Disability Insurance for Self-Employed Physicians

For physicians, having disability insurance coverage is just as important as having health insurance, auto insurance, and homeowner’s insurance. It’s the single best way to protect your future income and ensure you can still earn income even if you become too ill or injured to perform your job duties.

No matter their specialty, every physician should have disability insurance, including self-employed ones. Whether you work locum tenens, as an independent contractor, or own your practice, here’s what self-employed physicians need to know about disability insurance.


Every Physician Should Have Disability Insurance

So what is disability insurance, and why do you need it?

Having disability benefits can make or break your future earning potential and existing assets.

Here’s how:

Disability insurance is income protection insurance. It’s a way to continue to earn a portion of your income if you’re unable to work due to an illness or injury.

Having a guarantee of income safeguards your current assets. It protects you from draining your savings or retirement account to pay your mortgage or other monthly expenses when you’re out of work.

Disability insurance also allows you the opportunity to continue to save for retirement and make investments to build future wealth. Without income, making investments in your future will be nearly impossible.

You can use disability income benefits for anything; there is no restriction on how you can spend your benefits. You can use your monthly payouts to pay your bills, pay off loans, buy real estate, invest in stocks, or in any other way that you see fit.

Some people think that disability insurance is nothing more than an added expense. They believe in the event of an illness or injury, they can rely on Social Security Disability Benefits through the federal government. For physicians, this simply isn’t the case.

As of 2021, SSDI benefits have a maximum monthly payout of $3,148. This is far less than the average physician salary, which equals approximately $297,000 per year ($24,750 per month).

Self-employed physicians earn even more, with an annual average salary of $357,000, breaking down to approximately $29,750 per month.

As a physician accustomed to earning a higher than average income, you cannot rely on disability payouts from SSDI.

Related: Why Doctors Should Consider Real Estate Investing


The Different Types of Disability Insurance

When you start shopping for disability insurance, you’ll hear terms such as short-term, long-term, group plans, and individual policies.

Here are the distinctions between these various types of plans.

Short Term vs. Long Term

The main difference between these policies is the duration of time in which you are eligible to collect benefits.

With a short-term disability insurance policy, you can expect to receive benefits for a period of three to six months. With a long-term disability insurance policy, you can opt to receive benefits for two, five, or ten years, or until you reach retirement age.

Regardless of your age, specialty, or medical history, long-term disability insurance is always the better option.

Group vs. Individual

Employed physicians often have a choice between a group disability insurance policy or an individual insurance policy. Employers offer group insurance policies to their employees, providing a particular amount of coverage with a specific set of terms.

This is not a factor for self-employed physicians.

The only option for self-employed physicians is to seek an individual disability insurance policy. And while fewer options may seem like a drawback, that’s not the case here.

Unlike group policies, individual plans are flexible, and you can customize them to meet your specific needs. We recommend that all physicians get their own individual policy for maximum protection — even if offered a group plan through their employer.

Here’s the bottom line:

Self-employed individuals should obtain an individual disability insurance policy that offers long-term benefits.

Discover: The 4 Questions Every Physician Should Ask About their Disability Insurance


What Self-Employed Physicians Should Look for in Disability Insurance

Portrait of a smiling physician working in her office. Asia

Before selecting your policy and giving the insurance company the green light to begin underwriting, you need to know a few key terms.

Understanding these three terms is crucial in selecting the policy that’s best for you:

Waiting Period

Also called the elimination period, the waiting period is the time between your injury and when you can start collecting your disability insurance benefits.

Waiting periods with long-term disability insurance policies can range from as little as 30 days to as many as 720 days.

Selecting a longer waiting period can reduce your monthly premiums. Still, you’ll want to ensure that you have enough savings or other income, such as income from a spouse, to sustain you throughout that timeframe. Without savings or other income to rely on, the shorter your waiting period should be.

Regardless of your benefit amount or when you file your disability claim, the waiting period is firm. You will not be able to collect any amount of money until the waiting period ends.

Benefit Period

The benefit period is the duration of time throughout which you are eligible to receive your monthly benefit. Benefit periods for long-term policies range from two years all the way to retirement age.

The upside to choosing a longer benefit period is you’ll be able to collect benefits over a longer span of time — potentially until you retire and live off your savings.

The drawback to choosing a longer benefit period is that it increases your monthly premiums.

Definition of Disability

Every disability policy includes a “definition of disability,” with the two most common being true own-occupation and any-occupation.

With an any-occupation policy, you need to be so severely disabled that you cannot work in any occupation. This is problematic, as this is a challenging standard to meet.

For example, a surgeon with a partial disability that restricts movement in the hand won’t be able to perform surgery. Still, that injury would not prevent that surgeon from teaching, researching, or working as a hospital administrator. Under the any-occupation definition, this surgeon would not be eligible to receive benefits.

With the true own-occupation of disability, that same surgeon with that same partial disability would be able to collect benefits.

Own-occupation policies allow you to collect benefits as long as your injury or illness prevents you from doing all, some, or part of your current job. Own-occupation policies also let you work other jobs and still collect benefits based on the income that you can no longer make from the position you held at the time of your injury.

All self-employed people, including physicians, nurses, and physician assistants, should select a disability insurance policy with the true own-occupation definition. If you opt for the any-occupation definition, you’ll most likely never be able to meet the standard required to collect your benefits.

Further reading: Why Doctors Need Own-Occupation Disability Insurance


Riders That Self-Employed Physicians Should Add

With individual insurance policies, insurance companies offer the option to add riders. Riders are additional benefits that add to your monthly insurance premium yet provide significant benefits in return.

Here are some of the most important riders to add to your policy:

Residual Disability Insurance Rider

The residual disability rider eliminates the “all or nothing” aspect of disability insurance.

For example, if you have an illness that doesn’t prevent you from doing your job but requires you to only work part-time, this rider provides a partial benefit to supplement your partial loss of income.

Retirement Benefit Rider

Concerned that your disability insurance benefits won’t be enough to still contribute to a retirement savings plan?

The retirement benefit rider puts a percentage of your monthly premium directly into a retirement trust that you can collect when you reach retirement age.

COLA Rider

COLA is the cost of living adjustment rider, and it automatically increases your monthly benefits to account for rising inflation.

It’s a critical rider, particularly for young physicians, as young physicians stand to earn substantial salary increases throughout their careers.

FIO Rider

The FIO rider is the future increase option, and it’s one of the most essential riders that you can add. The younger you are in your career, the more crucial it becomes.

The FIO allows you to increase your coverage regardless of your age or health concerns. It allows you to pay for less coverage at the start of your policy, then increase your benefit amount (and pay more in the insurance premium) as your salary increases.

With the FIO, you can lock in rates early in your career and increase coverage over time without undergoing new medical screenings or new policy underwriting.

Student Loan Rider

Physicians that are still paying off medical school loans should consider adding the student loan rider.

If you become eligible to collect disability benefits while you’re still paying off student loans, this rider will repay those loans for you in addition to paying your monthly benefit.

You won’t have to dip into your disability benefits to pay your student loans back with this rider.

Catastrophic Disability Rider

For extreme circumstances, such as the loss of limbs, hearing, or sight, the catastrophic disability rider is a great safety net.

This rider provides an additional monthly benefit on top of your selected monthly coverage amount if you suffer a devastating disability.


Self-Employed Practice Owners Also Need Business Overhead Expense Insurance

Female Doctor in her Medical Office with Stethoscope

Are you the sole proprietor of a small business? Are you a self-employed physician who owns all or part of their practice?

If so, you need business overhead expense insurance in addition to disability insurance.

Business overhead expense insurance protects all your business expenses, such as the cost of rent on your practice, monthly utilities, and employee salaries.

All business owners should have BOE insurance — especially those with their own practice that may need to hire a replacement physician to cover for them while they’re unable to work.

Some insurance companies also offer the “professional replacement endorsement.” This is extra coverage specifically designated to hire and pay for your replacement in your absence.

Besides BOE insurance, self-employed physicians that own their own practices should also consider adding a business loan protection rider.

The rider covers payments for loans taken out for business expenses, such as:

  • Inventory
  • Equipment
  • Renovations
  • Practice upgrades

Once you’ve paid those loans off, you can drop this rider and reduce your monthly premiums.

Self-employed physicians who work as independent contractors or work locum tenens assignments don’t need these additional insurances or riders. You only need them if you own a stake in a business.


Things to Keep in Mind When Buying Disability Insurance

The higher your annual income, the more critical disability insurance is. Because if you become unable to work — you stand to lose more future income over time.

Disability insurance is a financial planning tool. Despite the cost of your monthly insurance premium, disability income insurance is protection for your future. Yet, before you sign up for a policy, you should know the factors that contribute to the costs.

Several factors will determine the cost of your monthly premium, including:

  • Coverage amount
  • Benefit period
  • Waiting period
  • Age
  • Gender
  • Occupation/specialty
  • Health status
  • Location
  • Additional riders

Some of these factors, such as your age and gender, are beyond your control. But you can control the insurance cost with the benefit period, waiting period, coverage amount, and riders you choose.

The more riders you select when you initiate your policy, the higher your monthly insurance premiums will be. But you can reduce your monthly premiums by dropping certain riders as time goes by.

For example, if you’re close to retirement age, you can drop the COLA rider. The COLA rider exists to expand your benefit amount as your earnings grow throughout your career. It becomes less important the closer you are to retiring.

Another rider that you don’t need to pay for indefinitely is the student loan rider. Once you pay off your student loans, there’s no need to pay for this additional benefit.

When choosing a disability insurance policy, you may also want to consider selecting coverage with a mutual insurance company that pays dividends. Mutual insurance companies pay annual dividends to policyholders, which is yet another way to earn income over time.

Review: Disability Insurance Terms


Which Insurance Companies are the Best for Self-Employed Physicians?

There are so many insurance plans to choose from that self-employed workers often have difficulty deciding which one is right for them. Making this decision is a bit easier for physicians, as most physicians opt for a plan with one of the “Big 6” companies.

Why are these insurers referred to as the Big 6?

Because they offer the true own-occupation definition of disability — a non-negotiable that every physician needs.

The Big 6 insurance companies are:

Check out our provider review series to learn more about each individual company and what their policies have to offer.

See also: A Physician’s Guide to the Top Disability Insurance Companies


No matter what insurance company you choose for disability coverage, the application process is relatively easy.

You’ll need to submit an application, provide detailed information about your occupation and health history, and undergo a medical evaluation. Once you complete the medical exam and they finish the underwriting, you’ll have the disability insurance protection you need to protect your current assets and future income.

Not sure which insurer to choose? Not sure which riders you need?

For more information on disability insurance, consult Physicians Thrive now.

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