GUEST POST: Disability Insurance for Young Physicians - How to Avoid Pitfalls

[FPMD: This guest post is authored by Jamie Fleischner of Set For Life Insurance.  Full disclosure, Set For Life is a paid sponsor of FPMD.]

If you are a medical student, resident or young physician, sooner or later you will be approached about disability insurance. In fact, you may have already been bombarded by agents. How do you discern great advice from potential pitfalls?  Here are some classic misconceptions when it comes to disability insurance:

1)      “Your employer will take care of your disability insurance.”

If you think your employer sponsored policy will fulfill all of your disability insurance needs, think again. Most medical students will not receive a disability policy. Most residents will receive a group policy. Typically, if a group disability policy is offered, you do not have the option to opt out.

  • If your employer pays the premium, the benefits to you are taxable.
  • Most group policies require you to be totally disabled and not working to receive benefits.
  • If you leave your employer, your policy is most likely not portable.
  • Most group policies cover 60% of your gross income, not including bonuses with a maximum benefit of say $10k or $15k/month. Say your income is $200k. Your group policy will pay 60% which is $10,000/month. Since it is taxable, your net benefits paid is about $7000/month. The replacement value is ~ ½ of your take home pay.

To avoid this pitfall, supplement your group policy with an individual policy. This will allow you to bridge the gap to receive benefits closer to your take home pay. Also, if you are not totally disabled or are working in another medical specialty or occupation, you will still receive some benefits. If you ever change employers, you may take your individual policy with you.

 2)      “This policy is better than the rest.”

If you are being told that one policy is significantly better than the rest, chances are you are working with an agent who has a financial incentive to only show that product. A company agent may not have access or familiarity of the other products available in the marketplace. Brokers work on behalf of their clients and have access to multiple companies. There are ~7 insurance companies that specialize in disability policies for physicians. There are some minor differences among each policy but there is not one that is significantly better than the rest.

 To avoid this pitfall, ask for a quote comparison from multiple companies to compare the premium and policy benefits.

3)      “You’re required to take the GME sponsored policy.”  

Residency programs may have policies available through their GME available at the end of residency. These plans may not require any medical questions and might be discounted. This plan is optional, not required.

  • This may be a great option if you have significant medical history and cannot purchase a policy elsewhere.
  • There may be limits on this policy in terms of preexisting conditions and the amount of benefit you may be able to purchase in the future.

To avoid this pitfall, compare the GME plan to others in the marketplace as it may not be priced as competitively as other available policies. It may make sense to take both the GME policy along with an individual policy to maximize availability of future purchases.

4)      “Time is running out and you need to purchase your policy right away!”

Purchasing a disability policy is a big decision and it’s best if you make the decision once and follow that plan throughout your career. If you are being told you need to purchase the policy immediately, be cautious.

  • Graduating residents may purchase up to $6500/month (some specialties $7500/month). The same is true for first year physicians. If you are finishing up residency and told you only have this opportunity now, this is false.
  • If you have an upcoming birthday, your rate will increase slightly but not significantly. Do not feel pressured to purchase immediately just because you’re getting older.

Explore your options at purchasing now vs. a few months from now to see if it makes a difference. There are some variables that may make a difference. For example, if you are moving to California where the rates are more expensive, it may be in your best interest to purchase a policy prior to your move.

5)      “Association policies provide comparable coverage at steep discounts.”  

Some medical associations provide their members with available disability policies. However, there are some drawbacks:

  • Association policies tend to have premiums that increase with age. The premiums become expensive when you turn 40 and more than triple when you turn 50. If at that time you decide to try to purchase an individual policy elsewhere, it may get very expensive.
  • Some association policies only cover you in your medical specialty for a limited period of time (E.g. 2 years). Thereafter they may not pay your claim if you are employable.
  • Some association policies reserve the right to make changes to the policy. What may look like a desirable plan this year may be gone next year.

Before you commit to an association policy, compare the benefits and premiums paid to age 65 to an individual policy. Do not simply compare the current premiums as the association premiums may increase significantly over time.

The best way to avoid pitfalls when looking for disability insurance is to work with an experienced broker who represents multiple companies who can help guide you through the process and show you multiple options. See if your broker has available discounts for you that can help make the premium more manageable and competitive. Ask a lot of questions and make sure you feel comfortable with the advice you are receiving. Purchasing a disability insurance policy is an important decision that can have major repercussions. Make sure you make the right decision without regrets.

Guest Author Jamie Fleischner is President of Set for Life Insurance and has worked with thousands of medical residents and physicians with their life and disability insurance needs since 1993. As an independent broker, she works with multiple companies and helps her clients find the most suitable policy at the best available price. Set for Life has the largest portfolio of disability insurance discounts in the country.