Question 3: What are the Properties of long-term disability insurance I should consider?
There are all kinds of different properties that can be included in LTD insurance policies. While an exhaustive discussion of these features is beyond the scope of this book, we will highlight a few key properties that residents should consider, stratified by priority.
High Priority Policy Features:
This is arguably the most important part of the LTD insurance policy.
With an “any occupation” definition of disability, you are only considered disabled if you can’t perform the duties of any occupation for which you are qualified. For example, you would not receive benefits if you can work as a bank teller instead of a physician. This is how disability is defined for social security benefits.
An “own-occupation” definition provides a stronger definition of disability, allowing you to receive benefits even if you are still able to function in a different occupation.
A definition that is “specialty-specific” is even stronger, allowing you to receive benefits even if you are still able to function as a physician in a different specialty (e.g., as an urgent care doctor instead of a medical intensivist).
If it is important to you that benefits are paid if you are unable to practice in your current job, pay close attention to the language in this area and look for these terms.
Which specialty is covered if I later sub-specialize?
The "specialty-specific" policy language typically reads such that you will be covered if you can not perform the duties of the medical specialty you were practicing just prior to becoming disabled.
This means that if you buy a specialty-specific policy as an internal medicine resident but become disabled later as an interventional cardiologist, you would receive benefits if you could not perform the duties of a interventional cardiologist (even if you could still practice internal medicine).
Be sure to review and discuss this policy language with your agent to be sure you're purchasing the policy you want!
Non-cancellable and guaranteed renewable
These terms mean that the insurance company can’t change the price, benefit, or other terms of your policy so long as you pay the premiums.
Nice-to-Have Policy Features:
Future Purchase Option
You won’t be able to purchase enough insurance to cover your attending-level income as a resident (see Question 5 on how a policy’s price is calculated). Most companies will cap you at a benefit of $5,000-6,000 per month while in residency, which is usually much less than the typical cap for attendings (60% of their salary). A future purchase option rider will allow you to buy additional coverage once your income increases without a medical screening exam or lifestyle questionnaire. This can allow you to cover an appropriate amount of attending-level income under the terms of your current policy, even if something happens before exercising the future purchase option that might otherwise affect your insurability (e.g., treatment for depression or low back pain, as discussed in Question 2).
Note that this is a future purchase option—not a free increase in benefit when your income goes up; the amount that you increase your benefit will be accompanied by an increase in your premium.
Note also that this is a future purchase option—not a requirement; if you decide as an attending to get additional coverage through your employer rather than exercising this option on your individual policy, your premiums will not increase.
Cost of Living Adjustment
Due to inflation, the buying power of the $5,000-per-month benefit that you purchase when you’re 30 will be significantly less by the time you’re 60 (in fact, the buying power will be just under $2,400 assuming the rate of inflation is 2.5%). Particularly when you’re young and there are many years for inflation to eat away at the value of your benefit, you may want to consider a Cost of Living Adjustment Rider. This rider is designed to protect the purchasing power of your benefit by increasing it by a predetermined percentage each year; typically, this percentage is linked to the Consumer Price Index (CPI) and maxes out somewhere around 3-6%.
Note that cost of living adjustments only take effect if the policy owner becomes disabled and starts collecting the benefit. If you purchase this rider and remain healthy, the benefit amount will not increase.
Within your policy, you will be able to set the waiting period before your benefits kick in (typically 90 days) and the age through which your benefits will pay out (typically age 65). You can adjust each of these properties, which will result in changes to your premium (e.g., shorter waiting periods are more expensive, as are higher ages through which benefits would be paid).