One of the Top 2 most common financial topics we get questions on from physicians in training is... drumroll please... disability insurance.

Do I need it?

If so, how much?

What should I be looking for?

How do I get it without getting ripped off by some insurance agent... or being sold something I don't need?

What in the world does "own occupation" mean?

How do I know if the policy I bought has me covered?

Now let's address the elephant in the room: for early-career doctors, talking insurance is probably about as enjoyable as sitting through an anatomy lecture... which my wife always said was the most loathed class in med school. But in my wife's case, as painful as a droning anatomy lecture was, she also knew that she needed to know it.

In the same way, figuring your way through getting insured is probably lower on the list of things you'd enjoy spending your limited spare time on. But as a physician who is working hard in these training years and will be rewarded with a higher than average income which your future lifestyle will depend on, you also recognize you really need to know about it.

Why?

Because like most doctors, you’ve probably heard the horror stories...

Like the client of ours whose co-resident had to leave residency after being hit by a car while biking.  Or like one of our pediatric radiologist clients, who was diagnosed with an Artery Dissection in her 30s and was unsure whether she’d be able to continue practicing medicine. Or like that client of ours, a plastics/hand surgery resident, who injured the ligaments that connect his thumbs to his hand in a car accident.

These 3 examples—and others like them that you've surely heard firsthand—illustrate why disability insurance exists: to protect the above-average income you earn as a physician – and the lifestyle you can or will be able to afford with that income.

But if you don't deal with insurance policies every day like we do, they can be confusing. You want to make sure that whatever policy you buy has you covered in the (hopefully unlikely) event that something happened, but the fine print feels like a foreign language. So how do you know what to look for to make sure you're covered?

We've got your back.

6 Things to Look For in Your Disability Insurance Policy

No. 1 - The coverage amount

Tthe first question we hear about disability insurance usually relates to the coverage amount. "Do I have enough?" Too little coverage—being underinsured—and you’re left exposed if you can’t work. Too much coverage—being overinsured—and you’re paying for extra coverage you really don’t need.

How much disability insurance you need is part and parcel of your larger financial plan. It is difficult to figure out precisely how much you need without considering things like:

Do you have any money saved already?

Any investment accounts?

How much spousal or other income you have?

What does your spending/lifestyle look like?

But the simple rule of thumb is: you should have enough disability insurance to cover your after-tax income, the take-home pay that hits your checking account each month. Now, you may be partly covered by your employer-provided disability policy already, in which case you'd want to get a personally-owned disability policy to cover the gap.

No. 2 - The definition of "disability"

This is a big one to pay attention to. The definition of "disability" is how the insurance company determines if you're actually considered "disabled" if you file a claim.

Of course, the insurance company wants this to be defined as narrowly as possible, while you want it to be defined expansively.

So how do you know if disability is defined favorably? For starters, look at your policy, and if the definition of disability is more than a few sentences, that is often a tip-off that this policy isn’t air-tight. Generally speaking, the longer the definition is, the more "outs" the insurance company is including in there.

And here’s the key: you want the policy that pays you if your disability prevents you from working AS A DOCTOR—something they call “Own Occupation,” “True Own Occupation” or sometimes “Your Occupation” in the policy documents. If you see these terms in the policy document, it means that if you become disabled and are unable to perform the duties of your specific medical specialty, you will be considered disabled, even if you are still able to work in another capacity or occupation. So be sure to look for those terms.

No. 3 - "Non-cancellable" 

You want to ensure the policy is what they call "non-cancellable.” This simply means your insurance company won't cancel the policy or raise your premiums, as long as you pay your premiums.

By contrast, a "cancellable" policy may cost you less initially, but exposes you to the risk of the insurance company canceling the policy or making changes that could result in reduced benefits or higher premiums in the future. This can be especially problematic for physicians who develop a medical condition or disability that would make it difficult (or impossible) for them to obtain a new policy or switch to another insurer.

No. 4 - Cost of living adjustment

You want to see a cost-of-living adjustment, or “COLA” for short, in your policy, which protects your disability benefit from the rising cost of living over time. IWithout a COLA, the benefits you'd receive from your disability policy may not keep up with inflation, which could make it difficult for you to maintain your standard of living and cover your ongoing expenses in the event of disability.

No. 5 - The elimination period

This is the period of time you have to wait before the policy starts to pay you when disabled. Typically, the elimination period is anywhere between 30 days and 2 years.

Long or short elimination periods aren’t bad unto themselves, but you want to know what your elimination period is. If its a two year elimination period, could you afford to not have an income for two years while you waited for your disability payments to kick in?

No. 6 - The benefit period

The "benefit period" is the length of time that the insurance company will pay you benefits in the event you become disabled.

It ranges anywhere from 2 years to defined ages, like "Age 67." Similar to the elimination period, you just want to be sure you understand how long your policy will pay you if disabled. A shorter benefit period may result in lower premiums, but may not provide sufficient coverage if you become disabled for an extended period of time. By contrast, a longer benefit period provides more comprehensive coverage but may result in higher premiums. You'll have to weigh the tradeoffs.

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While it may not be the most exciting task on your to-do list, taking the time to carefully read the fine print and understand the details of your disability policy is essential to ensuring you have the coverage you need. Remember, not all disability insurance policies are created equal, and the devil is truly in the details. So, when it comes to your disability insurance policy, don't skim over the fine print. Make sure you understand what you're buying so you can sleep well knowing you're covered.

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Important Note: This blog post is intended to provide general information and should not be considered as professional advice nor investment advice. Please consult with a qualified financial or insurance professional for personalized guidance based on your specific circumstances.