Perfunctory Intro

We needed an introductory paragraph here to introduce or explain the purpose of the questions below. But, there is not much to say. If you are reading this page, you probably have questions about disability insurance. And we can only assume you understand the purpose of a “FAQ”. Although, in this case perhaps our disability “frequently asked questions” are not so much about questions actually asked, but rather questions you should be asking. You’re welcome.

We feel most physicians should have personal disability insurance, and questions about disability tend to dominate our email inboxes and post-lecture discussions. So we decided to create this page. We think it’s literally the most comprehensive, unbiased resource about disability on the internet. If you disagree, please let us know. Speaking of bias, we don’t have any financial incentive to recommend the purchase of disability insurance. We don’t get referral fees, we don’t sell advertising, and no one on the staff of Doctored Money has any friends or relatives who have anything to do with profiting off disability insurance.

Click on any of the questions below to jump to the answer. Hit your “back” button to come back to the top. Or simply scroll through and read all the questions and answers.

What is Disability Insurance?

Disability insurance (DI) provides monthly payments if you can no longer work due to a medical condition or illness. Keep in mind that a condition which does not affect your ability to work would not be considered a disability. There are countless number of people who would be considered “disabled” by common definition, but who work in a wide variety of professions.

Do I need DI?

Ultimately, that’s a question you have to answer for yourself. If disabled, disability insurance allows you to replace some portion of the income which you had assumed you would earn had you stayed healthy. Disability insurance protects your “investment” which was the time and money you spent to develop a valuable skill, and which you had hoped or assumed would provide income to your family over your working lifetime.

If you have reached the point where you no longer need ongoing income to meet your financial goals, then you do not need disability insurance. But if you rely on your job to provide for your current and future financial needs, disability insurance is prudent. Many would consider it necessary.

What kind of disability is necessary to receive DI benefits?

Why is the definition of “occupation” important?

Your disability must interfere with your ability to remain employed in a job or "occupation". Some disability insurance won’t pay if your disability allows you to work in any job. For example, you may lose your sight, but there are certainly many blind people who are employed and thus would not receive benefits from an “any occupation” definition. Thus, many DI policies for physicians define occupation in a way which is more meaningful than simply “any” occupation.

Different companies use different terms, but the strongest policies consider you disabled if you cannot work specifically in the job you are currently doing. This is usually referred to as a “true own occupation” or simply “own occupation” policy. If you are a neurosurgeon with OR duties, for example, under this definition you may be considered disabled if you cannot continue to perform surgery, even if you otherwise could do inpatient neurosurgical consults, office visits, consulting, legal reviews, etc. Your current duties involve being in the OR, and if you can no longer do this, you are disabled regardless of any other job you may still be able to do.

Note that with an own occupation definition, a physician could choose to earn income from another job (e.g. consulting) and still receive disability benefits. But there is another common definition called “modified own occupation” which won’t allow you to choose to work in another field and continue to receive benefits.

What determines the cost of a policy?

The base cost is typically determined by a set of factors, such as age, sex, tobacco use, state of residence, and specialty and/or occupation. The younger you are when you first purchase a policy, the cheaper the policy. Each company can also price a policy differently based on sex.

Your current job or specialty also affects the price. For example, a construction worker is more likely to become disabled due to the nature of the work, compared to an office worker, and thus would have to pay more for a similar policy. On the other hand, a surgeon may have a low risk of becoming disabled as a result of the occupation, but have a high risk of being unable to perform the job duties if disabled for any reason, due to the physical requirement of the job.

Obviously, the amount of coverage you purchase will also affect the price. In certain cases, a pre-existing condition may increase your cost. More commonly, existing conditions do not affect the cost, but rather result in an exclusion on the policy. [See the question on pre-existing conditions.] Keep in mind that there are dozens of other factors which affect the cost. It’s difficult to give other than very general ranges on cost. But typical policies range from 2-5% of the amount you elect to receive when disabled. E.g. an annual benefit of $100,000 might cost you $2000 to $5000 annually. But this is highly dependent on the factors described above, and also on the options (aka “riders”) you elect with your policy.

What’s an “occupation class”?

An occupation class is a measure of risk assigned by an insurer to your job or specialty. Each insurer determines your occupation class individually. Typically, a code is assigned to your occupation. A typical code assigns a number from 1 to 6 to represent the risk (higher numbers are lower risk). In addition, there is frequently a letter which modifies this code. For example, a neurologist may get assigned a 5 by one company, but a 6 by another company. Note that these codes are only really comparable within a given company. For example, it’s possible that an occupation class of 4 at one insurer is cheaper than a 5 at another insurer. The occupation class is not something you really need to concern yourself with, but it's listed on quotes and contracts and thus generates questions. Keep in mind that your assigned occupation class is not directly related to any definitions of "occupation" used for determining disability eligibility.

Can I get DI if I have a pre-existing condition?

It depends. If an insurer determines you have a significant medical condition or risk which is very likely to result in a disability, they may simply refuse to insure you. More commonly, a risk or pre-existing condition may result in an exclusion on your policy. For example, someone with some mild hearing loss may only be offered a policy which excludes coverage for any disability related to hearing or deafness. Someone taking an SSRI may only be offered a policy which has an exclusion for mental health related conditions. Less often, the overall price of the policy may be increased to account for the increased risk due to an existing condition.

Each insurer determines how to handle a given risk factor or existing condition. One may refuse to insure you, one may offer an exclusion, while yet another may simply not consider your risk relevant and offer you the same policy at the same cost offered to others without that risk factor. Those with existing conditions or risk factors should consider getting finalized quotes (e.g. quotes which take into account your health information) from multiple sources due to these potential variations.

What’s the difference between short-term and long-term disability insurance?

In general, when talking about DI, we are referring to long-term disability insurance. Long-term disability provides coverage upon disability. Payments start after a delay called an “elimination period” (typically between 3-12 months) and continue for a “long-term” which is usually to age 65 or 67 (although other durations can be selected). In contrast, short-term disability policies range from 3-6 months (but can go longer, with 2 years being a very “long” short-term disability duration.

How long do payments last if I’m disabled?

You can choose to purchase DI which, once disabled, will pay for a given number or years, or up to a certain age. E.g. a 10 year payment term, until age 65, or something else. Other common options are to select a term “to age 67”, or for a set 5-year payment period after disability. In general the longer the potential duration of payments, the higher the cost. For our audience of early-career physicians, we recommend a policy which lasts at least until age 65.

How long can I keep my policy?

This depends on the specific policy. First off, you have to continue to pay your premiums in order to remain covered. Some policies do not allow for renewal past a certain age (e.g. 65, 75, etc), or after you retire. You can cancel your policy at any time, and are not obligated to continue making payments (and of course will no longer be covered by that policy). As with life insurance, you may likely find yourself in a situation later in life where you are “self-insured” and no longer need the insurance, due to sufficient accumulation of personal assets. That is, you can “afford” to become disabled and not need to rely on disability insurance. At that point, simply drop your coverage and use that cash for something else.

Are the payments I receive taxable?

It depends. Any policy which is paid for with pre-tax dollars, will have payments which are considered taxable. For example, employer provided policies, or policies you purchase which allow you to deduct the premiums from your taxes, will all result in taxable benefits. In contrast, your disability payments are tax-free if you (or someone on your behalf) purchases a policy where the premiums were made with after-tax dollars. If you are choosing your own policy, you should always pay with after-tax dollars, as opposed to paying through your business (if you have one) and deducting the cost as an expense.

Aren’t I covered by Social Security Disability Insurance (SSDI or SSI)?

Yes, most workers are eligible for SS based disability insurance programs. However there are two significant limitations: 1) the maximum monthly benefit is likely far less than your current income and 2) one must typically be significantly disabled to qualify. There are several types of, or degrees of, disability which would prevent one from working as a physician yet not be considered a disability for SS programs. Regardless, the income provided by SS disability would likely only be a small fraction of your needs and thus is insufficient for most physicians. One small benefit of SSDI over other forms of disability insurance is that with SSDI there are cases where spouses and related children can also receive payments.

I have disability insurance through my current employer. Do I need to do anything more?

Many employers will provide some amount of DI for employees, as part of a group policy which covers all employees. There is a very wide range in quality and coverage of these policies, which you cannot control because every employee must be offered the same policy. So you may want to consider your own independent policy to get the coverage which is appropriate for you. Some employer plans are quite good. But see the next question.

What are some of the limitations of employer-provided DI?

If I want a personal DI policy so as to not have to rely solely on my employer’s coverage, can I have both?

Employer provided DI can have substantial limitations as outlined below. But you may indeed be able to purchase some amount of private, non-employer DI even if you are covered by an employer plan. Many private DI policies will indeed let you purchase (some) DI in addition to your group/employer DI, and you should investigate this possibility. Here are some potential problems with employer/group DI which should cause you to investigate a private policy in addition to your employer provided policy:

• The benefits paid to you from an employer-paid policy count as taxable income. After accounting for taxes, this may not be adequate income to you depending on your tax situation throughout your disability. But also keep in mind that your future tax rate may lower if disability payments become your only source of income.

• The definition of “disabled” or “occupation” may be strictly defined such that you may be unable to perform your current job or specialty, but yet not be considered sufficiently disabled to receive payment. For example, an “own occupation” definition might be used for the first two years of your payments, but then switch to an “any occupation”, where all of a sudden you are no longer considered disabled.

• Payments may be reduced by other sources of disability income. For example, your payments under a group plan may be reduced dollar for dollar if you also qualify for SSDI or any other government or private insurance disability payments.

• The definition of your occupation may be such that you cannot perform your typical job duties but not be considered disabled because you can still be employed in another job, physician or otherwise.

• If you leave your job and are not already disabled, you are no longer covered by that insurance plan. You may develop an illness or condition during your job, but not yet be considered disabled. This may prevent you from purchasing your own policy in the future, when you most need it (e.g. you have a condition which predisposes you to a disability). Future jobs may not provide any disability insurance or may provide insufficient DI. But with a private plan, once it is in place, it’s yours no matter what, assuming you continue to pay the premiums. But, see the exceptions on this with respect to individual policies you may purchase through a group or association (e.g. the AMA).

• Employer policies usually do not consider any bonuses or extra pay which you may typically or consistently receive as income. So you may be underinsured if your base salary does not reflect your total income.

I have the option of purchasing additional disability insurance through my employer. Is that a good idea?

Usually not. If you are otherwise healthy without pre-existing medical conditions, you can usually obtain better coverage on your own. “Better” means cheaper or higher-quality coverage. A key limitation of any additional employer-provided insurance you might purchase is that it might not be “guaranteed renewable” and “non-cancellable”. See below for why this is important. In addition, you may not be able to keep this extra insurance if you leave your current employer. On the other hand, if you have an existing health condition, you may not be able to purchase individual insurance in the first place. Often (but not always), there are windows where you can purchase additional coverage through your current employer, even if you have an existing condition. In this case, purchasing additional group coverage through your employer may be your best or only option if you need coverage in excess of the base amount provided by your job.

What happens if I’m fully insured through a private/personal disability insurance policy, and then get a job which provides additional insurance?

Once you have a private policy, any future insurance you qualify for does not change the terms of the existing policy. For example, if you have a private policy in place, and then take a job which provides additional insurance, you may actually be “double” covered. However, if you have employer provide insurance in place, that insurance will likely limit the amount of private insurance you can get.

In general, the total amount of individual (i.e. non-employer provided) after-tax individual disability insurance you can buy on your own is capped at some percentage of your income, typically around ⅔ of your salary. Insurers don’t want to make it such that you get paid more to NOT work! So they will take into account any existing insurance you currently have (or may soon have) via other policies, including employer-provided insurance. In most cases you cannot waive your employer DI policy, and thus this has the effect of limiting the amount of private insurance you can buy. But because employer-paid DI is taxable to you, in most cases you can still buy some additional coverage via a personal/private policy. This is because private policies consider your group coverage as paying you less that 2/3rds of your salary, after taxes are considered.

When is the best time to purchase an individual policy, assuming that individual policies available to me are better than most employer-provided insurance?

First off, it’s always better to have a disability policy in place prior to becoming disabled! But note that it’s quite possible to have a medical condition which predisposes one to disability, but without yet being disabled. In such a case, you may not be eligible to purchase ANY individual disability insurance (or life insurance for that matter) or you may only be able to get a disability policy which excludes disability as a result of your pre-existing condition or risk factor. Thus, purchasing a policy sooner rather than later is preferable.

Buying a policy during residency or fellowship training, and prior to getting your first “real” job, is an ideal time to buy a policy. In this case, you can likely purchase between $50,000 to $70,000 per year in coverage, regardless of what your training program might also provide you. You can then likely purchase additional coverage during any gap between training and a post-training job, i.e. when you have no other coverage which may limit your ability to purchase additional private insurance. Alternately, you can take advantage of a “future increase” rider which allows you to purchase some additional coverage if your income goes up, regardless of health status or other coverage you may have.

Note, a “rider” is just insurance-speak for an “option” you can add to a policy, if you wish. It’s an additional clause which “rides” with or on top of the main policy. The goal of purchasing a policy during training is to have at least some coverage which meets your needs, and not have to rely entirely on any future employer-provided DI, which may or may not actually cover you adequately. Note that you can qualify for DI based on a future job’s salary, if you’ve signed a contract but have not yet started your job.

Who sells DI?

In general, you cannot buy DI directly from an insurance company, and must go through an agent or salesperson. There are “independent” agents, who don’t have a direct affiliation with any particular insurance company, who can sell you coverage from a large number of companies. But there are also agents who are directly affiliated with a particular firm (e.g. Northwestern Mutual or Guardian) who can only sell you policies from their affiliated company (or are otherwise heavily incentivised to do so). But in addition to purchasing DI from an individual agent, you can purchase insurance through an association (e.g. the American Medical Association, the American College of Obstetricians and Gynecologists, etc) or other such group.

What are some of the advantages and disadvantages of purchasing a group disability insurance through an association?

In general, group or association policies are cheaper than individual policies, for a given amount of coverage. This is typically because association/group policies are not “guaranteed renewable” and are not “non-cancellable”. However, the cost of an association policy is not fixed, and it can increase as you get older, and can get quite expensive later in life. In contrast, a strong individual DI policy should be guaranteed renewable and non-cancellable with fixed rates and terms as determined at the outset. These features can add to the cost. See the next question for more details.

What does it mean for a policy to be “guaranteed renewable” and “non-cancellable”?

“Non-cancellable” refers to the fact that you have a contract with the insurance company which specifies the cost of all future premiums for a given amount of coverage. The insurance company cannot “cancel” the contract, and they also can't replace it with something else. And because the contract also includes the price of the premiums, they can’t raise the premiums in the future.

“Guaranteed renewable” means that as long as you pay your premiums on time, you can keep your coverage and the insurance company (if solvent!) has to continue to insure you under the original terms of the policy. However, they CAN increase the premiums, if they also increase it for everyone else in your group. Therefore, any policy which is both non-cancellable and guaranteed renewable ensures (and INsures…both words kinda work here!) you will pay the agreed upon price for the same policy throughout the time you have the insurance.

Almost all individual (i.e. non-group or non-association) DI is either non-cancellable and guaranteed renewable as part of the base policy, or these features can be added to the policy. In contrast, group or association policies rarely have these features, and thus are allowed to raise their rates in the future (as long as they raise the rates on everyone), or they may one day simply decline to offer any insurance to you or anyone else any more, or change the terms of the policy in the future. These limitations contribute to making group/association policies much cheaper than than individual policies.

When might it make sense to purchase a policy which is NOT “guaranteed renewable” and “non-cancellable”?

There are a few situations where this might make sense. One case may be if you simply can’t afford a policy which has these features, and you might decide that some coverage is better than none, and take your chances that future rates won’t be raised to the point you can’t afford them. Alternately, if you are older (perhaps in your 40s) or think you may only need disability insurance for a short time (perhaps due to an expected early retirement). In those cases, the risk of a policy being canceled or rates raising substantially may be small enough that you are willing to take that risk. In the meantime you’ll be covered, and you will likely have a policy which is much cheaper than an individual insurance policy. But in general, during training or soon after, most people would consider a guaranteed renewable and non-cancellable policy to be worth the extra cost.

Do my premiums change over time?

Many policies have fixed, level premiums. That is, the agreed-upon premium is determined in advance, and the same premium is charged throughout the policy term. Some companies (such as Guardian) offer you the option of either level premiums, or escalating premiums which start low but which increase each year. In the case of escalating premiums, the initial premiums are lower than the fixed situation, but over time they increase such that later payments are higher than the fixed option. Escalating premiums will result in greater overall payments in the long run, but may allow you to afford a policy now, when you otherwise may not be able to afford the premiums. In most cases, you can convert to level premiums in the future (but at a price would would be higher than had you elective level premiums at the outset).

I see that many policies allow me to add “riders”. What does that mean?

In insurance-speak, a rider refers to an “add-on” feature or optional condition to the basic policy. You can think of it simply as on option you can choose to include, if you wish. Most riders have an additional expense because it increases your potential future benefit. For example, a “cost of living increase” (COLA) rider will increase your benefit, after you are disabled, by some amount in order to account for inflation. If you wish to have the COLA rider, an additional fee will be added to your policy premiums. Some riders may reduce your cost, however, if the rider is a reduction or limitation to the base policy.

One example of a rider which decreases your costs is limitation for disabilities due to a mental/nervous condition or due to substance abuse. If you choose this option, you policy may be cheaper than otherwise. Note that some firms have base policies to which you may add various riders, while other firms may have those same options/riders built into the base policy. So make sure you are comparing “like-to-like” when evaluating policies. It’s important to remember that most riders can be dropped at a later time This allows you to stop paying for a given rider when you no longer need it, or perhaps can’t afford it. Some riders, however, cannot be removed. In general, riders which make it less likely that an insurer will need to pay a claim can be dropped at any time.

What types of riders might I be offered?

• Future increase (or future purchase) option: This allows you to increase your benefit at a later date, along with an increase in premiums at that time. You are essentially paying for the right to buy more insurance in the future, should you need more coverage. For example, when your future salary increases, and you want to scale your coverage with your income. In general, these future increase options which are allowed by this rider do not require additional medical “underwriting”. This lets you increase your coverage regardless of what health issues you may have developed since first buying the policy.

  This rider has a cap on the total extra coverage you can purchase, and also will require you to submit proof of income to justify the desired increase. Note that if you ever wanted to increase your coverage on an existing policy which does not include a future increase option you would otherwise have to purchase a new policy (and go through approval/underwriting again). In general, we recommend adding this "future increase" option for anyone relatively early in their career.

• Automatic benefit increase: Some policies have this feature as part of the base policy or available as a rider. This feature allows you to purchase a small increase in benefit each year, for a certain number of years, without having to justify/prove your income and without medical underwriting. For example, each year for 5 years you can choose to increase your monthly benefit by $1000 for an extra $300 per year in premiums. This allows you to easily buy slightly more insurance in the earlier years of the policy. In general, the amounts of increase under this rider are smallish, with the max increase overtime being less than what you could otherwise purchase if you had the future increase rider described above.

• Cost of living adjustment/increase (COLA): Once disabled, your monthly benefit from most disability insurance policies is fixed. For example, if you are 30 years old and begin receiving a disability insurance amount of $6000 per month, that same amount will be paid until the end of the policy (e.g. age 65). Obviously, a $6000 benefit 35 years from now will not be worth as much as it is today. The COLA rider allows you to "pre-purchase" inflation adjustments. For example, a common COLA rider might stipulate that the company will increase your benefit by a fixed 3% each year. Some COLA riders may increase your benefit annually within a range, for example 0-3% or 0-6% in any given year, depending on a common economic metric of inflation (e.g. one of the “CPI” values calculated by the government).

  In general, each company has a specific version of a COLA rider they offer. It’s important to remember that COLAs, if applicable, do not begin until AFTER you are disabled. That means your base benefit will be eroded by inflation if there is a long period of time between the purchase of the policy and your disability. The benefit you purchase at age 30 may not be sufficient at age 50. That’s a situation where the future increase rider can be useful. In general, we recommend that most people should purchase a COLA rider if young or early in their career. The problem is that COLA riders can be expensive, and add significantly to the cost of the policy. But remember that riders can be dropped from a policy at any time. Thus, you can purchase a COLA rider initially and stop paying for it if you feel you no longer need it. For example, as you get older, COLAs become less valuable, because there are fewer total number of years you can receive benefits, and thus less time for inflation to take effect.

• Catastrophic benefit: This rider gives you an additional disability benefit, in addition to the base policy amount, if your disability meets certain conditions. Typically, this would mean a disability that prevents you from performing a predefined set of activities of daily living (ADLs). For example, suppose you are a surgeon and you lose your sight. With most “own occupation” policies you would be considered disabled and receive the base benefit. But if instead you had a disability which prevented you from feeding yourself, toileting, dressing, etc, then you would receive the base benefit in addition to the catastrophic benefit, had you had selected this rider. A common catastrophic benefit amount is one which equals the base benefit. That is, you could receive double the amount of disability insurance if this rider is selected and you meet the catastrophic criteria. We do not have a particular recommendation about this benefit. But this type of benefit can be useful to help you or your caregivers pay for the extra care you may need for help with ADLs, which you may otherwise not need if your disability were due to a less severe disability.

• Mental health: These riders come in two forms 1) those which add coverage for disability from mental health and substance abuse disorders and 2) those which limit or remove coverage which result from these disorders. Some base policies do not include coverage for mental health, and this rider will essentially add-back coverage to a base policy which excludes it. In this case, the rider increases your cost. More common however, is a mental health rider which limits coverage for mental health- and substance abuse-related conditions. Such a rider would decrease the overall cost of your policy.

  In general, we suggest purchasing a policy which DOES provide coverage for mental health and substance abuse related conditions. Especially for younger physicians who may still be at risk for their first psychotic break or onset of a major depressive disorder. Also, substance use unfortunately is a common cause of physician disability. However, such coverage can be expensive, and may physicians elect to allow restrictions on this coverage for cost reasons. But note that certain specialties (e.g. anesthesiologists, ED docs) may be forced to have a mental health limitation as part of the policy, depending on the policy and state of issue.

• Partial disability: This rider provides coverage for a disability which still allows you to work, but still reduces your income due to restrictions or limitations on how much or what kind of work you can still do. Imagine a disability where you can only work part time due to pain, or because of frequent physical therapy sessions perhaps. Or imagine there is a set of lucrative procedures you can no longer do as a result of a loss of dexterity, but you otherwise continue to work with less overall compensation. A partial disability rider will pay benefits for this “partial” disability, in proportion to the amount of income you’ve lost.

  For example, if you lose half your income due to disability your benefit will be half of your total disability benefit. Typically there is some threshold your income must drop for this rider to kick in such as a loss of 15-20% of your income. This threshold prevents you from claiming 10% of your benefit if your income drops 10% due a medical condition, but allows you to receive 30% of your benefit if your income drops 30% (for example). There are also situations where this rider will pay you even if your disability is OVER, but you return to work and make less than you did in the past.

  In general, we feel this is a very important rider to have, as there are many disabilities in which you can still work but in a lower paying arrangement. However, this rider very much depends on the details of your career and also your overall financial situation. If may be that if your income drops 50%, you can simply choose to live on that lower income. For some, this may not be financially possible.

• Retirement contributions: With this rider, a company will pay you an additional amount so that you can continue to make retirement contributions during a period of disability or partial disability. In general, we do not feel this is a necessary option. As always, individual situations and conditions need to be considered.

What is the “elimination period”?

An elimination period is the time between the onset of your disability and the beginning of your payments, typically 3 to 12 months. With group or association policies, this period is fixed and built into the policy. But with individual or private policies, one can choose the elimination period. Shorter elimination periods make the policy more expensive. One can think about the elimination period as analogous to the deductible in a health insurance policy, as it’s essentially the amount of coverage you must self-insure prior to receiving benefits.

If you choose a six month period, you will have to wait 6 months after disability to receive any benefit. If your disability is life-long, a 6 month elimination period represents 3 less months of payments compared to a 3 month elimination period. If you are never disabled, there can be significant savings from choosing a longer elimination period. If one does become disabled however, then your worst-case scenario is limited. That is, you could have had a few extra months of payments with a shorter elimination period, but you would hopefully have sufficient savings, e.g. an emergency fund, to cover your expenses in the short term, until your DI policy kicks in.

In addition, many employers provide short-term disability insurance which may cover you during this gap. Keep in mind however that not all disabilities are life-long. You may have a disability which lasts 9 months (consider an inability to work due to surgery and the effects of chemotherapy but then you are otherwise able to return to work) but still only receive a total of 3 months of payments due to the 6-month elimination period.

In general, we suggest a six month elimination period. But ensure that you have a mechanism to cover at least 6 months of living expenses in some way. It’s subjective, but we feel a 3-month period costs too much in order to receive a few extra months of payments, while 12 months is a long time for most people to go without income. As always, everyone’s financial situation is different.

I keep getting emails, letters, solicitations, calls, etc. from agents who claim that it is much cheaper to purchase disability insurance during medical training, or that special discounts are available now that won’t be available later. Is this true?

Kinda sorta, but not really. First off, keep in mind that a policy will be cheaper the younger you are, regardless of “when” it’s purchased. So, sure, purchasing a policy sooner than later will cost you less in annual premiums. However, your total cost will be more, because you will be paying for extra years of coverage. So you should not consider this a type of “discount”. In addition, you should strongly consider getting an individual DI policy during training anyway, regardless of discounts, so that you have some minimum coverage in place sooner than later. So the fact that there may be potential discounts should be irrelevant to your decision of when to purchase DI.

But what might be considered a discount on a policy if purchased during training? Here are some possibilities:

• Many policies will allow a trainee to purchase a fixed maximum benefit which does not depend on your salary, e.g. a $60,000 benefit although your salary may only be $55,000. Remember, in general, regular DI coverage can only be purchased for about 2/3 of your salary. The fact that you can purchase full salary replacement may be considered a “discount” or a perhaps feature that is not available after training.

• Some agents may have the ability to sell you a policy from a particular company at a discount (typically 10%) if they sell a large number of policies from a given company to a particular school or institution. For example, suppose an agent sells 5 policies in a given timeframe from the same insurer to employees of Doctored Money Community Medical Center. The company may then allow that agent to sell additional policies at DM-CMC at a discount (but while allowing the agent to receive the pre-discount commission). That discount may be only available on that particular policy from that particular agent while you are still at that institution.

  Many agents will promote this as a discount you can only get “in training”, because after training you may be at another institution where no agent has such a discount. However 1) such a discount may indeed be available elsewhere and 2) that policy may still not be competitive with other policies even after the discount. Is a 10% discount on a policy which is 20% more expensive than comparable policies still a discount?

• Some companies have a standing discount with certain universities regardless of agent (so you might receive 10% off, for example, if you purchase before moving on to another institution).

What if I become disabled while traveling outside the country?

Or what if I’m receiving benefits and choose to live in another country later in life?

In general, the country you happen to be in when you become disabled is not important. But note that you may not qualify for benefits until you return to the US, and until you are seen by US physicians and the insurer can access your records and/or examine you with their own physicians. Keep in mind that benefits can be retroactive if it is determined you became disabled prior to being declared disabled (e.g. it can take time for you to be officially declared disabled by the insurer). For example, suppose you fracture your spine while driving in Italy, and it takes you 2 years to get back to the US and become officially declared disabled by your insurer. You benefits will likely be retroactive to the date you aquired the disability.

Once receiving benefits there may be restrictions on your travel. For example, one common restriction is that you cannot spend more than 3 months per year in another country. Alternately, you may be required to be under the “active care” of a US physician which requires you to return to the US periodically. Read your policy carefully before purchasing so that you understand how your benefits may be affected by moving to another country.

What are the initial steps in researching or selecting a DI policy?

There are essentially three ways to purchase DI: 1) from an agent or salesperson 2) through your employer 3) through an association or trade group.

If you are currently employed, a necessary first step is simply to find out what coverage you may already have, and whether you have the option to obtain more through the employer. You should make sure you know the strengths and weakness of your current policy, so obtain the actual contract from HR and read it through. You’ll need to know details of your existing employer coverage before you can apply for any other insurance, because existing insurance usually limits your additional private insurance coverage amounts. However, policies purchased by residents or fellows are not usually affected by existing employer coverage.

Next, investigate which trade or association policies are available to you. The American Medical Association sells policies, as we’re sure you know due to the constant barrage of solicitations you likely receive!

Finally be sure you contact an independent agent. An independent agent is someone who is authorized to sell policies from a wide range of insurers, as is not directly employed or affiliated with a particular insurer. You want someone who is not restricted in the types of policies they can sell, or are not heavily incentivized to sell from a particular firm. But be sure to read the question on commissions! Even independent agents can also be biased towards certain policies.

You should request quotes from your employer’s DI firm (if applicable and if the policy is otherwise acceptable), a trade group such as the AMA, and also ask your agent for multiple quotes. Now you can begin the pro/cons analysis portion of each policy, taking cost into account. Remember that you’ll eventually have to provide health information, physicians notes, and submit to blood testing. This may affect which policies are available to you, or may result in exclusions placed on a policy, or perhaps invalidate a previous quote.

What kind of medical information will be requested?

Short answer: everything. An application will ask you about personal risk factors (existing conditions, substance use, etc) as well as family history. In addition, you’ll be asked to provide the names, dates, and contact info for every physician you have seen in the past 5 or so years. This includes routine office visits, ED visits, hospitalizations, etc. Each insurer will contact your health providers and request your medical records. You will also be asked to provide urine and blood (which will be screened for infectious diseases, lipid status, drug use, etc) as well as have your height/weight/BP recorded. Based on your records, they may ask for follow-up information.

Should I get a physical or check-up before I apply for DI?

You should of course seek medical attention for any potential condition which would require immediate treatment. However, consider postponing any elective or routine visits, which may turn up a new issue and lead to an exclusion or rejection. Consider a case where an annual visit finds a suspicious lump, or there is an elevated BP, abnormal lipid panel, etc. Even if these things turn out to be anomalous or benign, they can affect your DI. So consider temporarily delaying certain medical visits for which you don’t have an existing chief complaint if you are eminently considering purchasing disability insurance (or life insurance for that matter).

What if I I’m in private practice and/or own a share of a practice?

If you own your own practice and become disabled, you may have overhead costs which you cannot easily get out of (leases, employee salaries, and other contracts) even though you can no longer generate income (whether temporarily or permanently). So consider whether you need a policy of some kind which will cover business overhead expenses in the case of a disability. In addition, if you own a practice with others, make sure you understand what will happen if you (or another member of the practice) are disabled and can no longer contribute to the profits, but still own a share of the practice. There are specialized “buy/sell” disability policies which help in this case.

What do I need to know regarding the commissions that agents make when I purchase a policy?

If you purchase DI through an agent he/she will be paid a commission. Some portion of this commission will be shared with their employer (if not self-employed). They will also receive smaller annual payments for each year you keep your policy. One example of a commission schedule may be that the agent receives an initial commission of 60% to 75% of your annual premium up front, then 15% of your premiums each year until year 10, and then perhaps 5% each year after that. This is only an example but gives you an ideal of the general format for commissions.

Realize that agents only get paid when you sign a policy, and thus are strongly motivated to have you buy a policy from them, and are financially biased against suggesting or recommending other options. It’s hard for a Ford dealership to suggest that perhaps you are better off with a Honda, regardless of the truth. And since commissions can be based on the total premiums, the more coverage you purchase and the more riders you include, the larger the profits for the agent. Each company pays a different commission amount and has a different commission schedule.

Keep in mind that any given insurer can temporarily incentivise agents such that company’s commissions may be higher than they usually are, in order to encourage agents to sell their product during that period of time. At any given time, you really have no idea what commission the agent will earn for the quotes the agent may have provided to you. Alternately, you do not know which policies the agent did not provide quotes for in the first place. Perhaps you never saw quotes which paid the least in commissions? Thus, while agents can be great resources for learning about DI policies, it’s hard to know how financial incentives might be biasing any particular recommendation. That's why you need to educate yourself about DI and perhaps seek other opinions or guidance from unbiased sources.

What about commissions on association (e.g. AMA solicited) policies?

In these cases, the association is essentially acting as the agent or salesperson for the insurance company. When you purchase a policy through an association, the association receives the commission. Remember, there is a reason your mailbox is full of such solicitations to buy disability insurance (and other types of insurance, for that matter).

Do any agents have any particular deals, or cheaper prices than other agents?

In general, no. The cost of any particular policy is the same across agents.  There are times when a particular agent may be able to provide a discount in specific cases. You can be sure you will be told if an agent you are dealing with has an exclusive discount on any particular policy. For example, some agents are allowed to provide a 10% discount on policies sold to employees to a particular institution. Alternately, some policies give all agents the option to provide discounts for members of a certain group, for example, a 10% discount for AMA members. It's optional for an agent to advertise or provide the discount, and these discounts are taken out of their commissions. In general, and agent will want to offer you all available discounts in order to maximize the chance of a sale. But you can imagine a (probably rare) situation where an agent realizes you are motivated to purchase DI anyway, and might withhold the discount in order to increase the commission.