Is Disability Insurance Worth It? How to Know if the Benefits Outweigh the Cost

You’ve worked hard to get into your profession and provide for your family. But what would happen if you experience an injury or illness that prevents you from working or earning an income in your specialty? Insert disability insurance.

Disability insurance serves as income protection by paying out a percentage of your income each month. But it can be costly and complicated.

A quick online search will yield plenty of horror stories of people paying hundreds of dollars a month for decades only to have their disability claim denied. So, is disability insurance worth it?

For most physicians and breadwinners, the answer is a resounding yes. But there are some circumstances where buying disability insurance might not make sense.

Let’s dive into who needs disability insurance and what you need to consider when purchasing a disability policy.

What is disability insurance and do you need it?

Disability insurance covers a portion of your income if you can no longer work due to an injury, illness, or other qualifying condition.

Long-term disability (LTD) generally pays up to 60% of your gross monthly income until retirement age or until your chosen benefit period (e.g. five years) is completed.

Premiums are based on your earnings, age, health and occupation (the riskier your job, the higher the cost). Other disability insurance plan decisions, such as your benefit period, waiting period and various riders can affect your premium amount.

However, you can generally expect to pay around 1% to 3% of your annual income when purchasing an individual disability policy.

Related: Graded vs. Level Premium Disability Insurance: A Breakdown of Costs

Some employers provide long-term disability insurance as part of their benefits package. In which case, the premium is usually covered. However, these group plans can be severely lacking in terms of limited benefits and a narrower definition of which types of disability qualify.

Therefore, many professionals can benefit from a supplemental individual policy that provides more comprehensive coverage. Fill out the form below to get a custom quote from us! Otherwise, keep reading for more information on the benefits and drawbacks of disability insurance.

5 Scenarios where disability insurance is worth it

If you work in an occupation with a high risk for disability, such as surgeons and physicians, then disability insurance is a must. Any number of accidents or wear-and-tear on your body could impact your ability to continue in your medical specialty.

But as general guidance for all professions, here are some instances where you might benefit from buying adequate disability coverage.

1. Your income depends on using your hands. This is why disability insurance for surgeons is so important. Surgeons’ hands generate a lot of financial value, so any injury that affects their ability to perform procedures could be detrimental to their career.
2. You have a spouse, partner or children depending on your income. If your family primarily relies on your income, then disability insurance is necessary to adequately provide for them if you can no longer work.
3. You’ll benefit from your own occupation policy for your specialty. With this policy provision, you’ll receive a monthly payout if you’re unable to continue working in your specific profession — even if you’re able to work in a different field or capacity. This should be a top priority for anyone with a medical specialty.
4. You have normal risk tolerance. Most people are risk-averse. In which case, disability insurance will protect your family from the unknown and give you added peace of mind.
5. You’re young and in good health. Disability insurance costs increase significantly with age and as your health deteriorates. So, you’ll lock in the cheapest rates with an individual policy when you’re at the youngest and healthiest stage of your career.

5 Scenarios where disability insurance might not be necessary

Although disability insurance should be a financial planning priority for surgeons and other physicians, there are times when it might make sense for others to opt out of coverage.

1. You’re financially independent. If you’ve already reached this pinnacle, then you’re no longer dependent on your income as a physician or other high-earning professional. Therefore, there’s no true need for disability insurance.
2. Your spouse earns a similar or higher income. If your spouse will be able to carry the financial load without your income, then it might make sense to forgo disability insurance. But you’ll need to be comfortable with living off just one income, which might mean making adjustments to your lifestyle.
3. You can live off of social security disability insurance (SSDI). The average monthly SSDI payment is $1,223 as of February 2022. Depending on your average earnings, your benefit will likely be higher — but not anything close to what you’ll get through an individual policy. Additionally, SSDI can often be harder to qualify for.
4. You’re nearing the end of your career. If you’re in your late 50s and 60s, your premiums are going to be higher than say a young physician who just completed residency. You should also have more significant assets at this point in your career, providing you with other financial sources if you choose not to carry disability coverage.
5. You have a high risk tolerance. Some people have a much higher tolerance for risk in general. If this is you, the cost of disability insurance coverage might be a major turnoff considering you could be using the money for other financial goals. But the Social Security Administration states that one-in-four workers will become disabled by retirement age. So, although you might be comfortable with the risk of not carrying disability insurance, the risk of becoming disabled is certainly real.

Related: Understanding the Difference Between Life Insurance vs. Disability Insurance for Physicians

Pros and cons of purchasing a disability insurance policy

A long-term disability policy can protect your income and your family from the unexpected. But there are some drawbacks to consider. Here are the biggest pros and cons of disability insurance.

Pros

• You’ll receive a monthly benefit if you become disabled. This includes injuries and illnesses that you might eventually recover from.
• Qualifying disabilities include some of the most common health issues. According to the Council for Disability Awareness, the most common long-term disability claims include musculoskeletal disorders, cancer, mental health issues, circulatory problems (e.g. heart attack or stroke), and injuries such as fractures, sprains and strains.
• A disability policy protects your education investment and your future earnings. If you’re a new physician, you might assume that your assets are next to nothing or even in the negative due to your student loan debt. But your future earnings should be viewed as an asset because you’re on track to earn millions over the course of your medical career. So, you need to protect that asset like you would any other.
• You can focus on recovery and your family in your time of need. Knowing you have a disability insurance policy in place while you’re unable to work can give you great peace of mind.

Cons

• There’s no guarantee that you’ll ever use your policy. Disability insurance is meant to be a safety net, not a return on your investment. Hopefully, you’ll never need it because you’ll remain in good health and unharmed. But paying hundreds of dollars each month for a policy you might never use isn’t for everyone. If you have a high risk tolerance, you might be better served by investing that same money in a brokerage account with the sole intent of using it as income protection.
• Your monthly disability benefits might not cover all of your expenses. The maximum disability insurance benefit is generally around 60% of your income, and many policies fall short of this benefit amount. So, your existing disability policy might not provide enough coverage.
• You’ll have to wait for benefits to kick in. Depending on your policy waiting period, you’ll have to wait anywhere from 30 days up to a full year to receive your first benefit after filing a disability claim. However, 90 to 180 days is the norm. In the meantime, you might have to drain your emergency fund or rely on family charity.
• Your policy might have a narrow definition of disability. When it comes time to file a disability claim, you’re going to deal with an insurance claims adjuster whose job is to limit losses to the company and identify fraud. Therefore, you’ll likely have to jump through extensive paperwork hoops and potentially fight for the coverage you've been paying for.
• The cost of group disability coverage can change from year to year. Depending on your policy, your premiums could change as you enter a new age bracket or if discounts are adjusted. You can avoid this by locking in a rate with an individual policy.

How to decide if disability insurance is right for you

Disability insurance can provide peace of mind and a needed financial solution if you ever experience a qualifying disability. However, due to its cost, not everyone can afford it. Additionally, some families might not need it depending on their assets and whether they’re a dual-income household.

However, if you’re a surgeon or physician, disability insurance is too important to push off for another day. Your potential lifetime earnings and education investment can’t be easily replaced. Therefore, you need an own-occupation policy with a strong definition of your specialty. Otherwise, you risk the insurance company not paying out as expected when you go to file a claim.

If you have existing disability coverage, set aside time to do a deep dive into your policy to understand the ins and outs of it. Don’t wait for policy surprises at a time when you’ll likely be drained mentally and physically from a devastating injury or illness.

SLP Insurance and our independent partner agents can provide a one-on-one assessment of your disability insurance options and needs. Start the free disability insurance quote process by using the form below.