Over the past decade, physicians and other healthcare professionals have become more financially literate. We believe this is largely due to the efforts of physician bloggers and others who saw the need and demand for a greater understanding of the methods used to accumulate wealth, pay down debt, and protect their future earnings. However, as researchers by nature, this can sometimes lead them to a path of indecision, often referred to as “paralysis by analysis” or the inability to see the “forest through the trees”.

Physicians are typically likely aware of the need to protect their most valuable asset – their ability to earn an income. One of the most effective ways to do this is with an individual disability insurance policy.

In the past, the conversation centered around disability insurance was typically initiated and led by an insurance agent or other financial professional. While this is still often the case, more potential clients are coming to us with a significant amount of financial knowledge and acumen. They have already done their due diligence by talking to colleagues and insurance brokers.

However, what we have also noticed is that same potential client who has done their research, will come to us with general misunderstandings about the specific features of a disability insurance policy, or been distracted by some of the minutia. As a result, they may not be focusing on what is important when deciding which policy may be appropriate for them.

Contrary to what many in our industry will tell you, aside from terminology or industry jargon, disability insurance is a relatively easy product to understand – especially when compared to the study of medicine. Other than the most obvious difference between policies, the cost, there are typically only a few features to consider when deciding on what policy is appropriate for you.

Arguably, the most important feature that you will want to make sure your policy contains is a true “Own-Occupation” definition of total disability. This definition allows you to collect your monthly benefit if you were totally disabled from performing the “material and substantial” duties of your occupation due to an injury or illness, even if you were gainfully employed in another occupation or medical specialty.

As a result, if you have the energy, interest, and motivation to pursue another occupation while totally disabled in your occupation, this definition supports your ability to do just that.

You will also want the policy to be Guaranteed Renewable and Non-Cancelable. If you purchase a policy that is both non-cancellable and guaranteed renewable, you are ensured that the premium rates and policy provisions will not be changed as long as the policy remains enforced. This combination provides the greatest degree of consumer protection.

However, at its very core, the true “Own-Occupation” definition of total disability only protects your ability to work in your occupation. At the time a disability occurs, you either are able to work in your occupation or you are not. For this reason, your policy should have a Partial, or as some companies call it, a Residual Disability Benefit Rider.

This rider allows you to receive a portion of your monthly benefit if, due to an injury or illness, you must work fewer days per week, fewer hours per day, see fewer patients and/or perform fewer procedures.

In fact, one company offers three different Residual/Partial Disability Riders – a Basic Residual, an Enhanced Residual, and an Enhanced Plus Residual.

The Enhanced options will typically only require a loss of income to trigger benefits while the Basic options may also require a “loss of time” (you must work fewer hours) or a “loss of duties” (you cannot perform all your prior job duties). A more comprehensive policy may read like this “The insured must show a loss of time OR duties OR income during the benefit waiting period”. This makes it perfect for insureds who might not experience an immediate loss in income.

Two companies currently use a “dollar-for-dollar” income replacement for the first 12 months of a Residual/Partial Disability claim.  For example, you have a policy with a monthly benefit of $10,000. Your pre-disability income was $20,000 per month and it drops to $10,000 per month, due to an accident or sickness, you have lost 50% of your income. As a result, you would typically receive 50% of your $10,000 monthly benefit or $5,000 monthly. If things remained this way for 12 months, you would receive $60,000 for the first 12 months of this claim ($5,000 x 12 months).

However, under a dollar-for-dollar income replacement, you would receive the lesser of your policy’s monthly benefit or the actual dollars lost. Using the example above, if your pre-disability income was $20,000 per month and it drops to $10,000 per month, due to an accident or sickness, you have lost $10,000. As a result, you would typically receive $10,000 per month (the dollars lost up to your policy’s monthly benefit). If things remained this way for 12 months, you would receive $120,000 for the first 12 months of this claim or double the benefits over this time compared to other companies.

The Partial/Residual Riders may also continue to provide benefit if you have returned to your occupation with no limitations but continue to experience a loss of income and there is a demonstrable relationship to your prior disability. This is called the Recovery Benefit. Here, you have physically recovered but may not have recovered financially.

Some Residual or Partial Disability Riders do not include a Recovery Benefit. While this may be adequate for an employee paid by W2 with no bonus or incentive compensation, this may be financially devastating to a self-employed physician or one that derives some or all their income based upon productivity.

You have decided to purchase disability insurance. The monthly benefit will take your income and other disability insurance, if any, into consideration.

What happens if your situation changes? What if your income is rising but your health is declining, or you can no longer purchase coverage in the future the way you can today? Ideally, you want the ability to increase your coverage, regardless of your health, as your income rises.

There are two types of increase options.

One, the “traditional” increase option. This is often referred to as the Future Increase Option Rider or the Future Insurability Option (FIO) Rider. The most important thing to know is that “F” may stand for “Freedom”.

FIO Rules

1. You pay a premium to have this rider included in your policy.
2. You have a “pool” or amount of additional coverage you can purchase.
3. As you exercise this rider and purchase additional coverage, your overall premium increases but the cost of the FIO Rider itself is reduced.
4. The maximum monthly benefit you can increase your coverage to is a combination of the base monthly benefit plus the amount of the FIO Rider
5. The option is available annually and you can choose to exercise it or not (typically to your age of 55 or 60), depending upon the specific insurance company, based upon your individual needs, goals and budget.
6. You are not required to “check-in” with the insurance company or purchase a minimum coverage amount for the rider to remain on your policy for continued future use.

Two, the “alternate” increase option. This is often referred to as the Benefit Increase Rider (BIR), Benefit Update (BU) Rider, Benefit Purchase Rider (BPR) or Maximize Your Benefit (MYB) Rider.  The most important thing to know is that if the option starts with a “B” or has a “B” in it, it may stand for You “Better Do Something”!

BIR/BU/BPR, MYB Rules

1. There is a no premium for the rider. It is available to you if you meet a minimum purchase requirement when the policy is purchased and otherwise qualify medically.
2. There is no “pool” of additional coverage you can purchase. Instead, you are able to increase your coverage up to the specific insurance company’s maximum Issue and Participation (I&P) limits at the time you exercise the rider.
3. Generally, you MUST “check-in” with the insurance company and apply for additional coverage every three years. If you do not apply for additional coverage, the rider will be removed from your policy. In some cases, this is permanent, and the rider cannot be added back to your policy.
4. If you do send in your application and are offered additional benefits, you MUST purchase at least 50% of the benefit you are offered, or again the rider will be removed from your policy. As a result, should you want to increase your coverage in the future, medical underwriting (medical questions, a prescription drug check, medical records review, and potentially an exam, blood and urine test would be required)
5. At the time you exercise the rider, some companies will calculate premiums based on your then occupation class. Meaning, if your occupation or medical specialty is not viewed as favorably as it was when the original policy was purchased, the pricing may not be as favorable.

The choice of increase rider is often the first feature clients will use to narrow down their choice of insurance company or policy. Some companies only make the “F” Rider available. Some companies only make the “B” Rider available and some offer both. This can also vary by state.

Some companies will issue new policies while others will amend your existing coverage to reflect the new monthly benefit (this guarantees that all policy provisions that were purchased originally will be the same for all benefit increases). If you do not mind having to check in every three years, and that you must purchase additional coverage if you qualify, then the BPR/BU/BIR Riders can be a great option since the cost savings associated with the FIO Rider can make the policy more affordable or can be used to purchase more coverage. On the other hand, if you prefer more flexibility as to when you increase your coverage, to what extent and, if at all, the FIO Rider may be a better choice.

Companies typically allow you to choose a limitation for claims resulting from mental/nervous and/or substance abuse disorder or unlimited coverage.

If one chooses a limitation, the intent of this rider/endorsement is to limit the benefit period if the primary cause of disability were solely a psychiatric or substance abuse disorder/diagnosis as defined in the DSM IV (or its replacement), including, but not limited to Post Traumatic Stress Syndrome (PTSD), anxiety, depression, and/or drug and alcohol abuse/addiction.

This limitation may be required by the insured’s state of residence (this is required in California for all companies and one company in New York) or by medical specialty such as emergency medicine or anesthesiology. Typically, the limitation is for 24 months per period of disability or over one’s lifetime.

The limitation would not apply to claims for dementia because of a stroke, head injury, viral infection, Alzheimer’s disease, or similar organic disease processes, including Parkinson’s disease and Multiple Sclerosis. These illnesses would be covered in the same way as any other accident or sickness.

Finally, if the insured had a physical (medical) condition, as well as a psychiatric condition, the mental/nervous limitation would not apply if the physical condition would in and of itself be considered a disability under the terms of the policy.

While many clients will never consider residing overseas, others may not have a choice.

As a Foreign National (Visa Holder) Berkshire (Guardian) will issue a policy with a travel exclusion, which states “In consideration of the issuance of this policy by Berkshire Life Insurance Company of America, it is hereby understood and agreed that the policy shall not cover loss because of disability contributed to or caused by any sickness or injury incurred while outside of the 50 United States, the District of Columbia or Canada including treatment, surgery or complications thereof. This does not apply to incidental travel where the policyholder is out of the 50 United States, the District of Columbia or Canada for less than 31 days and has made plans to return.“

As a result, if you become disabled in the United States (or outside the United States during incidental travel) and must return to your country of citizenship, benefits will be paid with no restrictions. All other companies will exclude or limit benefits in this situation.

Keep in mind, this language applies in all states except CA, DE, FL, MT, ND, NY, SD and WY.

Other Riders to Consider

There are other riders available commonly available which include the Cost-of-Living Adjustment (COLA) Rider, the Catastrophic (CAT) Disability Benefit Rider, and the Student Loan Rider (SLR). However, in our opinion, these will not differ to be the reason you would choose one company’s policy over another.

Parting Thoughts

While it admirable that you want to absorb every nuance of a disability insurance before making the purchase, it is important that you focus on those aspects of a policy that can have the greatest impact on your financial well-being.

Do not get sidetracked by what a colleague or friend tells you about their coverage. Product offerings change. They also may also not be the same age, gender, medical specialty, occupation, or have purchased a policy in the same state you reside.

Insurance Agents specializing in disability insurance will know of or have access to discounts and exclusive offerings and can guide you through the process so you can clearly see the forest through the trees.