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Disability Insurance: What You Need to Know Before You Buy

You may have heard that the disability insurance policies available today are dramatically different from those available a few years ago. Although this is true -- especially for physicians who perform invasive procedures -- quality coverage can still be found.  It is important to understand how policies are offered and to know what provisions should be included in an individual disability policy.

How Policies are Offered


Disability insurance can be purchased on an individual or group basis. Group insurance is usually provided by an employer or purchased individually from a sponsoring medical association. Although initially low in cost, group policies do have limitations. They can be canceled (by the association or insurance company), rates increase as you get older, and premiums are subject to adjustments based on the claims experience of the group. In addition, group and association contracts often contain restrictive definitions of disability as well as less-generous contract provisions.

Coverage Limits

Most insurance companies will issue disability insurance coverage equal to approximately 60 percent of earned income; however, interns, residents, fellows and physicians just entering practice are provided with “special limits.”  These special limits permit them to purchase benefits in excess of what their current earnings would normally allow.

The Cost of Disability Insurance

Premium rates are based on several factors including age, gender, monthly benefit amount, riders added to the policy and the occupational classification the insurance company assigns to your medical specialty.

The younger you are when the purchase is made, the lower the cost of the insurance. Therefore, you should consider purchasing a policy as early in your career as possible to lock in lower premium rates.

Although women are better risks for life insurance coverage, this is not the case with disability insurance. Rates for females are substantially higher and their policies can cost 50 to 75 percent more than men.

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The occupational classification assigned by the insurance company, to your medical specialty, will significantly impact the premium rates as well as the policy provisions offered to you. Generally, if you perform invasive procedures, you will be placed in the “surgical” category; where the definition of disability may be more restrictive and the premiums charged will be higher as compared to those of a non-invasive, non-surgical physician. Each insurance company has their own occupational classification guide and insurance companies may treat the same medical specialty differently.

What to Look for in a Disability Policy

The renewability provision is one of the key features of an individual disability income insurance policy. This provision defines your rights when it comes to keeping your disability policy in force.  If you purchase a policy that is Non-Cancellable and Guaranteed Renewable, you can remain in control of your financial security.  The insurance company cannot cancel, increase your premiums, change any provisions or add restrictions to the policy -- even if the issuing company no longer offers similar policies in the future.

Definition of Total Disability

Arguably, the definition of disability is the most important aspect of a disability policy. As a physician, you must pay careful attention to the definition of disability found in your policy, as it will ultimately determine how any claim you make for benefits will be judged.  There are three definitions of “disability” commonly found in the insurance industry, and each has significant differences.


Although difficult to find, “Own-Occupation” (also known as true or pure “Own-Occupation”) is usually the definition of choice for physicians as it is the most liberal definition of total disability available. This type of policy pays benefits if you are disabled and “not able to perform the material and substantial duties of your occupation.” Therefore, you would be considered totally disabled if you could no longer practice your medical specialty, even if you are at work in some other capacity, as long as you are not able perform the material and substantial duties of your specific medical specialty.

Modified “Own-occupation”

This type of disability policy has become the most prevalent in the industry today and typically pays benefits if you are “unable to perform the substantial and material duties of your occupation and you are not working. Although benefits are still contingent upon your ability to practice your medical specialty, this definition generally will not allow you to continue receiving full disability benefits if you are at work in some other capacity.

“Any Occupation”

This definition is the most restrictive -- it is commonly found in group or association policies. Under this definition, you are eligible to receive benefits only if you are found to be “unable to work in any occupation which you are reasonably suited to by your education, training or experience.” Unfortunately, it is the insurance company that makes this determination and physicians, being as educated and well-trained as they are, will find it extremely difficult to collect benefits on this type of policy. You should take every precaution to avoid purchasing a policy that contains this definition.

Hybrid Definitions

Many policies offered to physicians today might incorporate an “Own-Occupation” with a Modified “Own-Occupation” definition. Here, the policy would contain a true “Own-Occupation” definition for a limited time period (typically one, two or five years), and then convert to the more restrictive Modified “Own-Occupation” definition described above.  Until recently, in certain states such as California and Florida, and for certain medical specialties, this often was the best definition of disability made available. 

Optional Riders

Residual Disability Rider

Unless your policy contains a residual disability rider, you may have to be totally disabled to collect any benefits. While an “Own-Occupation” policy protects your ability to practice your medical specialty, it may not sufficiently protect your income level. There are many disabilities that might allow you to continue working in your occupation, on a limited basis, while suffering a loss of income. Adding a residual disability rider to your policy would allow you to continue receiving benefits, proportionate to your loss of income, if you returned to your medical specialty on a part-time basis.

Furthermore, with policies such as Modified “Own-Occupation” or “Any Occupation”, this rider might allow you to continue receiving benefits if you decided to work in another capacity, or if the insurance company determined that you could work in another “reasonable” occupation with reduced earnings.

Cost of Living Adjustment (COLA) Rider

A COLA rider is designed to help your benefits keep pace with inflation after your disability has lasted for 12 months. This adjustment can be a flat percentage or tied to the Consumer Price Index. Ideally you want a COLA that is adjusted annually on a compound interest basis with no “cap” on the monthly benefit.  Although important, if cutting the cost of coverage is an issue, this might be the first optional rider to consider excluding from your policy.

Future Purchase Option Rider

This rider is a must for young physicians. It provides you with the ability to increase your disability coverage, regardless of your future health, as your income rises.  It is important to know when you can increase your coverage, as well as by what increments, on any given option date.  Some companies may allow you to use your entire option in one year as long as your then current income warrants the increase; Others, however, may limit the amount that you can purchase.


Purchasing a high-quality disability insurance policy has never been easy. Unfortunately, due to adverse claims experience, the individual disability insurance marketplace has become even more complicated for physicians.  Policies vary greatly in terms of the definition of disability made available, the contract provisions offered and the premiums charged.  It is more important than ever that you take the time to compare each of the policies you are considering, and understand how and why they differ. The best approach is to employ the services of a professional insurance agent who specializes in working with physicians.  He or she will not only be familiar with your occupation, but with which companies’ policies are best suited to your particular specialty. Then you and the agent can decide which insurance company’s policy best meets your individual insurance needs.

Lawrence B. Keller, CLU, ChFC, RHU is the founder of Physician Financial Services, a New York City-based firm, specializing in insurance, investments, and financial services for physicians.  He can be reached for questions or comments at


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