Disability Insurance Buying Guide for Physicians Entering Practice

Without receiving a paycheck, how long would you be able to make your mortgage/rent payment, buy groceries or pay your bills without feeling tight about money? If you are like most people, it would not be long. 7 in 10 working Americans could not make it a month before financial difficulties arise, and one in four would have problems almost immediately. You insure your home, car, and other valuable possessions, so why wouldn’t you also protect what pays for all those things—your paycheck.

New physicians are inundated with possible choices on purchasing disability insurance as well as group plans. In addition, there are often discounts associated with purchasing as a resident as well as guaranteed issue plans which can be especially helpful if you have any medical issues.

Most employers will offer a group plan paying a percentage of your base salary, typically not including productivity bonuses and retirement contributions. If your employer’s plan is going to pay 50% of your base salary of $20,000 a month, then the benefit which may kick in after two or three months would be $10,000. The catch is that if employers pay the premium, the benefits are taxable and therefore the $10,000 received will be subject to income tax until you may only net $6,000. This is where an individual plan can supplement the difference between the after-tax benefit and your household expenses. If you are paying the premium, the benefits are tax free. The amount of the supplemental plan would depend on how much of your income is not covered, availability of income from a spouse, and individual household expenses.

For those in solo practice or working in a locum's role, you will have to purchase a much larger individual policy. You also may want to consider a business overhead insurance policy which covers professional bills and is separate from the individual policy that covers your personal obligations.

The type of policy you purchase depends on your state, health, and area of practice.

Some of the key features are:

• Own occupation specific coverage protecting you in your specific area of medicine.
• Residual disability protecting a reduced work schedule. we have utilized this feature in those undergoing chemotherapy who are only able to work a couple days a week.
• Future purchase option allows you to increase your coverage as incomes rise without having to go through medical underwriting again.
• Non-cancellable protects from the disability insurance company being able to raise rates. guaranteed renewable policies allow for premium increases as long as it's done across the entire block of business and approved by the state insurance department.
• You may be offered an association plan or one from the AMA. While these can be cost effective in the near term, they may not be own occupation specific and conditionally renewable contingent on the insurance company maintaining the sponsorship of the association. The premiums also may look attractive at the beginning but are typically age banded and therefore increase overtime so locking in a fixed rate while young could save money in the long term.