Finding the right disability insurance policy

disability-insurance

As a physician, your finances are often tied to your ability to show up everyday and work (unless you are independently wealthy/have large stream of passive income). When you are young and healthy, getting disability insurance is often the furthest thing from your mind, but it should be your first step in asset protection (ensuring your ability to provide for yourself and your loved ones).

When I was in training, I eventually realized that I needed to purchase disability insurance, but I had no idea when to or which insurance company to use. Thinking that my clinical gurus (attendings) were also financial gurus, I blindly went with one of their advisors. Needless to say, several years later and thousands of dollars later I ended up having to shop for a policy that would adequately protect me and my family if I were to become disabled.

To make things simple for those of you searching for policies, I am going to layout some key points to consider when looking for a disability policy that will protect you as a physician.

When to buy: Disability insurance should be bought early, ideally sometime while you are in training. This is generally when you ar most healthy and when you can get the best rates. This is especially important for women because rates go up dramatically when you get out of training because of actuarial concerns about increased risk for disability from such conditions as motherhood/childbirth. It’s not fair, but it’s how the insurance world works…

Own Occupation: Generally speaking you want own occupation specific policy. It should clearly lay out when you are considered disabled (i.e. some state that if you can do any work as a physician you are not disabled, that includes working a desk job for an insurance company) so make sure you clearly have it spelled out. If you have any concerns make sure to get it clarified in writing. For additional reading, here is a great post of disability insurance by the whitecoat investor.

Non-cancelable Policy Rider: This rider keeps insurance companies from canceling your policy as long as you continue to pay your premium.

Future Purchase Option Benefit Rider: If you are suspecting a jump in your salary. i.e. transitioning from residency/fellowship into an attending. Many policies will layout how much more of an option you can purchase as a benefit. If you are at your suspected max salary or can easily live on your current level of pay (most budding mustachians) you can probably save money by not paying for this rider.

Cost of Living Adjustment Cola Rider: This benefit provides for an increase in your disability to keep up with inflation. The range of increase can very, I have generally seen 3% and 4% riders. An important thing to know is that the cost of living adjustments vary greatly between companies, they do not necessarily increase every year so check with each insurance company to find out how their policies work. If you are a bit of a mustachian/close to your FI number you may not need a COLA rider since you are probably living well below your income.

Waiting period: This is the amount of time you have to be disabled before your policy kicks in. The standard seems to be 90 days, you can extend it to 180 days. This will reduce the cost for the policy, but you should consider a number of factors. Do you have additional disability or short term medical leave from your work that will cover you for injury. You may want to adjust your policy to kick in for when those short term benefits run out. The other option would be to extend your policy waiting period out to correlate with how many months your emergency savings will cover you. (I generally keep 6 months of expenses in a liquid account. So in this case, I may want to consider changing my waiting period to 180 days OR I could move more of my savings into a taxable account.)

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