Dr. Kris Vanderkooy is a member of the medical team at Northwestern Mutual. In his role, Dr. Vanderkooy helps set the underwriting practices for Northwestern Mutual’s insurance products. Dr. Vanderkooy was in clinical practice for several years before joining Northwestern Mutual.
We buy insurance to protect our homes, cars and even mobile phones. If you’re a physician or dentist, you have or will likely have malpractice insurance. Hopefully you’re also considering disability insurance. As medical professionals, we invest a great deal into our careers and our ability to generate income. Disability insurance for physicians and dentists protects a portion of that income.
When considering disability insurance, here are several things you should consider.
HOW MUCH SHOULD YOU GET AND WHEN SHOULD YOU GET IT?
If you own a home, how much insurance should you get on it? Enough to pay for half of it? What if it burned down? Would that be enough? Disability insurance is similar. It’s typically a good idea to cover as much of your income as possible. Particularly for doctors and dentists, your ability to earn income is likely the largest asset you own. Disability insurance helps protect that.
When you start making an income, you can get disability insurance. When you’re in residency, you can typically get a little more than you’re making. But you can get a policy that has an additional purchase benefit1, which will qualify you to buy more coverage in the future without having to take another health exam. That’s a great benefit when you’re starting out in the medical field because your salary is likely to increase over time.
PAY ATTENTION TO THE DISABILITY INSURANCE DEFINITIONS FOR TOTAL AND PARTIAL DISABILITY
For doctors and dentists, a policy’s definitions for total and for partial disability is an important consideration. That’s because this disability insurance definition can impact your ability to collect your disability insurance benefit.
First, you want to make sure your policy will define total disability based on your own occupation. Basically, that just means that you’ll be considered disabled if you can’t do your substantial and material duties as a medical professional at the time you become disabled. Believe it or not, some policies will only cover you if you can’t work at all — in any occupation.
Second, ask about the total disability definition itself. Many policies offer a single pathway to qualify for total disability. However, some have two. In a situation in which a partial disability prevents you from doing some, but not all of your duties, a policy with two pathways may give you the choice to be partially disabled and continue to work or to be fully disabled and stop working.
Here’s how that works in practice. Let’s say a tremor keeps you from performing surgical procedures, but you are still able to see patients in the office. With a policy with one pathway, you likely will need to keep working to collect your partial benefit. With a policy that allows you to choose, if you meet certain conditions, you can decide to work and receive a partial benefit or choose to stop working and collect your entire benefit.
HOW DO YOU WANT TO STRUCTURE YOUR PREMIUM PAYMENTS?
As with term life insurance, there are two ways to structure your premium payments. You can select a level premium or an annually renewable premium.
Level premium is what it sounds like: the payments remain level through the years. Initially, level premiums will be higher than annually renewable ones. However, in later years, they will actually be lower than what you would pay with an annually renewable policy. Level premiums can provide some certainty, but usually less flexibility. Because the savings come in the later years, you likely won’t want to change your policy.
Annually renewable premiums cost less up front. But they will increase over time and eventually become more expensive each year than a level premium policy. It’s possible to start with an annually renewable policy and switch to level premiums later. If you do that, the level premiums will be set based on the time when you switch to them — in other words, if you switch to level premiums five years from now, the payment amount will be higher than if you started with them today.
GUARANTEED RENEWABLE VS. NON-CANCELLABLE AND GUARANTEED RENEWABLE
These two terms have to do with the level of guarantee you get from your policy. With a guaranteed renewable policy, the insurance company cannot cancel your insurance in the future nor modify the terms of the contract — but it could raise the rate you pay on as class-basis. With non-cancellable and guaranteed renewable disability insurance, your policy is set in stone. The insurance company can’t cancel it, modify the terms or raise the rate you pay. Because of that, it tends to be more expensive than a guaranteed renewable policy.
If you’d like to talk to a financial professional about disability insurance, he or she can help you answer these questions and show you how your policy works into the bigger picture of your financial plan.
1 Subject to financial underwriting.