The greatest financial risk for physicians is losing the ability to turn the knowledge and skills you spent a decade learning into a huge pile of money by working in your profession for decades. There are risks that could show up in your life that would prevent you from being able to accomplish this task. One of the most common of these risks is an extended or even permanent disability. Insurance companies estimate that as many as one in seven doctors will be disabled at some point during their career. While many imagine this will occur in a sudden traumatic accident, medical illness is actually a more common cause of disability that prevents a doctor from working. Physician disability is a complicated type of insurance. This post will give you the “must-know” information to secure the best protection and help you avoid common disability insurance mistakes.

TL;DR: Key Takeaways: What Doctors Need to Know About Disability Insurance

1. The best Disability Insurance policy is an individual, portable, own-occupation, specialty-specific policy.
2. Purchase disability insurance from an independent agent who can show you policies from all of the major companies. We have a list of recommended Disability Insurance agents used by thousands of white coat investors each year.
3. Buy as much disability insurance as they are willing to sell you as a resident. Include a future purchase option (sometimes called a “benefit purchase rider” or “future increase option”) and a cost of living disability insurance rider.
4. As an attending, increase your coverage to cover both your living expenses and retirement savings if you were to work to age 65.
5. You may get sticker shock, but the reason disability insurance is expensive is that it actually gets used. Slightly more than 1 out of 4 adults will experience a disability before they retire. Physician disability insurance agents often use a figure of 1 out of 7 doctors actually using the disability insurance they purchase. Whatever the true statistic may be, it's certainly high enough to insure against.

Do not take the risk of not having disability insurance.

What Is Disability Insurance?

Disability insurance gives you an income to live on if you become so disabled that you can no longer work.
If you become disabled, a long-term disability insurance policy pays a predetermined amount each month until you either recover from your disability or reach age 65-67. (Note: Policies vary. It is possible to buy a policy that pays to age 70 or even, for a very high premium, until death).

Why Do Physicians Need Disability Insurance?

One out of seven doctors end up having to use their disability insurance. Losing the ability to turn the knowledge and skills you spent a decade learning into a pile of money by working in your profession for decades is one of the most expensive risks that physicians face. Your most valuable asset is your ability to work.

How Does Disability Insurance Work?

Disability insurance is a pretty straightforward proposition. You buy a policy and pay your premium monthly or annually. If you become disabled, you (and your doctor) fill out the paperwork to prove it to the satisfaction of the insurance company and then they pay you the promised monthly benefit until you either recover from your disability or the insurance company meets its contractual obligation to pay the benefit.

Short-Term vs. Long-Term Disability

Disability insurance is most commonly divided into short-term and long-term.

Short-Term Disability

A short-term disability policy generally begins paying just as soon as you get disabled and then pays for a maximum period of 3-24 months. These policies are often provided by an employer as an employee benefit. Short-term disability, while inconvenient financially, is not generally a financial catastrophe for a physician saving for retirement with an emergency fund. As a result, many doctors do not buy short-term disability policies at all.

Long-Term Disability

A long-term disability policy generally does not pay immediately, but only begins to pay after a waiting period ranging from 1-24 months (typically 3 months). Then, the policy will continue to pay you a benefit each month until age 65, 67, or 70, depending on the policy. Note that a 3 month waiting period typically means your first check won't come until the end of the first month after the 3 months, so it's really a 4 month waiting period. Since losing your ability to earn a living for the rest of your life is a financial catastrophe, any doctor who is not financially independent should buy a long-term disability insurance policy.

What Does Disability Insurance Cover?

Disability insurance covers all kinds of disabilities. The best (and unfortunately most expensive) policies cover the widest range of potential disabilities.

The Definition of Disability

The most important feature is the definition of disability. Disability insurance differs from life insurance in numerous ways, but none is more significant than in defining exactly when you become disabled (and when you become enabled again). The broader the definition of disability you get in your policy, the more the policy will cost.
Unlike life insurance, where life and death are pretty black and white, disability has 50 shades of gray. You want a policy with a strong, broad definition of disability that will cover any possible type of disability? That means “true own-occupation, specialty-specific” and no limitations on things such as psychiatric conditions or addictions. This is the main difference between the “Big 5” companies and others. Even among the “Big 5,” there are slight differences. It is OK not to purchase the policy with the very best definition of disability, but the weaker the definition, the bigger the discount you should expect.

Own-Occupation, Specialty-Specific

Probably the most important aspect of the definition for doctors is that it be specific to your occupation. For instance, if I lost my left thumb, there are a number of procedures in emergency medicine that I could no longer do. I would be completely disabled from managing a busy emergency department by myself. But I could probably still go do urgent care work. A specialty-specific definition of disability in my policy would provide me with my full disability payments in addition to the money I make at the urgent care. Sometimes, the “specialty-specific” clause is inherent to the policy, and at other times it is an additional rider (a piece of paper added to the policy for which you pay an additional premium). Either way, you almost surely want to get this in your policy. Here are the various definitions, starting with own occupation and progressing to any occupation.

Own-Occupation Definition

Under this definition, your policy will pay if you cannot work in your occupation/specialty, even if you can and do work in another field and make as much money as you want.
Own-occupation policies cover people based on the occupational duties they are performing at the time of claim. If your policy includes an own-occupation definition of total disability and you are exclusively performing the customary duties of your medical specialty or sub-specialty at the time of the claim, the policy will cover you when unable to perform your specialty or sub-specialty. If you have transitioned into a different role or expanded into a new career path that requires much less direct patient contact or procedural duties, you may no longer be considered totally disabled when unable to work in your specialty or sub-specialty. This is because your “occupation(s)” involves additional material and substantial duties, no longer limited to the performance of your medical specialty or sub-specialty. In these instances, you may be considered partially disabled or not disabled at all, depending on the exact circumstances.

Transitional Own-Occupation

Your policy will pay if you cannot work in your occupation/specialty, even if you can and do work in another field. But if you exceed your previous income while you now work in another field, your monthly benefit from the policy would likely be lowered.

Modified Own-Occupation

Your policy will only pay if you can't work in your occupation/specialty AND if you are not working in another field. This definition is also sometimes called “Own-Occupation, Not Engaged” or “Own-Occupation, Not Working.”

Any-Occupation

Your policy will only pay if you cannot work in any occupation based on education, training or experience. Note that some policies are own-occupation for a couple of years and then transition to any-occupation.
One company out there (Northwestern Mutual) sells a policy with a definition that they claim is BETTER than own-occupation. They call it Medical Own-Occupation, but in reality, it is just a form of modified own-occupation. Learn more about the NML Medical Own-Occupation Definition.

Do You Really Need an Own-Occupation, Specialty-Specific Policy?

Some non-procedural physicians argue that they might not need a true own-occupation policy. They reason that if they are so disabled that they cannot practice their specialty, they probably cannot do anything else. So, they accept a less broad definition of disability to save some dollars on the premium. If you choose to do this, make sure you understand the exact circumstances under which your policy will and will not pay out.

Mental Disorders/Substance Abuse

Many policies will only cover mental illness or substance abuse-related disabilities for a period of two years. I know an attorney who couldn't practice law after developing bipolar syndrome in his 30s. It took over a decade to get it under control. He had a policy that covered mental illness indefinitely, which prevented financial catastrophe from striking him and his family.
According to the April 2011 issue of Current Psychiatry Magazine, physicians are not immune to depression and have an increased risk of suicide. Additionally, the lack of distinction between a psychiatric diagnosis and impairment stigmatizes physicians and impedes treatment.
You'll need to decide whether this is a risk you're willing to run. If you want mental illness covered like every other illness, you'll be paying more.

Presumptive Total Disability

As you well know, disability can be defined in many shades of gray. In the event of your disability, you can expect a paperwork fight between you, your physician, the disability insurance company, and maybe even your attorney. However, most policies contain a section that defines “presumptive total disability” where you can be assured there won't be much arguing from the insurance company. Even better, the waiting period will be waived and you'll start getting payments right away.
Anything short of that, and you're going to have to get your doctor to certify your disability and get the insurance company to accept it. At times, this can involve visits to multiple specialists and even hiring an attorney. Note that with some companies, presumptive disability does not need to be permanent.

Cosmetic Surgery/Transplant Surgery

Some policies will cover you if your disability is the result of cosmetic surgery or the result of donating a kidney or other body part to someone else. Others will not. Best to read your policy carefully and know what it does and does not cover.

Disability Insurance Exclusions & Limitations

Disability insurance policies generally exclude any medical conditions you have at the time of applying for insurance. For example, if you already have chronic back pain, the policy will not provide a benefit if you are disabled due to a back condition. In addition, if you admit to participating in dangerous activities such as scuba diving, rock climbing, flying, and sky-diving, the policy will likely be issued with a rider that excludes those activities from coverage. Other exclusions may also apply, such as acts of war, normal pregnancy, and foreign travel. Here is a list of common exclusions:

• War or Act of War (this could probably be interpreted pretty broadly)
• Active Military Duty (having served, this is pretty stupid since 95%+ of our military folks are never in any kind of serious danger of being hurt by a combatant)
• Normal Pregnancy (don't want to work because you're eight months pregnant? Don't bother trying to get disability benefits for that)
• Foreign Travel (varies by policy, but many don't cover you during that European vacation, much less that humanitarian trip to Sudan—read the fine print)
• Mental/Nervous Disorder (many companies limit benefits to two years, where they might pay for “physical” disorders until you're 65 years old)
• Medical Exclusions (any medical conditions you have at the time the policy is issued will likely be excluded, meaning if you have heart disease at the time of issuance and it leads to you being disabled five years later, the policy isn't going to pay. Again, apply when you are young and healthy and/or when you haven't had medical problems for several years to minimize this.)

Residual Disability

Residual disability refers to being only partially disabled. This may occur from the initial injury or illness or be part of the process of recovery. You generally need to buy an additional rider to cover this. Read this rider carefully, it can be a bit complicated.
Imagine developing painful lumbar radiculopathy that keeps you from working more than 20 hours a week. This is the part of your policy that will cover that. This rider will also explain how much you get if you are partially disabled. My old policy says it pays the whole benefit (total disability) if I can't earn at least 20% of my “indexed prior monthly earnings,” which is basically the money I earn at my job. It doesn't count my investments, other disability income policies, rent from a rental property, or my nonvocational activities. It doesn't pay anything if my earnings aren't reduced at least 20%. If I am making between 20%-80% of what I made previously, I get the total disability benefit times the ratio of my loss of income for that month divided by my indexed prior monthly earnings. Note that with some companies, the partial disability rider will kick in at 15%.
Some contracts use “or” in the contract and others use “and” in the contracxt. For instance, a stronger policy would trigger the partial disability rider if you had a loss of income or a loss of time or a loss of duty whereas a weaker contract would require loss of income and loss of time and loss of duty where all of those triggers must be met.

Partial Disability vs. Residual Disability

Partial disability and residual disability are generally considered to be the same thing, but there is a technical difference at some companies. For example, at one company, a partial disability rider requires total disability during the elimination period and the residual disability rider does not. With another company, partial refers to the disability, such as one that only affects one part of the body (such as one arm), while residual refers to a decrease in earnings. Either way, the key is to understand how the residual/partial rider works in the policy you actually purchase.

Recovery Benefits

A physician should consider a contract that will continuing paying them a portion of their benefits upon recovery from a disability if their income continues to be down at least 15%-20%. Most carriers will pay a recovery benefit for the benefit period although one only pays for 12 months. This is especially important for practice owners. Think if a dentist were to be disabled for 6 months and then recovers and goes back to their practice. Many of their patients may have gone elsewhere because the dentist sees his patients twice a year. It could take several years to get back to where he/she was at before becoming disabled.

Recommendations for Physicians on Disability Insurance Riders

Here's an easy cheat card to help you know at a glance what we think about all of the various riders available.
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Who Needs Disability Insurance?

Nearly every high-income professional in their first decade or two out of school should own a policy. Your most valuable asset is your ability to work. So, if you do not own a disability insurance policy, you need to go get one, now. If you have an income, it's time to buy a policy, even if money is tight as a resident. The only exception is if you do not rely on your income to live. If you are already financially independent, it's OK not to buy disability insurance. However, even if you are frugal and married to another high earner, you may wish to still have a policy. You could both become disabled, or you could become divorced.

How Much Physician Disability Insurance Do I Need?

As a resident, you typically cannot afford to buy as much as you need, but you should be able to do so even as a brand-new attending. Basically, you need to buy enough disability insurance to cover both your living expenses and your retirement savings if you were to work to age 65 but not your taxes. Physician disability insurance payouts are generally tax-free since they are usually paid with post-tax dollars.
Note that how much you need has little to do with your income and everything to do with what you spend. The less you spend, the less insurance you need to buy. Insurance agents would love to sell you the largest possible policy (which usually works out to be about 2/3 of your gross income, but it is possible to combine two companies to get even more), so you'll need to decide how much you need on your own. Resident physicians typically buy a $5,000 per month benefit and attending physicians typically buy a benefit in the $10,000-$15,000 per month range, but there are plenty of docs who buy both more and less. If your plan in the event of disability is to rely on the income of your spouse, you may not need disability insurance at all.

Average Cost of Disability Insurance for Physicians

Unlike cheaper insurance policies like term life and umbrella policies, physician disability insurance is expensive, although not quite as expensive as your malpractice insurance. The reason it costs so much is it actually gets used. The likelihood of you acquiring a long-term disability during your working years is approximately seven times as high as your risk of dying in those years. A typical policy bought on a healthy doc in their 20s or 30s will cost something between 2%-6% of the benefit. If your monthly benefit is $10,000, expect to spend $200-$600 per month for that. Perhaps the sticker shock you get upon being quoted prices will motivate you to reach financial independence as soon as possible so you can cancel the policy.

Graded vs. Level Premiums

One way to save money on your policy is to get graded premiums. Not all policies offer this feature, but those that do will charge you less in the first few years and more in later years. Level premium policies charge you the same amount in premium every year. A graded premium policy accounts for the fact that you become more likely to become disabled as you go through life. However, it can be very beneficial to you because your need for insurance actually falls continually throughout your career as your build your retirement nest egg.
Once you become financially independent, you can drop the insurance completely. This is a good idea since the total benefits a policy could potentially pay are also dropping throughout your life (since the policy will generally only pay until you are in your mid- to late-60s). Many white coat investors who are great savers hit financial independence by mid-career. If you are one of those, you are likely to come out ahead using graded premiums instead of level premiums.

What Disability Insurance Discounts Are Available for Doctors?

Like other types of insurance, disability insurance is sold by agents who are paid commissions by the insurance companies to sell their products. It is a very competitive business. The insurance companies want agents, especially the independent agents you should be buying from, to preferentially sell their products. To incentivize the agents, they offer discounts that are only available through certain agents. Experienced, high-volume agents can often provide you with the same policy at a cheaper rate than a newer, lower-volume agent. Thus, it pays to use an experienced agent and shop around with two or three of them. Nearly every doctor should qualify for some type of discount on their policy—10%-30% premium discounts are not unusual. Types of discounts include:

• Unisex discounts
• Student/Resident/Fellow discounts
• Multi-life institution discounts
• Guaranteed Standard Issue (GSI) institution discounts
• Association discounts

Learn more about physician disability insurance discounts.

How Do I Buy Disability Insurance?

The key to physician disability insurance is the independent agent. The agent is going to be paid a great commission by the insurance company no matter which policy you choose. Assuming policies with similar benefits, the commission isn't going to be all that different. Plus, these agents get plenty of business and none of them are starving, so they have little incentive to sell you an inferior policy for a slightly higher commission. Their reputation is worth far more than a few extra dollars in commission. Since you are (indirectly) paying the agent a very nice commission, don't feel bad about using their time and expertise to fully understand this complicated product.
For most doctors, this is a purchase that is only done once or twice in their life. Have the agent quote you different physician disability policies from each of the “Big 5” companies and show you the strengths and weaknesses of each. If you have a policy from work or your professional association, bring it in with you and have it included in the comparison. Then, you can know you made an educated decision and you can buy it and forget about it. Also, be sure to ask for a discount. The vast majority of doctors will qualify for a 5%-30% association or employer-related discount, and a top-notch agent will help you get that.

What Type of Disability Insurance Should I Buy?

There are two main types of disability policies: individual policies and group policies. As a general rule, individual policies have stronger definitions of disability. Many group policies are not own-occupation policies. Individual policies are also portable, in that you can change jobs and take them with you.

Individual Disability Policy

There are a number of benefits of an individual policy. The main one is that you are in control of all the details. You get to choose how much insurance you want to pay for. You get to choose which of the bells and whistles you are going to pay for. The policy is also “portable,” meaning you still have it if you change employers (or if your employer just decides to change the policy). As a general rule, the policy is also “stronger,” meaning it is more likely to actually pay you if you get disabled.

Group Disability Policy

A group policy provided by your employer is usually not portable, although sometimes you are allowed to take over the entire premium and take it with you. Group policies also frequently have premiums that increase every year or every five years, whereas an individual policy usually has level premiums. Group policies paid for by your employer may also pay a taxable benefit, rather than the tax-free benefit provided by an individual policy. Aside from the lower cost, the main benefit of a group policy is that it may be easier to qualify for. It may not require any sort of medical exam or blood work, and it may not ask any pesky questions about your medical conditions and dangerous hobbies such as rock climbing, skydiving, scuba diving, or flying.

How to Compare Disability Insurance Policies

The most important feature is the definition of disability. You want a policy with a strong, broad definition of disability that will cover any possible type of disability. That usually means “own-occupation, specialty-specific” and no limitations on things such as psychiatric conditions or addictions. This is the main difference between the “Big 5” companies and others.
Since disability is complicated, disability insurance policies are complicated. There are dozens of differences from one policy to another, making them difficult to compare. Use your independent agent for recommendations on what matters most. Just for an example, take a look at this chart of all the differences you could see between one policy and another.

When to Buy Disability Insurance?

You should buy disability insurance just before you become disabled. Since you don't know when that time could be, earlier is generally better. However, disability insurance is also expensive, and when you are young and poor, you have lots of other great uses for your money. A good compromise is to buy a small policy as you enter residency and then upgrade to a more robust disability insurance plan just before leaving residency. The younger you are, the healthier you are, and the fewer dangerous hobbies you engage in, the cheaper your premiums will be for the same benefit.

Best Disability Insurance for Physicians

I keep a list of those I consider the best disability insurance agents in the country. Save yourself the work of finding a good one you can trust and use the same agents that have been used by thousands of WCI readers in the past. You do not need someone local that you can sit down across the table from. It is better to have someone who has sold policies to hundreds of docs this year working with you by phone, Skype, Zoom, and email than someone you can sit down with who has only sold four policies. In addition, if there is some issue with one of these agents, I can usually help you resolve it quickly.
Information in this space rapidly changes. While we try to keep The White Coat Investor website as up-to-date as possible, our recommended agents are going to be our best source for updated information. I cannot emphasize how strongly I suggest you use them, whether buying your first policy or simply reviewing what you already have.