By Dr. Jim 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. 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? 7 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 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. (Pay varies based on marital status and dependents. Check the VA Disability Chart for accurate numbers.) Unfortunately, it is also particularly difficult for active-duty military folks to purchase individual disability policies. However, it is not impossible for someone in the military to buy individual DI. Check with one of our vetted WCI insurance partners to see if you qualify as an activity duty military doc.
#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. Not to mention, Social Security Disability is difficult to qualify for. According to the Social Security Administration about one in three processed disability applications was approved in 2022. A large number of those who were denied were due to the applicant not meeting the stringent Social Security Administration's non-medical, or “technical,” requirements.
#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?
[This updated post was originally published in 2015.]
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.
WCI-
I want to thank you, the agents and everyone else that has contributed these excellent articles and posted comments. The information is extremely helpful, and I had been unable to find this information until I encountered this site.
You mention in several posts that once one is financially independent, disability insurance is no longer necessary.
Do you or any of the other contributors have an advice, tools or recommendations that can help someone safely determine what it would take to be financially independent and thus no longer need disability insurance. I know that this type of analysis will vary widely from individual to individual, but any starting points for the analysis or general advice would be great.
Thanks again.
The easy way is add up all your expenses and multiply by 25. Have that? Then you’re FI. If you want the complex answer, use a calculator like FIreCalc.
Hi there, I’m a 29 yo resident. I was told by an independent advisor who put on one of those dinners that my rate for life and disability will increase the day after I turn 30. I’d rather wait for financial reasons. any thoughts?
Clay-
While it is true that the rates will increase if you purchase your coverage at age 30 compared to age 29, the difference will be minimal.
Therefore, unless you are ready and willing to purchase coverage, that will not in and of itself, be a motivating factor for you.
I’ve been trying to decide if I need term life insurance and a good own-occ disability insurance policy based on PURELY numbers. I know WCI is a firm believer in the insurance products, but I’d appreciate a non-biased eye looking over the calculations below.
My goal is financial independence and paying monthly tithes to insurance companies gets in the way of achieving that goal faster, so if at all possible I would like to avoid doing so. I estimate 5M needed for FI with my modest lifestyle and thrifty investment habits. I believe I can achieve that goal in 25-years, with six years of residency and an average attending salary of 500k/year for the 19-years after.
If I buy 15k/mo in own-occ disability insurance = probable cost is $700/mo.
If I buy 5M term life insurance laddered (2M x30 years, 2M x20 years, 1M x10 years) = probable cost is $200/mo
–>$900/mo invested for 25-years at 7% return is 731k that went to insurance companies in the 25-years it took me to gain FI.
Is 731k less in my investment portfolio at age 50 (2M at age 65 at 7% returns) worth a <1% chance of me dying by age 50, or a 5-10% chance of me becoming so disabled I couldn't return to work? Additionally I could use that insurance money to achieve FI at age 47.5 instead of age 50. Not to mention you have to factor in the insurance company actually paying out your disability benefit, they often seem very willing to go to court rather than pay. I'm not so sure it is, but I'm interested to hear your thoughts.
You have to consider not just the odds of something bad occurring, but also the consequences. If you can’t afford it to happen to you, then you need to insure against it.
I wouldn’t worry about an insurance company not paying out on your life insurance policy if you die. I guess you could worry about a disability policy a little more, as there is more gray there, but still, the truly bad disabilities nobody is going to have a problem with. Maybe the back pain with a normal MRI might be more of an issue.
Also, do you really need $15K a month in disability and $5M in term life? You could reduce premiums substantially by getting $10K and $2M. I would do that before going bare.
I’m sure WCI will comment as well but you are overthinking things.
If you are working because you and/or your family need the income and have not yet met financial independence (or are not even remotely close to it) and are not expecting a large inflow of money like an inheritance, you need disability and life insurance.
If you saved 10% of your income for 10 years and were disabled, that money would be gone in 12 months.
While the chance of either event may be small, if you or your family would suffer financial catastrophe, what are you other options? If it happens to you, the statistic is 100%.
My first disability claim was from a physician that told me he didn’t “need the insurance” and would “never be disabled”.
Not only did he collect under his policy, but so did his wife (also a physician). I can’t imagine how different their lives would have been had neither of them secured polices to protect the time and money they invested in themselves and their ability to generate income.
There are ways to structure your coverage to lower your premium outlay (such as a graded premium structure for disability insurance) and “laddered” term life insurance, but to go without either makes no financial planning sense.
Have you decide to forego medical insurance and invest the savings?
Hope this helps.
Appreciate both responses. What I am trying to say is there becomes some mathematical point at which DI is not worth it’s price, and it’s a function of monthly premium price vs probability of career ending injury x likelihood of payout x payout amount. You wouldn’t insure against something that had a 10^-7 probability of occurring even if it would ruin you financially… unless the monthly premium was dirt cheap. The issue is there is a paucity of data on disability rates among physicians which makes it hard to calculate how necessary/fairly priced DI is when I don’t know what the normal rate of disability is among my cohort. That combined with the hefty price of DI makes me wary of being taken advantage of by insurance agents with proprietary data that gives them a pricing benefit over me.
Life isn’t risk free and I’ve made it to this point in my life by taking smart risks. If my cohort’s rate of disability is only 1% over a 25-year period that is my healthiest (25 to 50) then I would be willing to run a 1% risk to collect an extra 2M by retirement at age 65. The calculus changes considerably when that risk is 5% or 10%. The problem is I have no idea what my risk of disability is due to lack of data, so my only conclusion on the question of is DI fairly priced or even necessary: need more data.
My understanding of the data is about 1 in 7 docs has a long-term disability during his career. I can’t find a citation for that. In any given year, 5.9% of persons covered by disability insurance are disabled. Rates are higher than dying.
I’ve never been able to find statistics specific to physicians exclusively, but you can review some general statistics by visiting https://disabilitycanhappen.org/chances_disability/disability_stats.asp.
According to the Council for Disability Awareness, just over 1 in 4 of today’s 20 year-olds will become disabled before he/she retires, and 1 in 8 workers will be disabled for 5 years or more during their working careers. Those are pretty convincing numbers, no?
I agree with Larry that you are overthinking it. If a disability happens to you – the statistic is 100%.
An interesting statistic you’ll find on that website is that approximately 90% of disabilities are caused by sickness rather than accidents. Taking smart risks could help reduce your risk of disability to some extent, but you cannot prevent all disabling sicknesses by maintaining a healthy and low-risk life style.
The Council for Disability Awareness offers a lot of useful information so I hope it’s a helpful resource in your research.
WCI,
I currently have disability insurance which provides 10k/month at $342/month. I recently joined a hospital-based organization which has quoted me 12.5k/month benefit at $240/month. This benefit is paid for me when I become partner in 3 years. I am considering canceling my current insurance while using my current employer’s plan and then apply for another plan in 3 years so that my income is fully insured. Do you think the premium will be much greater if I apply in 3 year, when I am 38 vs a plan that I initiated when I was 32?
You’re likely comparing apples to oranges. Your current policy is probably a better policy than the group policy. It is also portable. I’d lay them both out side by side so you understand all the differences. A good independent agent (perhaps the person who sold you the current policy) could help. Your current policy is not a bad price by the way.
Sam,
In addition to what WCI mentioned, keep in mind that re-applying for coverage three years from now will require updated medical and financial underwriting.
Depending on your income, the $12,500 group coverage may prevent you from securing another $10,000 monthly benefit at that time – you may be limited to $5,000 for example. Private insurers will consider both income and group coverage in their underwriting process. That is not the case with employer-sponsored group disability insurance however. So, you could technically keep the existing $10k monthly benefit and also be covered by the $12,500 group policy once you make partner.
Your health might also change over the next three years, which could prevent you from securing coverage entirely or perhaps require exclusions to be added to your policy.
Every situation is different, but on average premiums increase by about 3-5% with every year that you age. So, assume the premiums will be ~20-30% higher at age 38. This is assuming the same policies are available at that time, and pricing is comparable to today’s pricing.
Evaluating the policy differences is obviously a good idea, but make sure you also consider the potential downsides to re-applying three years from now.
I am a 33 year old female pediatric resident currently considering buying a standard-issue disability policy through Principal before their unisex rates expire in a couple of days. The rate I’ve been quoted is $117 monthly for a policy that would provide $4K per month. The insurance agent suggested this policy as there is no medical underwriting required and I have a history of papillary thyroid carcinoma in my early 20s. The downside is that there is no option for increasing coverage later on. Any advice on whether I should buy this policy or apply through the underwritten route (unisex rates would still apply if I do this soon)?
Can’t you apply, see what you qualify for, and then make a decision?
The broker said if I get denied it could be a big red flag to other insurance companies. And if I go the route with medical underwriting and get a crummy policy I can’t go back and choose the standard issue policy.
DI underwriting is brutal. Do the standard issue policy. Can you include the COLA rider? That will give you more than 4K coverage a month.
Many times an agent can do a “soft inquiry” without formally applying. Thus there would be no denial to be a red flag.
Tough choice. Why not get 2 or 3 opinions on it from different agents, then do what the majority recommend?
I am a 38 yo academic Family Medicine attending, active duty Air Force. I am planning to stay in until retirement. I will retire, at the earliest, in 2027 at 48 yo. Should I pursue disability insurance at that time or would it be pointless?
I probably would, but I don’t know what your plan is if you get disabled. If you’re okay with the military plan + whatever other resources you have, then you might not need it.
I apologize in advance if this has been discussed elsewhere on the blog. But last year I deducted my personal disability insurance premiums (not in my personal income tax return, but through my private practice’s CPA who handles our business expense reimbursement). I did this not knowing that my payout will be taxed should I become disabled. If I no longer deduct my disability insurance from this point on, will insurance companies still penalize me for the one year I did deduct the premiums?
Great question. Not 100% sure of the answer but I suspect that you will not be penalized.
What was your business structure that your accountant thought you could deduct your DI premiums? I would love to do it but basically couldn’t do it due to the business structure I had the last time I looked into it.
But yea, if you want tax-free benefits, then better not deduct your premiums. If nothing else, you could file a 1040X for last year and you should be okay.
In the case of two high-earning spouses, you ought to consider the possibility of an accident happening to both simultaneously. Definitely not low.
Looking for advice and feeling like I’m hitting a dead end. As far as I can tell only option I have is a disability plan with a 5 year pay out and high premiums due to a preexisting condition. I’m 6 months out of residency and unfortunately have no options of guaranteed standard issue through my company. Short of changing jobs I’m not sure what I can do. Is the 5 year pay out ever worth it? My wife is also a high-income earner and was able to get disability. Am I SOL? Thanks
Sure it’s worth it. A large percentage of disabilities are less than 5 years. The average claim is under 3 years.
I am 59 and single and have been paying for my own disability income insurance since 2001. It has a annual payout of $55,000 per year should I need the policy. My net worth has grown well since 2001 Into the low seven figures. Though I took a pay cut five years ago going from consulting in defense to direct commercial work. I have no spouse and no dependents and can even tap into my retirement plans this November when I am 59 and a half. I look for any advice this time of year when my annual policy is due. I think now your site which I found made my decision easier. I think the combination of my age and being very close to financial independence would make this disability income insurance not really worth it. My policy takes me eight years to age 67. But I have been thinking of retirement at age 63 or 64! I will stop paying for disability income insurance. Thanks!
Sounds like a reasonable decision to me.
I’m a family doc in Canada. I’m 39, wife is 35 with two young kids. We have 3.3 million in net worth and currently financially independent.
I figure if worse comes to worse we can live on 10k a month without a mortgage (2.8 million invested in a high dividend stable Canadian index fund like Xei) . (And most health care is covered here in Canada so I don’t have that to worry about). I’ve decided to drop my associations disability insurance. We were paying 35 a month for only 3500 a month in coverage. I also work as a salaried physician (along with a private practice) and I would get 5500 a month in taxable benefits from my employers disability insurance but this would be reduced by 3500 a month due to the other policy for which I’m paying 35 a month. So to me, it doesn’t make sense to also pay for the 3500 a month in coverage that I would already get from my employer.
Does anyone think this is crazy? My mother thinks I’m crazy for dropping disability insurance but she also never amassed the wealth that we have so far managed to amass. I also have my salaried jobs disability insurance already.
No. I cancelled my DI when I became financially independent.
Wow, how have you amassed $3.3 million while still in your 30s?
It seems to me that the basic assumption of these discussions is: except in cases of personal or spouse-supported “financial independence”, physicians need disability insurance. But this logic would apply to anyone who needs “to work at some point in the rest of [their] life for financial reasons.” Yet I don’t think most engineers, chefs, and teachers have disability insurance.
I expect that physicians’ occupational exposure to tragedy causes us to over-estimate the likelihood of becoming disabled, which makes us prime targets for the insurance industry. Am I missing something? Are the uninsured engineers, chefs, and teachers the ones who have it wrong?
I would argue those other folks SHOULD buy disability insurance. Are we targeted? Sure. But that doesn’t mean we shouldn’t buy it just because it is a profitable business to sell it to us.
Can anyone comment on if and how I should include student loan re-payment calculations in my disability insurance calculation neeeds? For instance, $200/month towards disability insurance is money that could go to paying back my student loans. If I become disabled, there are some instances of disability forgiveness for student loans, but if I have re-finananced with a private bank at a lower interest rate, it may not be an option, or the options are fewer and farther between. Should I include my student loan repayment as part of my needed living expenses when deciding how much of a benefit to receive?
I’d make sure your DI benefits are high enough to cover your student loans, pay all expenses, and save for retirement. I would not like to have to rely on the definition of disability in your promissory note.
This is a great post but I think the WCI misses a VERY IMPORTANT consideration for #2 – high income spouse. Yes, you could probably live off of one income now. But if your spouse is disabled, and needs significant care, are you financially prepared to care for them? Are you going to quit your job to provide care? Will you be prepared to pay for potentially 24/7 care, or are you ready to work 50-80 hours a week like most attending physicians, pay for 50-80 hours of skilled care at home, and come home to a second job of caring for a disabled spouse (and maybe kids and parents too?) In addition to providing the day to day care, you’ll probably have significant additional medical expenses and need to plan time away from work for doctors appointments, etc. This can and does happen. For example, the spouse of one of our practice partners sustained severe disabling injuries in a tragic accident just as they were planning to retire. They didn’t have DI and it medical insurance doesn’t cover everything. It has changed their lives completely, I think the physician is working much longer than they wished in order to cover the increased expenses. So before thinking about dropping your disability insurance, make sure you’ve accounted for the potential costs of caring for a disabled spouse.
Definitely an important expense to think about, and if you can’t handle it without disability insurance then buy the disability insurance.
Via email:
great post. here’s the thing though- as a resident you can’t afford NOT to buy this. The policy provided through the residency institution often is [not] occupation-specific with no rider and the option to carry it on without a new exam after finishing. I have such a policy. If you wait until you have finished residency, you have to go through an exam etc and who knows what could happen by then- you could accrue [exclusions]. In my case, a cervical discectomy as a fellow. I have had the option to increase my benefit but it requires a full exam. I am grateful I paid for that policy before I paid the rent as a trainee!
While I believe Residents/Fellows should purchase the maximum monthly benefit available, another approach to take is to use what I deem the “Lease with the Option to Buy Plan”. I wrote about this strategy along with Guaranteed Standard Issue (GSI) plans in this guest post https://prudentplasticsurgeon.com/disability-insurance-for-doctors/
Good thought provoking discussion. As a psychiatrist I went with a barebones policy. No own occ. Two year mental health limit. I’d had some depression in medical school and decided I would take the risk to keep the premium affordable/obtainable. I am a saver anyway and figured it wouldn’t be long before even a limited policy plus SS would be enough. This worked for us, we had a 7 figure NW within seven years and we’re FI within 15. I still pay the premiums, but am thinking of dropping when I turn 50.
I bought a disability policy out of residency. I did not get a specialty specific rider because my reasoning, at the time, was that if I was disabled to the point where I couldn’t do emergency medicine but could work in a private practice medicine cline (I’m dual trained) I’d be okay with doing that and having the disability policy making up the difference in salary.
I’ve had this policy for 10 years now. Is it worth looking into changing it at this point?
You’d certainly be looking at a big premium increase at this point.
I never bought DI as I never knew about it just as I never had a life insurance. When I started learning more about personal finances, I was already financially independent, don’t make my mistake, it is very important to have one. The money I saved all went to a payout for an umbrella insurance I wish I had, but that’s another story. Haha
It would be interesting to hear more about that liability situation/pay out. Would you consider a guest post:
https://www.whitecoatinvestor.com/contact/guest-post-policy/
Not dramatic, but 100% VA disability with a wife and child is now ~3450 per month in 2021.
https://www.va.gov/disability/compensation-rates/veteran-rates/
The husband and I decided to drop mine at about 50. He was the high earner and we felt we could get by. Disability cost had become quite high at that point also. No surprise there. Apparently wrestling rottweilers for a living (veterinarian) has a high risk for injury. I don’t blame insurance as many of us have torn shoulders, aching backs, tennis elbow etc. Fortunately our finances could survive.