Physicians, particularly those in training, may be aware of the importance of disability insurance to shield them financially if they are unable to work in their chosen specialty. But less attention may be paid to the seemingly smaller details of the coverage—namely, the definitions of disability in a policy, the maximum benefit limits available and their costs. Comparing the contractual provisions of the policies you are considering can give you peace of mind to know that you and your family are protected.
Mike Hegwood is assistant vice president of brokerage marketing at AMA Insurance Agency, Inc., an AMA subsidiary licensed as an insurance producer in all 50 states. Hegwood and other insurance professionals agree that when evaluating any disability insurance policy, physicians should pay close attention to:
- The definition of disability.
- The costs of coverage.
- The optional riders available.
Many factors can influence which policy is the best fit for your needs. Consult a professional insurance adviser or financial planner who specializes in working with physicians to find out which policies are best suited to your specific needs.
AMA Insurance Agency, Inc., offers physicians access to disability insurance underwritten by New York Life Insurance Co.
Definition of disability
Physicians should pay careful attention to the definition of disability found in their policies because it ultimately determines how any claim for benefits will be judged.
For physicians, it’s crucial to have an “own-occupation” definition. Sometimes called an “own-specialty occ” definition, this ensures your coverage pays benefits if you cannot work in your physician specialty, Hegwood said. Without that “your own specialty” stipulation, you could be denied benefits if you’re able to work in another job within medicine that you can physically perform.
“As a cardiologist, for instance, you might go from making $60,000 as a resident to earning $400,000 in practice. That ability to earn a living as a physician, in this case as a cardiologist, is extremely valuable and should be insured,” he noted.
Definitions include:
- Own-occupation, also sometimes called “true” or “pure own-occupation.”
- Modified-own occupation.
- Any occupation.
Read more about how disability is defined and why it matters for physician disability insurance.
Costs of coverage
A key component of an individual physician disability income insurance policy is the price, or premium. Premium rates are based on factors such as the insured’s age, gender, monthly benefit, waiting period, optional riders and occupational classification.
As a rule, the younger a physician is, the lower the cost. Policies with more specific definitions of disability are more expensive than those offering a broader definition—for example, a policy with an any-occupation definition.
Additional factors can influence the price of the policy, such as the type of plan being purchased. Several types are outlined here.
Group coverage. Policies offered as part of an employer group, for instance, are generally less expensive than other options. But these contracts typically have a very general, or broad, definition of disability and often provide the least coverage.
Individual plans. Often referred to as individual disability insurance, these plans typically offer a level premium guaranteed for the life of the policy. This ability to lock in the premium can be attractive, but it also can make these policies more expensive. Some plans, however, have stepped premiums, which start lower and rise at intervals, typically five-year age bands.
These policies are also considered noncancellable, as the coverage and rates are locked in and cannot be cancelled in the future, so long as premium payments continue to be made
Association plans. These policies are often provided with an increasing rate structure. They typically offer less expensive premiums in the early years of the policy, and then premiums increase as you get older. These plans can be especially helpful to resident physicians looking for quality coverage at affordable rates. These types of plans are typically available on a guaranteed renewable basis, meaning the plan is guaranteed to remain in force, but the rates are subject to change.
Policy riders
Adding a residual disability rider to the policy lets a physician continue receiving benefits proportionate to the loss of income if they return to their occupation part-time. Generally, to qualify for residual disability benefits, one must experience an income loss of 20% or more compared with pre-disability earnings. Additionally, if the loss of earnings is greater than 75% or 80%, depending upon the rider’s provisions, 100% of the monthly disability benefit might be paid.
Catastrophic disability rider. This rider was introduced by many insurance companies to pay additional benefits if an insured is unable to perform two or more activities of daily living without human standby assistance, or if the insured suffers a cognitive impairment or an irrevocable disability.
Cost-of-living adjustment rider. This is designed to help benefits keep pace with inflation after a disability has lasted for 12 months. The adjustment can be a flat percentage or tied to the consumer price index.
Future increase option rider. This provides the ability to increase disability coverage, regardless of future health, as income rises. This can be an especially attractive feature to young physicians as they grow into their careers.
Other policy terms to consider
Tax implications. Personal disability insurance benefits generally are not subject to income tax, provided premiums are paid with post-tax dollars, which is typically the case with individual policies. Otherwise, benefits are taxable. Read more to understand the difference.
Mental and nervous provision. Often referred to as M&N, this provision can exclude coverage or limit coverage if mental illness or substance-use disorder causes a disability. Many carriers place a restriction on benefits paid when a disability is triggered by those conditions. Some carriers, however, will pay benefits to age 65—but that feature is likely to increase the policy’s premium.
Loan payoff provisions. Several disability plans now offer benefits that can help pay off educational loans after disability. This benefit can range from $150,000 to $250,000 and is paid in addition to the monthly benefit specified in the policy.
Maximum monthly benefit. Someone who has an old policy with a future purchase option rider might be subject to the rules that applied at the time the policy was purchased. In such a case, the insured might be able to purchase coverage over the maximum monthly benefit.
AMA Insurance offers disability income insurance for every stage of a physician’s career. Coverage for physicians is completely portable, with up to $15,000 per month in benefits. The plan for residents is specialty-specific and has a flexible premium structure. Coverage for medical students starts at just $41 per year and comes with guaranteed acceptance.
