Key Considerations When Purchasing Disability Insurance

Physicians understand the risk of being disabled than most people, in part because they’re surrounded by it on a daily basis. As such, as a profession, they rank number one as purchasers of disability insurance.

Despite the fact that physicians understand the importance for disability insurance, the fact that disability is a different animal may go unrecognized. It’s not life insurance, where there is no gray area, explains Craig Silverman, a registered representative and investment advisor with AXA Advisors. With disability insurance, there are lots of gray areas.

“Disability companies change their contract provisions for what determines a trigger, and how many different ways there are to trigger a benefit,” Silverman says.

As such, there are key provisions that every physician should have in a disability policy.

Can you do your job?

Experts agree that own occupation protection is probably the most important provision physicians need in their disability policies. It specifies that if the physician cannot perform all aspects of the job, he or she will receive full disability payments until age 65.

“If you can’t practice medicine because of a disability and choose to do something else, the insurance company is still going to pay you full benefits,” says Steve Brady, vice president, individual disability insurance sales and marketing, for Standard Insurance Company.

However, not all insurance companies will offer physicians own occupation coverage for an extended time. In that case, Derrick Kinney, ChFC, financial advisor, with Ameriprise Financial, suggests obtaining a modified own occupation policy, which will pay if you can perform parts of your job, but not every part of your job.

Residual disability pitfall

According to Brady, physicians often overlook an important aspect of residual, or partial disability, insurance. For example, he explains that partial disability doesn’t always follow total disability. A physician doesn’t always suffer a heart attack or stroke, sit out six months, and then return to work on a limited basis. Most partial disabilities, he says, are progressive in nature, like MS, cancer or Parkinson’s disease, and may not reach the total disability stage for years.

“Physicians say to me, ‘I have disability insurance, and it has a residual rider in there, so I’m covered,’” Brady explains. “That’s fine if you were totally disabled and got paid on a total disability claim, then went back to work. But in the case of progressive-type disabilities, such as Parkinson’s or cancer, it could be years before you see a claim.”

As a result, coverage for a progressive-type partial disability is expensive, but it is also very important.

Other considerations

Brady suggests that when physicians shop for a disability insurance policy, they should look for one that includes unlimited coverage for mental disorders and substance abuse. Many policies, he explains, limit those types of disabilities to two years of claims.

“We believe it should be unlimited,” he says. “We price for that, and I think that states are soon going to mandate that.”

In addition, Brady says that Standard recently introduced a new level of disability insurance called compassionate care. Today, many physicians find themselves in the position of not only having to work and take care of their children, but also care for elderly parents. Compassionate care coverage, Brady explains, states that if the insured has a loved one — whether that’s a child, parent or spouse — who is going through disability, and by choosing to care for that person your income drops, you’ll be covered for that loss of income.

“I was recently speaking with a few doctors who said it would fall on their shoulders to take care of their parents, or to take care of their spouse,” Brady says, adding that the physicians’ practices would subsequently lose revenue if they were absent for any period of time. “We’ll pay up to six times the monthly benefit based on that loss of income.”

Good time to buy

Brady says that when it comes to physicians purchasing disability insurance, the earlier in their careers, the better. And he notes that premiums today are approximately half of what they were in the mid-1990s.

“We don’t have the rich premiums that we had in the past, and maybe that’s because companies have to really show the states how many claims they’re paying out,” Brady says. “Therefore, it’s a good time to buy.”