How Much Does Disability Insurance Cost?

Everyone understands the importance of having health insurance and life insurance.

But as a physician earning a sizable yearly salary, there’s one other type of insurance policy you need: disability insurance.

If you become ill or disabled and can’t do your job, disability insurance is one of the best ways to protect your assets and provide income for your family.

But how much does disability insurance cost?

Prices Vary by Policy and Provider

Like all insurance policies, the cost varies depending upon the insurance company and the specific long or short term disability policy you choose.

For physicians, here are the main factors that will determine exactly how much your disability plan will cost:

• Your medical specialty
• How much disability coverage you need
• Length of the waiting period
• How your policy defines “disability”
• Your age
• Your health
• Where you live
• The addition of optional riders

Most physicians spend between 2% and 5% of their gross income on insurance premiums. For policies that pay benefits of $10,000 per month, premiums typically range from $200-$500 per month or $2,400 to $6,000 per year.

The majority of disability insurance policies will pay you 60% of your gross income, and most cap the benefit at approximately $15k to $17k per month. In order to receive a benefit of $17k per month, you’ll need an annual income of about $336,000.

Premiums increase as you age — so the older you are, the more you can expect to pay. In addition to age, gender is an important factor in determining premium costs as well.

Women pay more.

In fact, women pay between 20% and 60% more than men of the same age in the same specialty. There are two main factors that insurance companies consider when charging higher rates to women.

Women have a higher probability of making disability insurance claims, due in part to complications with pregnancy. In addition, women are usually disabled (and eligible to receive benefits) for longer periods of time. In general, women tend to live longer than men.

But regardless of your gender, there is one way that you may be able to save on your insurance premium costs. Some providers offer a discount if you pay your premiums annually instead of monthly installments. Ask your insurance agent if you can get a discount if you pre-pay 12 months of insurance premiums at the start of the year.

Related: Group Disability Insurance through AMA

How Your Medical Specialty Affects Disability Insurance Rates

In terms of how much you’ll pay each month, your medical specialty is one of the most significant determining factors. Physicians in certain specialties are more likely to be unable to perform their duties if they become disabled.

For example, let’s say you have a slight tremor in your hand or issues with the joints in your fingers. If you’re a surgeon, an unsteady hand means that you will not be able to perform surgery. However, if you’re a primary care physician in family practice, a shaky hand will not prevent you from doing your job.

Physicians in these specialties usually pay more:

• Anesthesiologists
• Emergency room physicians
• Registered nurses
• Surgeons
• Podiatrists
• Obstetricians

Physicians in these areas usually pay the lowest rates:

• Diagnostic radiologists
• Primary care physicians
• Gastroenterologists
• Internists
• General practitioners
• Dentists

How Much Coverage Do You Need?

The more disability benefits you want to receive each month, the more you’ll have to pay in monthly premiums.

To determine how much disability insurance you need, think about your financial responsibilities. Add up the cost of your mortgage, other insurance premiums, credit cards, student loans, utilities, and other expenses to determine how much income protection you need.

Total up what you have to pay for each month along with how much you are contributing toward your financial goals. Just because someone goes on disability doesn’t mean they should live paycheck to paycheck. Money should still be going toward your financial future. In addition, take a look at how much savings you have. Then ask yourself the following questions:

How long can I afford to be without an earned income? With my current savings, how much time can I wait between becoming disabled and collecting benefits?

To receive a benefit amount of $10,000 per month, you can expect to pay between $200 and $500 in premiums. If you’re making approximately $16,000 per month ($192k annual salary), you can max out your benefits at approximately 60% of your pay (about 10k). So you’ll need to do the math to determine how long your savings can sustain you.

Older physicians, though they may be at a higher risk for disability, often need less insurance because they have more savings and assets. The more money you have saved, the less you will likely need in disability insurance benefits. Older physicians are also nearer retirement age and the age at which they can collect Social Security.

The size of your savings will also be an important factor when it comes time to determine what your policy elimination period should be.

How Long an Elimination Period Do You Need?

The disability elimination period is the time between the day you become disabled and the day you are eligible to start collecting benefits. This is also referred to as the waiting period. Elimination periods can be as short as 30 days and as long as two years. Knowing how long you can live on your savings is key to selecting the proper elimination period.

The longer the waiting period, the lower the monthly premiums. The shorter the waiting period, the higher your monthly premiums will be.

In other words, the more savings you have and the longer you can wait to collect benefits, the less you’ll have to pay each month.

Know How Your Policy Defines “Disability”

The definition of disability varies from policy to policy. Some policies require that your disability prevents you from working in “any occupation.” Other policies require that your disability prevents you from working in your “own occupation.” The “own occupation” definition is preferred — but it’s more expensive.

With the “own occupation” definition, your illness or injury must prevent you from working in your current specialty. The “any occupation” definition simply means that you can’t work in any job. The “any occupation” definition is harder to qualify for — so this definition always results in lower monthly premiums.

Related: Does Disability Insurance Cover Mental Health and Substance Abuse?

What is Your Age?

When it comes time for the insurance provider to underwrite your policy, one of the first things they will take into consideration is your age. Younger physicians pay less, and older people pay more. That factor remains the same regardless of your policy or provider.

Rates also increase as you age. For example, let’s say you take out a policy at age 30. By age 40, you’ll be paying more. By age 50 you’ll be paying even more. And so on …

Rates increase by approximately 3% to 5% per year as you age.

For example, a male physician with a $5,000 per month policy may pay approximately $1,100 each year at age 30. By the time he’s 60, he’ll be paying close to $3,000 each year for those same benefits. The yearly increases may vary slightly among providers, but they are generally very similar.

Are You Healthy?

As with age, your current health condition will also determine your monthly premiums. Physicians with a pre-existing condition, even if they’re young, will pay more than those without an existing medical condition.

And even if you’re in perfect health, older doctors will still pay more. The older you are, the more likely you are to suffer an injury or disability that could prevent you from working.

Where Do You Live?

Every state in the U.S. has regulations for insurance providers and policies, and the rules in some states are much stricter than in others. The more regulations there are in your state, the fewer choices you’ll have in selecting providers.

With fewer choices and less competition, disability insurance policies tend to be more expensive. The more providers there are that operate in your state, the more types of disability insurance you’ll have to choose from, and the more competitive they’ll be.

The cost of living in your state is also a factor. The higher the cost of living, the more you can expect to pay in monthly premiums. A higher cost of living means the insurance policy will have to pay you more in benefits, and that will cause an increase in your rates.

Adding Policy Riders Will Increase Your Costs

Many disability insurance policies can be underwritten with additional and optional riders attached. These riders offer added benefits, but for every one you choose, your premium will become more expensive. It’s essential to weigh the pros and cons of adding these riders. In many cases, the extra cost is well worth the added benefit.

Here are some of the most common disability insurance riders and why they’re so important:

Cost of Living Adjustment Rider

All insurance providers offer the COLA rider. This rider is designed to increase your monthly benefit while disabled as the cost of living increases over the years. In other words, your benefits increase along with inflation.

Based upon the Consumer Price Index, this rider pays you an increased monthly benefit while you’re receiving benefits under a long term disability insurance claim. It is most beneficial to physicians who are disabled in a way that would cause them to have benefit periods that lasted years or even decades.

Future Purchase Rider

Offered by all providers, the future purchase rider allows you to increase your insurance coverage in the future, regardless of health. It is ideal for residents, fellows and young physicians who expect to earn more income in the future and plan to need more coverage as they age.

Regardless of your health, this rider allows you the option to increase coverage. Your premiums will go up, but it is worth it if you plan to make more income in the future.

Student Loan Rider

Not all insurance providers offer the student loan rider, but it’s a smart option for young physicians who are still paying off student loans. If you are disabled while you are still paying back college or medical school loan debt, this will cover the cost of your monthly loan payments. This is only important for physicians that still have their own educational debts.

Catastrophic Disability Rider

Most insurance providers offer the catastrophic disability rider. With this rider, you’ll be paid even more benefits than your disability policy states — in the event that you suffer a catastrophic disability.

To qualify for the “catastrophic disability” benefit, you’ll need to be able to prove that you are unable to perform two basic daily activities. These include dressing, feeding yourself, bathing yourself, and using the bathroom without assistance. This rider is usually less expensive than the other riders and it can pay you an additional 50% of your benefit each month.

A disability insurance plan can be expensive, but forgoing it can be devastating to your finances and way of life.

There are a variety of factors that determine how much you will pay for disability insurance, so it’s impossible to say precisely how much it will cost. On average, a $10,000 per month benefit will cost you between $200 and $500 per month.

To recap, eight main things determine how much your insurance policy will cost. These include your age, health, medical specialty, and the state you live in. How much coverage you need, how the policy defines “disability”, the elimination period, and optional riders are the other main factors.

If you’re a physician looking for disability income insurance, compare policies and providers to make sure that you’re getting the best rates and the best coverage for your money.

After all, buying insurance is buying peace of mind. An inexpensive policy may be appealing, but insufficient coverage will leave you at a serious disadvantage if and when you need to make a disability claim.

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