Physician Disability Insurance

[Cali123]

Hello all,

I am trying to decide if I should purchase individual own occupation disability insurance. I am a surgeon and make approximately $1 million per year. My spouse makes $150k per yr. We have >$2 million saved in brokerage/savings/401k, have no student loans and have a million dollar home paid off. We have 2 children under the age of 3 yo and we are both close to 40 yo. Expenses per month are $7k. We plan on paying for our kids college/graduate school.

I am healthy and have no immediate family members with a history of chronic debilitating health conditions. $15k of monthly coverage would cost $5k annually (posttax) for an individual policy. My spouse says it's a waste of money given our situation.

Do you think I should purchase this disability insurance? I appreciate any advice/thoughts. Thanks!

[BruDude]

Disclaimer - I sell insurance

Yes, you should definitely have disability insurance, and IMO a lot more than $15k/month. Sure, you could probably retire tomorrow and be just fine, but you are earning $1M/year for potentially another 20+ years - why would you want to risk losing that income for such a nominal cost in the grand scheme of things? $15k/mo is the max that one company might offer (some go up to $17k for physicians), but you can also buy a supplemental policy which will cover you for another $45k/month on top of that.

$5k/year sounds a little on the low end for a 40 year old surgeon with a $15k/mo benefit. I would expect closer to $7-12k/year if you include COLA and Residual/Partial Disability benefits, an age-65 benefit period, and 90-day elimination period. COLA is debatable given your income and assets, but I would definitely include the Residual/Partial Disability benefit.

If you are earning that type of income I am guessing you are probably a partner in the practice, in which case you may also have a need for disability buy-out and business overhead expense insurance. If you become disabled, are you still obligated to pay the overhead expenses of the practice while not earning any income? What happens to your share of the practice if you are disabled for 24+ months?

[tic]

Disclaimer: I don't sell insurance and regard with great suspicion all who do. I'm also a physician.

I disagree with BruDude's suggestion that you should be thinking about protecting anything close to your total income. You need to be able to replace whatever you and your family would need to continue living. It would be foolish to pay to insure the portion of your income that you don't need. If you were badly injured and your spouse needs to quit work to care for you and drive you to appointments, how much income (remember, purchased disability benefits are post-tax and typically pay until retirement age) does your family need? I'm guessing your current savings would be insufficient. For my family, $150,000/year would be plenty. But, that question is between you and your budget.

If you save aggressively, you could self-insure within a few-to-several years and drop the disability policy. But, for now, I think you would be wise to get it.

[BruDude]

Disclaimer: I don't sell insurance and regard with great suspicion all who do. I'm also a physician.

I disagree with BruDude's suggestion that you should be thinking about protecting anything close to your total income. You need to be able to replace whatever you and your family would need to continue living. It would be foolish to pay to insure the portion of your income that you don't need. If you were badly injured and your spouse needs to quit work to care for you and drive you to appointments, how much income (remember, purchased disability benefits are post-tax and typically pay until retirement age) does your family need? I'm guessing your current savings would be insufficient. For my family, $150,000/year would be plenty. But, that question is between you and your budget.

If you save aggressively, you could self-insure within a few-to-several years and drop the disability policy. But, for now, I think you would be wise to get it.

I didn't say OP needs to insure his total income. OP could probably retire tomorrow and never worry about money again, but OP also has $20M+ in future income that could be wiped out in the event of a disability, so it's a question of what do they want to protect? That $20M+ earning power is a very valuable asset for which the cost to insure that asset is relatively nominal in the grand scheme of their income and existing assets. That doesn't even factor in the investment gains that can be earned by that level of income, which would be lost if disabled.

[Artsdoctor]

I'm part of a two-physician household and nearing 60, so that's my disclosure.

We have both had disability insurance since residency. We've paid premiums in post-tax dollars and the benefit would not be the same as a paycheck.

We have both had medical issues that came out of nowhere, could have been catastrophic, but have never needed the disability insurance.

However, you realize that (1) anything can happen to anyone at any age [as a surgeon, you should know this], (2) a significant disability can go on for a very long time, and (3) paying for medical and support costs when you're disabled is not cheap.

When I look at the amount of money we spend on all insurance premiums of all kinds over the course of a year, I'm not happy. But the alternative of not having the insurance is untenable. You make a good salary and can afford the premiums. There really shouldn't be an argument here. As always, I'd recommend insuring against a catastrophe and not just little things; consequently, I presume you're looking at a long waiting period before the policy kicks in. Whatever you decide, make sure you watch the cost of living issues; you can have a COLA rider or you may be able to increase your coverage periodically.

[lmbebo]

As a physician, radiologist, I also carry disability and life insurance. Wish my income was half of what your was and monthly income as well. I'm sole provider in my family. I carry about 12.5k of disability insurance (most I could qualify with my medical history). I got mine later in residency, wish I hadn't. If you can qualify for it and at your income level, should just be an automatic purchase. I've also recently purchased umbrella insurance as well.

[avenger]

I'm a physician.

My plan is to drop my disability insurance once I have enough to support my lifestyle with a sustainable withdrawal rate (3%?).

I've already stopped increasing my monthly benefit due to the rapid growth of my portfolio over the last few years. Soon I may even drop one of the two policies I have.

[Incendiary]

I'm a physician.

My plan is to drop my disability insurance once I have enough to support my lifestyle with a sustainable withdrawal rate (3%?).

I've already stopped increasing my monthly benefit due to the rapid growth of my portfolio over the last few years. Soon I may even drop one of the two policies I have.

When you're at that point, doesn't that mean you are ready to retire, then?

[avenger]

I'm a physician.

My plan is to drop my disability insurance once I have enough to support my lifestyle with a sustainable withdrawal rate (3%?).

I've already stopped increasing my monthly benefit due to the rapid growth of my portfolio over the last few years. Soon I may even drop one of the two policies I have.

When you're at that point, doesn't that mean you are ready to retire, then?

Yeah. I do plan on progressively decreasing coverage until I reach that point. Without derailing the thread, I'd be open to how others view that plan.

[gilgamesh]

Hello all,

I am trying to decide if I should purchase individual own occupation disability insurance. I am a surgeon and make approximately $1 million per year. My spouse makes $150k per yr. We have >$2 million saved in brokerage/savings/401k, have no student loans and have a million dollar home paid off. We have 2 children under the age of 3 yo and we are both close to 40 yo. Expenses per month are $7k. We plan on paying for our kids college/graduate school.

I am healthy and have no immediate family members with a history of chronic debilitating health conditions. $15k of monthly coverage would cost $5k annually (posttax) for an individual policy. My spouse says it's a waste of money given our situation.

Do you think I should purchase this disability insurance? I appreciate any advice/thoughts. Thanks!

Wow! You took a huge gamble in life and almost won or won. As in not having disability ins. to date.

As has been mentioned, you insure for things you cannot afford to pay yourself. If you can pay yourself for all expenses hence forth (can retire now), then don't need it.

A rough calculation to figure whether you have enough...$7k/month is $84k/yr. Your wife makes $150k. If you get disabled, that's still there. After tax, you can cover your expenses easily. Will the balance cover paying for kids colleges? If so, you can easily go without. Your nest egg still has to grow before you can rely on just that. But, it grows irrelevant of new investements. It has everything to do with whether your wife's after tax income will cover it all.

If your calculations show you don't need disability, keeping everything else constant, you and your wife should be able to retire in a few years (just calculating in my head, 2 years at most). If you are not comfortable with that solely for financial reason, then you are not being consistent in your analysis.

P.S: $5k for $15k sounds awesome. Yes, by all means pay with after tax. May be the premium is low as you are getting it so late (and thus closer to age 65 when I think disability ins stops, or is it 60?).

[gilgamesh]

I'm a physician.

My plan is to drop my disability insurance once I have enough to support my lifestyle with a sustainable withdrawal rate (3%?).

I've already stopped increasing my monthly benefit due to the rapid growth of my portfolio over the last few years. Soon I may even drop one of the two policies I have.

When you're at that point, doesn't that mean you are ready to retire, then?

Yeah. I do plan on progressively decreasing coverage until I reach that point. Without derailing the thread, I'd be open to how others view that plan.

The premiums you will save by gradually reducing till retirement is so minuscule compared to your nest egg, it won't make a difference at all. As in, your day to retire will be the same whether you do this or not. So, I plan to ignore that and keep my full coverage till I retire.

[afan]

I cannot see the need to keep disability insurance until retirement. After all, if I no longer need my earned income and can retire, then I don't need the insurance. I don't know how long before retirement I will drop coverage but probably at age 65. From that point my policies only provide a year of benefits. I wonder how insurance companies treat people who are past 65 and go on disability? I would worry they see them as trying to milk the system for a year of benefits, having already decided to retire.

For the OP, private colleges and graduate or professional school for two kids can be extremely expensive. Look it up, but current costs of $80,000 per year per student would be a reasonable estimate. If you call the grad/prof 4 years, then that is 8 years per kid, 16 years total. Times $80,000 is $1,280,000. That is a substantial share of your current assets.

If you became disabled and lost most of all of your earned income it would pretty much rule out providing the educational support you intend. If your expenses increase associated with your illness, then you are even further from your goals.

So, yes. Get disability insurance. You probably do not need coverage to age 65, since each year you keep working you sock away a significant share of the gap between what you have and what you need. You may well not need the coverage at 50, depending of.course on what the market does. But you do not have enough now to support your family as you intend without your income.

[ram]

We are a 2 physician family. We "fully" funded the kids 529 accounts, paid off the mortgage etc. Then once the retirement bucket was about 2/3 full we dropped the insurance coverage other than the 400K/yr/ head (life) and 60% of income upto 180k/yr (disability) that our employer pays for. Now with kids in college it turns out that we over funded the 529's.
I think at some point it is reasonable to cut back life/disability insurance.

[BruDude]

I cannot see the need to keep disability insurance until retirement. After all, if I no longer need my earned income and can retire, then I don't need the insurance. I don't know how long before retirement I will drop coverage but probably at age 65. From that point my policies only provide a year of benefits. I wonder how insurance companies treat people who are past 65 and go on disability? I would worry they see them as trying to milk the system for a year of benefits, having already decided to retire.

For the OP, private colleges and graduate or professional school for two kids can be extremely expensive. Look it up, but current costs of $80,000 per year per student would be a reasonable estimate. If you call the grad/prof 4 years, then that is 8 years per kid, 16 years total. Times $80,000 is $1,280,000. That is a substantial share of your current assets.

If you became disabled and lost most of all of your earned income it would pretty much rule out providing the educational support you intend. If your expenses increase associated with your illness, then you are even further from your goals.

So, yes. Get disability insurance. You probably do not need coverage to age 65, since each year you keep working you sock away a significant share of the gap between what you have and what you need. You may well not need the coverage at 50, depending of.course on what the market does. But you do not have enough now to support your family as you intend without your income.

The older you get, the better of a "deal" it becomes - you are still paying the same rate at age 60 as you were at age 35, but have a considerably higher risk of becoming disabled. After age 65, most policies will pay two years of benefits per disability. Generally speaking, you need to still be actively working to continue coverage past age 65/67. Some companies terminate the policy altogether at age 70 or 75, while others can continue indefinitely as long as you are still working.

[MrUnsure]

There are 4 physicians in my 100 physician multispecialty group that have become disabled permanently over the past 6 years.
Their ages were: 52, 62, 56, and somewhere in early 50s. They all had plently of money saved to personally make it to SS and beyond without trouble, but the 2 that I talked to about finances said they are paying very high rates for their care as part of their disabilities which would have derailed plans to a large degree. It would have made them less able to pay for their kids' college.
That number of personal acquantences being disabled for that many work years has convinced me that the price I pay for disability insurance is worth it.

[Incendiary]

How are they becoming disabled? Car accident? Surgery gone bad? Just curious.

[White Coat Investor]

Disclaimer - I sell insurance

Yes, you should definitely have disability insurance, and IMO a lot more than $15k/month. Sure, you could probably retire tomorrow and be just fine, but you are earning $1M/year for potentially another 20+ years - why would you want to risk losing that income for such a nominal cost in the grand scheme of things? $15k/mo is the max that one company might offer (some go up to $17k for physicians), but you can also buy a supplemental policy which will cover you for another $45k/month on top of that.

$5k/year sounds a little on the low end for a 40 year old surgeon with a $15k/mo benefit. I would expect closer to $7-12k/year if you include COLA and Residual/Partial Disability benefits, an age-65 benefit period, and 90-day elimination period. COLA is debatable given your income and assets, but I would definitely include the Residual/Partial Disability benefit.

If you are earning that type of income I am guessing you are probably a partner in the practice, in which case you may also have a need for disability buy-out and business overhead expense insurance. If you become disabled, are you still obligated to pay the overhead expenses of the practice while not earning any income? What happens to your share of the practice if you are disabled for 24+ months?

I disagree, but I don't sell insurance for a living. Maybe that is why I disagree. Insurance is, on average, a money losing proposition. It has to be. There has to be enough money included in the premiums to pay all claims, pay a commission to the agent, pay a profit to the insurance company (unless mutual), and cover the insurance company's expenses. Therefore you should only insure against things that would be financial catastrophes and self-insure against everything else. Since you have enough of a nest egg to cover all of your expenses for the rest of the your life at a sub 4% withdrawal rate (in addition to a spouse who earns more than your annual expenses) you are financially independent and no longer need disability insurance.

So since you have no insurance need, you're left trying to decide whether to bet on your own disability knowing the odds are against you (and have to be for insurance companies to stay in business.) You can certainly afford to make that bet, but I wouldn't make it unless you plan on increasing your spending dramatically at some point in your life.

It's your call, but there is little downside that I'm seeing either way. If you don't buy and get disabled, you'll be okay. If you do buy and get disabled you'll be okay. If you buy and don't get disabled you'll be okay. If you don't buy and don't get disabled you'll be okay.

But if you do buy it, I certainly wouldn't buy more than $15K a month. $180K a year plus your wife's $150K a year plus another $80K a year from the nest egg (and probably $120K a year in a couple of years and $150K a year a couple of years after that) ought to be plenty of income for someone with a paid off home who only spends $7K a month.

Are you sure there is nothing you could buy that would make your life happier? That seems a more pressing question in your situation than whether or not to buy disability insurance. If you start spending more, I could certainly justify paying DI premiums for another 5 years.

[zebrafish]

There are 4 physicians in my 100 physician multispecialty group that have become disabled permanently over the past 6 years.
Their ages were: 52, 62, 56, and somewhere in early 50s. They all had plently of money saved to personally make it to SS and beyond without trouble, but the 2 that I talked to about finances said they are paying very high rates for their care as part of their disabilities which would have derailed plans to a large degree. It would have made them less able to pay for their kids' college.
That number of personal acquantences being disabled for that many work years has convinced me that the price I pay for disability insurance is worth it.

I'm also aware of physicians who have become disabled from my last 10 years working, all surgeons.

#1. Retinal detachment-- could not operate, forced to retire in 50s
#2. Neuropathy-- could not operate, sees patients in clinic only in 50s
#3. Psychiatric-- could not operate, not sure if coming back or not in 40s
#4. Metastatic cancer-- could not operate for several years, now in remission, back to work in 40s
#5. Neurologic (ataxia/dystonia)-- on the way out of the operating room, will likely retire in 50s
#6. ALS-- now deceased, stopped working in 50s

Every single one of the above individuals had no idea this was coming.

I've worked with and without disability insurance. I feel better having it, knowing that if something (unlikely) happens, my family will be ok and I'll be ok if I cannot work. When I can truly self-insure, I'll drop the coverage.

[BruDude]

Disclaimer - I sell insurance

Yes, you should definitely have disability insurance, and IMO a lot more than $15k/month. Sure, you could probably retire tomorrow and be just fine, but you are earning $1M/year for potentially another 20+ years - why would you want to risk losing that income for such a nominal cost in the grand scheme of things? $15k/mo is the max that one company might offer (some go up to $17k for physicians), but you can also buy a supplemental policy which will cover you for another $45k/month on top of that.

$5k/year sounds a little on the low end for a 40 year old surgeon with a $15k/mo benefit. I would expect closer to $7-12k/year if you include COLA and Residual/Partial Disability benefits, an age-65 benefit period, and 90-day elimination period. COLA is debatable given your income and assets, but I would definitely include the Residual/Partial Disability benefit.

If you are earning that type of income I am guessing you are probably a partner in the practice, in which case you may also have a need for disability buy-out and business overhead expense insurance. If you become disabled, are you still obligated to pay the overhead expenses of the practice while not earning any income? What happens to your share of the practice if you are disabled for 24+ months?

I disagree, but I don't sell insurance for a living. Maybe that is why I disagree. Insurance is, on average, a money losing proposition. It has to be. There has to be enough money included in the premiums to pay all claims, pay a commission to the agent, pay a profit to the insurance company (unless mutual), and cover the insurance company's expenses. Therefore you should only insure against things that would be financial catastrophes and self-insure against everything else. Since you have enough of a nest egg to cover all of your expenses for the rest of the your life at a sub 4% withdrawal rate (in addition to a spouse who earns more than your annual expenses) you are financially independent and no longer need disability insurance.

So since you have no insurance need, you're left trying to decide whether to bet on your own disability knowing the odds are against you (and have to be for insurance companies to stay in business.) You can certainly afford to make that bet, but I wouldn't make it unless you plan on increasing your spending dramatically at some point in your life.

It's your call, but there is little downside that I'm seeing either way. If you don't buy and get disabled, you'll be okay. If you do buy and get disabled you'll be okay. If you buy and don't get disabled you'll be okay. If you don't buy and don't get disabled you'll be okay.

But if you do buy it, I certainly wouldn't buy more than $15K a month. $180K a year plus your wife's $150K a year plus another $80K a year from the nest egg (and probably $120K a year in a couple of years and $150K a year a couple of years after that) ought to be plenty of income for someone with a paid off home who only spends $7K a month.

Are you sure there is nothing you could buy that would make your life happier? That seems a more pressing question in your situation than whether or not to buy disability insurance. If you start spending more, I could certainly justify paying DI premiums for another 5 years.

I would consider the potential loss of $20M+ in future income a "financial catastrophe", just my opinion. OP doesn't need the insurance, it's a question of whether they want the insurance to protect their income. If I was earning $1M/year, I wouldn't even think twice about spending the money to make sure I could keep earning that income if I wasn't able to work.

OP probably does have a need for business-related DI too for buy-out and overhead expense purposes. There aren't many practices paying physicians $1M/year without them being an owner/partner. The other partners probably don't want a disabled partner raking in a share of the profits without doing any work, and they also probably require OP to pay a share of the expenses even if they become disabled. Earning $0, having $0 disability insurance, and paying a practice's overhead expenses at the same time with no guarantee of being able to return to work seems like a pretty bad situation that is easily solved with the insurance. You can always taken your chances, but why take that big risk when you are easily earning enough to pay the expense?

[cookymonster]

I'm a physician 2.5 years out of residency, never had disability insurance. It's just too expensive to justify. But I also have a seven-figure net worth, no dependents, and I'm counting on big inheritances from my parents at some point. I'm hoping I could live on a 3% withdrawal rate ($35,000 - $40,000 a year).

[White Coat Investor]

OP probably does have a need for business-related DI too for buy-out and overhead expense purposes. There aren't many practices paying physicians $1M/year without them being an owner/partner. The other partners probably don't want a disabled partner raking in a share of the profits without doing any work, and they also probably require OP to pay a share of the expenses even if they become disabled. Earning $0, having $0 disability insurance, and paying a practice's overhead expenses at the same time with no guarantee of being able to return to work seems like a pretty bad situation that is easily solved with the insurance. You can always taken your chances, but why take that big risk when you are easily earning enough to pay the expense?

I'm skeptical he actually lives on $7K a month and will continue to do so. That's an extremely unusual thing to do for someone making $1 Million. So I'm not opposed to him buying some DI, at least for a few more years. And if the business has a need for insurance, then sure, buy some. But I don't think that just having a high income is a reason to buy it if there is no insurance need. At that point you're just making a bet, and it's a bet you're statistically likely to lose. But I agree that he's got a heck of a lot of disposable income and if he wants to protect his ability to leave $50 Million to charity or his heirs upon dying, then he can certainly buy a policy that will do that. Might be more efficient to do it with life insurance than DI though, I don't know.

[MrUnsure]

How are they becoming disabled? Car accident? Surgery gone bad? Just curious.

#1 Basilar artery dissection with subsequent strokes
#2 Neck injury with loss of function of a hand. Surgery stabilized but did not fix.
#3 Car accident, multiple injuries, inability to walk
#4 Cancer, chemo caused significant functional issues

#1 and #4 may have been fine with a large life insurance policy, sadly. Both are still alive though, so who knows.

[BolderBoy]

and I'm counting on big inheritances from my parents at some point.

Careful with counting on this. The future is tough to see. Things can happen.

[cookymonster]

and I'm counting on big inheritances from my parents at some point.

Careful with counting on this. The future is tough to see. Things can happen.

It's one of a few small but non-zero risks that I guess I have to worry about. Others:
- My non-governmental 457(b) assets could get seized by creditors
- Social Security could go completely bankrupt
- Effective tax rates in retirement could hit 40+%

None of those risks are large enough to make me purchase disability insurance.

[Cali123]

Disclaimer - I sell insurance

Yes, you should definitely have disability insurance, and IMO a lot more than $15k/month. Sure, you could probably retire tomorrow and be just fine, but you are earning $1M/year for potentially another 20+ years - why would you want to risk losing that income for such a nominal cost in the grand scheme of things? $15k/mo is the max that one company might offer (some go up to $17k for physicians), but you can also buy a supplemental policy which will cover you for another $45k/month on top of that.

$5k/year sounds a little on the low end for a 40 year old surgeon with a $15k/mo benefit. I would expect closer to $7-12k/year if you include COLA and Residual/Partial Disability benefits, an age-65 benefit period, and 90-day elimination period. COLA is debatable given your income and assets, but I would definitely include the Residual/Partial Disability benefit.

If you are earning that type of income I am guessing you are probably a partner in the practice, in which case you may also have a need for disability buy-out and business overhead expense insurance. If you become disabled, are you still obligated to pay the overhead expenses of the practice while not earning any income? What happens to your share of the practice if you are disabled for 24+ months?

I disagree, but I don't sell insurance for a living. Maybe that is why I disagree. Insurance is, on average, a money losing proposition. It has to be. There has to be enough money included in the premiums to pay all claims, pay a commission to the agent, pay a profit to the insurance company (unless mutual), and cover the insurance company's expenses. Therefore you should only insure against things that would be financial catastrophes and self-insure against everything else. Since you have enough of a nest egg to cover all of your expenses for the rest of the your life at a sub 4% withdrawal rate (in addition to a spouse who earns more than your annual expenses) you are financially independent and no longer need disability insurance.

So since you have no insurance need, you're left trying to decide whether to bet on your own disability knowing the odds are against you (and have to be for insurance companies to stay in business.) You can certainly afford to make that bet, but I wouldn't make it unless you plan on increasing your spending dramatically at some point in your life.

It's your call, but there is little downside that I'm seeing either way. If you don't buy and get disabled, you'll be okay. If you do buy and get disabled you'll be okay. If you buy and don't get disabled you'll be okay. If you don't buy and don't get disabled you'll be okay.

But if you do buy it, I certainly wouldn't buy more than $15K a month. $180K a year plus your wife's $150K a year plus another $80K a year from the nest egg (and probably $120K a year in a couple of years and $150K a year a couple of years after that) ought to be plenty of income for someone with a paid off home who only spends $7K a month.

Are you sure there is nothing you could buy that would make your life happier? That seems a more pressing question in your situation than whether or not to buy disability insurance. If you start spending more, I could certainly justify paying DI premiums for another 5 years.

I guess it boils down to what level of income protection or lack thereof one is comfortable sleeping with at night. My spouse and I certainly have disparate views on that.

[White Coat Investor]

If your spouse wants you to buy the policy you'd best buy it.

[veindoc]

I'm on the fence on whether or not you should purchase this or not but wanted to bring up one point. If you were to become disabled I would not count on your wife's income. My friend's dad had ALS in his 50's. His wife quit working for the five years he lived with the disease taking care of him as he became progressively more and more disabled. With both spouses not working I'm not sure what they did for health insurance. When he passed, she eventually went back to work as a radiologist. He was a nephrologist.

My uncle was an internist but he became legally blind from his type 2 diabetes in his late 50's. My aunt moved to a part time schedule to be more available for him as he needs some around the house. They have no children so she is completely devoted to him. In your situation you might need to hire a nanny at an additional cost if your wife needed to take care of you.

Imagine if you developed Parkinson's, MS, or some other disease requiring in home care but that spanned decades. Those costs could add up quickly. That 7k/month you are living off of now could jump to 12 or 15k. Modifying the home to become handicap accessible. Home health, nanny etc. That could take a big bite out of your savings.

[BruDude]

I guess it boils down to what level of income protection or lack thereof one is comfortable sleeping with at night. My spouse and I certainly have disparate views on that.

Pretty much. You can always gamble with not buying any type of insurance, it's a question of whether the risk of doing so is worth the cost savings, and would your life be materially different if something happened and you didn't have it?

[ModifiedDuration]

Disability insurance through the American College of Surgeons might be worth considering, due to its low cost (and it does have own surgical specialty coverage):

http://acs.amwins.com/sites/acs/files/m ... 16_web.pdf

[BruDude]

Disability insurance through the American College of Surgeons might be worth considering, due to its low cost (and it does have own surgical specialty coverage):

http://acs.amwins.com/sites/acs/files/m ... 16_web.pdf

Premiums seem very low for surgeons, not sustainable IMO. Currently being discounted 30%, subject to change. Policy terms and benefits subject to change. Premiums subject to change. Policy could be eliminated by ACS or insurer at any time, leaving the insured with nothing (happens fairly often with group/association policies when the claims start rolling in). Pretty risky for a product that is unlikely to remain the same for 20+ years.

Total disability definition does not allow work in another occupation and defines as "due to an illness or accident" - says nothing about injury and/or whether that is considered an accident or not, which would be a major concern for me unless there is something more detailed in writing.

COLA is capped at a 100% total increase of original benefits. When recovered from disability, no option to keep the additional benefits that were provided from the COLA rider.

There are no partial disability benefits unless the partial disability follows a total disability that resulted in claim payment. If you were working in the same job but half as many hours due to back pain and earning half the income, according to the plan description you would be paid $0.

One of the better association-based plans I've seen, but still not comparable to a top-tier individual DI policy. You get what you pay for.

[ModifiedDuration]

Do insurance agents really get 50% of the first year's premium of an individual disability insurance policy as commission?

I guess when you are buying an individual disability insurance policy you're not getting what you paid for - the insurance agent is the one getting what you paid for.

https://www.buaweb.com/cms/resource_lib ... ochure.pdf

[rittersport]

Also a physician (hospitalist), have always had disability insurance provided by my employer - the hospital. I wouldn't feel comfortable without it. Your odds of becoming disabled are MUCH higher than those of dying, and yet more people tend to get life insurance than disability. Becoming disabled would potentially have a larger financial impact on your family than your death, and as others have pointed out, you can't count on your spouse's income.

(Aside - the original post says "spouse" and yet every poster thus far who has made a gender assumption has called your spouse your "wife". Can we stop for a moment to realize that?)

If you are female and plan on having more kids, all the more reason for disability insurance. Pregnancy is risky.

If you get it, you'll want to look for own-occ clause, partial disability, and the duration of benefits.

ALSO: Hijacking this to ask another question. Recently had a trainee ask me whether it is smarter to purchase disability insurance in residency, or wait until working afterwards, under the assumption that an employer/group may well cover it. Thoughts?

[afan]

The older you get, the better of a "deal" it becomes - you are still paying the same rate at age 60 as you were at age 35, but have a considerably higher risk of becoming disabled.

BruDude, I have the greatest respect for your knowledge of disability insurance and I have learned a lot from your posts. But I have to disagree here. You have a higher risk of disability at 60 than at 35, true. But if you become disabled at 35, then your premium buys you 30 years of benefits. If you become disabled at 60, you get 5 years of benefits. For the same premium. I don't see that as a better deal. I suspect it is overall a fair deal. If not, either the premium is too low at 60, in which case disability companies would lose a fortune or the premium is too high at 60, in which case someone would come out with a less expensive policy.

As you get older, the premium stays the same but the lifetime value of the benefit decreases. It WOULD be a great deal if the 60 year old would get the same 30 years of benefits as would the 35 year old. But it does not work like that.

What happens when someone who is working full time at 67 tries to go out on disability? Do the companies get much more aggressive about fighting the claim? Do they assume this is just a way to get paid for the first year of retirement?

If I were to hold my policies past 65 they would pay one year of benefits. At that point I don't expect to need the money. Having the disability coverage, for one year, would soften the blow of losing my earned income, but we should be have our needs covered several times over and I would agree that insurance would no longer be needed. I am trying to convince myself to cancel now, but will more likely taper, then drop at 65, or 64.

[BruDude]

The older you get, the better of a "deal" it becomes - you are still paying the same rate at age 60 as you were at age 35, but have a considerably higher risk of becoming disabled.

BruDude, I have the greatest respect for your knowledge of disability insurance and I have learned a lot from your posts. But I have to disagree here. You have a higher risk of disability at 60 than at 35, true. But if you become disabled at 35, then your premium buys you 30 years of benefits. If you become disabled at 60, you get 5 years of benefits. For the same premium. I don't see that as a better deal. I suspect it is overall a fair deal. If not, either the premium is too low at 60, in which case disability companies would lose a fortune or the premium is too high at 60, in which case someone would come out with a less expensive policy.

As you get older, the premium stays the same but the lifetime value of the benefit decreases. It WOULD be a great deal if the 60 year old would get the same 30 years of benefits as would the 35 year old. But it does not work like that.

What happens when someone who is working full time at 67 tries to go out on disability? Do the companies get much more aggressive about fighting the claim? Do they assume this is just a way to get paid for the first year of retirement?

If I were to hold my policies past 65 they would pay one year of benefits. At that point I don't expect to need the money. Having the disability coverage, for one year, would soften the blow of losing my earned income, but we should be have our needs covered several times over and I would agree that insurance would no longer be needed. I am trying to convince myself to cancel now, but will more likely taper, then drop at 65, or 64.

You have to keep in mind that the average disability claim isn't 30 years. Let's assume the average claim is two years (a number I have heard thrown around by several companies). I would also suspect that the average claim at age 60 is longer than the average at a younger age when you are more likely to return to work. At age 60, you are significantly more likely to become disabled than at age 30. Yes, you would not be paid 35 years of benefits, but going off the average claim, you have a much higher risk to get the same benefit, yet the price is still that of a 30-year-old. If you bought a new DI policy at age 60, it would be very expensive. Of course you could drop the policy if you don't need it, but at the higher risk level and lower price point, it's probably a good risk:reward ratio.

Most DI policies will pay for a max of two years when a claim occurs after age-65, unless you have a to-age-70 benefit period. You have to be continuously employed to keep the policy after age 65/67.

[archbish99]

I guess when you are buying an individual disability insurance policy you're not getting what you paid for - the insurance agent is the one getting what you paid for.

No, based on that, the insurance agent isn't getting what you paid for, they're getting (some of) what you paid for it.

Less sarcastically, I have no issue with people providing a service and being compensated for it. However, as with investing services, I don't think there's a direct correlation between purchase price and the complexity of the job in this case.

I'd love to see a model that incents the agent to find the right policy, not the most expensive one -- I'm sure the agent on this thread is providing advice in good faith, but the incentives might be a bit unfortunate.

[BruDude]

I guess when you are buying an individual disability insurance policy you're not getting what you paid for - the insurance agent is the one getting what you paid for.

No, based on that, the insurance agent isn't getting what you paid for, they're getting (some of) what you paid for it.

Less sarcastically, I have no issue with people providing a service and being compensated for it. However, as with investing services, I don't think there's a direct correlation between purchase price and the complexity of the job in this case.

I'd love to see a model that incents the agent to find the right policy, not the most expensive one -- I'm sure the agent on this thread is providing advice in good faith, but the incentives might be a bit unfortunate.

Most of the DI companies pay approximately the same commission, it's not like one pays 100% and the other pays 50%. Many people actively searching for DI are shopping on their own, have gotten quotes from other agents, etc. If an agent is only looking to sell them the most expensive policy, they aren't going to get many sales. Conversely, if it is the type of agent that shows people cheap rates by limiting the benefits, an experienced agent will run circles around them by explaining why that type of quote is garbage and showing what is really needed to have a comprehensive policy. When I see someone quoting a resident physician a $3000/mo benefit with a 5-year benefit period, no FIO, 3% simple COLA, and no residual just so they can show a policy that costs under $100/month, not only do I find it absurd that an agent would even quote it, but I feel bad for the docs that aren't being told why the policy they're looking to buy is totally insufficient.

I usually quote my (potential) clients the "max" benefits they're eligible for with an explanation that if they want to reduce the premiums, there are several ways to do that...but I don't want someone to come back to me later and say "hey, why didn't you tell me I could get a better policy than you sold me?" A lot of people are willing to pay more to get a Guardian policy, others want to minimize the premium and will take the lowest priced policy from any of the top-tier companies. Just depends who you're working with and what they're happy with. Most people buy DI because they see the value in it, not just because someone told them they should.

For what it's worth, quoting, selling, and underwriting DI policies is much more complex than life insurance. I probably spend twice as much time on a given DI case compared to life insurance. There are a lot more moving parts/benefits to explain/underwriting considerations.

[BruDude]

Do insurance agents really get 50% of the first year's premium of an individual disability insurance policy as commission?

I guess when you are buying an individual disability insurance policy you're not getting what you paid for - the insurance agent is the one getting what you paid for.

https://www.buaweb.com/cms/resource_lib ... ochure.pdf

Usually 50-75% depending on production level and persistency...this is not a secret, anyone could probably find that info online if they searched. Agents can make up to 130% of the first-year premium on a life insurance policy depending on their production level and contract. Even so, most insurance agents make less than $50k/year.

The price of the policy is the same whether you buy it through an agent or directly from the insurance company. Some agents also have access to discounts for physicians that aren't available when buying direct, or can suggest a discount that the company itself would not automatically apply (such as the 15% business-owner discount with Standard).

[afan]

BruDude raises an interesting question of the distribution of disability claims durations. What fraction of them are long enough to trigger insurance coverage? If one has a six-month elimination period, how likely is it that a disability claim will go that long? Anyone know a source for these data?

I found a site called whatsmypdq.org that offers a calculator. It says I have a lifetime 4% chance of a disability lasting 3 months or longer. This looks like a site for encouraging people to buy insurance and I assume it is sponsored by the insurance industry. Nevertheless, if we assume the numbers are right, then I have little chance of collecting on my policies. The site does not report the odds on disability of 6 months or longer, but I assume they are lower still.

The site says that, if I become disabled then I have a nearly 50% chance that the disability would be 5 years or longer. In other words, less than 2% chance of a disability that long.

But say I am still holding the policy at an age where it will not pay for the duration of disability but only for a year or two. Now my instantaneous risk of disability keeps going up as I get older. However, since the time before 65 keeps decreasing, my lifetime risk of disability does not increase as quickly. As one approaches retirement this lifetime risk drops rapidly. On your penultimate day of work, even if you are 70, your odds on going out on disability overnight are near zero. But same premium as when you were 30 and COULD be out for decades.

The actual risk depends on the distribution of disability durations. How many people are out for one month, two months, etc. If my lifetime risk of disability long enough to trigger a policy is less than 2% and the loss of income would inconvenient, but not catastrophic, then there is less reason to keep the coverage.

As one gets older, the lifetime loss of income due to permanent disability goes down, since it is truncated by death. The lifetime income from the disability policy is always less than the loss of income since they will not insure ones full income. The lifetime benefits are also limited by the term limits on benefits.

It seems one needs more data to make an informed decision.

[afan]

For fun, I went back and recalculated the lifetime risk of disability of greater than 3 months for some early in their career. As you would expect, it is about an order of magnitude higher.

So
Young physicians: low instantaneous risk of long term disability, but high cumulative risk, due to the long career ahead of them.

Older physicians: high instantaneous risk but low cumulative risk, due to the short time horizon.

Risks for doctors, I assume but do not have data, should be lower than the average office worker. Docs are healthier on average, have health insurance and have high incomes, which are associated with better health.

Not at all clear it is worth it to keep this insurance as ones assets have sufficiently exceeded needs to be able to retire. It would be a different result if someone who planned to work to 75 could collect 10 years of benefits if they became disabled at 65. But I don't know of policies like that. If they exist they must be hugely expensive.

[BruDude]

BruDude raises an interesting question of the distribution of disability claims durations. What fraction of them are long enough to trigger insurance coverage? If one has a six-month elimination period, how likely is it that a disability claim will go that long? Anyone know a source for these data?

I found a site called whatsmypdq.org that offers a calculator. It says I have a lifetime 4% chance of a disability lasting 3 months or longer. This looks like a site for encouraging people to buy insurance and I assume it is sponsored by the insurance industry. Nevertheless, if we assume the numbers are right, then I have little chance of collecting on my policies. The site does not report the odds on disability of 6 months or longer, but I assume they are lower still.

The site says that, if I become disabled then I have a nearly 50% chance that the disability would be 5 years or longer. In other words, less than 2% chance of a disability that long.

But say I am still holding the policy at an age where it will not pay for the duration of disability but only for a year or two. Now my instantaneous risk of disability keeps going up as I get older. However, since the time before 65 keeps decreasing, my lifetime risk of disability does not increase as quickly. As one approaches retirement this lifetime risk drops rapidly. On your penultimate day of work, even if you are 70, your odds on going out on disability overnight are near zero. But same premium as when you were 30 and COULD be out for decades.

The actual risk depends on the distribution of disability durations. How many people are out for one month, two months, etc. If my lifetime risk of disability long enough to trigger a policy is less than 2% and the loss of income would inconvenient, but not catastrophic, then there is less reason to keep the coverage.

As one gets older, the lifetime loss of income due to permanent disability goes down, since it is truncated by death. The lifetime income from the disability policy is always less than the loss of income since they will not insure ones full income. The lifetime benefits are also limited by the term limits on benefits.

It seems one needs more data to make an informed decision.

I've often heard the average claim is two years, which would be the extension of time after the average elimination period, not including it. Term life insurance only has claims on about 2% of all policies sold - still, the risk of the financial catastrophe to you alone is 100% in the event of death.

For fun, I went back and recalculated the lifetime risk of disability of greater than 3 months for some early in their career. As you would expect, it is about an order of magnitude higher.

So
Young physicians: low instantaneous risk of long term disability, but high cumulative risk, due to the long career ahead of them.

Older physicians: high instantaneous risk but low cumulative risk, due to the short time horizon.

Risks for doctors, I assume but do not have data, should be lower than the average office worker. Docs are healthier on average, have health insurance and have high incomes, which are associated with better health.

Not at all clear it is worth it to keep this insurance as ones assets have sufficiently exceeded needs to be able to retire. It would be a different result if someone who planned to work to 75 could collect 10 years of benefits if they became disabled at 65. But I don't know of policies like that. If they exist they must be hugely expensive.

Risk of disability for doctors is much, much higher than the average office worker because it is so much easier to become "disabled" by definition of the policy. Minor nerve damage could render a surgeon disabled and eligible for a long-term claim, while an office worker might not even get past the elimination period with that. That is why doctors have much higher premiums than office workers, which are often in a class 5 or 6 occupation (on a scale of 1-5 or 1-6). Medical occupations are on a separate scale of 1M-5M or 1M-6M, and an equivalent occupation class level (such as 5M for doctor vs. 5 for office worker) is still much more expensive.

[afan]

I've often heard the average claim is two years, which would be the extension of time after the average elimination period, not including it. Term life insurance only has claims on about 2% of all policies sold - still, the risk of the financial catastrophe to you alone is 100% in the event of death.

So that is the question. As one keeps working past the point where they can afford to retire, there is no risk of financial catastrophe. Just as such physicians would likely have cancelled their term insurance- they no longer need the protection- they would cancel their disability insurance for the same reason.

But BruDude, do you know of a source for the distribution of disability durations? The average of 2 years does not tell us what the median is. I would imagine, but again don't know, that there are a large number of relatively short claims and a small number of lifetime claims that run for multiple decades. Those could make the average 2 years, while the typical, median or modal, claim might be much shorter.

And again, if you are in late career, as the insurance company sees it, and only would get 1 or 2 years of benefits no matter how long you are disabled, then the claim will be limited to that period. Your policy is insuring against an event of declining likelihood- long term disability before you retire- and promising to pay only for a limited period of time. This lower exposure for the company makes up for the higher instantaneous risk. At least, that seems to be how the coverage is priced.

I still seems that you don't need disability coverage if you can afford to retire. You could hold onto it like a lottery ticket- this will probably not pay anything, but if an older physicians gets hit by a bus and lives for several years thereafter the doc could get 1 or 2 years of benefits.

[gilgamesh]

I'm on the fence on whether or not you should purchase this or not but wanted to bring up one point. If you were to become disabled I would not count on your wife's income. My friend's dad had ALS in his 50's. His wife quit working for the five years he lived with the disease taking care of him as he became progressively more and more disabled. With both spouses not working I'm not sure what they did for health insurance. When he passed, she eventually went back to work as a radiologist. He was a nephrologist.

My uncle was an internist but he became legally blind from his type 2 diabetes in his late 50's. My aunt moved to a part time schedule to be more available for him as he needs some around the house. They have no children so she is completely devoted to him. In your situation you might need to hire a nanny at an additional cost if your wife needed to take care of you.

Imagine if you developed Parkinson's, MS, or some other disease requiring in home care but that spanned decades. Those costs could add up quickly. That 7k/month you are living off of now could jump to 12 or 15k. Modifying the home to become handicap accessible. Home health, nanny etc. That could take a big bite out of your savings.

Excellent point, as I never thought of it this way and thus helped me.

[BruDude]

I've often heard the average claim is two years, which would be the extension of time after the average elimination period, not including it. Term life insurance only has claims on about 2% of all policies sold - still, the risk of the financial catastrophe to you alone is 100% in the event of death.

So that is the question. As one keeps working past the point where they can afford to retire, there is no risk of financial catastrophe. Just as such physicians would likely have cancelled their term insurance- they no longer need the protection- they would cancel their disability insurance for the same reason.

But BruDude, do you know of a source for the distribution of disability durations? The average of 2 years does not tell us what the median is. I would imagine, but again don't know, that there are a large number of relatively short claims and a small number of lifetime claims that run for multiple decades. Those could make the average 2 years, while the typical, median or modal, claim might be much shorter.

And again, if you are in late career, as the insurance company sees it, and only would get 1 or 2 years of benefits no matter how long you are disabled, then the claim will be limited to that period. Your policy is insuring against an event of declining likelihood- long term disability before you retire- and promising to pay only for a limited period of time. This lower exposure for the company makes up for the higher instantaneous risk. At least, that seems to be how the coverage is priced.

I still seems that you don't need disability coverage if you can afford to retire. You could hold onto it like a lottery ticket- this will probably not pay anything, but if an older physicians gets hit by a bus and lives for several years thereafter the doc could get 1 or 2 years of benefits.

The insurance companies don't publish any statistics on the distribution of claim duration over different ages that I have seen, but it is an interesting question. I'm sure they have that info internally since it would have an effect on their actuarial assumptions, but they probably don't want it to get out because the competing carriers could use it against them in product design and pricing.

I agree that once you are financially secure and could retire tomorrow without breaking a sweat, it is no longer needed, but a question of whether it is wanted and whether the cost relative to the risk of becoming disabled is now advantageous to the insured instead of the insurance company. If you've had a heart attack in the past but still working, clearly you are at much higher risk for having a disability claim than someone in excellent health. For the heart attack person, it's a "great deal" due to their high risk. For the excellent health person, maybe not as much. Same thing applies to life insurance - if you bought it while in perfect health and have now had a heart attack/cancer/etc, even if you don't need it, you may want to keep it anyway because your expected value (policy cost vs. risk of claim) is net positive.

[afan]

The insurance companies don't publish any statistics on the distribution of claim duration over different ages that I have seen, but it is an interesting question. I'm sure they have that info internally since it would have an effect on their actuarial assumptions, but they probably don't want it to get out because the competing carriers could use it against them in product design and pricing.

More is the pity. I did find some charts from the Society of Actuaries about the risks of disability. They suggested the same as that commercial site, that the risk is pretty low for office workers in their 60's. But I did not see duration of disability data. I agree they do not want you to know that.

If you've had a heart attack in the past but still working, clearly you are at much higher risk for having a disability claim than someone in excellent health. For the heart attack person, it's a "great deal" due to their high risk. For the excellent health person, maybe not as much. Same thing applies to life insurance - if you bought it while in perfect health and have now had a heart attack/cancer/etc, even if you don't need it, you may want to keep it anyway because your expected value (policy cost vs. risk of claim) is net positive.

Physicians can probably play this game better than most. So I assume the insurance companies expect a lot of adverse selection in life and disability insurance with those more likely to benefit being the ones who hold on to their policies as they age. And this is probably worse in the physician (and probably the actuary) market.