Disability Insurance For Physicians: An Actuarial Perspective

As a doctor, your ability to earn income is your most valuable financial asset. An illness or injury that stops you from working could risk your career, finances, and lifestyle. That’s why having robust disability insurance is essential. Building a truly solid financial foundation also includes crucial safeguards like estate planning to protect your loved ones, critical illness insurance for unexpected medical costs, and life insurance to ensure your family’s well-being if anything happens to you. 

Disability insurance helps replace your income if you can’t work due to an illness or injury. The benefits enable you to maintain your standard of living without adding debt, selling assets or dipping into your retirement savings. 

While you are disabled, the costs of running your practice continue. These expenses may include rent, staff salaries, equipment leases, insurance premiums and other ongoing expenses. Separate business overhead insurance is available to cover these liabilities but is not covered here.

In this guide, your family team at Taxevity explains what Canadian doctors need to know about securing the right disability insurance for physicians.

Why Disability Insurance Matters

• Your income depends on your ability to work. Your income could drop drastically if you can’t see patients or perform procedures. Disability insurance provides income replacement to maintain your lifestyle for months, years or decades.
• Disabilities can happen at any time. Accidents and illnesses don’t discriminate based on age or specialty. Having coverage in place prepares you for the unexpected.
• A disability can impact your career. Being away from your practice for an extended period can result in the loss of patients, referrals and momentum. Recovery may be made easier with income replacement.
• Loans and other financial obligations remain. Mortgages, family expenses, child support and other liabilities continue while you are disabled. Cash benefits help you keep making payments.
• A disability can last for years. Some disabilities never fully resolve. Only robust, long-term disability insurance can help you withstand an indefinite recovery period.
• Retirement savings may be impacted. Drawing down your savings to replace lost income can significantly harm your retirement goals. Saving less for retirement does too.
• A disability can create mental strain. Disabilities bring psychological pressures, which can turn into additional disabling conditions such as depression or anxiety. Adequate coverage helps alleviate financial worry so you can focus on your recovery.

Simply put, a disability can derail both your finances and career if you don’t have adequate protection. Prioritizing disability insurance helps safeguard your income and assets as you meet your financial obligations.

Assessing Your Personal Disability Risks

The first step to disability protection is assessing your risk:

• Specialty – Some specialties, like surgery and sports medicine, have higher disability rates due to physical demands.
• Age – While disabilities can happen at any time, risks tend to increase with age.
• Gender – Statistically, women are more likely to experience a disability than men in their working years.
• Lifestyle – Your habits and hobbies impact your risks. High-risk activities such as mountain climbing or scuba diving may limit your insurance options.
• Family history – Your risks increase if close relatives have experienced disabilities.
• Pre-existing conditions – Current or previous illnesses affect your eligibility for coverage.

You’re not alone. We’ll help you look objectively at your unique situation to evaluate your disability risks. This process helps determine the ideal coverage and benefits for your situation.

The Components Of Disability Insurance Policies

Structuring your disability insurance properly involves evaluating the important components that follow.

Definition of Disability

This outlines what criteria you’ll need to meet to qualify for benefits. A more flexible definition is preferable. For example, an “own occupation” definition means you’re considered disabled if you can’t perform your specific job, even if you can find work at a different job. This definition is available on only a few plans and to a few specific occupations. The enhanced definition must usually be selected as an upgrade to the default definition. 

On the other hand, the definition of “any occupation” is more restrictive and may prevent you from claiming benefits if you could perform any job, even if that job doesn’t exist. For example, a physician who becomes a quadriplegic could hypothetically work as a telemarketer using eye-tracking technology, which could disqualify them from submitting a claim even if it’s unlikely anyone would realistically hire them. This weaker definition is used by many group disability plans and some personal plans.

There is also the “regular occupation” definition, which the better personal disability policies use by default. As with “own occupation”, you’re considered disabled if you can’t perform your specific job. The difference is the inclusion of the stipulation that you must not be working at another job, or your benefits will be decreased, usually based on how much you’re earning or working.

Benefit Period

How long benefits will be paid for a qualifying disability. The period could be as short as two years. Doctors usually opt for benefits that can continue until age 65 since they know that disabilities can be long-lasting.

Waiting Period

The elimination period before benefits become payable after a disability occurs is typically 30, 60, 90, 180 or 365 days. The longer the waiting period you select, the lower the premiums. We find that most doctors select 90 days because longer waiting periods don’t save much, and shorter waiting periods cost significantly more. 

Monthly Benefit

The replacement income the policy provides monthly. It’s typically structured to replace 60-80% of your pre-disability monthly earnings to a maximum of $25,000 per month. Benefits are usually tax-free because the premiums come from your after-tax income.

Benefits are also tax-free if the disability policy is corporately owned. However, we see physicians holding their coverage personally because if the benefits go to the corporation, there is no mechanism to extract them tax-free. They would have to be paid out as taxable dividends. In contrast, life insurance allows tax-free capital dividends through the Capital Dividend Account. For this reason, we recommend that disability insurance be personally owned unless tax rules change. 

Partial and Residual Disability Benefit

Provides prorated benefits if you can work part-time or perform some duties during recovery. 

Partial benefits generally provide a flat 50% of the maximum disability benefit as long as you can only work 80% or less of your usual hours.

Residual benefits work on a sliding scale, providing 20% to 80% of the maximum benefit, depending on how much you can work. For example, if you can work 80% of your normal duties/hours, you would receive 20% of the maximum benefit.

The insurer may allow you to pick the option that’s the most beneficial to you. For example, if your disability allows you to work 40% of your usual hours, you would get the flat 50% benefit with partial benefits but 60% of the benefit with the residual benefits. In this case, you would elect residual benefits.

You may also be able to change the option you picked once per claim period. If your disability worsened, for example, and you went from being able to work 70% of the time to 30%, this could be valuable. Initially, electing partial benefits would have provided more benefits (50% vs. 30%), but after the decline in working ability, residual benefits would have provided more (50% vs. 70%).

Cost of Living Adjustment

Periodic increases to the monthly benefit while on claim to keep pace with inflation. This prevents the erosion of purchasing power, which can be significant if benefits continue for decades. Does not increase the benefit prior to a claim.

Own Occupation Rider

Upgrades the definition of disability to ‘own occupation’, often to age 65. Provides additional protection if you can’t work in your specialty. Physicians are one of the few groups eligible for this valuable definition, and most elect it.

Future Income Option

Allows you to increase your benefit amount when your income increases. Financial proof must be provided, but no medicals are necessary. This option can be very valuable to doctors who are early in their careers when there’s considerable potential for income to grow. The alternative is to apply for new coverage as income increases, but this requires medical underwriting.

The Future Income Option can generally be elected once per policy year. Additional coverage has a corresponding additional premium depending on your age when you add it.

Challenges Medical Students, Residents and Fellows Face in Qualifying for Disability Insurance

Medical students, residents and fellows face unique challenges in qualifying for disability coverage due to limited earnings, pre-existing conditions and debt obligations.

A special Medical Student Offer from RBC Insurance addresses these issues by waiving financial underwriting, simplifying the health questionnaire and shortening the application form. There are also discounts and a premium holiday. The offer requires enrollment in an accredited Canadian medical program and expires after the first 6 months of practice.

Getting coverage early gives peace of mind knowing you have income protection in place before potential health changes later. Learn more about special disability insurance for medical students, residents and fellows.

Disability Insurance through Medical Associations

Another option for doctors is purchasing disability coverage through a provincial medical association like the Ontario Medical Association (OMA). Here are some pros and cons of getting insurance this way.

Evaluating medical association disability insurance alongside individually owned policies is prudent. While possibly cheaper, association plans rarely provide the same extent of customization, guaranteed renewal or ownership portability as individual disability coverage. Why gamble?

Summary of Owning Personal vs Group Disability Insurance

There are pros and cons to individual disability policies versus group coverage through an employer:

Individual Disability Insurance

• Enables customization for your unique needs
• Portable if you change employers
• Typically, better definitions of disability
• Lower to no risk of price increases or reductions in benefits
• May allow higher coverage amounts

Group Disability Insurance

• May be easier to qualify for coverage than with an individual plan
• Subject to termination if you leave the employer or the group plan ends
• Benefit periods are typically shorter
• Definitions of disability tend to be more restrictive
• Benefits are subject to change by the employer and insurer
• Often have caps that could leave you underinsured

Owning individual disability coverage gives you complete control over your policy benefits and portability. Group plans provide an option if personal coverage is unobtainable or cost-prohibitive.

Strategies to Reduce Disability Insurance Premiums

The primary factor affecting disability insurance premiums is the monthly benefit amount. Strategies to reduce costs include:

• Opting for longer waiting periods before benefits begin. This decreases the likelihood of smaller, shorter claims being eligible for benefits.
• Selecting the weaker “any occupation” definition of disability rather than the stronger “regular occupation” or strongest “own occupation”. However, this reduces protection.
• If the benefits meet your needs, consider group coverage through an employer or association.
• Structuring benefits to allow for partial offsets from other income like CPP disability payments.
• Reducing the benefit period from “to age 65” to 2 years or 5 years. While a shorter benefit period helps lower premiums, it’s important to maintain other savings and investments to bridge any income gap later in your career. Learn how to optimize your investment portfolio as a physician.
• Taking out a policy earlier in your career when rates are lower due to a younger age, before your health may change.

The best value comes from balancing sufficient monthly benefits and definitions against costs to meet your specific situation.

The Claims Process For Disability Insurance

If disability strikes, here is what to expect with the claims process:

• Notify your insurer promptly once your disability starts, even if your waiting period hasn’t been completed yet. 
• Submit your completed claim forms as soon as possible to avoid payment delays.
• Medical documentation containing evidence to support your disability will be required from your doctor.
• You’ll need to be under the continuous care of a physician who is appropriate for your condition.
• The insurer will evaluate your medical information to determine if you meet the definition of disability under your policy. Additional medical records may be requested.
• The insurer may request another doctor of their choosing to examine you.
• If approved, benefits will commence after the waiting period, provided you are still disabled.
• Ongoing proof of your continued disability will need to be submitted periodically unless the condition has been deemed permanent and irreversible (for example, blindness or paralysis of one or more limbs). While possible medical interventions may exist, the insurer may still deem them permanent. Every case is unique.
• The insurer may request that you engage with rehabilitation programs, if appropriate. 
• Partial or residual disability benefits may apply if you can work part-time or perform some duties initially or eventually.

For smooth claims handling, maintain frequent communication with your insurer. Keep detailed records of medical assessments demonstrating your ongoing disability status. We help you navigate the claims process.

Summary and Next Steps

Disability insurance helps protect your most valuable asset: your quality of life. Analyzing all options helps ensure that you get cost-effective coverage tailored to your specific protection needs. Your family team at Taxevity is here to help you. To get started, simply schedule a chat. 

Frequently Asked Questions

Here are answers to some common questions doctors have about disability insurance

How much disability insurance do I need?

A tax-free monthly benefit of 60-80% of your gross income is recommended to cover your expenses if disabled.

When should I get disability insurance?

Getting coverage early in your career is best because premiums are lowest, and qualifying is easiest. Health issues that arise down the road can make qualifying for coverage harder.

How long a waiting period should I choose?

Most doctors select a 90-day waiting period to reduce premium costs. Make sure you have sufficient savings to fund the waiting period before benefits start.

What disabilities are covered?

Most policies cover disabilities resulting from accidents or illnesses except those specifically excluded in the policy. The largest source of claims are psychological disabilities like depression and anxiety. Typical exclusions are self-inflicted injuries, acts of war, or pre-existing conditions.

Can I get disability insurance if I have a pre-existing condition?

Perhaps, but the pre-existing condition will likely be excluded from coverage. 

What if I recover but suffer a relapse?

If a relapse occurs within six months of the original disability period ending, you can usually resume benefits without needing to go through another waiting period.

Can I receive disability benefits if I travel or move abroad?

There are restrictions on benefit eligibility if you travel outside Canada or the US. Disclosing plans to move abroad would be required during the application process.

What do doctors say about disability insurance?

Here’s a US perspective from The White Coat Investor. While products and insurers differ in Canada, there’s no suggestion that doctors get coverage from the American Medical Association or other group. Maybe you’ll agree that’s valid here too.

What About My Other Questions?

At Taxevity, we’re here to help. Simply schedule a private chat.

Promod Sharma (FSA, FCIA, FEA) and Jeevan Sharma (CFP) YOUR FAMILY TEAM

At Taxevity Insurance, we’re passionate about bringing clarity to complex financial decisions. Let us empower you with personalized strategies to achieve your goals. We focus on life and health insurance solutions to protect your business, your family, and your legacy.