Physician Disability Insurance

Most standard disability insurance plans will replace a portion of lost income if an individual is deemed to be “totally disabled.” So, the key difference between disability insurance plans is in how they define a total disability. Traditional disability insurance plans require that an individual be unable to work in any capacity to be considered totally disabled.

Physician-specific plans, however, are more liberal in their definition of “total disability”, providing for the possibility that a physician can be considered totally disabled, and therefore, eligible for full benefits, even though he or she can work in an occupation outside of their specialty. However, among all of the disability insurance plans offering this “own occupation” definition of total disability, no two definitions are alike, which is why physicians must thoroughly understand the differences.

Also referred to as “true own occupation,” a “regular occupation” definition of disability considers a physician to be totally disabled if he or she is unable to perform the material and substantial duties of their specific medical specialty. With most regular occupation disability insurance policies, this medical specialty language is added to the definition as a separate clause to define the specific functions and duties of a particular specialty.

The effect of the medical specialty clause is that it will deem physicians as totally disabled if they’re unable to perform any of the duties specific to their specialty even though they might be able to work in some other capacity. So, an interventional cardiologist who has lost his ability to perform surgery would be considered totally disabled, and eligible to receive full benefits, even if he were able to earn an income as a general cardiologist.

A regular occupation definition that doesn’t include medical specialty language might treat the interventional cardiologist the same as a general cardiologist for purposes of determining eligibility for benefits. In other words, your regular occupation could be much more narrowly defined as a “physician” or, in this case, a “cardiologist.” So, with that omission, the outcome could be different. Even though the interventional cardiologist can’t perform invasive surgery, he could still earn a living as a general cardiologist and, therefore, would not be considered to be totally disabled.

Physicians, especially medical specialists, should ensure that their ability to perform their specialties, or, at the very least, the specific functions of their current occupation are protected.

One of several variations of “own occupation” definitions, the “transitional your occupation” definition provides that a physician will receive full benefits if he is unable to perform the specific duties of his occupation until such time that the income he receives from his disability benefit, as well as any other income source, exceeds their pre-disability earnings. As his total earnings from all sources increases, his monthly disability benefit is decreased by a proportionate amount. Once his income equals or exceeds his income at the time of his disability, the monthly disability benefits fall to zero.

A more narrow own occupation definition growing in prevalence (if only because of their lower premium cost) is the “modified own occupation.” This version, which defines total disability as the inability to perform the specific duties of your occupation and unable to work in any occupation, essentially provides a disabled physician with a choice at the time he files a claim. He could choose to earn an income in a different field, which would make him ineligible for monthly benefits, or he could simply remain unemployed. Another variation of the modified own occupation definition would allow the physician to work in a lower paying occupation that didn’t require the level of education, training and experience of his medical specialty. So, if the interventional cardiologist took a job as a researcher for a medical school, at substantially less income, he could still be eligible for benefits.

The most restrictive definition of total disability, typically found in standard disability policies and group plans, is “any occupation,” which requires that a physician be unable to work in any occupation to be eligible for benefits. Some disability plans may initially pay benefits based on “regular occupation” definition, then switch to the more restrictive “any occupation” definition after a period of time, typically 24 months. So, the interventional cardiologist may be able to work in another capacity in his filed for the first two years of receiving benefits, but then be required not to work in any capacity after two years in order to continue to receive benefits. These limited own occupation policies are obviously less expensive than regular occupation policies, however, they provide the least amount of protection for a long-term disability.

Much like a deductible in a health insurance plan in which the insured pays a certain amount of the costs out-of-pocket, the elimination period is the period of time in which the insured must wait before receiving benefits. The length of the elimination period, determined by the insured, will affect the cost of the premium. For example, an elimination period of 30 days would have a higher premium cost than a 90-day elimination period.

Physicians who have been able to accumulate an adequate emergency reserve fund of six to 12 months worth of living expenses, can save a substantial amount in premium costs by selecting a longer elimination period, although the difference in cost between 90 days and 180 days may be negligible in most policies.

The benefit period is the maximum length of time that monthly benefits are paid. Most standard disability policies offer a range of benefit periods from 2 years to age 65. Physician-specific disability insurance plans typically offer periods from five years to age 67 or 70. Some plans offer a life-time benefit period. Of course, the longer the benefit period selected, the higher the premium cost. It is generally recommended that newer physicians choose the longest benefit period available.

Chances are that, if you do become disabled from an illness or injury, you may not be totally incapacitated. Or, as with many illness-caused disabilities, such as multiple sclerosis, your ability to work may slowly degenerate over time. In either case, you can still work, but your income is likely to decrease. If you become disabled but are still able to work in a more limited capacity (i.e., reduced hours or fewer duties), you would be considered to be partially disabled. Only those disability insurance plans that offer a “residual disability benefit” option or rider will cover income lost due to a partial disability. This benefit will replace the amount of income lost as a percent of your pre-disability earnings. So, if your income decreases by 50%, you will receive 50% of your full monthly benefit, up to 80% of your pre-disability earnings. Without a residual disability benefit option, you would have to be totally disabled in order to receive benefits.

Residual disability benefit riders do vary from one policy to the next, and, as with the “total disability” definition, some are more restrictive than others. Physicians should only consider policies that will pay a proportion benefit when their earnings decrease by more than 20%. The loss-of-earnings threshold for some policies is as low as 15%.

So, if a partial disability keeps you from seeing a maximum amount of patients or performing certain functions and your monthly income is reduced by 25%, a residual disability benefit will pay you 25% of your full benefit.

A more restrictive residual disability benefit might require a certain amount of lost time or lost duties, and may not pay benefits if you are able to work in any other capacity. Even more restrictive are residual disability benefit riders that require an initial period of TOTAL disability before paying any residual benefits. A strong, physician-specific residual disability benefit will only require a loss of income, either as a result of less time spent in practice or less duties performed.

A physician’s income can more than quadruple on day one of their first job after training, at which point an initial disability insurance policy may not provide the coverage needed to replace the increased earnings. Disability policies with a Future Insurability Option (FIO) provide the opportunity to increase your monthly benefit every one to three years without any evidence of insurability. Without the FIO, you could be forced to purchase additional disability insurance policies with the risk that a medical condition might disqualify you from obtaining the coverage or doing so at a very high cost.

Most disability insurance policies offer a Cost-of-Living-Adjustment (COLA) as an option which adjusts the monthly benefit based on an inflation index, a fixed percentage, or a fixed dollar amount. Of course, a COLA would be essential to preserving your purchasing power throughout an extended disability. Whether the insured is able to keep the cost of living increase for future claims (when coming off of a claim in which COLA had already increased from the benefit), and whether or not the added benefit will have an additional cost or if it will be added at no cost, depends on the specific contract that you own.

If your disability results in your inability to perform two or more of the activities of daily living without assistance, the Catastrophic Disability Rider will pay a monthly benefit, in addition to regular disability benefits to cover the costs of assisted care. The activities of daily living (ADL) include: Bathing, Continence, Dressing, Eating, Toileting, and Transferring.

These benefits are also available if you should become cognitively impaired or it is determined that your disability is irrecoverable.

An increasing number of physician-specific disability insurance plans include a Non-Disabling Injuries Benefit. This benefit will pay for medical expenses incurred as a result of an injury that doesn’t necessarily lead to a total disability. It can be thought of as another form of medical insurance that covers medical treatments using up to 50% of your monthly disability benefit. This can be an especially valuable benefit for physicians who have high deductible health insurance and it even pays for expenses that might be covered under a regular health insurance plan.

Disability insurance plans that include a Good Health Benefit are not unlike auto insurance policies that reduce your deductible for every year you are accident-free. A typical Good Health Benefit will reduce the elimination period (similar to a deductible) by one or two days for each consecutive year you don’t receive any disability benefits. Once you do receive disability benefits, the elimination period is reset to the original number of days.

If you become unemployed while receiving disability benefits, the COBRA Premium Benefit will pay your premiums for extended medical coverage under COBRA. Typically, the COBRA Premium Benefit will begin paying 100% your premiums (up to $1,000 per month)following the elimination period for up to 18 months.

Most individual disability insurance policies are non-cancellable and guaranteed renewable, which means they must be renewed automatically by the insurer without any changes regardless of your health. That includes your premium rate which cannot be increased as long as your policy remains in force or until the end of the regular benefit period (to 65, to 67, etc).