How much to pay for disability insurance?

[dubfarmer]

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I am about to start residency and will be taking the advice of many on these forums to buy DI now.

The general consensus is to buy while young and healthy to lock in a good rate. However, I am having difficulty determining what exactly a "good rate" is. I often see people mention that you should expect to pay 2.5-5% of the monthly income you are protecting. So if my plan covered me for $2000 a month I could expect to pay $50-100 a month.

The quote I got as a young medical school graduate with no pmhx was 3.8% of income protected/month. Is this a good rate for my demographic? What happens if you wait until you are older? Does it start going to 7.5%, 10% etc or do they keep the premiums in the same range and start excluding any medical problems you may have developed?

Thank you all for your insights.

 

[survivordo]

have you checked out whitecoatinvestor.com? He has many good articles on this issue and general finance as a physician as well.

Survivor DO

 

[The White Coat Investor]

I am about to start residency and will be taking the advice of many on these forums to buy DI now.

The general consensus is to buy while young and healthy to lock in a good rate. However, I am having difficulty determining what exactly a "good rate" is. I often see people mention that you should expect to pay 2.5-5% of the monthly income you are protecting. So if my plan covered me for $2000 a month I could expect to pay $50-100 a month.

The quote I got as a young medical school graduate with no pmhx was 3.8% of income protected/month. Is this a good rate for my demographic? What happens if you wait until you are older? Does it start going to 7.5%, 10% etc or do they keep the premiums in the same range and start excluding any medical problems you may have developed?

Thank you all for your insights.

3.8% seems a little steep for a med stud. I've seen rates go up to 5-6% for those who waited. A bigger issue is stuff starts getting excluded, like Scuba diving injuries or complications or diabetes or whatever you may develop in the meantime.

Get an independent agent that can sell you a policy from any company and as a resident, buy as much as they'll sell you WITH a future purchase option.

 

[nogolfinsnow]

3.8% seems a little steep for a med stud. I've seen rates go up to 5-6% for those who waited. A bigger issue is stuff starts getting excluded, like Scuba diving injuries or complications or diabetes or whatever you may develop in the meantime.

Get an independent agent that can sell you a policy from any company and as a resident, buy as much as they'll sell you WITH a future purchase option.

What;s the best way to find an independent agent? The company that does my car and renters insurance doesn't do DI.

+1 for all the info on whitecoatinvestor.com

 

[Igor4sugry]

What;s the best way to find an independent agent? The company that does my car and renters insurance doesn't do DI.

+1 for all the info on whitecoatinvestor.com

You want an agent that will send you quotes for multiple companies. Then you can compare.
Check out whitecoatinvestor section on disability insurance; there is a guy there (I think from NY) that sells policies to physicians.

 

[LBKCLU]

Even though the original post is a few months old, this video that I did might be helpful to the next person reading this thread.

www.youtube.com/watch?v=hDDGlM4EUtE

 

[krl7044]

I am about to start residency and will be taking the advice of many on these forums to buy DI now.

The general consensus is to buy while young and healthy to lock in a good rate. However, I am having difficulty determining what exactly a "good rate" is. I often see people mention that you should expect to pay 2.5-5% of the monthly income you are protecting. So if my plan covered me for $2000 a month I could expect to pay $50-100 a month.

The quote I got as a young medical school graduate with no pmhx was 3.8% of income protected/month. Is this a good rate for my demographic? What happens if you wait until you are older? Does it start going to 7.5%, 10% etc or do they keep the premiums in the same range and start excluding any medical problems you may have developed?

Thank you all for your insights.

As a fee-only adviser and a fiduciary, I'm always careful when I refer my clients to insurance brokers. I work with Irene Tayber, CLTC, principal of Tayber Financial Group. Irene is an independent agent, she has 22 years of experience in the insurance industry and one of her specialties is working with dentists, physicians and other medical professionals. She recently declined to sell disability insurance to a client of mine because the instability in client's situation could make such a policy be less than optimal. She knows a lot of about various policies specifically for doctors and dentists, and she is always up to date on all the latest changes and products.

This is her contact information, please feel free to give her a call:
Tel: (401) 273-4864
[email protected]

Good luck,
Kon

 

[MD Financial Services Scott]

For our clients the average cost for your age is about $20 per month for every $1,000 in monthly benefit. Let us know if we can be of further service.

 

[TexasPhysician]

In my opinion, you need own-specialty disability insurance. This is a bit more costly, but worth it in my opinion. In residency, my 5k/month policy came out to roughly $170/month. That includes the option to add an additional 10k/month, partial disability, and 3% cost of living increases. Those add-ons increase the price, but I think it is worth it to protect myself.

I used Larry Keller who posts on the white coat investor site, and I'd recommend him for physicians.

 

[QofQuimica]

Is there an age and/or net worth at which you're basically "too old" for disability insurance to be cost-effective? If so, when would that be?

On a somewhat related note, do any of you agent types have experience with helping older residents and/or people who don't need to protect a physician level of monthly income pick a disability insurance plan? Both advisors I've spoken to thus far don't seem to know what to tell a nontraditional student like me to do.

 

[LBKCLU]

There are two factors involved in disability insurance (and when you no longer need it) - people at work and money at work. If you need to work to generate income, you need disability insurance. If you have enough assets that generate enough income that you no longer need to work, you no longer need disability insurance.

As you can imagine, there is no magic age or net worth as this will vary from individual to individual. I often receive calls and emails from physicians across the country asking if they still "need" their disability insurance. My answer is based upon this line of thinking: What is the monthly benefit on your policy? What is your age? I then calculate the potential payout (not including the COLA Rider, if applicable) and ask them this question "If you were disabled, would the lack of that amount of money be the difference in your being able to "retire" or not? If the answer is yes, they need to keep their coverage. If their answer is no, then it is simply a matter of the premium they are paying relative to the piece of mind that their coverage provides. Sometimes they still need the coverage but modifications can be made to it in order to reduce the premium rate and still allow them to remain protected.

I have a significant amount of experience helping physicians at all levels of their careers in terms of disability insurance and overall financial planning. Feel free to call or email me and I would be happy to provide you with several options to consider.

 

[MD Financial Services Scott]

Age is not really the factor to look at it really is need. In other words if you became disabled and could not work what happens to your world? Financially are you ok or do you have issues? If you are ok without income from work then there are no Needs, if you needed your income then you Need disability insurance. Truthfully it is that simple. I think you are already talking to Larry Keller, he is a good guy, knowledgeable, and knows this business you should be in good shape if you deal with him.

 

[QofQuimica]

Can I ask a stupid question. Forget about physicians specifically for a second. Most working people in general do not have disability insurance. I was a chemist for ten years before medical school and never had disability insurance; I'd never even heard of it until I was in my last year of residency. On the other hand, I was earning basically minimum wage working as a research tech and grad student, so it probably wouldn't have been worth it, and maybe that's why? At my current job, they do offer DI to the post docs, but I never did a post doc since I went to medical school instead. And the DI plan is voluntary, so I'm sure most of the post docs don't get it.

It just kind of astounds me that something so "essential" is basically off the radar for the vast majority of people. How many people can afford to not have income ever again? Especially early in their careers, just about none. The vast majority of people live paycheck to paycheck, and sure, it's smaller in scale, but working class and middle class people depend on their income just as much as upper middle class earners like physicians do. And yet, you do not hear anyone beseeching the butchers, bakers, and candlestick makers of this world to get DI. Why is that?

 

[TexasPhysician]

Can I ask a stupid question. Forget about physicians specifically for a second. Most working people in general do not have disability insurance. I was a chemist for ten years before medical school and never had disability insurance; I'd never even heard of it until I was in my last year of residency. On the other hand, I was earning basically minimum wage working as a research tech and grad student, so it probably wouldn't have been worth it, and maybe that's why? At my current job, they do offer DI to the post docs, but I never did a post doc since I went to medical school instead. And the DI plan is voluntary, so I'm sure most of the post docs don't get it.

It just kind of astounds me that something so "essential" is basically off the radar for the vast majority of people. How many people can afford to not have income ever again? Especially early in their careers, just about none. The vast majority of people live paycheck to paycheck, and sure, it's smaller in scale, but working class and middle class people depend on their income just as much as upper middle class earners like physicians do. And yet, you do not hear anyone beseeching the butchers, bakers, and candlestick makers of this world to get DI. Why is that?

My mother was a middle school teacher. She had disability insurance and began using it before 50 after getting a neurological disorder. Just because most people don't have it, doesn't mean they shouldn't. Most people have no idea what their insurance needs really are. Some insurance agents are out to make a quick dollar and provide misinformation to sell a product which doesn't help.

For instance, an insurance agent convinced my father-in-law to buy whole life insurance on my now wife at her birth. Up until our first child was born, no one could really have needed that 100k if she had died. For 20+ years, he has been paying this policy. I recently bought a 15 year term policy worth over $1 million if I die (main income earner). My policy is cheaper/month than my wife's with 10+x the payout and now there is actually a need. If I die, my child has money to get through college. If my wife dies, that 100k policy doesn't change our life plan as I earn the money.

The point of the story is that my father-in-law was convinced to buy a useless product and keep it 20+ years because people always talk about the importance of life insurance. Disability insurance isn't talked about as much. Throughout my wife's working years before me, one of the 3 companies she was at provided disability insurance. Disability insurance when you have no children or husband is more valuable than life insurance in her case at least. Had she become disabled, her father and social security would have had to help her live the rest of her life. Had she died, her father would have 100k for a funeral and I guess use toward retirement.

It's easy to see that in the above case, protecting your way of life is > padding a parent's retirement fund.

 

[QofQuimica]

Disability insurance when you have no children or husband is more valuable than life insurance in her case at least. Had she become disabled, her father and social security would have had to help her live the rest of her life. Had she died, her father would have 100k for a funeral and I guess use toward retirement.

It's easy to see that in the above case, protecting your way of life is > padding a parent's retirement fund.

It is in my case too, and for the same reasons. Not that my family and friends (hopefully!) wouldn't miss me if I was gone, but no one's livelihood depends on me. I did not get life insurance, but I did get an individual DI policy along with my employer sponsored plan, which is an included benefit.

I guess I'm just kind of amazed that no one ever really talks to college students, grad students, med students, etc. about DI. Even in residency, we really didn't hear about it until fairly late.

 

[Stroganoff]

I'm curious about this too. Most employers provide short-tern and long-term disability as part of the benefits package, and you can buy more for more coverage. I recently started a new job and need to look into this more to possibly increase disability coverage to at least cover survival needs.

 

[Iamthep]

Most people just depend on Social Security for disability. That and a decreased standard of living. My estimated benefits are a little under $2000 a month. This isn't too unreasonable since I would not have to live in any specific location. I could move to wherever had the lowest cost of living and still get by.

I think the reduction in quality of life would be too much for most physicians and their family.

 

[dpmd]

Most people just depend on Social Security for disability. That and a decreased standard of living. My estimated benefits are a little under $2000 a month. This isn't too unreasonable since I would not have to live in any specific location. I could move to wherever had the lowest cost of living and still get by.

I think the reduction in quality of life would be too much for most physicians and their family.

This is the big thing. I don't want to have to change my lifestyle if injured and the amount I am paying in order achieve that is reasonable. Lots of people with career type jobs have some kind of disability insurance as a benefit, but it may not be enough to keep them at their same standard of living (and may not kick in soon enough to avoid issue, I opted not to get a short term policy because I have enough savings to get by for many months before benefits kick in but not everybody has that luxury). Plus, people don't always take into account putting money away for retirement. Your disability insurance should cover this because benefits will end at retirement age and then where will you be?

 

[MD Financial Services Scott]

All of these are very good points. The reality from 'inside the business' is pretty simple....most employees of "corporate America" have an employer sponsored disability plan either paid for by the employer or voluntary to enroll in and for the most part that will do the job for 'normal' employee. In fact because they don't have a specialized upper level degree or very specific skill then it actually becomes harder to insure them and costs more per dollar of coverage. Think about it, as a surgeon if you injure your dominant hands index finger with nerve damage that probably causes you to have a major loss of income, I on the other hand (no pun intended) I could lop off my index finger and where that might cause me to type slower or have poor handwriting it does not ruin my business, that is where the rubber hits the road and why specialty specific disability insurance for physicians has more chatter about it. Now the question becomes does the policy language match the sales brochure that the association or employer have provided for you to decide your benefits from. Read carefully since there is NO Fine Print, or Loop Holes, just most people don't read what they are buying thus at claim time they are disappointed with the way the policy behaves even though it is performing exactly as it was intended to. My suggestion is to ready word for word the definition of Disability in the policy, do you have to go back to work, what happens to the payment if you do, does it have a required to go back to work clause. Read the waiting period, does it have the word Total or Continuous in it? Think about those words, what do they mean, how do they affect the policy. As an example the word Total in your waiting period means Totally Disabled (unable to do ALL of your duties) then you would qualify for claim. Without the word total then it probably falls under a partial disability will qualify you for claim if you have a 20% loss of income. A quick example of how that gets out of hand is you are in an accident where you then have to go to PT 4 days a week for 3 hours a day, that impacts your ability to work do to time loss but you are not totally disabled so on one type of policy you qualify for benefits and the other you don't since you were not Totally (100%) disabled.

As for why most people are not approached in Medical School about the coverage, the fact is most carriers will only issue to a Medical Student about $1,500 of monthly coverage if any at all. The reason for this they don't know if the student will wash out or what medical specialty they might go into thus the risk is a bit unknown. Where I agree that it is needed, the reality is most medical students are as poor as they hopefully ever are at that point in their life so having excess cash for an insurance policy of this nature is just typically not in the cards. In 21 years of owning this business I have only had a few conversations with medical students that resulted in them agreeing that acquiring a disability policy to protect them down the road was a good decision for them at that point. I keep having that conversation because I know it is needed but the success rate is low. Kind of like telling your patients to quit smoking, loose weight, quite drinking, and get some exercise.....you have to have the conversation but actuality of your patients doing it is pretty low but you have now done your job so you can sleep well at night.

If we can help further let us know.