Written by: Andrew Newhouse
Should I get Disability Insurance as a Resident
To continue with the theme of disability insurance for Disability Insurance Awareness Month, most physicians know it is a good idea to secure disability insurance. With so much future income ahead of you, especially if you are a young physician, protecting your future income is very important. One of the main questions advisors at Finity Group receive about disability insurance is, when should I secure this? Should I get disability insurance as a resident? Should I get it as an attending physician?
Example on Why Disability Insurance is Important
Let’s say you are just finishing up training and about to start in your attending role making $300,000. The average physician’s career around 30 years. Assuming no change in salary (which is impossible, but it makes the example easier) that ends up being $9,000,000 in career earnings. This would definitely alter the financial plan if you were no longer able to earn this.
Own Occupation Disability Insurance Definition
A lot of people that we meet with say “I have disability insurance through my employer. My income is protected.” I would encourage you to read the definition of disability associated with your group coverage.
Every employer offers different disability insurance coverage. Some offer fantastic protection, other are sub-par, and some may not offer any. I would encourage you to read the details associated with your group policy to see if your coverage is sufficient or if you need an individual policy to help fill in the gaps.
The definition of disability that we commonly see associated with group disability insurance has improved over the years, but we will typically see is something along the lines of:
“In general, you are considered “disabled” for purposes of the long-term disability policy if:
- You are limited from performing the material and substantial duties of your regular occupation due to your sickness or injury and you have a 20% or more loss in earnings due to the same sickness or injury.
- After receiving LTD benefits for 24 months, you are still considered disabled if you are unable to perform the duties of any gainful occupation for which you are reasonably qualified by training, education, or experience”
While it is great that your employer might pay for this coverage, it is not the most robust coverage. If you are disabled longer than 24 months, you will no longer receive the monthly benefit that was paying out, if you can work in another occupation to earn an income.
Now compare the definition of disability above to an insurance policy with a true own-occupation definition of disability. Here is snippet from a policy:
Total disability or totally disabled means that, solely due to injury or sickness, you are not able to preform the material and substantial duties of your occupation. You will be totally disabled even if you are gainfully employed in another occupation so long as, solely due to injury or sickness, you are not able to work in your own occupation.
With a true own occupation disability insurance policy, you will receive a benefit if you cannot perform the material and substantial duties of your own occupation. If you then choose to work in another occupation, you will receive the income from that occupation and still receive the disability insurance benefit if you are still unable to work in your own occupation. Which definition of disability do you feel more comfortable with?
Relying on Group Coverage
With most group coverage that we see, it doesn’t protect your full income. Commonly, we will see it protect a percentage of your income up to a certain dollar amount. For example, 60% of your income up to $10,000 per month. Whichever ends up being the lesser of the two is the amount that they will pay out. Even if your disability insurance policy through your employer is an own occupation definition of disability for the life of the policy, a supplement policy will work along side it to protect your full income.
Another benefit to having a supplemental policy, is that it travels with you. If you move jobs, or move states, the supplemental policy will protect you wherever you go. With group coverage, this is typically not portable. If you leave your employer, you are no longer protected under your old plan. You are reliant on what your next employer offers.
Why Should I Secure Disability Insurance in Residency?
Disability works a little differently than some of the other insurance out there. You can’t just sign up for disability insurance like you do for auto insurance or health insurance through your employer. In order to secure individual disability insurance, you have to medically qualify for coverage.
This coverage is based on your age and your health, so the younger and healthier that you are, the cheaper the cost of coverage will be. Since you can’t predict what the health side of things will look like in the future, we recommended looking into this sooner rather than later.
Also, while in residency, there are discounts associated with the 5-6 own occupation disability insurance companies. If you secure a policy in residency, you can secure a discount for the life of the policy. This can save you thousands over the life of the policy.
While specializing with physicians, we know the budget can be pretty tight while in residency and fellowship. Often times we hear physicians in training say there isn’t room in the budget to secure disability insurance. I would argue that this is another reason to secure a disability insurance policy.
Should I secure disability insurance as a resident? Yes! One easy way to determine if you need disability insurance is to ask yourself, if I no longer made an income, would I be okay financially? If the answer is no, it makes sense to look into disability insurance to protect your income.
It is important to review your current disability insurance whether that is through your employer or a supplemental policy that you secured. If your income isn’t fully protected, or isn’t protected with a true own occupation definition of disability, please reach out to Finity Group. We would be happy to review your current coverage and show some potential options available to you.
Related Blog Posts
- The Importance of Individual Disability Insurance and The Pitfalls of Group Coverage
- Own-Occupation Disability Insurance
- 7 Mistakes Doctors Make with Disability Insurance
Related Podcast Episodes on Financial Clarity for Doctors