Is Group Disability Insurance Enough for Physicians?

Physicians are high income earners. However, they’re also at a high risk of losing that income if an injury or illness makes it difficult to work.

That’s why physicians of every specialty, experience level, and age need disability insurance.

But is the group disability insurance your employer gives you enough?

Or is it better to protect yourself with an individual plan?

Here’s what physicians need to know about group versus individual disability insurance — including why individual coverage is (almost) always the better option.

What is Group Disability Insurance?

Many employers offer group disability insurance plans as part of their employee benefits package. All employees in the group have the same insurance company and the same insurance policy terms.

Some professional associations offer group policies as well, but most people obtain these plans through their employer.

Still, there is one huge downside to being a part of a group plan:

If you leave your employer, your group policy will end because you will no longer be part of the group.

Another issue with group long term disability plans is that they don’t offer customization. All group members receive the same benefits and there is no option to add or change the coverages.

For these reasons, physicians may be better off with an individual disability insurance coverage plan instead.

Why Physicians Need Individual Disability Insurance

Disability insurance is not the same as health insurance.

Rather, it’s a form of income protection. Think of disability insurance as an important financial planning tool that every physician should have.

Below is an outline of the five most important elements of any disability policy. Physicians can customize these options to create the right plan for their needs and financial situation.

The Definition of Disability

Whether you have group coverage or individual coverage, every disability policy contains a definition of disability. This is the section of the policy that defines what qualifies as a “disability.”

You must meet the standards of that definition in order to qualify to collect benefits.

Here’s how disability insurance works:

Once you file a disability claim, your insurance company reviews the policy to determine if your injury or illness meets the definition of a disability.

If your injury or illness qualifies under the policy, you will begin to receive benefits. If you do not meet the definition, you won’t collect any benefits at all.

Disability policies define disability in one of two primary ways:

Own-occupation
Any-occupation

Under an own-occupation disability policy, you can collect benefits if your injury or illness prevents you from doing some or all of your current job. You can meet this definition even if your injury doesn’t prevent you from working other types of jobs.

An any-occupation policy stipulates that your injury or illness prevents you from working in any job whatsoever. It is more difficult to qualify for benefits under this type of policy. Typically, the diagnosed injury or illness must be much more severe in nature.

Physicians who buy an individual long-term disability insurance policy should always opt for the own-occupation definition.

Not only is it easier to qualify under such policies, there are added benefits as well:

You can collect benefits and choose to work in a different type of job at the same time. As long as the new job is different from the one you had when your injury or illness occurred, you can collect disability benefits and earn additional income in a new position.

Elimination Period

The elimination period is the time between the date of your injury or diagnosis and the date when you can begin collecting benefits.

Group plans don’t give you the option to select your own elimination period. With an individual plan, you can select a waiting period that’s as short as 30 days or as long as 720 days.

Shorter elimination periods increase your monthly premium expense. But there is an upside: you can start collecting payouts after a shorter period of time.

Longer elimination periods cost less but you will have to wait longer to earn benefits. A long waiting period is only a good idea if you have significant savings or a second source of income, such as spousal income.

Benefit Period

The benefit period is the length of time during which you can collect benefits. While short-term disability insurance policies usually pay benefits for up to six months, long-term policies can pay benefits for decades.

Under a group insurance policy, your employer chooses the benefit period. It can be as little as two to five years.

By contrast, individual policies let you specify how long you want your benefit period to be. You can select a benefit period of five, ten, or twenty years, or even until you reach retirement age.

If an injury prevents you from ever returning to work, a benefit period that lasts until retirement could pay benefits for thirty or more years.

Related: The Pros and Cons of Group vs. Individual Physician Insurance

Coverage Amount

Employers who offer group plans usually limit your coverage amount to a specific percentage of your current income. Because employers often pay 100% of your policy premium, they sometimes offer less coverage in order to reduce their own expenses.

Individual policies allow you to select your own coverage amount. That means you may be able to choose a coverage amount up to 60% of your current salary, compared to the 30% or 40% offered under many group plans. How much disability insurance coverage you need and want to pay for is entirely up to you.

Keep in mind that because most group plans are paid by your employer, your benefits are subject to federal and state income taxes. Individual policy premiums are paid out of your own pocket with after tax dollars, which means they qualify as non-taxable income.

Here’s why that matters:

Even if your employer’s group plan does offer a benefit amount of 60% of your income, you’ll have to pay taxes on that money, so your “take home” pay will be 60% of your salary minus your federal income tax rate.

Under an individual policy with non-taxable benefits, 60% coverage means that your benefits are likely to be closer to your full salary income after taxes.

The Option to Add Riders

You can customize individual policies by adding riders that enhance your disability benefits. Certain insurance companies offer more than a dozen optional riders, some of which are free while others add to the cost of monthly premiums.

The most important rider is the own-occupation rider. This option allows you to collect disability insurance benefits even if your disability doesn’t prevent you from working a different job.

Here are a few of the other most important riders that are worth adding to the cost of your monthly premiums:

Future Purchase Option Rider

The Future Purchase Option Rider, sometimes known as the Future Increase Option, allows policyholders to increase their coverage as their salary increases.

Physicians are encouraged to get disability insurance coverage early in their career. The younger the physician, the more future income they need to protect.

However, your current salary still determines your coverage amount.

The Future Purchase Option Rider changes that by letting you increase your coverage over time without undergoing another medical evaluation.

COLA

COLA is the Cost of Living Adjustment Rider. It increases your coverage amount yearly to account for inflation.

As inflation and the Consumer Price Index go up, so do your benefits. Every dollar of coverage you pay for now will be worth more if and when you collect benefits, without having to pay higher premiums.

The more working years you have ahead, the more vital this rider will be.

Residual Disability Rider

Not every injury or illness is a total disability that prevents you from working in full. Many physicians suffer partial disabilities that allow them to work but only part-time rather than full-time.

Buy the Residual Disability Rider if you want to collect a monthly benefit that is proportional to the amount of income lost from scaling back your hours.

Automatic Increase Benefit

The Automatic Increase Benefit (AIB) automatically increases your benefit amount for the first few years you have coverage.

Unlike the Future Purchase Option, which requires you to take steps to increase coverage, this rider does it automatically, usually for the first five or six of the policy. If you know that your income will increase in the next four to five years, this rider is the easiest way to increase coverage without having to take action.

You Can Take It With You

In addition to being able to customize a policy that meets your specific needs, there’s another reason why you should have an individual disability insurance policy:

You can take it with you.

Disability income insurance group plans end when you leave the employer’s group. An individual plan is yours to keep no matter where you work.

You’ll never have to worry about losing coverage if you start working with a new employer in the same capacity as your current role.

You Might Like: A Physician’s Guide to Disability Insurance in 2023

Is a Group Policy Ever the Better Option?

We recommend that all physicians have an individual disability insurance policy.

These policies provide the most flexibility and the greatest protection. The only time when a group policy is the better option is if the physician cannot obtain an individual policy on their own.

Individual policies determine eligibility for long-term disability coverage by requiring potential policyholders to undergo a medical evaluation.

Unfortunately, the policy may never reach the underwriting stage if the physician has certain pre-existing conditions or medical issues for which they are currently undergoing treatment.

Group plans rarely require a medical evaluation. They can be a good alternative for physicians who can’t get individual coverage on their own.

Is it Possible to Have a Group Policy and an Individual Policy at the Same Time?

It is possible to have both a group and an individual policy at the same time. Many physicians have an employer-sponsored plan but make the wise decision to purchase a policy on their own as well.

Having more than one policy at a time is called stacking.

Some high income earners choose to stack individual policies, while others stack an individual policy with their group policy.

Remember that if you try to increase your individual plan’s coverage, your carrier might check your employer benefits before agreeing to increase your coverage.

How to Choose the Right Disability Insurance Provider

Because it’s important to have an own-occupation policy, physicians only have a few choices for insurance carriers:

Mass Mutual
Principal
Ameritas
Guardian
The Standard

These are the five traditional carriers that offer own-occupation types of disability policies.

As a prospective policyholder, it’s always a good idea to compare policies, rates, and terms before settling on one insurance provider. This can be time consuming, but you can make the process easier by speaking to an insurance specialist at LeverageRx.

A LeverageRx insurance specialist can help you compare individual providers, rates, and policy terms to find the one that’s right for you. Having an insurance specialist on your side can save you from spending hours contacting several different insurance companies.

It’s not up for debate — every physician should have an individual disability insurance policy to protect their future unearned income.

Even if you have a great policy through an employer’s group plan, it’s not enough. A customizable, own-occupation policy tailored to your specific needs is always the best way to protect your income and maintain financial stability.

To start comparing carriers, policy terms, and prices, contact a disability insurance specialist at LeverageRx now.

See Also: 8 Key Features That Doctors Need in a Disability Insurance Policy