8 Pros and Cons of Disability Insurance Coverage Explained

Disability insurance is one of the most important financial decisions physicians can make early in their careers. As a profession, physicians have a lot to lose from a long-lasting disability. 

The Social Security Administration reports that one in four Americans will experience a disability before retirement age (i.e., a car accident, cancer, you name it!). Yet only 14% of us actually have disability insurance.

This article explores the pros and cons of disability insurance for physicians and hopefully will encourage you to buy a policy to protect your income.

Why disability insurance is a smart investment

Disability income insurance provides a safety net, so you can maintain your lifestyle and meet expenses if you can’t work due to illness or injury. For physicians, this means you can still cover financial obligations like your mortgage, car payments and other bills even when facing health challenges.

Protecting your lifestyle

Lifestyle creep is real. When I was an undergraduate student, my max credit card limit was $300 per month, and I regularly stayed under it. Flash forward to now, and I’m not even sure how I did that! As incomes go up, it’s only natural that living expenses do, too.

For physicians, after years of earning peanuts in residency, income increases by huge orders of magnitude once becoming an attending physician. Finally, you can enjoy the finer things in life (that your friends from college who were pursuing other careers have been doing for years now). Sometimes, that means nice houses, cars and vacations. 

Physicians have access to special physician home loans with lower mortgage rates than most other careers. A mortgage payment of $5,000 a month can be commonplace, which isn’t much considering a typical annual salary of $400,000. But it quickly becomes unaffordable if you suffer a disability and can’t work. 

It’s easy to see why 48% of home foreclosures are due to disability. This doesn’t even account for other expenses, like a car payment, food or a child’s school tuition.

Why you can’t rely on Social Security Disability Insurance

The maximum benefit amount of Social Security Disability Insurance (SSDI) is about $3,800 a month, as of 2024. It’s not likely enough to cover the house payment. It’s also notoriously difficult to qualify for compared to a private disability insurance policy, and the application process is so long you might not receive it in time to cover expenses.  

Residency bonuses and discounts

The “Big 5” disability insurance companies (Guardian, MassMutual, Principal, The Standard and Ameritas) offer discounts to medical residents. These discounts apply to the initial $5,000 of coverage that most residents are limited to in their first few years of residency, but they also apply to any additional coverage you purchase in the future. 

Locking in rates early

When you buy a policy early in your career, you lock in your rate. If you buy a policy as a resident at age 28, the first $5,000 of coverage costs the same even 30 years from now (assuming you buy a level policy). Getting coverage when you’re young is crucial — waiting until later can result in policy exclusions or outright denial of coverage from every insurer in the worst-case scenario.

Guaranteed Standard Issue policies

Most importantly, some residency programs have access to something called a Guaranteed Standard Issue (GSI) policy. GSI agreements between the residency program and the insurance company mean every application is accepted without underwriting — so, no medical exam. This allows you to secure coverage even if you have a preexisting condition that might normally deny you access to income protection.

There are a couple of catches though. First, you must apply while still at the residency. Also, in almost every scenario, if you apply for a regular disability insurance policy instead of GSI because it’s cheaper, the GSI program will no longer take you. 

Specialty-specific definitions of disability

As a physician, it’s best to get own-occupation, or specialty-specific, definitions of disability on your policy. It’s stronger protection — instead of needing to have an extremely disabling condition (SSDI requires that you can’t do any “substantial gainful activity”), it lowers the bar to qualify for disability benefits under your policy. 

Here’s an example I like to use: Suppose a surgeon develops hand tremors. They can’t operate anymore, but they could still perform well enough to do plenty of other jobs. An own-occupation policy can kick in and pay their full monthly benefit even if they decide to work another full-time job; it doesn’t matter if they are earning more or less income than they did as a surgeon. 

You have lots of options

I mentioned the Big 5 insurers earlier — every single one wants a slice of the physician pie, and they all want theirs to be the biggest. 

Assessing risk

Different companies assess risks differently, making it important to get quotes from multiple providers. 

If one insurer considers your specialty to be high risk, it’s likely that another company considers it a slightly lower risk. Weight is another risk. It's not uncommon to see clients with a high body mass index (BMI) who are considered high risk by one insurer but still considered standard risk by another.

Choosing the right broker

Not only do you have a wide range of insurers to choose from, but also a variety of insurance brokers eager to earn your business. Physicians have high incomes, which can drive up the cost of disability insurance policies. Who wants a big commission? Everyone! 

It’s perfectly fine to shop around for the best rates and find an agent you trust. The agent you choose will be in charge of servicing your policy in the future, so trust is an underrated factor here.

Cons to consider when buying disability insurance

Disability insurance offers essential protection, but it can be expensive and complex. Understanding the policy details, managing exclusions, and dealing with waiting periods are some of the challenges you might face.

Disability insurance isn’t well-understood or well-explained

Disability insurance isn’t exactly part of the cultural zeitgeist. I’ve seen life insurance commercials since elementary school, but I don’t think I’ve ever seen a disability insurance commercial. 

Physicians tend to be more aware of it than most professions, often because residency coordinators encourage them to buy coverage or through “lunch and learns” hosted by eager insurance brokers. 

Potential conflicts of interest with brokers

A lot of the time, the person educating the client about disability insurance is a broker who only gets paid if the client buys a policy. This can sometimes lead to unscrupulous behavior, such as adding unnecessary riders to increase their commission or not fully disclosing how the policy is structured.

Related: Disability Insurance Broker Fees? How to Protect Yourself

For instance, my brother once asked me to review his wife’s disability insurance policy, which they had bought from a different broker years ago. He complained, “It’s so expensive, and it’s getting worse every year!” That’s weird, I thought. The policies I sell don’t increase their rates at all unless the policyholder purchases more coverage. 

It turns out the policy had graded premiums, which increase over time. Did the broker sell them this policy because it was in their best interest? Or because he could show a lower upfront cost and make it more likely that they’d buy from him?

Navigating optional riders

Another issue is all of the optional riders that come with these policies. How do you know which riders you actually need versus which ones you don’t? Would you even remember you have a partial disability rider when you have to cut back working hours due to a back injury 20 years from now?

They limit pre-existing conditions

When you purchase a non-GSI policy, the insurance company asks you to release all your medical records. If you have any existing medical conditions, they’ll most likely exclude them from the policy. 

The most common example I see is anxiety and depression. Typically, insurance companies cover these conditions like any physical disability, provided it prevents you from working more than 90 days (the typical waiting period). However, if you’ve taken medication like Xanax within the past few years, the insurance company will likely exclude anxiety from your coverage completely. 

This means the issues you might most need coverage for are often the ones that get excluded.

You have to wait to receive disability payments

Unfortunately, disability insurance benefits don’t kick in immediately when you suffer a disability. Policies have something called the elimination period, which is how long you must wait before the company approves your disability claim and starts paying benefits.

The most common elimination period on individual policies is 90 days, meaning the policy won’t help you at all until you’ve missed three months of work. Group disability insurance provided by employers is sometimes 180 days. A longer elimination period can be even worse if you don’t have a six-month emergency fund. This waiting period really narrows the scope of disabilities that these policies will cover.

It’s really expensive, y’all

Long-term disability insurance can be quite costly, depending on factors such as the applicant’s age, occupation, smoking habits, and medical conditions. The typical cost of disability insurance for physicians is around 1% to 4% of monthly income. 

For an attending physician earning $400,000 a year, this could amount to $16,000 annually, which is the equivalent of buying a new top-end iPhone every single month and smashing it with a sledgehammer.

Even in the best-case scenario, where you never need to use the policy, it might feel like wasted money. But it’s infinitely better to have the coverage and not need it than to desperately need it and not have it.