There are many ways to customize a disability insurance policy, and it’s worth thinking about each of the potential riders available to do so carefully. Picking the right disability insurance policy riders for you will ensure that your needs are met, as well as that you don’t pay for features that you don’t need. Disability insurance brokers that are used to working with doctors should also be able to help you navigate these options, but it’s always good to do your own research as well.
Hopefully if you’re a physician trying to determine which disability insurance riders you should get on your disability insurance (DI) policy, you already know that you need it. If you don’t, If you aren’t aware of the importance of disability insurance, please review our primer on disability insurance for physicians.
In this article, we’ll cover why the various available disability insurance riders most commonly bought by physicians, features you should know about, as well as who each rider may be appropriate for.
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Take a deeper dive into disability insurance in our guide to disability insurance for physicians primer.
If you need to shop quotes for true own occupation disability insurance, our partners below can help.
Pattern: http://www.patternlife.com/partner/psg. This convenient option will allow you to enter your information and immediately begin generating quotes from the major disability companies, as well as schedule a meeting with the Pattern team to discuss the options and figure out which plan is best for you. Many in the group have had a great experience with this process.
Moment Insurance: Complete your quote inquiry information in less than five minutes and easily schedule an appointment to speak with a dedicated, experienced disability insurance expert who will walk you through the process from start to finish and help you compare different options. Many in the group have worked with their experts previously, and had a great experience! Contact them here.
PolicyGenius: This is not a physician specific company, but well known in the insurance space. They may be a helpful resource if you are looking for another place for quotes. Make sure that you're comparing apples to apples in terms of true own occupation insurance, as not all fields emphasize the need for this equally. Contact them here.
What are disability insurance riders?
In addition to purchasing a baseline disability policy, most physicians will end up purchasing some add on disability riders for an additional annual expense. These help you to customize the policy to your needs, and hopefully prevent you from incurring costs for features that you don’t need. While you should lean on your independent disability insurance agent to help you navigate these, it’s important to note that the higher you pay in premiums, the higher the commissions are for your agents, so as well-intentioned as they may be, they may lean towards recommending more riders than you feel you need. As with anything, the more you know, the more you can advocate for yourself.
What are the various different options available for disability insurance riders?
Each company has their own names for these riders, but generally offer similar options. The most common general categories for options include:
Future Benefit Increase Rider
Cost of Living Adjustment (COLA) Rider
Partial and/or Residual Disability Rider
Catastrophic Disability Rider
Own Occupation or Specialty Specific Rider
Guaranteed Renewable Rider
Non-cancellable Rider
Student Loan Rider
Retirement Benefit Rider
Which disability insurance riders do I absolutely need as a physician?
In general, if you’ve read our guide to disability insurance for physicians, you know that we believe all physicians should have policies that are not cancellable, where the rates stay the same throughout the life of the policy, and which are ‘own occupation’. This is one of the flaws of many disability society insurance plans, which may seem cheaper at the onset, but which could either raise prices as you get older and your risk increases or cancel the policies altogether. You are buying this policy to protect yourself in case you lose your ability to earn money, so you want these policies to offer you true security.
If your policy does not have this feature or requires a specific rider to have it, we would highly encourage getting the own occupation specialty specific rider, especially if doing procedures or if there is a particular part of your job where a disability may render you unable to perform a specific function and consequently substantially reduce your earnings. Similarly, we also feel that you should be careful about any policy that is cancellable or is not guaranteed renewable, and opt for policies with a guaranteed renewable rider and a non-cancellable rider. Do not get a policy where the company can change the terms on you or elect to no longer insure you if they decide for whatever reason that you are now too risky to insure.
Ideally you want your policy to have both the guaranteed renewable and the non-cancellable wording. Guaranteed renewable just means that they have to renew your policy, but they could change your premiums. There are some conditions to this where they generally have to do this as an across the board policy, not by individually targeting you, so it’s not as insecure as it may sound, but it does mean that you may pay more than you were originally planning for. Having both guaranteed renewable and non-cancellable means the policy has to stay the same year to year regardless of what else is happening in your life.
We also feel pretty strongly that most physicians should carry partial and/or residual disability riders. The fact is that while many physicians may utilize their disability insurance policy throughout their careers, the majority of them do not experience total disability. If you have a disability that either temporarily or permanently renders you unable to work full time or requires you to change the way that you work, resulting in a loss of income, you will be grateful that you had this on your policy. This way, you can still make some money, but be made whole from the amount of revenue lost as a result of your disability. You can read more about the partial and residual disability riders below.
Which disability insurance riders should I consider getting as a physician?
W In addition to the aspects of the policy we outlined as most important above, there are several additional riders that can be incredibly beneficial depending on your circumstances. These include:
The Future Increase Option Rider/Future Purchase Option Rider: Very important if you are an early career physician who anticipates a substantial increase in income. Residents and fellows in training should get this so that they can increase their coverage later without having to re-apply for insurance without trainee discounts, an older age, and potentially worse health. Read more about the Future Benefit Increase Option rider below.
Cost of Living Adjustment Rider (COLA): Important for early career physicians, where the effect of inflation could dramatically reduce the spending power of the monthly benefit amount. Limited yield for later stage physicians. Read more about the COLA rider below.
Catastrophic Disability Rider: This rider will provide you a larger benefit if you are significantly disabled to the point where you are unable to perform two or more activities of daily living (ADLs). Read more about the Catastrophic Disability rider below.
Which disability insurance riders may be of limited utility as a physician?
There are several other options that we feel are of limited use over just buying a larger policy at baseline. This may be because you have other protection against them, or because you are unlikely to need them or can self-insure for these situations.
For example, we’re very lukewarm on the student loan rider. Check the terms and conditions of your loan, but in many cases, your student loans will be discharged in the case of total disability. Although you could make a case for the loans not being discharged in the case of partial disability, this is why the partial and residual disability riders are in place. Additionally, the wording of most of these riders specifies that the benefit term begins when the policy is issued, not when the disability occurs, so if you have the rider on the policy for 15 years but don’t get disabled until 10 years in, you will only receive the benefit for 5 years. There may also be a waiting period on it, or a minimum or maximum amount that it pays out. All in all, we consider it a relatively limited rider that may not be worth the amount paid - use that money to lock in your maximal benefit.
Another one we don’t often advocate for is the retirement benefit rider, which entails the insurance company contributing some money towards retirement on your behalf (in addition to your baseline monthly disability insurance benefit) if you were to become retired. As with most cases with mixing insurance and investing, the options they offer you are generally not advantageous and come with higher fees, so we would again recommend simply getting more (tax free) benefit. Take that added benefit in conjunction with the excess money you save monthly from your baseline benefit when disabled and invest that money, as just because you’re disabled doesn’t mean you don’t need to be saving for retirement.
The Partial Disability Rider and Residual Disability Rider
Insurance companies treat this differently, and this may be one rider or several different riders depending on the company. Either way, having some coverage for partial disability, which is more common than total disability, is a good idea, as you’ll be compensated for loss of income (generally if more than 15-20% of your income) if you’re able to do some of your job but not all, if you’re only able to work part time, or if you return to work full time but it will take some time to get your patient panel back up and running. The companies may classify the rider based on whether you’re working less hours, can’t perform some of the duties of your job, and/or if you’ve taken a financial hit. Each company will have its own criteria for how you qualify for each, based on these factors.
There are two main different types of partial disability riders.
Basic partial disability rider: will pay if you’ve lost greater than or equal to a certain percentage of your income and you are either working fewer hours or unable to perform all of the tasks that you were able to prior to disability. While this percentage varies amongst insurance companies, it’s usually around 20%.
The percent of your max benefit that you receive will be proportional to the percent of revenue lost (up to your max benefit). Some policies state that for the first six months, regardless of what percent of revenue has decreased, you will get at least 50% of your max benefit amount.
Enhanced partial disability rider:
In this case, the company usually pays the actual dollar amount of loss of income, up to policy monthly benefit limits, for a year, and then after a year will pay the percent of the policy max benefit that corresponds to the percentage of income loss.
Important feature: recovery benefit. This will continue to pay out even if you return to work full time and are physically recovered from your disability, but the effects of the downtime continue to affect you financially (ramp back up in practice if patients left the practice, etc.).
In many cases, if your decrease in income is more than 75-80%, you will receive your full monthly benefit, even if you are able to work in some capacity.
Again, talk to an independent insurance agent that specializes in doctors, who can help you tease out the various options with each company and figure out what’s best for you.
The Future Increase Option Rider (Future Purchase Option)
The future increase option rider on a disability policy is critical for residents and fellows, as well as early career attendings who anticipate a future increase in income. This allows you to increase the amount of monthly benefit you are insured to get to reflect an increase in income, without having to requalify with another medical exam at a later time.
If you are already well established within your career and don’t anticipate any major increases in income, or if you already have enough benefit that your financial security is covered by the monthly benefit, this may not be worth the additional cost over just getting a larger baseline monthly disability insurance benefit.
Insurance companies have different names for this rider, including a future purchase option, benefit update rider, future increase option, and future insurability option. While some insurance companies offer this option as part of a baseline policy, most of them require purchase of this benefit as a separate rider.
Some of these are very flexible and allow you to increase your benefit whenever you want, whereas others offer increases at fixed intervals. Some will require that you exercise the benefit from time to time, and if you don’t, will drop the rider from the policy. Not surprisingly, you will pay more for more flexibility.
Note that you will have to purchase the additional benefit by paying proportionately more in premium, but it is better to do this without having to start the application process from scratch. This is because disability insurance premiums are more expensive if you buy your policy at an older age, and also to protect you from a situation where you develop an interim medical problem that would preclude you from qualifying for disability insurance or add exclusions to your policy.
You can read about the future increase option rider in more detail on this dedicated post, which goes over how the rider works, as well as frequently asked questions both at purchase time and over the life of the policy.
The Cost of Living Adjustment Rider (COLA Rider)
The Cost of Living Adjustment rider (COLA) is there to protect the spending power of your monthly disability insurance benefit from the effects of inflation.
It’s important to note that this rider doesn’t go into effect until AFTER you are disabled, usually for 12 months. So if you are later in your career and will only be receiving the benefits for a short period of time until you hit 65, the spending power of that benefit isn’t likely to change so substantially that you need to spend more money on this disability insurance rider. It really is meant for those buying disability insurance in their 20s and 30s, as if you were to become disabled today and $7500 a month may seem like a great monthly benefit, you may not feel that way 30 years from now.
How the COLA rider works is to adjust the monthly benefit you receive from your disability insurance payout every year. The amount that it is adjusted will either be tied to inflation via the Consumer Price Index (CPI) or be based on a fixed percentage. This rider will apply to both the total disability benefit and the residual disability benefit. In general, when you are young and healthy and early in your career, it makes sense to first maximize the benefit amount before paying additional premiums for the COLA rider coverage. If you have the extra budget, paying for the COLA rider can make a huge difference if you become disabled early in your career, so you should consider adding it as an early career physician.
Some policies offer an inflation protection rider, which is similar, and the cost-benefit analysis is similar to the COLA.
The Catastrophic Disability Rider
Depending on who you talk to, people’s opinions on this rider vary. As most of us know as physicians, if you are disabled to the point where you need assistance with your ADLs and need a home health aid or assisted living, the costs of this can be significant. We talk about how this is a better alternative than long term care insurance for most physicians in that the benefits are far greater and the policy is less restrictive than most long term care insurance plans.
We recommend thinking about maximizing your benefit before thinking about adding this rider, as it’s not a particularly cheap rider. That said, if you do end up needing it, the ROI on the extra premium for a high 4 figure or 5 figure amount extra in monthly benefit is hard to beat. If you’ve been on our online physician communities for a while, you can probably identify at least one case in which a physician was really thankful for this rider, but as with most things insurance, you want to consider what your risk-benefits are when deciding to spend that extra money, and whether you have some other feasible backup plans in place for this scenario.
Do I Even Need Disability Insurance?
If you’re reading this article, you likely already know that the answer is usually yes, unless you’ve achieved financial independence and the extra thousands of dollars a month wouldn’t change your ability to live the life you want.
If you are still asking this question, please review our primer on disability insurance for physicians or some reasons why physicians mistakenly think they don’t need disability insurance.
Conclusion
Buying a disability insurance policy can be confusing between the number of insurance agents and companies out there and the variety of ways to enhance your disability insurance policy with disability insurance riders. Depending on your stage of life and the amount of your baseline monthly benefit at the time of purchase, some riders may be more important than others. Choosing the right balance of creating financial stability and not over-insuring is hard, particularly when agents are incentivized to sell you more. Educate yourself as to what makes sense in your scenario so that you can also be an advocate for yourself in this process.
If you need a place to buy disability insurance and/or need help navigating your options, check out our resources for disability insurance agents for physicians that have been trusted by many of our community members.