Understanding the need for long-term disability insurance

About five years ago, Tom Davis, MD, started suffering occasional vestibular migraines. Sometimes he felt unstable on his feet, but most concerning of all: He began losing his hearing. 

But in July 2016, Davis experienced complete hearing loss. “I was sitting out on my front porch during a rainstorm, and I wasn’t able to hear the water falling,” he remembers. “That’s when I said, ‘If I can’t hear the water falling, I certainly can’t represent myself to my patients as a full-service clinician.’”

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Davis says he is sharing his story not to highlight his problems but to show how fortunate he is to have long-term disability (LTD) insurance.

LTD insurance is coverage that replaces a portion of a physician’s income should he or she become unable to work because of illness or injury. It begins paying benefits after a set length of time, called an “elimination period,” usually 90 days, during which short-term disability coverage may apply.

Securing LTD coverage can be complicated, confusing and expensive. But insurance experts, advisers and physicians who’ve suffered injury or illness all agree: Doctors need it.

Next: Protecting an asset

Protecting an asset

A 2014 survey by the American Medical Association revealed that roughly 75% of doctors had a long-term disability insurance policy. That number should be 100%, Davis says, especially in light of disability statistics.

According to the Social Security Administration, about a quarter of today’s 20-year-olds will become disabled before they turn 67. It’s a sobering fact that many young adults, including young doctors, simply ignore. “They think they’re exempt, that it’s not going to happen to them,” says Marc Feiner, MD, a retired OB/GYN. “Your health is something you can’t gamble with.” 

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Feiner should know: He spent the years from age 61 to age 65 on disability after his psoriatic arthritis became so bad he could no longer do surgeries and deliveries. Without the insurance benefits, he says he would have been forced to pull money from his retirement account. 

“What would have happened if I had not had the disability insurance? I would’ve been screwed,” he says.

Davis says uninsured and underinsured physicians need to start viewing themselves as a valuable asset. 

“If you don’t have disability insurance, it’s like having a million dollars and just leaving it out on your front lawn,” he says. “You can hope nothing happens to it, or you can invest $300 and buy a safe.”

Unlike a safe, however, LTD insurance is a complex financial product that experts say should be customized for each physician depending on specialty, age, gender, medical history and financial situation.

Here’s what physicians need to know about long-term disability insurance and how to get the right coverage and policy.

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Where and when to get LTD insurance

Physicians have unique jobs and have high incomes, so when it comes to individual insurance policies only a half-dozen companies offer LTD insurance to doctors: Ameritas, Berkshire/Guardian, Mass Mutual, Ohio National Financial Services, Principal and The Standard. 

Policies can be purchased from independent insurance brokers or “captive” agents, those working with only one of the big six.

Independent brokers are able to offer more options and more plans because they don’t favor one company over another, says Stephanie Pearson, MD, FACOG, who became an insurance adviser to physicians and an independent agent after an on-the-job injury ended her career as an OB/GYN.

She acknowledges that some captive agents may be able to offer discounts to which independent agents don’t have access. “I think that there are some really solid captive agents out there who know their product, and it’s great,” Pearson says. “But if you don’t know what your other options are, you can’t really make an educated, informed decision.”

As for when to buy coverage, the consensus is the earlier the better. LTD insurance, like life insurance, is cheaper at a younger age. Insurance companies often offer discounted policies-sometimes without medical underwriting requirements-to residents.

A young doctor may also find it easier to secure LTD insurance before age-related  medical issues (chronic back pain, for example) can jeopardize coverage. Preexisting conditions may torpedo a doctor’s chances for a policy during the underwriting process.

Davis advises physicians to start LTD coverage with their first paycheck. “Paying right out of the gate, you never miss the money,” he says. “Premiums [for my wife and I] were eventually about $900 a month, and that’s a chunk of change, but we never missed it, because we started it from day one.”

Pearson says that it is also crucial for female physicians to get LTD insurance before they start a family. “The list of what can happen during and after pregnancy is huge,” she says. “Women really need to get it before they try to get pregnant.”

Next: Building the right policy

Building the right policy

Whether a physician is buying a comprehensive individual LTD policy or supplementing an employer-provided group policy with individual coverage, disability insurance should be customized, says Pearson.

“There are little pieces of the puzzle that make up a complete policy,” she says. “Physicians want to make sure that they’re being told what those nuances and differences are.” Here are definitions of some of the important puzzle pieces:

“Own-occupation” disability

This provides a disabled physician with benefits if unable to perform the exact duties he or she was performing before injury or illness. Almost all LTD policies sold to physicians are “own-occupancy” plans. 

For example, Davis says that even with hearing loss, he can still perform some types of work, but not the broad spectrum of clinical tasks that he was doing before becoming  disabled. And he certainly can’t earn the same paycheck. But because he has own-occupancy coverage, he receives benefits based on his previous earnings as a primary care physician. 

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Partial or residual disability

An illness or injury doesn’t always mean 100% disability. Often, a physician might be able to continue working part-time, but with fewer duties or in a limited setting. “Partial or residual disability” coverage provides benefits in these cases. 

“It takes away the all-or-nothing,” says Keller. If a disabled doctor loses income by being able to work only part time, he or she will get benefits to help make up the difference.

Non-cancellable and guaranteed renewable

This means that regardless of the health of a physician, the policy cannot be canceled and premiums cannot be increased, provided he or she continues to pay the premium. 

Future increase option

This allows policyholders to increase coverage as their income grows without having to undergo additional medical underwriting. 

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Cost of living adjustment (COLA)

This feature allows benefits to increase annually, usually by 3%. The COLA kicks in when benefits start, not when the policy is purchased.

Next: More policy details

Taxes on benefits

If a physician is covered by a group plan, the premium was likely paid by the employer with pre-tax income. That means benefits from a group plan are usually taxable, significantly reducing the benefit amount a disabled physician might receive. Individual policies that stand alone or supplement group plans are paid for with after-tax funds, meaning the benefits are tax-free.

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Coverage under a group plan

Physicians covered under an employer group plan should request a detailed description of the policy and read it carefully, says Pearson. “A lot of times what people think is getting covered is not actually what’s getting covered,” she says. “Companies don’t have to give you the fine print unless you ask for it.”

Pearson speaks from experience. When she was injured, her group plan did not cover injuries suffered on the job (a rare exclusion). Fortunately, she had supplemental individual LTD coverage.

Key-man coverage 

Losing a physician to a long-term disability can be crippling for a small to mid-sized independent practice: A chunk of income disappears, while the practice’s overhead remains the same.

This means that in addition to individual coverage, physicians and partners in smaller practices may want to consider “key-man” disability insurance, which pays the practice should an important employee become disabled, or business overhead insurance, which covers operating costs should a physician go out on disability.

“A lot of docs in private practice probably haven’t thought about that,” says Jim Dahle, MD, FACEP, founder of the WhiteCoatInvestor.com, a website that seeks to educate physicians on financial matters. “Eventually if you’re long-term disabled for years and years, your practice is going away. But if you’re only disabled for nine months, it sure would be great to have a practice to come back to.”

The drawback for these products is the price. When Davis and his partners were growing their practice in Missouri, they bought key-man insurance on each other. “It was breathtakingly expensive,” he says. “As we got larger and larger, the need for that disappeared because you could share the loss around a greater number of doctors, so eventually we just discarded it.”

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Because LTD insurance is expensive and can include wide varieties of coverage, riders, exclusions and terms, physicians need to educate themselves, says Keller. 

“You might not ever be an expert,” he says, “but you should have a really good idea of what it is you’re buying.”