Best Disability Insurance | One Thing Physicians Must Start Dealing With
Foreword: This content was originally created as an audio podcast, and the audio interview was transcribed into a written format. Grammatical flow seems choppy, so I hope you bear with it.
Today’s guest is one of our own – Dr. Monoj Konda, he is a strategic partner in PhysicianEstate, LLC.
He is here to talk about an interesting but boring topic that physicians try to deal with or not think about very often – DISABILITY INSURANCE. But I think it’s very important that we think about it and act on it as soon as we can, especially considering the Covid situation. On this interview, we will be talking about the basics of disability insurance and the best disability insurance for physicians.
Monoj is currently working as a hospitalist in South Dakota, and he is a seasoned real estate investor. He’s kind of exponentially grown over the last few years, buying single families then gradually getting over rehabs, fixer-upper styles. He tends to keep them for long-term and make refi and cash flow his game (BRRR strategy). Today he’s here to talk to us about disability insurance.
The last few weeks we spent a lot of time on learning several aspects of it. We were having a good chat and he explains how disability insurance works & talks about the best disability insurance for physicians, so we decided to record some of the valuable content so we can share it with thousands of visitors who visit us on PhysicianEstate.com.
Dr. Moole: What is disability insurance for a physician? What is the best disability insurance for physicians like me? At this time, I am worried that I get Covid, what if I fall sick, etc.? How do we have a holistic approach to it?
Dr. Konda: It is definitely an interesting topic. For the last 6 months I’ve gathered a lot of information on this topic by talking to different sales representatives, reading through multiple blogs, getting quotes etc. So, I thought it’s a good idea to put it all together with this podcast.
Dr. Moole: There is very little trust in insurance brokers, etc. because everybody has an angle. Now, this information coming from a physician who has bought a policy and did enough research, I think is what adds value to this podcast. We’re getting the deep and dirty secrets of it. Just for the listeners’ information, this podcast is not being sponsored by any disability broker or any company – it’s just a free, researched information.
I know you mentioned that the first step we need to do when we think about disability insurance is look into the existing contract we have with our employer. Can you talk a little about what we look for exactly? What questions should we be asking or looking for in the contract?
Dr. Konda: That’s right. Everybody should start by at their employer level disability insurance. You can get this from you HR or referring to your benefit summary. It’s usually reported in percentage of your salary and the dollar amount. And you need to know how long will you get the benefits paid.
It varies from employer to employer. Some employers offer long term disability plans for only 2-5 years. Some pay for it full 65 years age (the social security age). So that’s what you need to determine first, to make sure if you have a good long-term disability insurance. Most employers sponsor short term disability insurance, which kicks in like 1-2 weeks after the onset of your disability. So, 7 days after you’re disabled and not making income, the short-term disability kicks in and starts paying you some benefit, but it’s only short-term so it works only for 3-6 months, and that’s all listed under your short-term disability benefit. So those are the two things you look for. Long-term disability insurance is what you’re getting from insurance companies as an additional protection. If you’re disabled, you cannot work fully, and you need some additional income until you retire or you’re 65. So, if your employer has a good long term disability insurance and you’re planning to stick with your employer until you retire, then you may not even need a supplemental long-term disability.
Dr. Moole: I see. Correct me if I’m wrong, if the employer has a good long-term insurance, you might probably be not requiring any additional insurance but if their long-term policy is not that great, that’s when we have to step outside the box and start looking for some other third-party company to buy the insurance from?
Dr. Konda: Yes, if the amount of long-term insurance is not enough or if doesn’t have the basic riders that we discuss next. One difference to note is that employer sponsored disability income is taxable. But individual disability insurance payments are not taxed. So whatever amount you choose 3000$ or 4000$ that’ll be paid in full without any taxes and its yours to spend. The amount you choose depends on how much monthly amount you need, what are your expenses etc.
Dr. Moole: Yes, that kind of takes me to the next question – how does a person figure out if whatever their employer is giving them as disability insurance is sufficient enough? How do they know if that is the best disability insurance for them? What are the big ticket items that they have to look at when they calculate this number?
Dr. Konda: That’s basically a straightforward process of looking into your basic minimum expenses that you have to pay to retain your lifestyle, like your mortgage, car, and home / car insurance payments, food, basic of the basic. If you have $5,000 for mortgage, you want to have a total of $10,000 in disability benefits to be on the safe side. I have my basic expenses at 2500-3000 and I elected for a monthly benefit of 4000$. It also depends if you have other income coming in – if you’re into real estate properties, or investment stocks that you can reach into/liquidate. I have real estate investments that’s why I chose only 4000$ monthly benefit. Everybody’s financial situation and needs are different so you have to look at your own the basic expenses and compare how much is my employer giving me, and how much I need on top of it in order to have a comfortable living in the event of disability.
Dr. Moole: When you say disabled, what does that mean? Is it like a general surgeon who’s not able to operate with his right hand due to some sort of an injury that is preventing him/her from doing his/her job? Can you speak about what should happen to a physician for this policy to kick in. Can you touch a little bit on that area?
Dr. Konda: That brings us to the riders or clauses we’re going to talk about. So, if you want to protect your specialty, which is very important for physicians, you have to have a specific rider. You can check that with your employer’s sponsored insurance. Some employer’s sponsored insurance do not include this special rider and it will pay you benefits ONLY if you’re totally disabled. Total disability is usually defined by activities of daily living. So if you can’t perform 2 out of 4 ADLs and you need assistance to stand/eat etc.
But when you have additional riders they will protect your actual specialty. If you’re a surgeon and you can’t use your hands from some form of trauma or medical illness or something else, this rider will kick in and you will still be considered disabled even if you can still work on some teaching/academic position or administration OR even if you don’t work at all. So, its very important for physicians to have these additional riders or clauses to help most use of your disability insurance.
Dr. Moole: What’s the name of this rider?
Dr. Konda: The name changes a little bit based on insurance company-it’s either pure-own occupation rider/true own occupation or regular occupation rider.
Dr. Moole: I see. I think this is a really important point or at least we want to look at in the current contract that we have with our employer. Based on what you said, if I’m an internal medicine doctor or a surgeon and had a disability which prevented me from working as a doctor, but even if I work as a cashier in Walmart or something, this policy won’t kick in since If I have those special riders. This is a great point to keep in mind and check with our current policy if we have those covered. If not, I think we should definitely consider getting this add on policy so that as long as you’re not intended to do the profession that you’re intended to do, you should be getting the disability.
Dr. Konda: Yes, exactly. The pure-own occupation rider protects your specialty based income. When you can’t perform your specialty based tasks, you will get paid for that disability.
Dr. Moole: Interesting. Now that we’re talking about the riders or add-on clauses, what are some of the other ones that we usually should watch out for?
Dr. Konda: There are two other important ones besides the pure-own occupation rider. One is cost of living adjustment which varies from 3% to 6%. This is basically adjusting the benefit amount based on the inflation rate. So let’s say you’re disabled 20 or 30 years from now, by that time the inflation kicks in, the same amount of benefits may not be enough to cover your expenses. So there will be certain percentages included into your contract and the benefit amount will automatically go up. So the cost of living adjustment rider is important and like I said it varies from company to company with average of 3-6%.
Dr. Moole: Interesting. Cost of living and pure own occupation riders! Any other key riders or clauses that we’re missing?
Dr. Konda: The other rider is the residual disability or partial disability rider. This addresses your previous question of what if you are working at some other job, usually when you’re working at some other job, or you change your profession to something else, most disability benefits stop. So this residual disability rider is what allows you to qualify for disability benefits (certain percentage of what you chose) if you are able to work in same occupation for part time or in a different occupation. For example you’re disabled but you can still work part time making on 50% or 60% of you pre-disability income then you’ll qualify to receive certain percentage of your disability benefits. Some companies offer 2 kinds of residual disability benefits -basic and enhanced residual benefit. If you don’t want to get into too much detail about that, just make sure you have an enhanced residual benefit which basically means it makes it easier for you to get disability benefit while you’re working part-time or somewhere else and making part of the money that you were making before.
Dr. Moole: Got it! Now let’s go into the cost of getting these insurance policies. Let’s say there’s a hospitalist or general surgeon making around $50,000 and they look at their contract and they see that they don’t have a good long-term insurance policy. So they feel like their monthly expenses are around $10,000 – $12,000, is there a way to kind of get an idea of how much will I be spending for this disability insurance every month? Is there a way to calculate that or do we have to go out there and get a bunch of quotes?
Dr. Konda: Well I can’t really give a quote because it depends on multiple factors. Although I can give you the main factors that influence your quote, it’s almost like auto insurance, you have to call and get a quotes from different companies. But lets talk about the main factors which impact your premium. The premium is the amount you pay on a monthly or yearly basis to maintain the insurance. The factors that influence this are: 1) the monthly benefit amount you choose-obviously higher the benefit higher will be your premium. And that benefit amount will also depend on what your employer is sponsoring you as well. Because there is a max cap on how much monthly benefit you can ask for depending on your employer’s sponsor. The total benefit cannot exceed your total salary.
Second factor is your age. The younger you are, the less premium you will pay. Third is your existing health conditions – so if you’re healthy, no medical problems, you can expect a lower premium.
Usually they go through a rigorous process of medical questions and it depends on the insurance company too, some don’t need an actual physical examination, they just need a phone call where you explain what you have and they discuss the premium on that. They ask you all medical issues you had in the past or having right now, and they decide the premium on that. That is a major player.
The 4th factor is the riders you choose. There are plenty of other riders you can add on and each of them will cost you more in monthly premiums.
I can give you a range, let’s say if you’re asking for $4,000 of monthly benefit, and you’re healthy, young, no medical problems, non-smoker then you can probably expect an annual premium of $1,200 to $1,400. It depends on multiple factors, so you have to call the major insurance companies or there are some agencies that work with all the major insurance companies, and get you quotes.
Dr. Moole: The benefits that you mentioned $4,000 a month is that taxable, or not taxable?
Dr. Konda: Your individual disability insurance benefits are not taxable, you don’t need to pay any taxes on those!
Dr. Moole: But the ones from your employer, God forbid if you were to fall sick, those are taxable?
Dr. Konda: Yes, those are taxable.
Dr. Moole: That’s great to know. What are the big companies that you look out for or you see on the media?
Dr. Konda: So the pure-owned occupation rider is offered by I think only 4 or 5 big insurance companies. So that kind of makes things a little simple. The two I know are Ohio national and Principle insurance company.
Dr. Moole: I think I came up with the same names when I was looking at umbrella insurance companies the other week. I know a bunch of healthcare related organizations offer disability insurance policies. For example, I get a letter every other week from a AMA offering me to buy their disability insurance policy – so are there other things we need to watch out from these policies, like how do you compare these medical organization policies vs. the ones out there in the corporate world?
Dr. Konda: That’s a great question. I’ve got a bunch of letters from AMA and ACP too. So in the past there used to be multiple issues, like AMA didn’t have cost of living adjustment riders, or didn’t offer one, or didn’t have residual disability rider, but they fixed most of those. Right now the major negative I see that they don’t have is – a fixed monthly premium for the life of policy. It means they can change the premium payments! They say “we don’t change your policy premiums on individual basis, but we can change it on a group basis.” So they have everyone who take disability insurance divided into groups however they want it, like age, etc. They look at it every year and they can change your premium. I don’t know how often that happens or if it goes up or not but that made me go away from AMA and ACP insurance. Most of the big insurance companies have a fixed premium for life of the policy. So you don’t need to worry about your premium going up in future. Once you’re locked in, you’re locked in for that period of time.
Dr. Moole: I see. So there is a sense of security knowing that the premiums are not going to change as long as you’re with that company.
Dr. Konda: Yes.
Dr. Moole: That’s a really important point. For example, 10 or 15 years down the lane, a young physician of early 30s bought their insurance, and they’re 45 or 50 and had a heart attack, so they probably don’t want their yearly premiums to skyrocket.
Dr. Konda: Yes.
Dr. Moole: That’s where we always keep saying that it’s really important to read the fine print, may it be real estate contracts, or insurance policy contract.
Now we just covered a lot about disability insurance. Do you think there are any points that I missed or any other key points we should share with the audience? Any closing thoughts on this topic?
Dr. Konda: Yes, let me mention two important words of caution to keep in mind about the fine print.
One is increasing your benefit amount in future if your income goes up. This is a one-time done deal, so you have to do your due diligence, make sure you’re getting the right policy. Don’t rush into anything. Do your research and ask questions. Some insurance policies have their benefit capped meaning there is no option to increase your benefit amount in future if your income increases. Let’s say you’re still in training, you’re not making that much money, and you decide to get a disability insurance, and that benefit amount is based on your annual income. So it will be a lower monthly benefit. Once you complete residency, and now you’re making 3-4x of that as an attending, but if the insurance that you took in training is capped you can’t increase your benefit amount. So you should make sure that there is an option to increase your benefit amount in future if your income increases.
Second is to consider your annual salary – if you’re making more that the salary your contract mentions then you can use your recent W-2s to establish your annual income or your actual pre-disability earning potential which allows you to choose a higher monthly benefit if you need and also effects your residual disability rider.
Dr. Moole: That’s kind of life changing. I don’t want to be stuck on 1/4 of my resident salary when I’m an attending and I own a big single family home for my family and then realize I’m going to get 30-40% of my resident pay check.
Dr. Konda: And if you have plans to do fellowship 5-10 years from now, and that’s a big increase in your income & expenses, you should have an option to expand on your benefits.
Dr. Moole: Thank you so much for your time with us today. I believe the listeners will enjoy this conversation. From my end, I have not looked into my employer’s contract yet, but I’ll do that right after this phone call, and I will call you over the next week to see if I can get your suggestions based on my insurance plan with my employer.
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