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6 points to consider when purchasing disability insurance
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Orthopedic surgical education is highly focused on the technical aspects of clinical care. However, it gives residents and fellows little guidance in the aspects of career management. One area that is often neglected during training is disability insurance, which is an issue that may be intimidating and can be fraught with misinformation and word-of-mouth advice. The purpose of disability insurance is to protect one’s income in the event that he or she is unable to work, thereby reducing the negative impact of an unforeseen disability. Although a disability policy should be tailored to an individual’s needs, we provide overall recommendations to trainees and orthopedic surgeons in practice for navigating the process of purchasing disability insurance.
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Purchase from an independent agent
Disability policies can be purchased either directly from an insurance company or from an independent disability insurance agent. Independent agents receive a commission regardless of which insurance company is selected. Therefore, there is no financial incentive for an independent agent to steer clients towards one policy over another. Accordingly, purchasing a policy through an independent agent provides a more comprehensive and objective overview of all available policy options, as well as policy information that is beyond the scope of what most physicians may be able to gather and identify as germane due to lack of knowledge.
We recommend purchasing a disability insurance policy from an independent agent who is referred by a trusted colleague. Agents do not need to necessarily be local as they can be licensed in multiple states. Some of them may be willing to obtain licensure in another state in order to procure a new valued client.
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Define disability as “own occupation”
Total disability is defined as the inability, due to injury or illness, to perform the material and substantial duties of one’s occupation. Policies can modify the last clause of this definition to include “own occupation,” “modified own occupation,” or “any occupation.” The “own occupation” definition is the least restrictive and it allows one to receive disability benefits if unable to perform the duties of an orthopedic surgeon. This permits an orthopedic surgeon to be employed in another occupation while he or she concurrently receives full disability benefits. A more restrictive definition is “modified own occupation,” which allows one to receive disability benefits only if he or she is unable to perform the duties of an orthopedic surgeon and if not currently working. Finally, the “any occupation” definition of disability is the most restrictive. It means that one must be unable to perform the duties of an orthopedic surgeon or of any reasonable occupation based on education, training and experience, in order to receive disability benefits.
The “own occupation” definition allows the most flexibility to work in a different occupation in the event of a disability. We therefore recommend purchasing a policy that has the “own occupation” definition of disability.
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Residual disability benefits provision
In the event of a partial disability that allows a surgeon to return to work in a limited setting either with a loss of duties or loss of time, a policy that includes a residual disability amendment, known as a “rider,” would disperse partial disability benefits. Such a provision would allow one to recover from a partial disability without losing significant income. Most disability claims are for partial disability. Therefore, we recommend selecting a disability insurance policy that includes a provision for residual disability benefits.
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Non-cancellable, guaranteed renewable policy
A policy that is non-cancellable and guaranteed renewable ensures that as long as premiums are paid on time, the insurance company cannot cancel the policy or increase premium costs until a certain age, usually 65 or 67. When a policy lacks these features, the insurance company has the ability to cancel the policy, change provisions within the policy and increase premium rates at any time. To prevent the possibility of losing coverage and paying increased premiums, we recommend purchasing a policy that is non-cancellable and guaranteed renewable.
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Pay premiums with after-tax dollars
Disability insurance premiums can be paid for with pre-tax or after-tax dollars. If they are paid for with pre-tax dollars, surgeons must pay income tax on all disability benefit payments. Benefit payments are tax-free, however, if premiums are paid for with after-tax dollars. The additional money paid in taxes is arguably more of a financial strain in the event of a disability than when surgeons are working. Accordingly, we recommend paying for disability insurance premiums with after-tax dollars.
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Purchase individual insurance in training and future purchase option rider
Orthopedic surgery residents are usually provided with a group disability insurance policy through the hospital that cannot be taken with them after they graduate residency. Although individual policies are associated with increased premiums, they typically have a stronger definition of disability and can be maintained throughout one’s career. Premiums are determined based on age and health status, and pre-existing medical conditions are usually excluded from insurance policies. Given that surgeons are the youngest and generally the healthiest they will be during residency, purchasing a policy during residency allows them to lock in lower premium rates and have fewer excluded pre-existing medical conditions. Often, residents do not have enough resources to purchase significant coverage. To account for this, a “future purchase option” rider can be included in the policy that allows a surgeon to purchase additional coverage in the future without a repeat medical assessment. In this way, a resident can lock in a lower premium rate based on fewer medical conditions with the option to increase benefits as his or her income increases. Due to these advantages, we recommend purchasing individual disability insurance during residency with a future purchase option rider.
Conclusion
Disability insurance protects an orthopedic surgeon’s income in the event of a disability. It provides surgeons with the resources to rebound from a disabling event or to find satisfaction pursuing professional goals outside of orthopedic surgery. The process of purchasing such insurance is a seemingly complex process to navigate. Based on our experiences and research, we recommend purchasing a non-cancellable, guaranteed renewable, “own-occupation” policy during training from an independent agent that has residual disability and future purchase option riders, and it should be paid with after-tax dollars. As orthopedic residents and surgeons, we invest our entire professional lives into our careers. Such an investment is worth protecting.
References:
A long-term disability policy can protect your income. Medical Economics. May 25, 2013. www.medicaleconomics.com.Accessed January 10, 2019.
Consider buying disability insurance during residency. Medical Economics. August 10, 2011. www.medicaleconomics.com. Accessed January 10, 2019.
Conway G. 3 reasons to love non-can DI policies. GT Conway Associates Web site. https://gtconway.com/3-reasons-to-love-non-can-di-policies/. Accessed January 10, 2019.
Dahle JM, et al. 4 critical steps in purchasing resident disability insurance. MD Magazine. March 22, 2014. www.mdmag.com. Accessed January 10, 2019.
Keller LB. Disability insurance for orthopaedists. AAOS Now. June 9, 2010. www.aaos.org/AAOSNow/2010/Jun. Accessed January 10, 2019.
Reich R. Med Econ. 2016;93:54-55.
What you need to know about disability insurance. The White Coat Investor. March 27, 2017. www.whitecoatinvestor.com. Accessed January 10, 2019.
For more information:
Daniel D. Bohl, MD, MPH; Nitin Goyal, MD; and Kamran Hamid, MD, MPH; can be reached at Rush University Medical Center, Department of Orthopaedic Surgery, 1611 W. Harrison St., Suite 300, Chicago, IL 60612. Bohl’s email: danielbohl@gmail.com. Goyal’s email: ngoyal91@gmail.com. Hamid’s email: kamran.hamid@rushortho.com.
Disclosures: Bohl, Goyal and Hamid report no relevant financial disclosures. The authors thank Greg Conway, CLU, ChFC, RHU, for his contribution to their research.
Perspective
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Jack M. Bert, MD
This is a helpful article that reviews critical aspects of obtaining disability insurance and it should be remembered that the policy should be purchased with after-tax dollars. Otherwise, the monthly disability distributions are taxed as ordinary income. If the surgeon is in private practice or is employed and becomes disabled, and he or she does not have a personal disability policy above and beyond what is offered by his or her employer, which is paid for annually by the employer, then the monthly distribution will be taxed based upon his or her federal and state tax rates. One of my partners became disabled at age 50 due to a severe traumatic event with a closed head injury. Fortunately, he paid for his policy personally despite being part of a group that had a $50K disability policy. The personal policy became his primary income source. He also had, as referenced somewhat differently in the article, a phrase included in his policy, which was common in the 1980s, that stated if he became disabled, he would be unable to do “all of the normal duties of an orthopedic surgeon.” Fortunately, despite some residual cognitive disability from this traumatic event, he could still see patients, but he never performed surgery again. He was deemed permanent disabled with regard to doing surgery by both an independent neurologist and orthopedic surgeon and thus met the definition in his policy of being unable to do “all the duties of an orthopedic surgeon.” The insurer challenged both of these opinions, but after a brief legal dispute, my partner received his benefits from ages 50 to 65, which were significant. Thus, he was able to work as a conservative care orthopedic surgeon and still obtain his tax-free monthly disability check up to age 65.
According to my regional insurance agent, it is still possible to obtain policies like this with similar language, and some of them do not have a termination date. However, much like life insurance, they become more expensive to purchase with termination dates after the age of 60 to 65, when an individual has a greater risk for a disabling medical event. The take home point with this type of insurance product is to always pay for it with after tax dollars, ie, personally. Otherwise, a significant portion of the disability benefits go to pay state and federal taxes just when they are needed the most.
Section Editor, The Business of Orthopedics
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