Group Disability vs. Individual Disability Insurance for Physicians

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The need for disability insurance for professionals is crucial, and this is especially true for physicians. The choice of whether or not to get disability insurance isn’t a difficult one to make.

The real issue is which policy to enroll in. In order to make that decision, you should have a good understanding of the differences in the types of policies you can choose from.

The two classifications of disability insurance are group insurance and individual insurance. Of course, there are benefits and drawbacks to both, and knowing these will help physicians take a wise course in their long-term disability insurance purchase.

Many physicians even opt to invest in more than one to secure their financial future and retirement in the event of any medical tragedy.

This side-by-side analysis of group disability insurance versus individual disability insurance will help you determine your best options.


Group Disability Insurance Plans

These are the main details of most group disability insurance plans:

Definition of Disability

It can be plainly stated that group disability’s definition of disability is much more limited. Most often, you need to prove total disability to receive benefits of any kind.

When you are deemed disabled, you must meet the definition of being unable to perform any occupation rather than unable to perform your own occupation.

In other words, if you can survive by switching careers and getting another job, even one at a convenience store, you will not be eligible for disability benefits.

Portability

Since group disability insurance policies are often awarded through your employer, your policy does not transfer with you to another job.

One possible way that you could take this policy with you is if it was purchased through an association that you remain a member of after taking another job.

Taxability

If your group disability insurance policy is paid for by your employer, you will pay income tax on the benefits that your employer paid for. If you pay a portion and your employer pays a share, you will be taxed on the benefits on the percentage your employer paid for.

Residual Coverage

Residual disability is the ability to get benefits based on a physician’s inability to work full time or only perform part of the tasks in their job. Most group plans do not cover partial or residual disability, which is discouraging since this is a common occurrence.

Exclusions

Group insurance disability plans exclude pre-existing conditions from coverage. They also often leave out mental health and substance abuse issues that develop before or after coverage.

Of course, no disability health insurance will cover intentional acts of harm or other obvious causes such as war-caused injuries or normal pregnancy.

Payout Maximum

The maximum payout on a group disability insurance policy to an individual is usually close to $10,000 per month. This can vary slightly from plan to plan depending on individual or occupation.

Income Covered

Group disability policies will cover about 60% of your base salary only, not taking into account any compensation outside of this salary, such as bonuses or commissions.

Cost of Policy

Group policies are typically less expensive than individual ones for a variety of reasons.

First, and most obvious, is because these policies are generally offered for free to a full-time employee by the employer.

Second, even if you are paying part of the disability plan, it is cheaper because the risk of the policy being used is spread out over everyone within the group.

Third, group policies are less expensive because they offer fewer benefits all around.

One other thing to be aware of — the cost of group policies can change without warning and without your consent because the negotiations are between your employer and the insurance company.

Offsets

With group policies, worker’s compensation will reduce benefits if the disability is job-related.

The awarding of SSDI benefits will also reduce your group policy’s benefits package.

Related: What Doctors Need to Know About Social Security Benefits and Disability Insurance


Individual Disability Insurance Plans

These are the main details of most individual disability insurance policies:

Definition of Disability

With individual disability insurance plans, the definition of disability is usually a negotiable concept. You can ask for the definition to be written in a way that closely fits how you deem disabled.

Individual disability insurance plans are the only plans that can provide a true “own occupation” disability definition.

Portability

You will be covered for disability even between jobs with individual insurance.

Taxability

All benefits of an individual disability insurance policy are non-taxable, making the benefit amount yours to keep.

Residual Coverage

Unlike group policies, many individual plans offer partial or residual coverage. If they don’t have it written in the policy, it may need to be a rider, but it is still an option.

Exclusions

Like group disability, individual disability does not cover pre-existing conditions.

However, it is possible to have mental and substance abuse insurance coverage, either as a rider or written in your policy with individual disability.

Payout Maximum

The maximum payout of your individual policy can be heightened or lowered with the cost of the premium. The higher you want your max payout to be, expect your premium to raise with it.

Income Covered

Individual disability policies cover many different types of income. They obviously include your base salary, but they also cover a variety of other compensation sources.

If you have income from commissions, bonuses, or overtime, your individual disability policy will consider that when calculating your benefits.

They can consider retirement plan contributions and other forms of income protection in your benefits if you ask.

Individual policies can even cover the potential disability income of new physicians or those in training, which is a good reason to purchase as early as possible in your career.

Cost of Policy

The cost of your individual policy remains the same throughout the term. If you would like to be able to add to your policy as your income increases, it is possible to purchase a rider of the future purchase option for more insurance coverage guaranteed.

Most individual policies cost about 1-3% of your yearly salary but protect about 60% of your salary, making it a worthwhile investment.

The actual cost of your policy will be dependent on some factors, including your health, age, and if you participate in any risky hobbies.

Offsets

You can receive benefits with a group policy. However, this will limit how much they can offer you. They don’t want to make it possible for you to earn more money while you are disabled than while working full time.

You can pay a higher premium for not integrating with SSDI if this is your choice.

Related: Physician Disability Insurance: Insure Your Earning Potential


Group vs. Individual Breakdown

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Now let’s look at these policies side by side with the tried-and-true pros versus cons method.

Group Pros

  • Group plans are paid for by your employer. Even if the employer only pays a portion of the price, it is still lower due to the risk being spread out among the group.
  • Group plans usually don’t require medical examinations, giving every employee an opportunity for coverage. However, be aware that your health will be evaluated at the time of the claim, which can result in your disability being considered excluded, so you never truly know if you’ll be covered.

Individual Pros

  • Individual plans are portable, making you covered in any job and in the period of time between jobs.
  • Individual plans are customizable to your personal needs with the ability to purchase as much or as little coverage as you want and tailor the definitions and exclusions to fit your needs.
  • Individual plans offer additional riders allowing you to pay more to be more fully covered in certain circumstances.
  • Individual disability covers all sources of income, not just your base salary. This will result in a higher payout in the event of a disability.
  • Benefits from individual policies are not taxable.
  • The cost of individual policies remains the same for the term of the policy.
  • With individual disability, all offsets are negotiable. This includes the offset of group policies and Social Security Disability Insurance.

Group Cons

  • Group plans are not portable. Once you leave your job or you are let go, your group plan is no longer in effect.
  • Group plans are not customizable. Your employer negotiates terms leaving you with no control over your policy.
  • The cost of group plans is at the mercy of your employer. It can fluctuate without warning and leave you unaware of increases in the premium or reduced coverage.
  • Group plans are usually offset by Social Security Disability Insurance and workman’s comp.
  • Group plans offer less coverage, with only your base income being considered, leaving out plenty of potential income sources from increasing your payout in the case of disability.
  • Group plans offer no partial disability coverage, so even if your ability to perform your job is severely limited, you will receive no help to cover the unearned income that you could have earned before your disability.
  • The definition of disability in a group plan is very restrictive, making it hard to be considered eligible for disability benefits.
  • The group benefits are taxable if your employer pays the premium.

Individual Cons

  • Understandably, the price of individual disability is higher than group disability due to the greater protection that it offers.
Here’s everything you need to know on How to File a Disability Insurance Claim for Physicians.

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Why Having Both Is a Wise Choice

When reviewing all the above information, it’s easy to conclude that it would be in your best interest to have both your employer’s group disability insurance plan, as well as your own individual disability policy to protect your future fully.

It doesn’t hurt to take advantage of your employer-offered group plan since it is usually at no (or low) cost to you.

However, since most group policies are not portable, by having an individual policy that will stay with you ensures coverage between jobs and from job to job your whole professional life.

Combined coverage of both group and individual coverage could help cover the holes in each plan.

The fact that individual policies are customizable to give you the benefits you need most can give you greater peace of mind, knowing that you’ve covered all potential pitfalls.

The COLA rider, residual coverage, and the Future Purchase option are riders that group coverage just doesn’t offer and are considered essential disability insurance inclusions for many white-collar professionals.

Financial planners can help you decide how much and which policies to choose for your best protection in the case of disability.

We have a team of dedicated financial advisers that specialize in guiding you through the process of determining how much disability insurance physicians should purchase based on your career expectations, as well as financial and personal information.

Let us find the best individual disability insurance policy for you and get it tailored specifically for your own needs. Contact Physicians Thrive to get started.


When it comes to disability insurance coverage, you need to be able to look beyond the price and see the value of the individual benefits. The benefits of supplementing your employer-provided group disability insurance with your own tailored individual plan far outweigh the cost.

Many group policies give physicians a false sense of security. They believe they’re covered, but in reality, in the event of disability, their group policy will still leave them in dire straits.

It’s vital to take an in-depth look at your situation, your current policy and coverage, and your potential need should you become disabled and make a decision based on those factors.

It’s also essential to do this analysis now, before you need the coverage and find out that your group disability insurance won’t cover you. Physicians Thrive is always ready to prepare a free disability quote to best fit your needs.

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