If you rely on your income to support yourself and your family, disability insurance is a smart investment.
More than half of the people in the U.S. workforce don’t have any disability insurance coverage, but one in four of today’s young workers will become disabled before retirement. If you did become disabled and weren’t able to work, a disability insurance policy would provide a monthly benefit payment so you could continue paying your bills.
If you were unable to work due to a disability – a reality that a quarter of the workforce will experience – it would be financially crippling for you and your family. These policies are likelier to pay out than other types of insurance, so they are worth the investment.
As a physician, there are some additional considerations to think about when you start to shop for a disability insurance policy.
When should a doctor buy disability insurance?
When it comes to disability insurance, the earlier you can acquire it, the better. That’s because you never know when you might become disabled. It’s also smart to buy a policy earlier because you’ll never be younger than you are now. The younger you are, the more affordable your premiums will be. (This is especially true if you’re not rock climbing and skydiving on the weekends. Risky hobbies are more expensive when it comes to your insurance premiums.)
If you’re in residency, you might try buying a smaller policy that you can upgrade later on.
Individual vs. Group Disability Policies
You can purchase individual or group disability policies, and both deliver different levels of coverage.
In a nutshell, individual insurance is pricier, but they have a broader definition of disability. They are also portable, so you can take them along if you change jobs.
Group policies have lower premiums that may rise over time, and they’re usually not nosy about your health and hobbies. However, they stay with your employer when you leave your job – unless they are a portable policy.
So deciding between the two will all come down to your budget, needs and plans for the future.
What types of disability policies are available?
There are two main types of policies: short-term and long-term. Short-term policies offer coverage for a shorter period of time, while long-term policies offer coverage longer than three months.
Many employers offer short-term disability policies as a benefit of employment. Certain states, like California, Hawaii, New Jersey, New York, and Rhode Island, offer state-mandated temporary disability coverage, meaning employers are required to pay into a state-run disability fund.
These short-term policies won’t cover you for a disability that sticks around for a long time. If you have a decent-sized emergency fund, you really shouldn’t need short-term disability insurance anyway.
Look for a long-term disability policy that aims to provide coverage up until retirement age. Some large employers offer such coverage, but it’s important to find out exactly what your policy offers.
Who Should You Buy Disability Insurance from?
Try to work with an insurance agent who is independent. An independent agent is licensed to sell you insurance from one of the major disability insurance companies, so they can better match you with the company and policy that is right for you. You might want to look for someone who works mostly with doctors and is aware of what you need (White Coat Investor has a helpful list here.)
You can also opt-in through your employer, if they offer optional coverage.
Pay Attention to the Definition of “Disability”
One defining characteristic of insurance companies selling disability insurance is how they define what a disability is, when it pays and how it’s adjusted over time. Don’t skim over that when you’re shopping around. One policy might look more affordable, but it’s actually far less inclusive about what counts as a disability.
Here are some features you should look for in a disability contract:
- Own-Occupation language – This ensures that you could receive a benefit if you cannot practice your specific specialty. It could be for the entire disability, or for a set period of time, like 2 or 5 years before moving to a more restrictive definition of disability (Any Occupation.)
- Residual Disability – Pays benefits even if you can only work part time and aren’t totally disabled. It’s based on the amount of income you lost due to your disability.
- Cost of living adjustment (COLA) – This increases your benefit every year on a percentage basis.
- Guaranteed purchase option – This gives you the right to increase your benefits in the future if your income has increased, without having to go through exams again. The additional premium amount would be determined at that time.
About Your Richest Life
At Your Richest Life, Katie Brewer, CFP®, believes everyone should have access to financial resources and coaching. For more information on the services offered, contact Katie today.