Unpacking Short-Term vs. Long Term Disability Insurance for Doctors
For physicians, comprehensive disability insurance is the cornerstone of prudent financial planning. While no one anticipates suffering an unexpected illness or injury, disability claims are more common than you might think. It’s estimated that one third of American workers will experience a disability that prevents them from working at some point in their career. Going without income during a period of disability simply isn’t an option for most doctors, particularly in the early years of their career.
Understanding the features of both short-term and long-term disability insurance is essential in order to make informed decisions for your financial future. The biggest distinction is right there in the name: short-term and long-term insurance provide coverage for different durations of time. While both types of insurance serve key functions to protect doctors in the event of a disability, they differ in regard to benefits, cost, coverage, providers and more.
What situations do short-term and long-term disability insurance cover?
While both types of insurance are designed to protect doctors in the event that they are too sick or injured to work, short-term and long-term insurance have different benefit periods. The benefit period is the amount of time that a policyholder can receive disability benefits.
Short-term insurance usually has a benefit period of 3-6 months, although some policies can can pay benefits for up to a year. The coverage is intended to protect you in the event of a temporary disability that only interferes with your ability to work for a short period of time. For example, a short-term insurance policy would pay benefits if a surgeon broke his wrist and needed to take 12 weeks off work to recover.
Common reasons for short-term disability claims include:
- Digestive disorders
- Joint problems
- Fractures, sprains, and strained muscles
Long-term insurance benefit periods are intended to provide coverage for more serious illnesses and injuries that impair a doctor’s ability to work for years at a time. Depending on the policy you purchase, long-term insurance benefit periods can last for 2, 5, or ten years, or until the policyholder is 65 years oldor longer. For example, if a pediatrician developed cancer and was unable to work for several years, long-term disability insurance could pay benefits until she recovered or reached retirement age.
Common reasons for long-term disability claims include:
- Back pain
- Heart attack or stroke
- Mental health issues
Which type of disability insurance should I get?
For maximum coverage, it’s recommended that every doctor has both short-term and long-term disability insurance until enough short-term reserves are built up. Considering the average long-term disability absence lasts nearly 3 years, it’s absolutely critical for physicians to have a policy that extends beyond the months-long benefit period of a short-term policy. But it’s not just benefit period that matters when weighing disability insurance; it’s also important to consider the elimination period, the amount of time that has to elapse before a policy begins paying benefits.
The elimination period for short-term insurance plans can range from 14 to 30 days, depending on the specifics of your policy. This means that you can begin receiving benefits as early as two weeks following the onset of a disability. However, a doctor with only short-term disability coverage could find herself completely without income after a few months of benefits, proving catastrophic in the event of a serious injury or degenerative illness.
Long-term disability insurance policies have elimination periods of several months. At the beginning of their career, few doctors have the emergency fund savings to go without income for a more than a few months.That’s why most young doctors purchase long-term insurance policies with 90-day elimination periods or supplement their long-term disability insurance with short-term plans that pay benefits sooner.
As doctors increases their emergency fund savings over the course of their careers, most insurance companies allow policyholders to modify and increase their elimination period. As a general rule, the longer the elimination period is, the cheaper the premiums will be. Based on your income and savings, an insurance professional can help you determine what elimination period is best for your financial situation.
Loan payments and other financial responsibilities don’t get put on pause in the event of a disability. For doctors who can’t afford to go a few months without income, short-term disability insurance is an excellent supplement to a long-term policy, as it minimizes the wait-time before receiving disability benefits. Ultimately, it is imperative for doctors to invest in a long-term disability insurance plan to protect themselves from financial disaster in the event of a lasting or permanent disability.
How much can I receive in disability benefits?
Disability benefits are intended to supplement, rather than fully replace, income lost as a result of an illness or injury. Nevertheless, disability benefits provide a critical safety net to help keep doctors afloat financially when they are unable to earn their usual income.
Short-term disability insurance benefits typically replace approximately 80% of a doctor’s income. Long-term disability insurance pay closer to 60% income replacement. However unlike a doctor’s income, disability benefits are not usually taxable, so benefits can come closer to matching your typical post-tax take-home pay.
When choosing a disability insurance policy, an insurance professional can help you determine the right coverage amount for your financial situation. By choosing a policy with lower benefits, you can save money on premiums, but it’s important to ensure you have enough savings or additional financial support to make up for a greater loss in income if you become disabled.
How much will I pay for short-term and long-term disability insurance?
The cost of a doctor’s disability insurance can vary widely depending on factors such as their age, salary, and specialty.
Short-term disability insurance is usually offered, and often subsidized, by employers such as medical groups or hospitals in the form of a group insurance plan. Long-term disability insurance is usually purchased from an independent insurance carrier. While long-term disability insurance is more expensive, its coverage can span the length of an entire career, rather than a few short months.
The cost of a disability insurance policy may change over the years, as a physician increases his savings and becomes less reliant on disability benefits to maintain financial stability For long term disability insurance, the cost can range from one to three dollars per $100 of income benefit.
From sports injuries and pregnancy to arthritis and heart disease, the list of reasons that a doctor may require disability leave is endless. Long-term disability insurance is the ultimate protection for your financial security, and a necessary supplement to employer-provided short-term disability insurance. By choosing a disability insurance policy with the benefit period, elimination period, and coverage amount that’s right for you, you can take the time you need to recover from any illness or injury without worrying about making ends meet