Understand Your Earning Potential [2021 Edition]

Interestingly, the average physician invests nearly $200,000 and eight years in education in order to practice medicine as an attending physician. As a result, a doctor’s most critical financial asset is their ability to work and earn income within their speciality. For young, healthy residents, it can be difficult to imagine not working for months or even years at a time. Unfortunately, this situation is all too common as a result of long-term disability.

Therefore, selecting the right own-occupation disability insurance is the best strategy to mitigate the financial risk of long-term disability. While it is impossible to know if or when you may suffer a serious illness or accident, disability coverage protects your earnings in the event of a health crisis.

The Case for Adequate Disability Coverage

Moreover, physicians’ careers typically span two or three decades, during which time they can earn an inflation adjusted income of $10 – $40 million. Therefore, this income is the expected return on investment for their medical education, years of training, and endless dedication to their patients. When a long-term disability prevents a doctor from working in their specialty, the doctor may lose a significant portion of that $10-40 million in career earnings. In cases of permanent disability, the doctor may forgo all of their future career earnings.

It cannot be overstated enough the serious financial risk posed by inadequate disability insurance. Furthermore, to understand the potential impacts of disability coverage, we can compare it with other common types of insurance. Most physicians own several types of insurance, including:

TYPE	EXPOSURE	PROTECTION FOR
Malpractice	<$1-3 Million*	Malpractice claims
Home	<$1-3 Million*	Property damage
Auto	<$1-3 Million*	Property damage
Health	<$1 Million*	Medical expenses
Dental	<$1 Million*	Dental expenses

The above insurance policies are considered basic, necessary protections, and no financial advisor would recommend skimping on coverage for your home, health, car or malpractice coverage. However, none of these policies covers anywhere near the $10 million dollar potential loss that a disability could cause. If deficient coverage for a $1 million investment feels risky, then imagine the ramifications of cutting corners on insurance for a $10 million investment, that is, your ability to work and earn income in your specialty.

Therefore, when it comes to financial planning and risk management, own-occupation disability insurance should not be viewed as a luxury or an afterthought. Accordingly, doctors must invest in adequate protection against income loss from disability. When purchasing a disability insurance policy, bear in mind that small details can make a tremendous difference in the quality of coverage.

The Key Distinctions Between Policies

Additionally, while adequate disability coverage is essential for all physicians, not all disability policies are created equal. Two major categories of insurance include employer-provided group plans and individual policies. A group plan is usually subsidized by an employer and is tied to a physician’s employment. Meanwhile, an individual policy is purchased by a physician from an insurance carrier. Therefore, the coverage travels with the policyholder throughout his or her career.

Consider the following common distinctions between employer-provided and individual-owned disability policies:

EMPLOYER-PROVIDED	INDIVIDUAL-OWNED
Cancelable	Non-cancelable
Taxable	Non-taxable
Non-portable	Portable
Benefits can be reduced	Benefits cannot be reduced
Not specialty-specific	Specialty-specific
Subject to enrollment terms	May or may not be subject to underwriting decision

Employer-provided plans are deficient because their benefits are often are taxable, reducible, and non-portable. By contrast, individual policies offer guaranteed protection throughout your career with tax-free benefits that other benefits or income can not reduce. Most importantly, group plans do not offer own-occupation coverage without a catch. The catch is that in order to qualify, you cannot be working in any other occupation. In addition, they usually bury this fine print in the full policy so it is hard to locate. A true own-occupation definition of disability is speciality-specific, meaning a physician is considered disabled if they are unable to perform key functions of their own specialty even if they are working in another occupation.

Because of these substantial coverage differences, they only considered employer disability plans sufficient as a supplement to an individual, own-occupation policy. In the event of a disability, only individual disability insurance ensures that physicians will receive full benefits and specialty-specific protection.

The Best Opportunity for Affordable, Scalable Coverage

When you go to purchase an individual disability insurance policy, the insurance carrier will conduct medical underwriting if needed. The purpose of underwriting is to explore your health and medical history to assess your risk of becoming disabled. The less likely an insurance carrier believes you are becoming disabled, the lower your premium costs will be. Alternatively, if the underwriting decision notes conditions or incidents that put you at a higher likelihood of becoming disabled, the carrier will charge higher premiums and/or exclude certain pre-existing conditions from your coverage. In the case of serious pre-existing conditions, such as cancer, they may deny you a policy altogether.

As a result, the ideal time to purchase a disability insurance policy is as early as possible. Young, healthy doctors can be approved for policies with low monthly premiums, and lock-in these rates for the rest of their career. With special discounts available for residents and fellows, training physicians can maximize savings by purchasing a policy before graduation. Moreover, by securing a career-long discount of 10-20%, medical residents have an opportunity to save tens of thousands of dollars on disability insurance in the long run.

FIO Riders

Of course, most 29-year-old physicians cannot afford the amount of coverage they will need to protect their income and lifestyle at the age of 40. As physicians earn more, start families, and buy property, their financial responsibilities and resources change dramatically over time. For this reason, physicians should include a Future Increase Option (FIO) rider in their policy. FIO riders allow policyholders to increase their benefit amount as their income increases.

In summary, young physicians should invest in an individual insurance policy as early as possible, but only purchase the amount of coverage they can responsibly afford. With the inclusion of an FIO rider, doctors can then increase their benefits over the course of their career without risking losing coverage due to changes in their medical history.