How Much Disability Insurance Do I Need? A Guide for Physicians

Long-term disability insurance can provide financial stability if you experience a disabling injury or illness. As a high-income earner, you can receive a substantial payout if you can’t perform your specialty, depending on your policy’s definition of disability. That said, you’re probably wondering, “How much disability insurance do I need?”

Ideally, you need enough disability coverage to keep you and your family in your existing lifestyle. This means buying a policy that covers your fixed expenses, debts and personal preferences. But you also want to plan for financial surprises and the many medical expenses that come with a disability.

Keep reading to learn how to determine the appropriate amount of disability insurance coverage for your situation.

What’s disability insurance and how does it work?

Long-term disability insurance provides a monthly benefit if you can’t work due to a disabling event. This payout amount is based on a percentage of your income, usually maxing out at around 60% of your gross pay. Depending on your policy, disability insurance benefits continue for the duration of your benefit period, which ranges from a couple of years all the way up to traditional retirement age — or until you recover from your disability.

For high-income healthcare professionals, disability insurance should play a key role in your financial plan. Customize your coverage to protect your medical or dental specialty income and six-figure education investment. Additionally, tailor your policy for a variety of factors based on your risk tolerance and financial needs.

Related: When to Purchase Physician Disability Insurance

What does disability insurance cover?

According to the Council for Disability Awareness, approximately 90% of disabilities are caused by illnesses, not accidents. And when injuries are the cause, they aren’t usually work-related. Therefore, workers’ compensation won’t kick in.

Long-term disability insurance covers a wide variety of injuries and medical conditions. Some of the most common types of disability claims are:

• Musculoskeletal disorders, including arthritis, back pain, spine and joint disorders, etc.
• Medical conditions, such as cancer, heart attack or diabetes.
• Mental illness, such as depression and anxiety.
• Disorders of the nervous system and sense organs, such as multiple sclerosis, epilepsy and Alzheimer’s.

Based on data from the Centers for Disease Control and Prevention, more than 61 million adults in the US are living with a disability. It’s not far-fetched to assume that you could be at risk of a disability at some point in your career.

How much disability insurance do I need?

Whether you’re purchasing an individual disability insurance policy or looking for supplemental coverage, you’ll need to decide how much disability insurance you need based on your own circumstances.

For example, let’s say a physician is married to another high-earning spouse, and together, they strategically pay their student loan debts and choose to live below their means. This physician might feel secure with less coverage considering they have minimal debt and can rely on their spouse’s income if needed.

Alternatively, a physician who wants to cover their mortgage and living expenses, save for their children’s college and ensure their spouse can continue to stay at home will likely need to buy significantly more coverage.

Related: FPO Disability Insurance: A Must For All Physicians and Dentists

How to determine the right disability coverage amount

Insurance companies generally let you buy disability coverage to replace up to 60% of your gross income. As long as you’re paying for the premiums (and not your employer), your disability benefits will be tax-free. A 60% income replacement is fairly similar to your current take-home pay considering most high-income physicians are paying 15% to 35% toward taxes.

That said, consider your income, expenses, savings and other financial factors to determine the right benefit amount for you — not just a percentage. A realistic way to estimate how much disability insurance you need is with this calculation: 

Minimum disability coverage =
Current expenses – reduced spending – other sources of income

Consider your current expenses and disability-related costs

At minimum, all of your fixed monthly expenses should be covered. This includes housing costs (e.g. mortgage, home insurance, property taxes, utilities, etc.), car payments, childcare expenses, health insurance, student loan payments and other debt obligations.

But also consider the many unexpected costs that can come with a long-term disability. For example, you’ll likely have ongoing medical expenses, including co-pays and travel expenses to see medical specialists. Medical bills can quickly add up, so plan to have more disability income to help cover these disability-related costs.

Think about how your spending might change if you become disabled

Experiencing a disabling event can change a lot of things in your life. It can impact your finances, relationships, and physical and mental health. It can also alter your overall mindset of how you view needs versus wants.

Consider how your standard of living and spending might change if you become disabled.

Would you downsize your home or look for more accommodating living arrangements for your disability? Would your food budget change dramatically now that you’d have more time to cook at home versus eating out due to your existing hectic work schedule? Would you reign in your spending on luxury items knowing that your cash flow would be more limited with a disability?

A disability can fundamentally change a person and their priorities. But for some, their main priority might focus on keeping their family in the same lifestyle that they’re already accustomed to. Either way, it’s best to consider how your spending habits might change in the aftermath of a disabling injury or illness.

Look at other assets, income or savings you can count on

You should also consider the different ways you could tap into other financial sources if you were to become disabled.

Is your spouse in a high-income career field or could they return to the workforce, if needed? Do you have rental properties that could support your household budget? Could you live off of your investment income?

If you have significant savings or a nice retirement nest egg in place, you might not need as much coverage as someone who has very little assets to their name.

Get a quote with SLP Insurance

Determining the right amount of disability insurance coverage is as unique of an answer as the individual buying it. It can be helpful to speak with a knowledgeable insurance broker who can guide you through the process.

SLP Insurance works with you to figure out how much disability insurance you need based on your financial situation, existing coverage and overall risk tolerance. We’ll find you a true own-occupation disability policy with the best discounts available, or send you to another broker if they have a better option.

Fill out the quote form below to get started on a custom quote tailored to you!