Avoid Making the 5 Physician Disability Insurance Blunders

The Most Common Mistakes Physicians Make When Buying a Policy

The biggest mistake a physician can make at any point in their career is to leave their most valuable asset, their earning potential, inadequately protected. In fact, until their financial security has been achieved, the physician’s disability income protection plan should be his or her highest priority. Yet, through a lack of knowledge, time, or proper guidance too many physicians continue to make costly mistakes in developing their disability income protection plan. We’ve identified five of the biggest mistakes physicians make in their disability insurance planning, any of which could prove financially devastating.

MISTAKE #1: Buying Disability Insurance through a Group Plan or Medical Association

Buying a disability policy from your medical association might seem like a good idea – it’s cheap and hey, if my medical association recommends it, it must be good, right?  Think again. Association disability plans are inexpensive for a reason:

  • Increasing Premium – Although initially low in cost, rates for the association plans increase every 1-5 years.
  • No Guarantees – Association plans can be changed by the insurance company at any time. Over the last two years alone, the AMA has changed their contract three times (see more about why you should be wary of AMA disability insurance).
  • Limited Residual Benefit – most association plans require a period of TOTAL disability BEFORE any partial benefits can be paid.
  • Mental/Nervous Disorder Limitation – most association plans will pay claims for ONLY 2 YEARS if caused by a mental/nervous disorder (anxiety, depression, DSM handbook, etc.)
  • No Cost Of Living Rider – This allows a benefit to increase by 3% or 6% annually to keep pace with inflation while on claim. Most association plans do not offer a COLA rider.
  • Low Insurance Company Financial Strength Ratings – Associations usually pick the underlying insurance company based on relationships or revenue to the association, not on the quality of the insurance company.

MISTAKE #2: Waiting to Buy

It’s human nature to put off the things we don’t like to think about. Unfortunately putting off the purchase of disability insurance can have disastrous consequences. You may be healthy right now, but a sudden major illness or accident could render you uninsurable or dramatically increase the cost of coverage. The premium cost will never be cheaper than when you are young and healthy. Each year you wait your lifetime cost of covering your most valuable asset increases. It never pays to wait.

MISTAKE #3: Not Realizing there are Several Definitions of “Total Disability”

There’s only one definition of “Total Disability” any physician should accept in their disability insurance policy:

You will considered to be Totally Disabled if, due to an accident or illness, you are unable to perform the material and substantial duties of your regular occupation, [the insurance company will consider your occupation to be the occupation you are engaged in at the time you become disabled] even if you are working in some other capacity.

That’s it. End of story. There should be no modifications or no “there afters” which can limit or change the definition to less favorable terms. And, if you are a specialist, it should include language specialty-specific language.

MISTAKE #4: Buying Coverage from a Generalist

Your property & casualty or life insurance agent may be a great guy and know a lot about auto and home owners insurance, but that doesn’t make him an expert at disability insurance. The disability insurance market is so small that the average insurance agent might only sell one or two policies per year. And, trying to address a high-earning physician’s disability income needs with a generic, off-the-shelf disability solution is like buying a mass-market homeowner’s policy for $4 million custom estate home. It just doesn’t cut it.

MISTAKE #5: Getting an Exam Prior to Applying for Coverage

Disability insurance is medically underwritten; which means you have to be in good health in order to qualify for coverage. Pre-existing medical conditions can result in a higher premium, exclusions from coverage or in some cases, complete denial.  Part of the normal underwriting process is for the insurance company to request medical records from any physician you’ve seen in the last five years. If just prior to applying for coverage you go out and have a bunch of diagnostic tests performed, it increases the likelihood of the insurance company finding something to use against you.


Disability insurance is one of the more complex financial instruments for anyone to understand, let alone physicians who are completely immersed in their own body of knowledge. It requires the expertise of an independent specialist who can provide objective guidance and who has the resources to match your specific needs to the optimum physician disability income plan for your situation. If you haven’t done so recently, it would be important to schedule a checkup for your disability income plan with a specialist. The brief amount of time spent to ensure you have the maximum protection for your most valuable asset would be well worthwhile.

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