Residents: Your Disability Insurance Coverage May Be Insufficient

As a medical resident embarking on what you hope will be a long and fulfilling career, you probably haven’t placed disability insurance high on your list of priorities. You are young, strong and healthy, and you may be paying off your student debt while working for a relatively modest salary. “Why do I need the added financial burden of disability insurance premiums?” you might ask.

In fact, new doctors have plenty of good reasons to invest in a good disability insurance policy, insurance experts say. It’s a belief shared by the vast majority of American doctors themselves, 77% of whom believe disability insurance is “essential” and 75% of whom have such a policy, according to a report published by AMA Insurance. Their belief may be based on experience and observation. The report notes that 60 percent of physicians surveyed had known a colleague who suffered an accident or disabling injury.

“That’s all well and good, but why do I have to take out a separate policy when the health organization that employs me already covers me under a disability insurance plan? you can counter.

There are a number of compelling reasons to buy a policy beyond what your employer pays on your behalf, and most of them are financial, according to Brian Farmer, national account manager at AMA Insurance.

Take a look at the numbers: most employer disability insurance policies cover around 60% of your current income. If you earn $60,000 as a resident and suffer an accident or disabling injury, you will receive an annual benefit of $36,000. Chances are, the monthly benefit of $3,000 is far less than the amount needed to cover your living expenses, medical school loan repayments, and other obligations.

If your employer pays the disability insurance premium for you, your benefit amount will be even less, as they would be subject to income tax. Only if your premium comes from source deductions will you not have to pay taxes. This is because you would be paying the premium with after-tax dollars. This latest scenario, however, raises another question, Farmer said.

If you are paying your own income for a policy, you might consider purchasing an Individual Disability Insurance (IDI) scheme, which may offer additional benefits.

An individual policy that you purchase independently of your employer has many advantages, Farmer added. In addition to often paying a higher percentage of your income, depending on policy parameters, these plans, unlike an employer plan, are portable.

“Coverage is yours, no matter how often you change employers, from residency to your first job and any subsequent employers or private practices,” he said.

Plus, an individual policy allows you to scale up coverage as your potential income grows once you complete residency. An employer-based group plan can only protect your current income, said J. Michael Hegwood, assistant vice president of brokerage marketing at AMA Insurance,

“So a first- or second-year medical practitioner who is now earning $250,000 a year can exercise options that allow them to increase the amount of coverage they have in their current plan to reflect their higher income,” Hegwood said. “A group employer plan usually doesn’t allow you to do that. »

It’s financially prudent, Hegwood added, to purchase your policy at a younger age. Indeed, you can often benefit from lower premiums which, in the longer term, will save you money over the life of your insurance contract.