What is Physician Disability Insurance and Why Do I Need it?

If you’re a physician, you’ve probably already considered your life insurance needs, but that’s not the only type of insurance you should think about. Statistically, you have a higher probability of enduring a disability that impacts your work than you do of dying.

While some physicians may have the capital to handle the financial burden of a disability, most require disability income insurance to help with the mounting costs associated with a disability.

Over the last 10 years, disability insurance planning has transformed into what it is today. The insurance industry provides several opportunities to help you secure your most profitable resource—your skills in earning money.

Continue reading to learn more about disability insurance for physicians and why it’s a good idea to carry it.

Disability Insurance for Physicians

While an increase in disability insurance options for physicians provides you with more choices than ever, it also makes shopping for the right insurance policy more of a challenge.

You may purchase disability insurance on an individual or group basis.

It’s common for individual plans to be purchased with a local agent, but in some cases, you may also buy a plan over the phone or online using the insurance company’s website.

You’ll most likely be issued disability insurance coverage that equates to about 60% of the income you earn.

In addition, your employer may provide group insurance, or you can purchase it individually using a sponsoring professional association. If your employer provides you with group long-term disability (LTD) insurance, or if you’re switching employers, you may be able to supplement individual disability insurance. Your individual policy won’t be impacted by accepting a group LTD policy. Although, if your individual policy hasn’t already reached its maximum, doing this may prevent you from being able to increase your individual plan.

Disability Insurance Expenses

The following personal elements will be taken into consideration when your premium rates are developed:

Age
Gender
Monthly benefit
Optional riders
Occupational classification

The industry standard is to charge lower insurance premiums for younger policyholders. In addition, your occupational classification and policy provisions will impact your premium rates.

The Amount of Coverage You Need

While you might think that you’ll have enough coverage if you purchase a disability policy that covers 60-65% of your post-tax income, that may not actually be the case.

Take this example from the American Medical Association (AMA):

If you earn $300,000 per year, that means you generate $25,000 of monthly income. You’d require disability benefits that provide at least $16,250 per month, which is 65% of your gross income. Your individual plan provides $6,250 per month, and your employer-group plan provides $10,000 per month. You’re expecting to receive $16,250 per month from insurance, but that’s not what happens. Because your employer paid the premium for your group policy, the $10,000 you receive from the employer-paid plan is eligible for taxes, which will likely be around 40%. Thus, between both pieces of coverage, you only receive $12,250 per month.

Due to the wide variety of options available, it’s a good idea to take some time to understand the different policies in detail before you make a decision on which type to purchase. In addition, it’s in your best interest to understand how each policy is taxed so that you know exactly how much money you’ll take home in the event you are disabled to the point where you cannot work.

Recovery Benefits

Recovery benefits are particularly important if you’re self-employed and only rely on the number of patients you see for your income. Some policies provide an unlimited recovery benefit in the residual disability rider, but others provide it as its own rider.

If you become ill or are injured, but you’re still able to work because you are not fully disabled, you’ll be able to rely on your policy’s residual disability rider to help supplement your lost income.

Retirement Plan Contributions

Your group or individual disability insurance plan is typically only responsible for covering a portion of your current income, but won’t replace any monthly contributions you make into your retirement plan. However, some disability insurers have designed policies particularly to cover retirement savings that you miss out on when you’re disabled.

If you become disabled, retirement protection disability insurance will help you continue saving for retirement. In the event you are disabled, this plan provides the amount you contribute monthly toward your retirement plan and places it into a trust for you. You may invest money into the trust at your own will until you turn 65 years of age, at which point it will help supplement your retirement income.

This type of policy tends to provide a benefit of no more than $3,800 and can commonly be included with existing coverage.

Keep in mind that any benefits you receive from the policy and earnings in your trust are subject to taxation. It’s common for trust earnings to be taxable to the insured—the beneficiary of the trust.