Why every physician should have an FIO Rider in their disability policy

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Disability insurance rates for physicians can be daunting for early physicians. To mitigate this, the Future Increase Option Riders are designed to make coverage affordable and scalable with your career. 

Disability insurance provides invaluable financial protection for young physicians.

However, affording disability insurance can be a paradox for new doctors. The less money you have in savings, the more important it is to have disability insurance in the event that you become too sick or injured to work. On the other hand, young physicians with limited savings also have less money in their budget to spend on insurance premiums

So how are residents and new attending physicians supposed to purchase disability coverage during the most cash-strapped period of their careers? The answer: A Future Increase Option (or FIO) Rider.

FIO RIDERS ALLOW PHYSICIANS TO INCREASE DISABILITY COVERAGE AS THEY EARN MORE. 

A Future Increase Option Rider is a no-cost policy provision that allows physicians to pay for more disability coverage in the future without requiring the purchase of an entirely new policy. FIO riders are designed to make disability insurance affordable and practical even for physicians who are years away from their peak earning years. 

Realistically, a doctor in training may only be able to afford minimal disability coverage with their current income. But, with an FIO Rider, physicians can lock-in low rates while they are still young and healthy, and subsequently increase their coverage as they are able to afford higher premiums. 

As an example, let’s consider the case of a medical resident, Dr. Washington:

During her residency, Dr. Washington purchased a disability insurance policy with an FIO Rider that cost only $85 in premiums per month and paid a monthly benefit of $3,000 per month in the event of a disability. 

Five years later, Dr. Washington had a $350,000 salary, a home mortgage, and a child on the way. At this point, a $3,000 per month benefit would not be nearly enough to cover her essential living costs and retirement contributions in the event of a disability. Fortunately, her FIO rider enables her to progressively increase her coverage each year. As a result, her original policy now has a benefit amount of $22,000 per month. For the increased benefit, the overall cost increases but it remains within the 1-3% of annual income just as it did with a lower benefit amount.

FIO RIDERS HELP AVOID PRE-EXISTING CONDITION EXCLUSIONS 

In addition to helping physicians increase their disability coverage, FIO Riders can also help doctors avoid exclusions for medical conditions that arise over the lifetime of their policy.

Without an FIO Rider, the monthly benefit of a disability insurance policy is fixed and cannot change. In order to increase the benefit amount, a physician would have to go out and buy an entirely new policy and be subject to a full health history evaluation. If you have been treated for any medical condition (e.g. stress, pain, new medications, hospitalizations, surgery, overseas travel, pregnancy, chiropractic visits) during the course of your first policy, your new policy will likely suffer from any one of these pre-existing conditions and exclude it/them from your disability coverage.  

To see how this often affects physicians, let’s reconsider the aforementioned case of Dr. Washington.

Imagine if Dr. Washington had purchased her disability policy as a resident without including a FIO Rider. Five years later, she wants to increase her coverage and benefits, but this time she has to purchase a whole new policy.

But something has changed in her medical history during this five year period: she went to the chiropractor for a stiff neck, and the chiropractor gave the insurance company a diagnosis of neck arthritis that included the word “degenerative.” Now when the insurance company underwrites her new policy, they see the chiropractor’s diagnosis and exclude any condition that could be attributed to her entire spine, and likely not ever able to be reconsidered. 

Months later, Dr. Washington suffers a muscle spasm in her neck and is unable to move her neck or turn her head. Even though this condition, prevents her from working in her specialty, she is ineligible to receive benefits because of the pre-existing condition exclusion.

In this example, an FIO rider could have prevented Dr. Washington’s pre-existing condition exclusion, because she could have increased her coverage on the original policy regardless of any changes to her medical history. Realistically, the older you get, the more likely you are to develop a new health condition. For this reason, physicians should purchase individual disability insurance as early as possible with a FIO Rider to minimize the risk of pre-existing condition exclusions. 

FIO RIDERS GO FURTHER WITH A BENEFIT UPDATE OR A BENEFIT PURCHASE OPTION RIDER. 

In addition to FIO Riders, Benefit Update and Purchase Riders (BU/Ps) are a common way that physicians can increase the benefit amount to their original policy. The major difference between FIOs and BU/Ps is how often physicians can take advantage of the increase and how much they are required to add to their benefit amount. 

An FIO Rider offers the annual option to increase your benefit amount at your discretion. There are other automatic increase options with various names and acronyms based on the Consumer Price Index. Normally, the maximum annual increase is 10% and the minimum is between 1-4%. Keep in mind these only happen a few times over the first few years. In contrast to the automatic riders, to increase coverage with an FIO rider, a physician simply has to accept or reject the annual offer from the insurance carrier. 

To understand the major difference between a FIO Rider compared to a Benefit Update or Purchase Rider, the BU/Ps offer physicians an opportunity to increase their coverage once every three years with no cap on the benefit increase (pending a review by the insurance carrier.) You can request an increase before your 3-year review is due if you experience a significant pay increase, loss of group disability coverage, or a job change.   

Unlike the FIO Rider, a BU/P costs nothing extra to add to your policy so it can be more attractive based on overall price. Keep in mind there is one major caveat. With the BU/P Rider you are required to increase your policy when you are eligible for an increase. You have to take the increase which means you have to pay more. How does the insurance company know that you are eligible? They have a mandatory disclosure process you have to do every three years and if you don’t do it, then you forfeit the rider and are exposed to all of the pre-existing condition exclusions mentioned earlier. What this means is that if you go for a policy with this kind of increase option rider and lose it because you don’t stay compliant with their requirements, it will be as if you never had the rider in the first place and are stuck with a resident benefit amount.

TO SUM UP

The best disability insurance for physicians should be affordable and account for income increases down the road. With own-occupation disability insurance that includes a FIO rider, you can lock-in coverage at a low rate without limiting protection for future earnings. To learn more about FIO riders and disability insurance for physicians, contact one of our trusted financial advisors.

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