Do You Have the Wrong Disability Coverage?

Disability insurance is one of the foundations of a solid financial plan for physicians. Yet I’ve seen numerous mistakes financial advisors (read “insurance salesman”) have made when it comes to recommending disability insurance for doctors.

If you do a Google search on “disability insurance for physicians,” you’ll come across a large number of insurance salespeople who claim to specialize in physician disability insurance. It’s easy to understand why: After all, insurance companies pay some hefty commissions. For most of these sales reps, it’s “sell and go away.” Once you’re sold the product, that’s generally where the relationship ends. Yet I’ve found that many have sold disability policies that are woefully inadequate to several of my physician clients.

Here’s the problem: The most important aspect of disability insurance is the definition of disability. You need to look at your policy and determine exactly what “total disability” means. While you may think that total disability is a uniform definition, it’s actually defined in three general ways.

The first definition of total disability is “any occupation.” This means that if you become totally disabled, your disability policy will pay your monthly benefit as long as you do not work in any other occupation. Say you’re a surgeon and you develop a herniated disc in your neck, causing persistent radiculopathy. If this is a long-term disability that precludes you from performing surgery, and you have an “any occupation” disability definition in your policy, then you won’t be allowed to work at Starbucks serving coffee. If you do, your disability benefits will stop.

The second definition is “own occupation.” This means that even if you become totally disabled in your current occupation, your policy will pay your monthly benefit even if you work in another occupation. So, going back to the example of the surgeon, you could still receive disability benefits at the same time you work full-time serving coffee. So, as you can see, having an “own occupation” definition of total disability is far more desirable than “any occupation” coverage.

The third definition is “modified own occupation.” A lot of physician disability policies allow “own occupation” coverage for the first two or three years of disability, after which they convert to “any occupation” coverage. So the surgeon who becomes disabled and works at Starbucks would be able to get disability benefits for the first couple of years, and then those benefits would stop. Look at your disability policy to see if you have this mixed definition. When disability insurance for physicians became more restrictive several years ago, these types of policies became more common.

Recently, insurance companies have loosened up a bit on the definition of disability for physicians. So if you have an “any occupation” or “modified any occupation” disability policy, you should inquire about changing to “own occupation” coverage. There is even one company that now writes specialty specific “own occupation” coverage. So if you’re a gastroenterologist and you become disabled, you could still practice medicine (say, emergency care) and still receive disability benefits.

This week's financial prescription: Know what kind of disability insurance you’re buying.