disability insurance
This is a guest post by Platinum Sponsor Lawrence Keller , CFP®, CLU®, ChFC®, RHU®, LUTCF that explores issues in a group disability insurance plan for physicians.
As you know, I am a board certified dermatologist. Unfortunately, like many medical specialty groups, mine offers a “discounted” disability insurance plan. I'm sure the American Academy of Dermatology does not purposely offer bad products for their members – I will just assume they are uninformed like many physicians.
I actually called the underwriting company to ask for their policy certificate and they would not send it to me until I actually purchased their plan. Lawrence explains why this group disability plan is flawed. In case you need a primer on disability insurance for physicians, read this.
The American Academy of Dermatology’s (AAD) Group Disability Income Insurance Plan: Caveat Emptor
As an insurance agent that specializes in disability insurance for physicians, I am often asked to review and comment on the AAD’s group disability income insurance policy. This policy which is available to all AAD members who meet the following criteria:
- They are in good standing who are under age 60,
- A resident of the United States or Puerto Rico,
- and actively working full-time (at least 30 hours per week).
Unfortunately, there are many potential problems/issues associated with this policy, as well as, similar offerings from other professional associations. This article will focus on the specifics of Plan 1 (there are two plans available), including a Residual Disability Benefit, which is underwritten by New York Life Insurance Company.
1. It is not Non-Cancelable and Guaranteed Renewable
“Insurance will end at the earliest of: the date the group policy ends, the date insurance ends for your class, the end of the period for which the last premium has been paid for you, the date you attain age 70, the date you cease to be actively at work full-time (30 or more hours) for reasons other than disability, the date you cease to be a member in good standing with AAD, or the day before you begin active duty in the armed forces.”
A policy that is Non-Cancelable and Guaranteed Renewable provides the greatest degree of protection to you as a consumer. Meaning, as long as required premiums are paid, the policy can’t be cancelled, premiums increased, or coverage terms changed until the policy expiration date (typically age 65).
2.The Premium Rates Are Not Guaranteed
“Premium rates are based on your actual age as of the effective date of your insurance; scheduled increases will occur as you enter each new age bracket (under age 30, 30-39, 40-49, 50-59, 60-64*, 65-69*)”.
3. It Does Not Have an “Own-Occupation” Definition of Total Disability
Total disability means during the waiting period and next 60 months, your complete inability to perform the material duties of your regular job. “Your regular job” is that which you were performing on the day before total disability began. After such 60 months, total disability means your complete inability to perform the material duties of any gainful job for which you are reasonably fit by training, education or experience”.
In any case, “To be considered totally disabled, you must also be under the regular care of a physician, and must not be performing the duties of any gainful job”.
At this time of this writing, depending upon your state of residence, there are only six companies that potentially offer this definition to physicians – Berkshire Life (a Guardian Company), Standard, MassMutual, Principal, Ameritas and Ohio National.
4. The Number of Days Required to Meet the Elimination Period Must be Consecutive
“The waiting period is only satisfied if you are not working in any occupation”. Individual policies do not require this and, for example, might specifically state that “You must be Disabled before benefits begin to accrue and starts on the first day that You are Disabled. The days within this period need not be consecutive but they must occur within the Accumulation Period. Benefits will not accrue or be payable during the Elimination Period”.
The waiting period is defined as the period of time from the start of total disability during which no benefits are payable. The Waiting Period is the number of consecutive days you must be Totally Disabled by a covered illness or accident before benefits begin. This is another aspect of a group disability insurance plan to explore fully.
5. You Must Be Totally Disabled Before You Can Collect Residual Disability Benefits
“If you become residually disabled within 31 days after a period of total disability for which monthly benefits are payable, the insurance company will pay residual benefits”.
In his article “What to Look for in Disability Income policies”, the late Peter C. Katt, CFP®, a fee-only insurance adviser located in West Bloomfield, Michigan, stated, “Do not buy a disability income policy that has a qualification period. There are too many diseases that are progressive and have no total disability at the beginning. Under such circumstances, a qualification period of, say, 30 days would prevent the insured from receiving any residual benefits.”
Ideally, your disability insurance policy should not require that you be totally disabled prior to collecting Residual Disability benefits. A good example of this might be a physician that has not been feeling great and, as a result, has been working sporadic hours. They have their good days and their bad days. Due to their symptoms, they have and continue to consult with various medical specialists in hope of getting a differential diagnosis.
This goes on for years and, as a result, they are working fewer days per week, fewer hours per day, seeing fewer patients and/or performing fewer procedures – causing a (potentially substantial) loss of income. Finally, they are diagnosed with Multiple Sclerosis and told they can no longer work in their medical specialty.
Only at this point, after the waiting period is satisfied and they meet the definition of total disability in the policy, can they potentially qualify for Residual benefits under the AAD’s policy.
6. There is No Recovery Benefit
While any policy you purchase must include a Residual or Partial Disability Rider, what happens if you have physically recovered and returned to work on a full-time basis but continue to experience a loss of income? A Recovery Benefit is designed to do more to assist with your financial recovery following a disability – especially if your practice has been built on referrals from existing patients and/or other physicians. Should you continue to suffer a loss of income of 15-20 percent or more, compared to your pre-disability income, and there’s a demonstrable relationship between your current loss of income and your prior disability, some companies will continue to pay benefits to the age of 65 or longer.
Other companies continue to pay for a limited period of time (typically 12, 24 or 36 months), which may or may not properly support your financial recovery. Therefore, if some or all of your compensation is tied to productivity, you should make certain that the policy you purchase contains a liberal recovery benefit.
7. Limitations Exist for Claims Related to Mental and Nervous Disorders
“Limited monthly benefits will be paid for disability due to alcoholism, drug addiction and mental, nervous or emotional disorders. If total disability is due to alcoholism, drug addiction or a mental, nervous or emotional disorder, the maximum payment period while such disability continues will be limited to 24 months”.
While some carriers will cover claims for mental and nervous conditions in the same way as other disabilities, the majority of companies limit these claims to a maximum of 24 months (either per period of disability or over your lifetime). This limitation is invoked if the primary cause of disability was solely a psychiatric or substance abuse disorder or diagnosis including, but not limited to, post-traumatic stress syndrome, anxiety, depression and or alcohol abuse/addiction.
Although many physicians will opt to purchase a policy with the least amount of restrictions, some willingly accept a policy with this limitation in order to take advantage of the cost savings associated with it.
8. There is No Cost Of Living Adjustment (COLA) Rider Available
A COLA Rider is designed to help your benefits keep pace with inflation after your disability has lasted for 12 months. This adjustment can be a flat percentage or tied to the Consumer Price Index. Although costly, this rider can provide significant increases to your monthly benefit if you are disabled early in your career.
9. There is No Increase Option Available
This rider is a must for young physicians. It allows you to apply for additional disability insurance coverage, regardless of your health, as your income rises.
Essentially, you’re paying for the right to increase your policy’s monthly benefit without undergoing another exam, blood test, urine test, or answering any medical questions. This guarantees that any medical conditions that develop after your original policy’s purchase would be fully covered, and not subject to new medical underwriting.
10. The Monthly Benefit May Not be Adequate
“You can choose monthly benefit amounts ranging from $500 to $10,000, in $100 increments. Total benefits you receive from this plan and from any other income replacement plans (including Worker’s Compensation, Social Security, employer-sponsored salary continuation, group or franchise plans or retirement programs) may not exceed 70% of your basic monthly pay. Basic Monthly Pay means the monthly rate of pay from your employer and does not include commissions, bonuses, overtime pay or other extra compensation”.
Individual disability insurance companies will typically issue policies with monthly benefits from $15,000-$20,000 month. However, by combining companies, you can potentially reach a total of up to $30,000 month of individual disability insurance coverage (or up to $35,000 month with group LTD coverage).
As a result, for high income specialties, I often combine two companies to allow them to potentially reach this higher amount, subject to their income and other disability insurance coverage inforce, if any.
11. You Are Not the Policyowner
“The group policy is issued to the American Academy of Dermatology under Group Policy No. G-30378-0/GMR-FACE. New York Life reserves the right to change rates on any premium due date and on any date which benefits are changed but it may only do so on a class-wide basis (a group of insureds with the same age, gender and/or waiting period). Changes to the group policy are subject to agreement between New York Life and the group policyholder.”
Although initially low in cost, association plans, such as the AAD’s Group Disability Income Insurance Plan, do not provide the customized benefits that can be achieved by purchasing a high-quality individual disability insurance policy.
In my opinion, this offering is best summed up by the old adage “you get what you pay for”. Keep in mind that many insurance companies make discounts available on individual disability insurance policies through hospital affiliation or professional associations. While this can provide male Dermatologists with a savings of 10%-20% off of their policies, female physicians can save as much as 60% off of the normal female rates if a gender neutral or “unisex” rate is available.
Agents that specialize in working with physicians should know of and have access to them. Otherwise, establishing one requires that 3-5 employees working for the same employer purchase policies from the same insurance company.
Ideally, you want to purchase your group disability insurance plan policy from an agent that represents several insurance carriers, provide you with illustrations of coverage from each and will review the differences between them with you in detail. You can then make a decision based upon the policy or policies that best meet your individual needs, goals, and budget.
Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF is the founder of Physician Financial Services, a New York- based firm specializing in income protection and wealth accumulation strategies for physicians. He can be reached at (516) 677-6211 or by email to [email protected] with comments or questions.
* For renewal purposes only. Coverage terminates at age 70.
The AAD group LTD plan is not available in Alaska, Deleware, Florida, Louisiana, Maine, Maryland, Missouri, Montana, New Hampshire, New Mexico, North Carolina, Nevada, Ohio, Oregon, South Dakota, Texas, Utah, Vermont, Virginia, Washington and Wyoming.
These are the personal views of the author and may not represent the views and opinions of The Guardian Life Insurance Company of America or its subsidiaries or affiliates thereof.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 355 Lexington Avenue, 9th Floor, New York, N Y 10017-6603, 212-541-8800. Securities products and advisory services are offered through PAS, 1-516-677-6200. Financial Representative, The Guardian Life Insurance Company of America, New York, NY (Guardian). PAS is an indirect wholly owned subsidiary of Guardian. Physician Financial Services is not an affiliate or subsidiary of PAS or Guardian.
PAS is a member FINRA, SIPC
2018-54235 Exp. 02/19
Do you have a group disability insurance plan? Make sure you understand the terms and limitations.
Read More
This is a guest post by Jamie K. Fleischner, CLU, ChFC, LUTCF.
Jamie is President of Set for Life Insurance. She started in the business in 1993 and has received numerous awards and recognition as being among the top disability brokerages in the country. As an independent broker, she seeks the most suitable products at the best rates for her clients. Set for Life has the largest portfolio of discounts nationwide, including unisex discounted rates for women. For more information, visit www.setforlifeinsurance.com. Set for Life is a sponsor of Wealthy Mom MD.
Women now exceed the number of men in medical school and residency. Furthermore, many women physicians are the breadwinners in their families. This makes it even more important for them to ensure their income is properly protected.
As a woman physician, what do you need to know when it comes to protecting yourself and your income? If you are dependent on your income to pay your bills and support yourself and/or others, it is imperative that you protect yourself with a proper individual disability insurance policy.
Here’s a short primer on what to look for in an individual disability insurance policy:
1) Definition of disability
It is critical that your policy will cover you if due to sickness or injury, you can’t work in your medical specialty even if you can work in another specialty or occupation. Be sure your policy will not reduce benefits if you either are capable of or choose to work elsewhere.
Without a good definition, the company can determine whether you can work or may not have to pay benefits if you are capable of being gainfully employed. This is especially true for group policies through your work or association policies. Look for definitions called “own occupation” or “regular occupation.”
Also, make sure your policy pays you own occupation for the full benefit period. Some policies only pay own occupation for two years and then change the definition to total disability not working.
2) Noncancelable, guaranteed renewable
This means that once you have your policy, the company can never modify the contract or raise the premiums. Most association policies don’t have this language and people are shocked when they reach their 40s or 50s and their premiums skyrocket.
3) Riders
These are extra benefits on your policy. Important riders include residual which covers partial disability, increase options which allow you to increase benefits in the future and inflation riders which keeps your benefits up with inflation when you are on claim.
Even if you have a group disability policy in force, it is still important to consider supplementing with an individual policy:
1) If you leave your employer, your group policy is (likely) not portable. You may need to go out and purchase your own benefits. If you have an adverse health condition, this may be difficult.
2) Most group policies only cover you if you are totally disabled and are not working. It won’t pay for partial disabilities.
3) If your employer is paying the premiums, the benefits are taxable.
4) Most group policies have a cap on the benefits. If you have a larger income, this can make a large gap between the benefits paid and the amount of benefit you need.
For example, a typical group policy will pay 60% of your income to a maximum benefit of $10,000/month. This $10,000/month benefit is taxable. Therefore, your after tax benefit would be about $7,000/month.
What’s the difference in disability insurance for men and women? Individual policies cost close to twice as much for women than men. According to the companies, women are not only more likely to file a claim, but their claims last almost twice as long as those of men. As a result, disability insurance can be very expensive to purchase for a woman.
Here are some important considerations for women when it comes to purchasing disability insurance:
1) Unisex rates
Some insurance companies offer unisex discounted rates. This means that both women and men pay the same rate. This can help reduce the rate significantly for women, in some cases up to 70%.
Here is how to obtain a unisex rate:
a. Work with a broker who already has unisex rates available for you.
b. Find other people in your practice or at your place of employment who also want coverage. With three or more people applying for coverage, the company can issue the policy at unisex rates. Some people even purchase a policy on a staff person for a small amount and this results in significant savings.
c. If you are a resident, some companies already have unisex discounts available. Some companies don’t offer unisex rates for residents but offer it for attending physicians. If you are close to finishing your residency, you may be better off waiting to purchase your policy.
2) Discounts
There are several other types of discounts available including AMA discounts, employer sponsored discounts and other association discounts.
3) Prioritize
If you are trying to trim costs, consider what is most important. For example, is it worth it to you to pay the extra premium for the inflation rider? Do you need to cover your full income if your spouse or partner also brings in an income?
4) Work with an experienced independent broker
If you work with an agent of a company, they have a financial incentive to only show you their company’s product which may or may not be the best fit for you or in your best interest. If you work with an experienced independent broker, they can shop around for you and find the most suitable product at the best rates. Look for a broker with credentials such as CLU (Chartered Life Underwriter) which is a master’s level degree in insurance.
5) Determine how much benefit you need
Calculate your fixed costs and determine how much after tax benefit you need.
Other considerations:
1) If you already have an individual policy but are paying female rates, see if you may have access to a unisex policy. This will require new underwriting (medical questions). If you have significant health conditions, this may not be a good idea. If you are healthy and can save more than 10%, it may be worth considering a replacement policy.
2) It is important to review your overall financial situation. Once you are in a position of financial independence, you may no longer need the coverage or can remove riders or reduce the benefits.
For more information about disability insurance for women, visit http://www.setforlifeinsurance.com/disability-insurance/disability-insurance-women
Read More
This is a post about independent insurance broker Lawrence Keller, CFP®, CLU, ChFC, RHU, LUTCF. He is a sponsor of Wealthy Mom MD. 
Besides disability insurance, do you sell other insurances?
Yes, besides disability insurance, I also sell term life insurance.
Are there any particular insurances that you think us physicians should be aware of?
When purchasing term life insurance, as you discussed previously, carriers look many factors. These may include height, weight, blood pressure, pulse, personal medical history, and family history. Ideally, you want to apply to for your life insurance with a company in which you have the best chance of receiving the most favorable underwriting classification and, thus, the lowest premium rate.
For example, if one has an immediate family history of Coronary Artery Disease (in a parent prior to age 65), they should consider which company they apply to. For instance, a company may not care if the family member was diagnosed with CAD; instead, they focus on if the individual passed away as a result. If they are alive and the proposed insured meets all of the other criteria, they would typically still qualify for the best underwriting classification. The same is true for cancer. Some carriers will take this family history into consideration and others will not.
While I do not sell Property & Casualty Insurance, physicians, in most cases, should have more coverage here. Specifically, they should carry an Umbrella or “Excess Liability” policy – especially if they drive a car. This extends the liability limits of your automobile and/or homeowner's insurance policies. You would likely want to purchase all of these from the same insurance company. In doing so, you can have them integrated and coordinated with each other, as well as, qualify for discounts.
How do you differ from other brokers?
I'm an academic at heart and understand the nuances of each policy available in the marketplace. I also have access to discounts, in many cases, including unisex rates for females. However, unlike other brokers, I don't advertise this or use it as a way to bring me new clients. If I find myself in a situation where I know that the potential client needs a product or discount that is “exclusive” and I cannot provide it, I will refer them to the “endorsed” agent. I do this knowing that I will not be compensated.
You never have a second chance at a first impression. I have found that the “goodwill” that this provides has done more for me than any commissions that I could have earned selling a product that was not in the best interest of the potential client.
Do you have any advice on how to choose an independent insurance broker and what makes someone a good broker?
I think a “good broker” possesses certain qualities. A good broker:
- has a deep understanding of the marketplace,
- represents several companies,
- provides illustrations of coverage from each of them,
- and takes the time to thoroughly review the differences.
An independent insurance broker who does these things helps clients make a decision that best meets their individual needs, goals and budget.
Beware of agents that are “captive” and can only offer policies to you from one company or have a strong financial incentive in to do so. The client should never feel that they were “sold” something or pressured to make a buying decision. The client should feel that their broker was a resource throughout the process. They should feel that they had their best interest in mind and made the process as enjoyable and informative as it could be.
I would also look an independent insurance broker with credentials and/or certifications in the insurance and/or financial planning industry. This shows dedication to the industry and the desire to learn. More so, these brokers usually have a good understanding of the financial planning process, not just disability and life insurance policies.
Finally, you will not be paying more for purchasing your policy from an experienced insurance agent than you would from an inexperienced insurance agent.
What are the top 3 things you see that physicians don’t understand about disability insurance?
Understanding Premium Pricing
If policies are structured the same way and all agents are showing policies with the same discounts, the premium rate will be the same. This industry is heavily regulated and the premium rates and contractual language must be approved by each state. Therefore, if the plan parameters are the same, the only way that one agent can provide a lower price to the consumer is by having access to or knowing of a discount plan that another agent does not.
Association Plans v. Individual Policies
Association plans (not individual policies that include an association discount) are inferior compared to individual policies. Typically, the policy can be cancelled by the association or insurance company. Also, premium rates can increase every five years (generally when your age ends in a “0” or a “5”). Plus, the definition of total disability is not “Own-Occupation” and you don't receive a policy. You simply receive a certificate that evidences that you are part of a larger group.
Understanding LTD Plans
When it comes to group LTD plans and individual policies, there is no such thing as a “primary” or “secondary” company. If you meet the definition of total disability under both policies, you can potentially collect full benefits under both policies.
Additionally, with the exception of those eligible to purchase coverage under “New In Practice” limits, generally, if you are going to be eligible for group LTD coverage with a new employer, it must be taken into consideration when determining the amount of individual coverage available and deferring enrollment into a mandatory group LTD plan to potentially allow you to purchase a larger amount of individual coverage does not work. If you submit a copy of your employment contract in order to purchase coverage based upon your “new” salary and it mentions that you will be provided with Long-Term Disability insurance, the underwriter will ask about this and, again, it will be taken into consideration when determining the amount of individual coverage available for purchase.
Finally, it does not matter if the group plan's definition of total disability is “Own-Occupation” or not. Instead, the insurance company must assume that if you are disabled, you can potentially collect under the group LTD plan. After all, the insurance companies to not want to give you an incentive not to work. That would allow you to make more money not practicing than if you continued to practice medicine.
Is there anything else you would like to tell us as an independent insurance broker?
The time to ask your questions is when you are researching the policies available. You don't want to find out that you purchased the wrong policy and then start doing your homework.
All too often, I see physicians in this situation that could have easily been avoided if they took the time to really understand what they were purchasing. Unfortunately, they don't have the ability to make changes based upon medical or financial issues that arise subsequent to the purchase of the policy or policies they no longer feel to be adequate.
I hope you enjoyed learning a bit more about Lawrence and independent insurance brokers!
Read More
Editor's note: Stephanie has recorded a podcast over at the Hippocratic Hustle Podcast and speaks about Disability Insurance. Incredibly informative! 
For those readers not familiar with your story, tell us how you went from being a practicing OBGYN to an insurance broker:
I was a practicing OB/GYN in a community hospital, and my patient was a lovely woman. But my patient was also well into labor, in extreme pain, and not acting like her everyday self. I had to enlist a team of four nurses to help me calm her down to ensure a safe delivery. When the baby’s heart rate fell, the situation became emergent. I reached in for the infant — and the panicked mom kicked me in my shoulder, twice. For seven months, I continued to work with a torn labrum, my pain increasing as my range of motion decreased. Despite diagnostic tests, physical exams and injections, my condition developed into adhesive capsulitis, or frozen shoulder. I had always prided myself on my physical and emotional strength and dexterity. Now, surgical equipment became too difficult to maneuver. Deliveries became too painful to bear. I had to stop practicing, and undergo surgery. To put it mildly, the procedure was not as successful as I’d hoped. The limited mobility I regained wasn’t enough for me to continue my profession as I knew it, and I soon came to realize my immediate future would not include operating or delivering babies. The career I’d worked so long and so hard on was slipping through my hands. I was devastated, heartbroken. I was also unprepared for the next hurdle. Unbeknownst to me, workman’s compensation and my hospital-provided physician disability insurance, the safety nets I’d taken for granted as a resident and attending, did not automatically go into effect to give me the stability I’d assumed they would. Insult added to injury when I, a mother of two and my family’s primary breadwinner, suddenly faced a terrifying new financial reality: My newfound disability meant my family could lose my income. Eventually, I had to go to court to fight for, and eventually receive, the benefits I knew were rightly mine. As I went through this struggle, I found myself answering more and more questions from colleagues who, like me, assumed they were protected by their hospital- or practice-provided disability insurance policies. My physician friends now saw that they, too, could become injured or ill, and they wanted to make sure what happened to me wouldn’t happen to them. I was happy to help other attendings and residents go through their policies’ fine print, ask the right questions, and direct them toward the coverage they needed. After all, healthcare providers are my people. Of course I’d help them out. That’s when a friend in the insurance business stepped up and suggested I turn this newfound expertise of mine into a new career. At first, I balked. I was a physician: I didn’t want to give that up.
But then, I realized that being a physician put me in a unique position: I knew medicine. I knew hospitals and medical practices. Now I know disability insurance for physicians and nurses, and could speak as a doctor to other doctors and healthcare providers to help them secure their careers.
My experiences, knowledge and background could serve to connect my peers with solid, reliable and affordable disability coverage, so they would never have to endure what I did. That’s where I am today. I’m still an OB/GYN. But I’m also a hands-on advocate for physicians. We take care of others. We absolutely must take care of ourselves. My mission? Empower and educate my friends in healthcare about disability insurance.
Do you miss practicing clinical medicine?
Absolutely! I still get upset on Fridays, which was my OR day. I miss celebrating the best days of people’s lives. I miss the relationships that I had with my patients. Helping girls and women understand their health and make educated decisions about their healthcare meant so much. I have kept up with my licensing and MOC to stay current in my knowledge, and still feel like I am a valuable knowledge source for women’s health.
Besides disability insurance, do you sell other insurances?
I do. I currently sell disability, life, and business overhead insurance. I believe that when I am helping physicians obtain disability insurance, making sure that their life insurance needs are also met, is very important. Many private practice owners are not even aware of business overhead insurance. What happens to your practice if you can not work? How are the lease, employees salaries, etc. going to get paid? Will you close the doors, hire a locums or replacement? Business overhead protects you for these circumstances.
How do you differ from other brokers?
My intimate knowledge of what it means to be a physician makes me different. I lived it. I am now living the life of a disabled physician. I am emotionally involved in this process. I understand from a medical perspective what the insurance carriers are looking for from an underwriting point of view. I can advocate for my clients in a way that most traditional agents/brokers are unable to do. I am coming from a unique place when I explain the different policy options. I care most about education. I want people to really understand the language, the nuances, and the differences between carriers. I am not happy unless I know that people are making truly educated decisions.
Any advice on how to choose a broker? What makes someone a good broker?
I think that you have to trust your gut. You need to feel confident in your choice; feel comfortable asking questions and receiving feedback. I believe that a good broker will offer you options, and explain them in detail. He/she should compare apples to apples and apples to oranges. You should not feel like there is any bias in what you are being told.
What are 3 things you see that physicians don’t understand about disability insurance?
1. What they have and don’t have from their employers. It is important to review the master copy of the policy. Is their salary or complete income covered? How long is it own occupation? What is the definition of disability? 2. Whether or not their benefits are taxable or non-taxable. Most group benefits are paid for by employers, and are therefore taxable income. However, if the employee contributes to the plan, it is a tax free benefit. That affects how much benefit he/she can qualify for with a private DI policy. Private benefits are a tax free benefit. 3. The different definitions of total disability. There are multiple definitions:
- The basic definition/modified own occupation – You are totally disabled if you can not perform your job, AND you are not gainfully employed.
- True own occupation/Regular occupation – You are totally disabled if you can not perform your job, REGARDLESS if you are gainfully employed in another occupation.
- Transitional occupation – You are totally disabled if you can not perform your job, regardless if you are gainfully employed in another occupation, until your income is that of your pre-disability earnings. There is a cap to how much you can earn. In CA, there are certain occupational classes that can not get true own occ with certain carriers. Several carriers will remove own occupation of they lower the benefit period, but will give the transitional definition.
You need to know what the definition is that you are purchasing!
What are 3 mistakes you see physicians make regarding disability insurance?
1. Waiting too long to purchase. I know how hard it is during training to conceive of paying for one more thing. However, it is the best time to purchase. You are the youngest you will ever be. You might qualify for a discounted rate that you will carry with you for the entirety of your career. You do not need to purchase the whole package- just get your foot in the door, and guarantee your future insurability. 2. Having colleagues write prescriptions. This is coming up a lot. There needs to be records; a paper trail. I understand professional courtesy, but the underwriters and companies do not see it that way. It is highly frowned upon, and is causing physicians to lose valuable insurance options. 3. Women not purchasing before they start family planning. The carriers will deny pregnancy coverage for all sorts of things. As an OBGYN, this is something I argue a lot! Miscarriages, infertility treatments, cesarean sections, etc .are all reasons for exclusion of pregnancy.
Anything else you would like to tell us?
Since entering this space, I have been able to help so many physicians (and non-physicians) obtain quality tailored policies. As trite as it may sound, I am really trying to clean up an industry that I believe has a long history of taking advantage of physicians. I hope you enjoyed learning a bit more about Stephanie!
Read More
Stephanie Pearson, MD, FACOG, an ob-gyn turned disability insurance broker for Women Physicians. How? After sustaining a career changing injury during a difficult patient delivery, Stephanie became quite passionate about physician disability insurance and risk management planning. In this post, we hope to demystify disability insurance and convince you why you need it!
Note: Pearson Ravitz is a sponsor of the 2024 Money & Wellness Conference.
Your ability to make a great income is one of your greatest assets. Have you considered how a serious illness or accident could jeopardize your financial security?
As a physician, I definitely have seen things change in a blink of an eye – a new cancer diagnosis, a car accident, or a fall to name a few. You're much more likely to use disability insurance than life insurance and you know I always recommend insuring against the 4 financial catastrophes: Death, disability, liability and divorce.
Why would you not want to protect that asset with disability insurance? Here are the top causes of disability, in descending order:
- Musculoskeletal
- Cancer
- Accidents
- Mental disorders
- Cardiovascular
The issue with disability insurance is that disability is very gray and subjective. With life insurance, you're either dead or alive. There is no “time of disability” like there is a “time of death.”
The three things Stephanie Pearson hears most as reasons not to obtain private disability insurance:
- “It won’t happen to me.”
- “I am healthy. I have no family history.”
- “I have coverage through work.”
It happens, and it happens a lot.
According to the Labor of Statistics, one in seven people will suffer a disability requiring time off from work during their working years. The average disability lasts from 3-5 years.
Can you afford to have no income for that long especially if you are the breadwinner for your family?
Many illnesses are NOT genetic. Many cancers and other illnesses do not discriminate. Accidents are called accidents for a reason. Stephanie certainly never thought a patient kick would end her clinical career.
And as a woman physician, disability insurance has some special considerations as discussed below.
Group Coverage is Often Inferior
Coverage through work is often not as much as one believes. When Stephanie asks clients if they know what the coverage through their employer truly is, she is met with blank stares or silence (on the phone). Group benefits are certainly better than nothing; however, there are typically many shortcomings or holes. Stephanie’s did not cover work related injuries – so she was denied benefits.
Often, group benefits are paid for by the employer, which makes the benefit taxable income. There is often a maximum benefit (i.e. 50% to 15K). Many employees are unaware of the max, and falsely believe that more of their income is covered.
Also, it is often only the base salary that is covered, not bonuses, teaching stipends, etc. which DO count as part of your compensation package.
Group policies are typically “Own Occupation” (see below for definition) for 2-3 years, and then switch to “Any Occupation.” You do not want to be told that you can teach, consult, or answer phones. There are often many exclusions and stipulations to group benefits that make them far inferior to private individual plans.
Most importantly, most group plans are often NOT portable. Very few physicians start and end their careers in one place. Many find themselves unable to secure good coverage if they leave one job only to find out the next one does not offer benefits. They are now older and potentially have more morbidities.
How to Buy Disability Insurance for Women Physicians
Ok, so now you may be convinced that you need to look into getting some.
Let's go over how to buy a disability insurance policy.
- Determine how much disability insurance you need
When you buy a policy, the policy amount is by monthly income replacement. This monthly income benefit is tax-free provided you pay for it with after-tax dollars (vs. deducting from your taxes – generally not recommended). You won't be able to recover 100% of your income (the underwriting company doesn't want you to be more valuable disabled than working). Each carrier has a participation limit usually around $17,000/month. For the really high earners, you may need to have more than one policy with more than one carrier.
How much do you need? That answer is very person specific. Are you the sole provider, primary or secondary provider, or do you have an equal double income household? What are your fixed expenses? What could you live without? All carriers have an algorithm to determine your qualifying benefit. The factors that go into this number are your salary, other earned income, and other group or personal benefits currently owned.
The magic number for what you need, usually falls somewhere in the 60-80% of your pre-tax income. Remember, your private benefits are tax-free income. I always tell people, just because you qualify for “X” does not mean you have to purchase “X.” You need to figure out what your family would need if you were not bringing in a paycheck in order to maintain your quality of living.
Keep in mind that even if your spouse makes enough for both of you, there may be extra costs associated with your disability like medications and care.
- Determine what riders you need
Almost everyone will need more than the barebones policy. Unfortunately, there is no standardization of language in the insurance industry. Carriers have similar riders with very different definitions, or the same concept called by different names. It is important to understand the definitions in each illustration that you review. The riders you should seriously consider (really, in my opinion, are “necessary”):
- Specialty specific or True Own Occupation – True own occupation stipulates that you are disabled if you can no longer perform “the material and substantial duties of your job”, regardless if you are gainfully employed. Some carriers will state that you can NOT be gainfully employed. This is a huge difference.
- Future Purchase Option – This allows you to purchase more insurance as your income grows.
- Non-Cancelable/Guaranteed Renewable – This means the company cannot cancel the policy on you and must guarantee that it can be renewed every year.
- Residual Disability – Aka partial disability. The policy will pay you a portion of your monthly benefit if you're partially disabled. Each carrier has a different definition. Again, the devil is in the details. An important note: there are more claims paid for residual/partial disabilities a year than total disability.
- Cost of Living Adjustment – This adjusts your payout to index for inflation. I would get this early in your career and cancel it about 10-15 years later.
- Catastrophic Coverage – This rider pays you an additional benefit in the event your disability leaves you unable to perform two of your activities of daily living (ADLs) without assistance or you are severely cognitively impaired. There are a few nuanced differences amongst the different carriers.
- Talk to an independent agent – someone who can broker from one of these companies: Guardian (Berkshire), Mass Mutual, Ameritas, Principal, Ohio National and Standard.
Met Life no longer issues new policies. I (Wealthy Mom MD) recommend you avoid any policy from Northwestern Mutual. They have an inferior definition of “Own Occupation” among other shortcomings. I recommend talking to at least two independent agents.
- Since women are more likely to be disabled than men (pregnancy related claims are on the rise) our premiums are higher than men. At least we get a break on life insurance !
Unfortunately, disability insurance is more expensive for women than men. Women are more likely than men to leave the workforce secondary to illness and injury, some in part to our ability to make babies. Men tend to die younger and more often at their own hands. Carriers are moving away from covering pregnancy at an alarming rate.
Things that are not viewed as an abnormal outcome of pregnancy by ob-gyns, are viewed that way by insurance carriers! Please secure coverage before your first attempted pregnancy. Recurrent miscarriages, infertility treatments, cesarean sections are all viewed as abnormal outcomes (!). Gestational diabetes, pre-eclampsia, postpartum hemorrhage, are as well.
You also may have heard that it's “cheaper” to purchase DI as a resident. This is only “true” because you'll be buying a smaller policy since you're not making attending income, as a resident you're part of a large hospital system offering institutional/group discount, and you’re younger. Women, look for a unisex policy to save on premiums. Principal offers one.
- Seriously consider purchasing life insurance if you don't have it already to save you another work-up.
You will likely need medical underwriting to determine your eligibility for DI. This involves blood work and a physical exam. These can also be used for life insurance so that you don't need to repeat this again if you apply for it within a year (generally speaking).
What You Also Need to Know
- If you're a woman, I strongly recommend purchasing this before you have children. If you wait until you're pregnant you may get dinged with an exclusion that any pregnancy related disability won't be covered, or you may develop a pregnancy related condition such as gestational diabetes that will ding your eligibility.
- The state you purchase DI matters. Everything is different in CA and FL. Texas also has some differences. Not only is coverage more expensive, but certain riders offered elsewhere are not offered there. CA has the highest premiums. If you are doing residency there, and staying there, then you have no choice. One way to get around this is to purchase disability insurance before moving to CA if your medical school is another state. Also, if you're doing residency in CA but know that you're moving to another state, you may want to wait until you move to the new state – or better yet, purchase a policy now in CA then get a new one when you move (then cancel the CA policy). Conversely, if you're training in one state and moving back to CA, definitely purchase a policy before moving!
- Disability insurance generally pays out after 90 days of disability (“elimination or waiting period”) and until age 65, so you'll need enough income replacement to save for retirement.
- Once you reach financial independence, you can cancel disability insurance.
- If you’re really trying to save on the premium cost two riders you can consider forgoing are: COLA and CAT. You can also extend the elimination period to 6 months or a year as well.
- Guardian is considered the “best” insurance carrier and the premiums reflect that. They have unlimited coverage for mental/addiction disorders. If this is not a deal-breaker for you (i.e. no personal or family history of mental disorders or substance abuse) then consider another carrier. Most other carriers have a two year limit.
My current policy is a $15,500 monthly benefit with Principal.
Bottom line: Be sure to reach out to an insurance agent to get started with obtaining your policy now. You cannot rely solely on your employer's policy.
is a proud sponsor of the 2024 Money & Wellness Conference for Women Physicians.
Read More