By Wesley Sebacher, CFP®, CAIA®
Disability insurance is a critical component of financial planning for physicians. Physicians invest years of their lives and significant financial resources in their career, and their ability to earn an income is one of their most valuable assets. This guide will help you understand disability insurance for physicians, including the coverage types, key considerations, and tips for making informed decisions.
UNDERSTANDING DISABILITY INSURANCE
Disability insurance, often referred to as income protection, is insurance coverage that provides an income stream if you become disabled or unable to work. It helps replace lost income and covers essential expenses to avoid financial catastrophe.
There are multiple types of disability insurance, such as short-term and long-term disability. Short-term disability insurance provides coverage for a temporary disability, typically for a few months to a year. Long-term disability insurance provides coverage for extended periods, often until retirement or until the age of 65.
There are multiple definitions of disability, such as own-occupation or any-occupation. Own-Occupation protects your ability to perform work in your specific medical specialty, even if you can perform other types of work. Any-Occupation protects you if you can’t perform any job suitable for your education, training, and experience. Any-Occupation thus has a wider and less desirable definition of disability.
KEY CONSIDERATIONS FOR PHYSICIANS
Income protection – Your income is likely your most significant asset, and disability insurance can help provide safeguards in the event of disability.
Definition of Disability – Have a clear understanding of the definition of disability in your insurance policy. Own-Occupation policies are ideal for physicians as they provide protection specific to your medical specialty.
Waiting Period (Elimination Period) – This is the time between the onset of disability and when your income benefits will begin. A longer waiting period can reduce premiums, however, you’ll be required to rely on savings during that extended period.
Benefit Period – The period you will receive benefits if you become disabled. A longer benefit period can provide security but is often accompanied by higher premiums.
Cost of Living Adjustment (COLA) – A cost of living adjustment is a periodic increase in benefits to account for inflation. Determine if your policy includes a COLA rider, otherwise, the purchasing power of your disability benefits may be reduced by increases in inflation over time.
Non-Cancelable and Guaranteed Renewable – Determine if your disability insurance policy contains either of these two features. These will ensure the insurer cannot cancel your policy or increase premiums given you continue to satisfy the required premium payments.
Exclusions and Limitations: Understanding any exclusions or limitations in your disability insurance policy, such as pre-existing conditions or high-risk activities, will keep you better informed to understand your insurability in the event of a disability claim.
CONSIDERATIONS WHEN PURCHASING DISABILITY INSURANCE
Assess Your Needs – Evaluate your financial obligations, emergency fund, and other sources of income before deciding on the coverage amount. Determine the portion of salary you will insure to ascertain your basic and any necessary lifestyle needs are met.
Review Existing Coverage – Determine if you have an employer provider group disability policy and understand how this policy will complement any individual coverage to meet your income replacement goals.
Medical Underwriting – Be prepared for a thorough medical examination, insurers will assess your health to determine your eligibility and premiums.
Policy Riders – Explore additional policy riders, such as a cost-of-living adjustments (COLA) or future purchase options (FPO) for additional protections as your income rises.
Compare Quotes – As you shop the marketplace, compare quotes, policy features, and coverage from multiple insurers to ensure you are purchasing adequate coverage at a fair price. Balance the cost of the policy with the level of coverage and benefits it provides.
Professional Advice – Consider working with a qualified fiduciary and an insurance broker specializing in disability insurance to help you navigate the complex options. A qualified fiduciary will help you parse through the details and ensure you have a clear understanding of the policy, instead of relying solely on an insurer broker. A fiduciary helps you make informed financial decisions that are in your best interest, an insurer broker provides the benefit of shopping the insurance marketplace for competitive insurance options.
REVIEW AND UPDATE
As your life circumstances change, it is essential to review your disability insurance policy periodically and make any necessary adjustments. Major life events, such as marriage, children, change in your medical specialty or employment can impact your coverage requirements.
CONCLUSION
Disability insurance is a crucial component of financial planning for physicians. Protecting your income is vital to maintaining your financial stability, and the right disability insurance policy can provide that protection. Carefully assess your needs, work with a knowledgeable fiduciary and insurance professional, and periodically review and update your policy to ensure you have the coverage that best suits your circumstances and specialty.
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