Physician Disability Insurance: How to Protect Your Income
Many physicians, especially those just starting out in their careers, tend to assume they won't find themselves in the same position as their patients with disabilities. It’s human nature to think “that won’t happen to me”, but since doctors know better than most people how devastating illnesses and accidents can be, it is ironic that so many medical professionals seem to ignore the statistics that say they could become disabled themselves.
The reality is, people in any occupation, including experienced physicians and medical residents, can become disabled. The facts are sobering: according to the Social Security Administration, more than one in four of today's 20-year-olds will become disabled before reaching retirement age (source: Social Security Facts).
The financial impact of becoming disabled during your working years can be shattering. If you're like most people, you depend on your current income to cover your living expenses and to save for the future, including retirement and kids’ college educations. This is especially true for residents who are just getting started in their profession. If your income suddenly disappeared because of a physical or mental disability, would you and your family be able to maintain your current standard of living?
Doctors just out of residency typically have large medical school debts to repay and, after being in practice for a number of years, physicians often enjoy a high-end lifestyle. Protecting your future earnings is extremely important at every phase of your career.
Protecting Your Income from a Disability
Disability income insurance provides you with regular income in the event you become injured or have an illness or condition that makes you unable to work, either temporarily or for a long period of time, perhaps permanently. There are several potential sources of this type of protection.
Social Security Disability Insurance (SSDI) may provide benefits in some cases. To receive SSDI, you must have worked for a minimum number of years – this number depends on your age – in a job where you paid Social Security taxes. Your disability must be severe enough to prevent you from performing basic work-related activities. However, if you are unable to perform work in your medical specialty (for example, surgery) but can still work in some other capacity, you will most likely not be eligible for SSDI. SSDI uses an "any occupation" definition of disability. This means your condition must make it impossible for you to work in any job for which you are qualified based on your education, training, and experience, and must be severe enough to leave you unable to work for at least a year. So, although you may be unable to continue working as a physician, according to the SSDI rules you may be expected to work in some other capacity. Even if a disability claim is approved, the benefits offered through SSDI are generally not sufficient to meet physicians' expenses. In short, SSDI is only intended to be a last ditch safety net for those who are truly incapacitated.
Workers' compensation insures employees for illnesses and injuries that arise from working at a particular job. Injured employees receive a certain portion of their wages while they are unable to work because they are obtaining treatment for and recovering from the injury or illness. Employers cover their employees based on each state’s rules. Note that the vast majority of long-term disabilities don't stem from job-related injuries or illnesses.
As a physician, it is unlikely that either of these forms of coverage would replace most of your income, and you may not be eligible for coverage from either program.
Beyond Social Security, Workers' Compensation, and Employer Benefits
You may have some amount of disability insurance provided by your employer as a benefit, although the percentage of your income it covers is most likely insufficient to meet your needs. Furthermore, these policies typically end when your employment ends. Many employers offer only short-term coverage designed to provide temporary disability benefits for up to six months, after which time you will no longer be covered. Some employers do offer long-term disability benefits, but these typically protect only about 60% of your base salary.
If you have the option to purchase group disability insurance through an employer or association, be sure to understand: How much of your income would be protected? How long payments will continue? What is the elimination (waiting) period for benefits to start? Is the coverage "portable," meaning you could take it with you if you left that employer or association?
Private Physician Income Protection
Unless you have exceptional disability insurance through your workplace, it is highly advisable to protect your income by purchasing an individual disability insurance policy. There are two major categories of disability insurance policies to consider:
Short-Term Disability – requires a waiting period of 0 to 14 days before payments begin, and offer payouts for no longer than two years.
Long-Term Disability - requires a waiting period of a few weeks to several months before you receive payments. Benefits can cover only a few years or the rest of your life.
Individual policies remain in force as long as you continue to pay the policy’s premiums.
Unlike SSDI, which uses the "any occupation" definition of disability, private disability policies typically use an "own occupation" definition. Depending upon how the policy is written – and it is important to choose the right type of policy – this means you could qualify for benefits if you are unable to continue working as a physician in your specialty, even if you could conceivably work in some other capacity.
When looking at a policy, focus your attention to the specific definition of total disability. It is the most important component since it is the basis upon which any claim you make for benefits will be adjudicated. There are four main definitions of disability found in these contracts, with extensive differences between them:
True Own Occupation / Specialty
Transitional Own Occupation
Modified Own Occupation
Any Reasonable Occupation
With private policies, you can typically tailor the insurance coverage to meet your needs and your budget. This includes selecting the desired elimination periods, the length of time benefit payments would continue, the amount of the benefit payments you would receive in the event of a disability, and an optional inflation protection rider (attached extra benefit) for an additional premium.
If your application for disability income insurance is approved, your premium payments will be based on your occupation, hobbies,age and medical history. Because the cost of coverage will be less expensive when you're younger and presumably healthier, the best time to apply for coverage is now. Of course, your needs change over time, based on your family and your lifestyle, so it’s important to review the type and amount of coverage you have every couple of years.
None of us has a crystal ball that reveals what the future holds for us, and although we should always do what we can to take care of our health and avoid risky behaviors; there is no way of knowing if or when we will need to rely on disability income protection. By taking the time to explore and understand various coverage options, you can make informed decisions that can provide valuable peace of mind for you and your loved ones who depend on your income. To learn more about physician income protection options, talk to your financial advisor.
Gold Medal Waters is a fee only financial planner located in Boulder, Colorado that specializes in serving the unique needs of physicians and high net worth clients. Coordinating a great financial plan isn’t easy. Learn more about what sets us apart, or talk to an advisor and get a free meeting to see if we are the right firm for you.