Disability Insurance: What Residents Need to Know – Part 3

In our previous posts in this series, we examined why residents should not wait to acquire disability coverage and discussed some key provisions to look for when selecting an individual disability policy.  In this post, we’ll be taking a look at a few more provisions you may want to look for when selecting a policy.  More specifically, we are going to look at some policy provisions that can help you meet your monthly expenses in the event of disability, along with some policy provisions that can help you plan for your retirement.

Student Loan Coverage Rider

If you are like most residents, you have accrued a significant amount of student loan debt.  The time it takes to pay off student loan debt varies widely based on income and other expenses.  Many doctors must practice for several years before they are able to pay off all of their student loans, and student loan obligations can be a significant monthly expense to meet if you are disabled and no longer able to practice.  Although not as common as other riders, a student loan coverage rider allows policy holders to insure their student loan for an additional amount each month, on top of their benefits.

Waiver of Premium

This provision allows you to forego paying your policy premiums while you are receiving disability benefits, freeing up a substantial portion of the monthly income you would otherwise be paying back to the insurance company.

Return of Premium

This provision, while not as common, entitles the policy holder to receive a refund of all premiums if he or she does not become disabled before the expiration of the policy term.  This can be appealing to residents, whose plans will be in effect for a long time.

Maximum Benefits

This important provision in a policy controls the period of time the insured is eligible to receive benefits.  Most plans pay benefits until age 65 or 67, some pay lifetime benefits, and others pay for only a limited amount of time, even if a claim is filed decades before the policy terminates.

Retirement Income

The majority of doctors under 40 list preparing for retirement as their top financial goal.[1]  There are several different disability policy riders directed towards this goal, including the following.

Graded Lifetime Benefit Rider:  This provision, based on its terms, extends some or all of your disability benefits past the normal end date of age 65 or 67.

Lump Sum Rider:  This rider provides for a one-time payment once the policy expiration age is reached.  Typically, policy holders must have received benefits for at least one year and the lump sum payment is typically a percentage of the aggregate sum of benefits received during the policy term.

Retirement Protection Insurance Depending on the insurer, this may be offered as a rider or a stand-alone policy.  If you become disabled and your claim is approved, your insurer will establish a trust for your benefit, where benefits are deposited and invested (similar to an employer-sponsored 401(k)), with funds likely becoming accessible after the age of 65.

Our next post in this series will discuss the importance of choosing a plan where benefits increase over time.

[1] 2015 Report on U.S. Physicians’ Financial Preparedness, Young Physicians Segment, American Medical Association Insurance, https://www.amainsure.com/reports/2015-young-physician-report/index.html?page=5.