All doctors in all medical professions need disability insurance. Should an illness or injury prevent you from working and earning income, disability insurance benefits make it possible to continue to pay your mortgage and monthly bills, sustain your lifestyle, and provide financial security for your loved ones.
But with so many policy options to choose from, deciding which type of policy is right for you can be tricky.
Not sure how much coverage you need, which policy options to choose, or which riders to add?
Here are seven important disability insurance considerations for doctors who are ready to protect their future income.
The Definition of Disability
The most important thing to look for in a disability insurance policy is the definition of disability. Every policy has one, and before you can collect one dollar in benefits, your injury or illness must meet or exceed this definition.
Physicians and other high-income earners should select a policy with the own occupation definition. Under this definition, you will be eligible to collect benefits if you suffer any injury or illness that prevents you from doing your current job.
Only five insurance companies, known as the “big five,” offer the own-occupation definition. Most policies have an any-occupation definition, which means you must be so severely disabled that you cannot work in any job or in any capacity at all. This article highlights the pros and cons of Ameritas, one of the “big five” insurance companies you should consider.
Coverage Amount
The more coverage you purchase, the larger your monthly benefit will be. Most insurers provide coverage of up to 60% of your current income.
Keep in mind that with an individual disability insurance policy where you pay premiums out of your own pocket, your benefits are not taxable. If you opt for 60% coverage, your monthly benefit will be close to your current take-home pay.
Waiting Period
The waiting period, aka the elimination period, is the time between the date of your illness or injury and the date you can start collecting benefits. This period can range from as little as 30 days to as long as 720 days.
Choosing a shorter elimination period will increase your premiums a bit, but if you don’t have significant savings or another sort of income (such as spousal income) you’ll likely want to collect benefits as soon as possible.
Benefit Period
The benefit period is the number of years that you can receive benefits. You can choose a two-year, ten-year, or twenty-year period, or you can choose a benefit period that ends when you hit retirement age. The longer the benefit period you choose, the higher your premiums will be.
The younger you are when you get a policy, the better it is to choose a longer benefit period. Should a disability in your thirties or forties render you unable to ever work again, you could collect benefits for decades with a twenty-year or longer period.
Future Increase Options
Your current income determines your allowable coverage amount, and you’ll want to increase coverage as your annual income increases. For this reason, choose a policy that includes a future increase option. Some insurance companies call this the Future Increase Option, some call it the Future Purchase Option. In most cases, these are offered as policy riders.
Every policy rider you add will increase your premium payments, but the important, enhanced benefits they provide are well worth the added cost.
Along with a future purchase option, you should also select the COLA rider (the cost of living adjustment rider). With this rider, your benefit amount will increase annually based on the cost of living index and rate of inflation.
Residual Disability/Partial Disability
Look for a policy that offers a residual or partial disability benefit. Should your disability allow you to continue to work in a limited capacity, such as part-time or with reduced duties, your income might take a hit. The residual disability benefit allows you to collect partial benefits to make up for the income lost due to your illness or injury.
Additional Riders
In addition to the future increase option, COLA, and residual disability riders, consider whether there are additional riders you can add to enhance your benefits.
For example, if you’re still paying off student loans from medical school, consider adding the student loan repayment rider. This rider will provide you with additional monetary benefits to make your monthly student loan payments.
You might also want to consider adding the non-cancelable rider. With this rider, your carrier can never cancel your policy or increase your premiums, provided you continue to pay them on time.
In Conclusion
While there are many factors to consider when purchasing disability insurance, the single most important one is the definition of disability. No matter which waiting period or benefit period you select, which riders you add, or how much coverage you buy, you need a policy with the own-occupation definition of disability.
Without the own occupational definition of disability, the odds are you’ll never qualify to receive benefits at all.
