hand one eye. Try to do your job for a day with your dominant eye patched, and not using your dominant hand. This will slow you down. It may get better after extensive occupational/physical therapy, but it won’t be back to normal. If any part of your salary/bonus/earnings is based on production, your earnings would be lower. Some insurance policies cover this partial loss of earnings with a partial disability rider. When I reviewed my policy earlier this year, I noticed it has a benefit that would pay me if I were to earn either 15 or 20% lower amount due to partial disability.
Anyway, out of boredom sometimes I use chopsticks in my non-dominant hand (and I did not grow up using them). It slows me down. I only do this when I’m bored, but not when I’m hungry. Unless one is completely ambidextrous and has no need and no appreciation for stereo vision – do not think that you could do your or any job as easily as you can with two hands and eyes. From my path and radiology medschool rotations, I think I would hate doing either with just one eye – both are so visually demanding. If there is minimal computer use (and no typing), then one hand could probably be manageable in a “hands off” specialty.
https://www.whitecoatinvestor.com/does-own-occupation-really-matter-with-disability-insurance/ Read the comments too.
1) It’s probably okay. But shop the right way, then you’ll know for sure if it is best for you. https://www.whitecoatinvestor.com/how-to-buy-disability-insurance/
2) Yes, there’s a reason. https://www.whitecoatinvestor.com/why-not-northwestern-mutual-physician-disability-insurance-friday-qa-series/
I often use NML as the poster child for financial professionals doing things the wrong way.
3) Every situation is different. Yes, it can make sense, and you can always just buy a policy for a couple of years if you want.
Great post and topic. I have also struggled shelling out so much money for disability insurance during residency and am now a new attending.
I am in the process of changing my plans (from Guardian) from graded to level premiums. I am reviewing the pricing for my plans, and the optional benefits seem very very steep. WCI, do you or any of the readers, have advice on whether these optional benefits are truly worth it (because they significantly increase the cost of the total premium of the plan)?
For example:
* Future Increase Option (I understand that this is necessary)
But do we REALLY need the following options if we want to keep our costs low?:
* Residual Disability Benefit Rider
* Cost of Living Adj
* Catastrophic Disability Benefit
I wouldn’t buy an FIO as an attending. I’d just buy what I need. I expect my need for disability insurance to decrease over the years, not increase. Probably worth buying as a resident or fellow though.
I think a residual disability is a must.
I think a COLA adjustment is a must in your 30s and 40s, but not your 50s or 60s. Remember these things only pay to ~ Age 65.
I’d rather buy more disability insurance than pay extra for a catastrophic benefit.
The Residual Disability Rider is a must as it takes away the “all or nothing” associated with a disability policy.
The COLA Rider is expensive but money well spent if you are disability while you are young or early in your career.
whitecoatinvestor.com/tag/what-is-a-cola-rider/
The CAT Rider is a personal choice and won’t make or break the premium that you pay for your coverage.
Here is the link that I meant to add about the COLA Rider although WCI pretty much summed it up.
https://www.whitecoatinvestor.com/disability-insurance-to-cola-or-not-to-cola/
My wife works in a large medical corporation as a doctor. She had disability insurance through her employer, 60% or current salary after 60 days, taxable, no extra cost from her salary. It is very unlikely she will ever be her own boss, and it is very likely that she will always work for a large medical group (as in “the group owns 15+ hospitals”). It is very difficult to convince myself to buy extra/personal disability insurance for her, as paying $300/month sounds like a lot of money, and I feel that the coverage she has now is sufficient. Am I missing something?
Probably.
As you know, the monthly benefit would be taxable upon her disability. The group LTD plan will also have a cap on the monthly benefit. If she is in a high earning specialty or the cap on the group LTD plan is low, her earnings may exceed it and, as a result, her income may not be adequately covered.
Generally, group LTD plans do not contain a true “Own-Occupation” definition of total disability, have offsets for Social Security disability and other government programs and typically do not include cost of living adjustments.
Finally, most group LTD plans are covered by ERISA which, according to attorney Michael Quiat (www.uqur.com), “provide a very limited and unbalanced claims adjudication procedure which always works to the disadvantage of the insured”.
Keep in mind that if she works for a large health system, there is a very good chance that individual coverage with discounted premium rates may be available as a supplement.
I’m in a similar position. We get 60% after 6 months, but my understanding is we pay tax on the premium and do not have to pay tax on the income. Max monthly payout is somewhere in the 20K range, so not an issue in primary care! My understanding is that it is own occupation coverage although I do not know the nuances there. There are offsets for SSI, and no idea about cost of living adjustments – likely not. I’ve not been able to justify paying for additional insurance either, and probably won’t. Supplemental coverage is an interesting idea though, especially as I am our primary income earner.
Keep in mind that, generally, you cannot purchase as much supplemental individual coverage as you want.
Insurance companies have a replacement ratio that they are willing to allow as they don’t want you to have an incentive to earn more money if you are disabled compared to when you were working.
As such, with the exception of the “New In Practice” limits, if applicable, based upon your situation, you would only qualify for a very small amount of individual coverage.
Ideally, this policy would allow you to increase your monthly benefit, regardless of your health, if your income allowed (taking your group LTD plan into consideration), if the group LTD plan changed (the benefits were reduced or the monthly benefit was now taxable as the premiums were no longer added to your taxable income) or, more likely, in the event you changed jobs and no longer had any group LTD coverage inforce.
I’m currently a PGY-1 doing a transitional year residency prior to starting ophthalmology residency next year. I’m just starting to look at disability insurance. Am I eligible to purchase own occupation DI as an ophthalmologist even prior to starting ophtho residency? Is there any benefit to waiting until next year to purchase this insurance?
You may get a better price NOT buying it as an ophthalmologist. It’s possible it will be cheaper next year, but I bet it won’t. Meet with an independent disability agent.
I cannot think on any one good reason for not having disability insurance in first few decades of your career unless you are filthy rich o begin with and/or have rich momy / or daddy who will for fact leave you the money, and not to there dog or …..
While you at it, cancel you auto insurance, health and life insurances as well
As for those of you counting on SSDI, you need to look at how much you will get. Most physicians make more then this in one paycheck. How the hell you gonna pay for tens of thousands of dollars in bills every month.
As for those married / partnered folks who keep saying they could live on income of one, then tell me why are both of you working now? I suppose b/ you would like a certain life style, have certain goals in life, maybe pay for kids education, or help other people in your life. Maybe both of you are working right now b/ you can’t stand each other, but in this case chances are pretty good that the one who isn’t disabled, is going to bail when you can’t bring home your share of the bacon.
I must be missing something. Why do people give up their disability insurance while still working? As I see it, if you need to work for financial reasons, you need to protect your ability to have an income. I see that the policy is less valuable, i.e. at 50 it will pay out for only 15 years compared to 25 at age 40. But I’m 57, and I’ll need to work until 65. If I become disabled, I’ll experience financial hardship. Isn’t this true of anyone who is working in order to have income? What am I missing in hearing about people giving up their policies at 50, while continuing to work?
Some people are working but not for financial reasons. If you are financially independent and still working, might as well drop your disability insurance as you don’t need that work income.
As you get close to 65, that insurance policy becomes less valuable, but the premiums are the same. At age 40, you’re paying premiums with a potential 25 year payout. At 62, it’s a potential 3 year payout. I can’t blame someone for dropping it at that point because it is no longer a reasonable deal, even if they’re not financially independent.
Thanks – yes, agreed. It’s not nearly as good a deal. But as you said in response to the original question, if you still need the protection, the cost is not the main issue. It’s painful to write the check each year, but for now at least I sleep better. Maybe at 62, when my last kid leaves for college, I’ll give up the final 3 years of the policy.
I think that’s a reasonable approach.