The Vital Role of Long-Term Disability Insurance for Physicians
Physicians earn higher salaries than most other professionals. The more you make, the more you need to protect.
One way to do that is with disability insurance, specifically long-term disability insurance.
Every physician should know that without long-term disability coverage, their future income is at risk. That means potentially being unable to afford your home, your car, or the everyday expenses that your dependents rely on you to pay.
If you haven’t already protected yourself with long-term disability coverage, the time to get it is now. Here is our guide to the vital role that long-term disability insurance plays in a physician’s career.
What is Long-Term Disability Insurance?
Long-term disability insurance is not health coverage or long-term care insurance. It is income replacement insurance.
Long-term disability insurance benefits replace a percentage of your salary throughout the policy’s benefit period if you are too ill or injured to work. It’s how you continue to earn income when suffering from a medical condition, but some physicians don’t have it because they don’t think they’ll ever need it.
Data shows that nearly 20% of people living in the United States will suffer a disability lasting more than a year before they reach the age of 65. One in every seven people will obtain a long-term disability that lasts for more than five years.
Some of the leading causes of long-term disabilities include:
Cancer
Cardiovascular conditions
Complications from pregnancy
Back issues
An injury or illness can happen to anyone at any time, so it’s essential to protect yourself with a policy before such an injury or illness occurs.
The financial protection that long-term disability insurance coverage provides is invaluable, and you can spend the benefits in any way you choose:
Pay your mortgage or rent.
Pay your utilities.
Make credit card payments.
Pay for everyday living expenses.
Make car payments.
Continue to contribute to a retirement account.
Build your savings account.
Pay for your children’s education.
Pay off your student loan debt.
Pay for medical care and costs that health insurance doesn’t cover.
Compared to short-term disability insurance, which usually only provides benefits for three to six months, long-term coverage pays out for years.
How Does Long-Term Disability Insurance Work?
Getting a long-term disability policy is an easy process, but there are a few steps involved:
Fill out an application with the insurance company.
Undergo a medical evaluation.
Wait out the underwriting process.
Once underwriting is complete, you’ll start making premium payments and have the peace of mind that comes with income replacement insurance.
If or when an injury or illness occurs:
File a disability claim.
The carrier will then determine your eligibility for benefits based on the definition of disability in the policy and the type of work that you can no longer do.
Once the carrier approves your claim, you’ll need to wait for the elimination period to end before collecting payouts.
Also called the waiting period, this is the period between the date of your injury and the date you can start collecting benefits. All disability insurance policies have one, and you can choose how long that period of time will be.
Once the waiting period ends, you can start collecting your full benefit amount, throughout the benefit period, as long as the medical condition prevents you from working.
If your injury or illness allows you to work part-time rather than full-time, you can collect a reduced benefit amount to compensate for the lost income.
Which Illnesses or Disabilities Does Long-Term Disability Insurance Cover?
Technically, any illness or injury may qualify you to collect benefits. It all depends on the definition of disability in your policy.
There are two key definitions of disability:
Own-occupation
Any-occupation
It’s difficult to qualify for benefits with an any-occupation definition, as this requires you to be so severely ill or injured that you cannot work in any job at all.
With the own-occupation definition, you can collect benefits for any condition that prevents you from doing your current job. This is the must-have definition for physicians, as some injuries could make it possible to work in another capacity yet impossible to practice medicine.
Your Policy May Exclude Specific Conditions
Keep in mind that even with the own-occupation definition of disability, your policy may have exclusions.
Prior to underwriting your policy, the insurance company will require you to undergo a health screening or a complete medical evaluation. Pre-existing conditions reported on your application or discovered during that screening may be excluded, and you may not be able to collect payouts for illnesses that arise from those conditions.
In addition to pre-existing conditions, disability coverage will not pay benefits for illnesses or injuries that result from:
Self-inflicted acts
Criminal activities
Acts of civil rebellion or disobedience
Acts of war
Driving while under the influence of drugs or alcohol
How Long Does Disability Insurance Last?
Disability income insurance can pay benefits for an extended period of time, all the way until retirement.
The benefit period is the duration of time from the date you start collecting payouts until the date your benefits end. Like the elimination period, with an individual policy you can customize your benefit period as well.
With most providers, you can choose from a benefit period of two years, five years, ten years, or more, all the way up until you reach your retirement age.
As per the Social Security Administration, the retirement age for individuals born after 1960 is 67. So a physician that obtains insurance coverage at age 30 would technically be able to collect long-term disability benefits for a maximum benefit period of 37 years.
There is no way to predict when an injury or illness might occur — or how long it will last. Medical conditions can last for years or even decades, so choosing a longer benefit period offers you the most protection.
Longer Benefit Periods Mean Higher Monthly Premiums
Choosing a longer benefit period will increase the cost of monthly premiums, but it’s well worth the added expense. The longer the benefit period, the more you stand to collect in payouts, which is more income you can replace.
So, what is the right benefit period to choose?
We recommend selecting a benefit period that ends at age 65, rather than at the retirement age of 67. At 65, other retirement vehicles open up and can be used to replace a portion of your income without the need to pay any monthly premiums.
How Much Does Long-Term Disability Coverage Cost?
In addition to your benefit period, a variety of other factors determine the cost of disability insurance plan premiums.
Coverage Amount
The amount of coverage you can receive in monthly benefits depends on your current salary. Most insurance companies offer coverage amounts up to 60% of your salary. The less coverage you need or choose, the lower your monthly premiums will be.
Occupation
Your medical specialty is also crucial in determining premiums, as insurance providers deem certain specialties a higher risk than others.
For example, OBGYNs, surgeons, and emergency room physicians often pay higher premiums because even a minor injury could render them unable to perform their job duties and tasks.
Definition of Disability
Opting for the own-occupation definition of disability costs more than choosing the any-occupation definition.
However, this is one policy element that you can’t afford not to choose. Without the own-occupation definition, you have a far less chance of ever qualifying to collect on your policy.
Gender
Women generally pay more for disability insurance than men. That’s because, historically, the percentage of women that file claims is higher than the percentage of men who file claims.
Location
The state you live and work in is also a factor. States that have a higher number of claims filed each year tend to charge higher premiums.
If you’re planning to move and haven’t yet bought a policy, compare the rates in both states before making a final decision. The rate in your current state might be considerably less expensive than in your new state.
Pro tip: Buy the policy while you still reside in the cheaper location, as that lower premium will apply for the entire duration of the policy.
Elimination Period
Choosing a shorter waiting period means you’ll be able to collect benefits sooner — but it will cost you. If you’re looking to reduce the price of monthly premiums, you may want to select a longer elimination period.
Additional Riders
Every insurance provider offers the option to add policy riders. Riders are policy enhancements and/or added financial benefits that you can collect on top of your regular monthly benefits. Every rider you add will increase your monthly premium.
Health
Disability insurance companies charge healthy physicians less than those that already have existing medical conditions. Many ailments develop as a result of aging, so getting insurance coverage when you’re younger will cost you less.
Disability Insurance Offered Through Your Employer is Not Enough
Employers often provide disability insurance group plans as part of an employee benefits package. In most cases, this is short-term disability insurance, which does not provide as much income protection as you may need.
Even if they do offer you a long-term disability plan, it still won’t be enough. All physicians should get their own individual policy for several reasons.
With an individual policy, you can:
Select your own benefit period
Choose your own definition of disability
Take it with you when you change employers
Customize a policy that includes the exact coverage amount you need
While an individual policy requires you to pay monthly premiums, it’s important to know that these benefits are tax-free. Benefits from an individual policy are not considered taxable income because you pay for the premiums with out-of-pocket dollars that you’ve already paid taxes on.
Benefits collected through an employer’s group policy are taxable, as group plans are either paid for by your employer, paid for with your pre-tax dollars, or a combination of both.
Don’t expect to rely solely on Social Security Disability Insurance, either. SSDI is difficult to qualify for and, for physicians, the monthly benefits are a mere fraction of their salary.
As of 2023, the maximum monthly SSDI benefit is $3,627 per month, far less than the average U.S. physician earns.
Which Insurance Companies Offer the Best Long-Term Disability Policies?
When shopping for other insurance products, such as life insurance or auto insurance, deciding which insurance company to use can be a challenge. But when it comes to disability insurance, there are only a few providers truly worth considering.
Dozens of insurers offer long-term disability plans, but only five traditional ones allow for the own-occupation definition of disability. Having this definition is crucial, so most physicians limit their options to:
All five offer customizable plans with enhanced policy terms, the own-occupation definition of disability, and the option to include riders for even greater protection.
To find the carrier that’s right for you, it’s a smart idea to obtain quotes and compare policy terms from two or three of these companies.
Recap
Physicians have a lot of income to lose. The best way to protect it is with a long-term disability insurance policy.
Choose a plan that offers the own-occupation definition. Customize your elimination period and benefit period. Choose the coverage amount you need and add policy riders that can enhance your benefits for decades to come.
The longer you wait, the longer you’re putting your future income at risk.
If you’re ready to purchase long-term disability insurance, contact LeverageRx now to start obtaining quotes and comparing providers.
