Disability insurance is one of the most important protections a physician can have. With it, you can collect a portion of your salary even if a medical condition prevents you from doing your job. Without it, you stand to lose a lot of income, especially if an injury or illness keeps you out of work for months or years.
But not just any disability insurance policy will do. Every plan is different, and there are certain protections that some offer that others don’t.
If you’re getting ready to purchase a disability insurance policy, keep reading.
Here are the five key factors to consider when choosing a disability insurance plan.
The Definition of Disability
When purchasing a plan, the single most important thing to consider is the definition of disability. This is the standard you must meet to become eligible to start collecting benefits.
Every policy has one, but only a few insurance companies offer the one that physicians need:
The own-occupation definition.
Most policies have an “any-occupation” definition, which means that your illness or injury must be so severe that you cannot work at all, in any job or any capacity whatsoever. This is a difficult standard to meet.
It’s much easier to meet the eligibility requirements of a policy with the own-occupation definition. This means that you can qualify to receive benefits as long as your illness or injury prevents you from doing your current job. This is the definition that every physician needs.
Only five insurance carriers offer the own-occupation definition. Read this article from Physicians Thrive to learn more about who they are and why this definition is so critical.
The Benefit Period
There’s no way to know when a disability will occur or how long it will last. Some medical conditions might force you to be out of work for a year, while some may last for decades and prevent you from ever returning to work.
The benefit period is the time frame in which you can collect benefits, and it can range from two years to ten years to twenty years or all the way up until you hit retirement age. (All disability insurance benefits end when you hit retirement age).
The younger you are when you buy a policy, the better it is to select the longest benefit period possible.
The Elimination Period
The elimination period refers to the time between the date of your injury and the date you can start collecting benefits. It ranges from as little as 30 days up to two years.
You can reduce your monthly premiums by choosing a longer elimination period, but to avoid a disruption in your income, a shorter elimination period is usually best.
Riders are additional benefits and terms that you can add to your plan. There are many to choose from, but there are a few key ones to consider.
The COLA Rider
The Cost of Living Adjustment (COLA) rider means that your policy benefits will increase annually based on the cost of living index.
Inflation fluctuates every year, but when it rises, every dollar you have today is worth less tomorrow. The COLA rider ensures that your benefits increase to combat inflation so that the coverage you’re paying for now increases in value to equate to the same amount of coverage in the future.
Checkout this chart for a look at how inflation rates in the U.S. have been rising and falling over the past 60+ years.
The Future Increase Option
Most insurance companies allow you to get coverage up to approximately 60% of your current income. But as your income increases, so does the need to increase coverage.
Be sure to select a policy that offers the Future Increase Option or the Future Purchase Option. With this rider, you can increase coverage as your salary increases, ensuring that you’re protecting as much of your current income as you possibly can.
The Residual Benefits Rider
There may be instances where an injury might force you to reduce your working hours from full time to part time. With a policy that pays residual benefits you can collect a portion of the income you’re losing from having to scale back your hours.
Insurance Monthly Premiums
Monthly premiums vary based on the coverage amount, benefit period, elimination period, riders, and other policy terms you choose. Before you purchase a plan, do your research and obtain quotes from at least two insurance companies. Compare policy terms and rates to make sure that you’re getting the best rates for your policy provisions.
Every physician needs disability insurance. It is the single best way to protect your future unearned income and ensure that you’ll be able to collect a salary even if you cannot work.
A disability can happen to anyone at any time, so if you haven’t already protected your income with a disability insurance policy, the time to do so is now.