Life Insurance vs. Disability Insurance Guide for Physicians

Life insurance and long-term disability (LTD) insurance are both forms of income protection, but they come into play at very different moments of crisis. Life insurance provides for your loved ones if you pass away. Whereas disability insurance provides an income while you’re still alive but unable to work.

When considering life insurance versus disability insurance as a physician, it isn’t a question of which is better. Instead, both should be a priority in your overall financial plan.

Understanding life insurance: What does it cover?

The primary purpose of life insurance is to provide income replacement for your spouse, children or other beneficiaries in the event of your death. Life insurance for high-income earners like physicians is especially important because of the high earning potential. Breadwinners and anyone with dependents relying on their income should also consider this type of coverage.

Types of life insurance policies

When we talk about life insurance, we’re strictly discussing term life insurance. That’s because whole life insurance is a terrible idea if you have student loans, and in most other cases, too. Not only do insurance agents make huge commissions from selling whole life insurance, but the product itself generally has a low rate of return. Plus, most policies lapse in the first five years due to the high insurance premiums.

That being said, we’re big fans of term life insurance, regardless of your profession or net worth. It’s a simple product that’s very affordable, even when you’re shopping around for $1 million (or more) of coverage.

For example, a 30-year-old female in great health could find term life coverage with a $1 million death benefit and a 20-year term for only $25 a month. Her male counterpart could expect to pay about $30 a month for the same coverage.

Although life insurance won’t replace you, it can provide great peace of mind for your loved ones following a tragedy — without being a drain on your monthly budget.

Benefits and limitations of term life insurance

As long as you’ve kept up with your premium payments, your beneficiaries can receive a lump sum death benefit based on the terms of your life insurance policy. This benefit is tax-free and can be used however they see fit. Therefore, the money can be used for a variety of reasons immediately or over time, including funeral costs, mortgage payments, college tuition and more. 

However, term life insurance does come with some limitations. For instance, due to the nature of the product, you won’t be covered for the duration of your life.

When purchasing the policy, you’ll choose a term that fits your needs best. This might be a term for 10, 15, 20, 25 or 30 years, depending on your professional and financial situation. If the policy expires before you do, there’s no payout — which is a really great problem to have.

But if your life is cut short during the policy term, your beneficiaries can receive the predetermined death benefit tax-free, allowing them to remain in their current lifestyle and hopefully be taken care of for many years to come.

Understanding disability insurance: What does it cover?

Long-term disability insurance can replace up to 60% of your income if you become disabled due to an injury or illness. But disability insurance policies can be widely different depending on the insurance company, policy details and the individual being insured.

Own-occupation vs. any-occupation disability coverage

Your policy’s definition of disability is one of the most important aspects of buying disability insurance for physicians. An own-occupation policy will protect your medical or dental specialty income by providing monthly benefits if you can’t perform the “substantial duties” of your specific profession. Additionally, it allows you to work in another occupation without losing your disability income.

In contrast, a standard any-occupation policy requires proof that you’re unable to work in any capacity, including outside of your medical or dental profession. This, in turn, makes it a lot harder to qualify for benefits.

Types of disability insurance policies

Disability policies come in many “flavors,” if you will, making them a more complex financial product than term life insurance. Depending on where you work and your profession, you might have access to a variety of disability insurance options including:

• Group disability insurance. Many employers offer no-cost disability insurance to their employees. You might also have access to group disability options through a professional association. However, these group benefits often fall short of what many physicians need in terms of their monthly payout and disability definition. 
• Guaranteed Standard Issue (GSI) policy. Residents and fellows might be eligible for a GSI policy that provides guaranteed disability coverage without medical underwriting. However, availability will depend on where you’re completing your residency or fellowship.
• Individual disability insurance. An individual policy provides more flexibility, allowing you to customize your policy based on your profession, financial needs and overall risk tolerance.

Keep in mind that you can supplement your group benefits with an individual policy to provide additional coverage.

Benefits and limitations of long-term disability policies

Disability insurance can be a financial lifeline if you experience a long-term injury or medical condition. You’ll receive a monthly payout for the duration of your policy’s benefit period, which could be for several years or until you hit traditional retirement age.

Additionally, you can tailor your policy by choosing disability riders that make sense for you. For example, residents, fellows and young attendings can benefit from choosing a future purchase option that allows them to increase coverage as their salary increases.

Other optional rides, such as catastrophic or residual benefits, can further impact your level of coverage.

But the cost of disability insurance can often deter people from buying the coverage they need. This is particularly true for women who can pay up to 35% more in disability premiums.

SLP Insurance works with physicians from all medical and dental specialties to find the best own-occupation coverage at the most affordable rate. We have access to discounts and can help guide you through the policy process to ensure you have the right coverage without unnecessary costs. Fill out the form below to get started!

Life insurance vs. disability insurance: Key differences

Disability insurance and life insurance serve as financial stabilizers when your family might need it the most. Here’s a quick summary of the main details of term life insurance versus disability insurance.

	Term life	Long-term disability insurance
Primary purpose	Provides beneficiaries with a death benefit if you pass	Provides income replacement if you become disabled
Benefit period	Lump sum if policy is active at time of death	Ranges from two years up to retirement age
Coverage amounts	$100,000 to $10 million (or more)	Up to 60% of gross income
Typical costs	$20 to $40 if in good health	2% to 4% of income
Gender differences	Tends to cost more for males	Females can pay up to 35% more*

Both life insurance and disability insurance provide financial protection. But there are some major differences that stand out — from buying a policy to filing a disability claim.

1. Buying disability insurance can be far more complicated

Term life insurance is a very straightforward financial product. Whereas disability insurance has many nuances and policy decisions to wade through. So, you’ll need to do your research ahead of time and work with an insurance broker you trust.

2. Disability insurance is significantly more expensive

Term life insurance typically costs about the same as a dinner for two. But adequate disability insurance can cost several hundred dollars a month.

3. Disability policy definitions make a huge difference

With life insurance, the payout benefit is black and white. If you die while your policy is active, your beneficiaries will collect. However, with disability insurance, the devil is in the details. So, your policy’s definition of disability plays a key role in determining if you qualify for disability benefits.

4. Disability benefits are tied to your income

Life insurance coverage isn’t dependent on your income, so you can choose a benefit amount you feel comfortable with. However, you’ll be limited to around 60% of your gross income when purchasing disability insurance.

5. You’re more likely to use disability insurance

The Social Security Administration (SSA) estimated that about 25% of today’s 20-year-olds will become disabled before retirement age. So, there’s a realistic chance you could benefit from your disability policy — especially if you have own-occupation coverage. Ideally, you’ll never have to cash in on your term life insurance policy, but it should still be a priority.

Finding the right coverage: Life insurance vs. disability insurance

Physicians and other high-income earners should review their existing insurance policies to determine if they have sufficient life and disability coverage.

A supplemental individual disability policy can fill any gaps to ensure your medical or dental specialty income is protected. Additionally, an affordable term life policy can provide coverage for the life stages where your family is still dependent on your income.

Need guidance on life insurance versus disability insurance for physicians? Fill out the quote form below for a custom quote, and our team will reach out!