Life insurance, although not pleasant to think about, is easy enough to understand. Benefits get paid out upon a person’s death. There is no “gray” area here according to the insurance company- you’re either dead or alive.
However, disability is not so black or white. How exactly does one define “disability?” It turns out that it can be defined a number of different ways, depending on the insurance carrier. Qualifications, coverage, waiting periods, premiums, and riders (add-ons) will also vary quite a bit depending on who you go with. It’s enough to make your head spin.
So before going down that path, get clear about the purpose of disability insurance.
WHY DISABILITY INSURANCE?
First things first. Why even bother getting disability insurance?
This is insurance that protects your income. All of those years spent in school ultimately led to your DVM, and this degree is your ticket to earn income within a very specialized field.
When you walked across that stage to accept your diploma, you were likely planning on working for a few decades up until you retire, right?
But, as so often happens, life may have other plans for you.
Sometimes you need to take a break. Maybe there is a career change. Or family obligations. These are all choices.
Unfortunately, disability isn’t a choice. In fact, many people are forced into retirement earlier than anticipated due to health issues and disability. An unexpected health problem can leave you unable to work for a couple of days, the rest of your life, or somewhere in the middle. There is no crystal ball that will warn you beforehand.
Then what happens? Well, if you don’t have a disability insurance policy in place, then you are losing out on all of that potential income that you could have been earning if you weren’t disabled. This can be devastating, both mentally, emotionally, physically, spiritually, and obviously, financially. You put in a lot of blood, sweat, tears, and money (!) into your degree and ability to earn income in this profession. Protect that income.
WHO NEEDS DISABILITY INSURANCE?
Similar to life insurance, if you have people that are financially dependent on you, then you should have disability insurance. If you are single, then by default, you are financially dependent on your income.
On the flip side, if you’re financially independent (you’re no longer relying on your income to pay for your living expenses), then you will no longer have a need for disability insurance. If you’re in this category, congratulations!
Remember that disability is more often a result of an illness (physical or mental) or medical condition, although accidents certainly do happen.
Specifically for veterinarians, the job itself can be very physically demanding, requiring long days on our feet, helping to lift patients on and off the exam room table, repetitive motions when doing surgical work, and sometimes twisting our bodies in comical positions to get to the level of our patients in order to perform our examinations. Years and years of if this can take a toll on your body, potentially leading to chronic conditions. Not to mention exposure to potentially dangerous situations, such as getting bitten, scratched, kicked, or trampled on (these types of injuries may or may not be covered by workers’ compensation).
Here is an overview of the two main types of disability insurance: short term disability and long term disability:
SHORT TERM DISABILITY
Short term disability, as the name suggests, provides benefits for a short period of time; up to 6 months. The waiting (elimination) period, or the amount of time you need to wait before the benefits kick in, is typically 2 weeks or less.
A short term disability policy may make sense for those who don’t have enough of a financial emergency cushion for this shorter time frame.
A NOTE ABOUT SHORT TERM DISABILITY, PREGNANCY, AND MATERNITY LEAVE
Many people choose short term disability specifically for its benefits during maternity leave. The AVMA recently changed the language regarding their short term disability policy, which they included in their statement here.
Starting November 1, 2019, the benefit period for routine, uncomplicated pregnancies will be going from 90 days to 30 days. In addition, coverage must be in effect for at least 12 consecutive months, versus the current 9 months. Complications stemming from pregnancies will still have the 6 month maximum benefit period.
As you can imagine, this caused quite the uproar in the veterinary community, especially as so many in the community are either working mothers or plan to be mothers. It is an unfortunate situation for those who had been counting on short term disability as a way to ease financial burdens during maternity leave.
So for those who are planning on becoming pregnant, you will need to consider whether the AVMA short term disability policy makes financial sense in light of these changes.
LONG TERM DISABILITY
In contrast, a long term disability policy is designed to provide benefits for greater than 6 months, all the way up to traditional retirement age (65). Benefits are typically no more than 60% of your pre-tax income.
Since you may have this policy for decades, you are essentially entering a long-term relationship with your insurance company. Pay close attention to what you’ll be getting out of this long-term relationship.
Here are some terms that you should look for in a long term disability policy:
- Own occupation: For professions that are specialized, such as veterinary medicine, you want to make sure that you have an own occupation policy. This means that if you are no longer able to work as a veterinarian due to a disability, but you are still able to work at a non-veterinarian job, you can still receive benefits. In contrast, an “any occupation” policy means that you won’t qualify for benefits if you earn income with any job.
- Guaranteed renewable: The insurer must provide coverage as long as you’re paying your premiums, but they can still increase your premium rates.
- Non-cancelable: As long as you’re paying your premiums, the insurer cannot change the conditions and terms of your policy.
Having an own-occupation, non-cancelable, AND guaranteed renewable policy gives you a very strong disability policy that you can you can count on for the long haul. You can be assured that your coverage will stay the same and your rates will not change.
LONG TERM DISABILITY RIDERS
For a more customized policy, there are also additional riders that insurance companies offer to policyholders. Here are a few examples of popular riders:
- Cost of Living Adjustment (COLA): Thanks to inflation, the cost of living continues to rise over time. Adding this rider assures that your payments would be keeping up with inflation.
- Future Purchase Option: If you need more disability coverage in the future, then you can opt to increase your coverage without medical underwriting.
- Partial or Residual Disability: Disability is falls along a range, and having this rider will allow for benefits if you’re still working, but you’re unable to work to your full capacity due to your disability.
- Mental Disorder/Substance Abuse: This may be a separate rider or written into the policy itself. There is typically a 2 year maximum benefit period for claims.
- Business Overhead Expense Insurance: If you’re a practice owner, then you will need to consider the extra costs of running your practice if you’re disabled. Expenses such as payroll and rent would be covered with this insurance.
GROUP/WORKPLACE DISABILITY INSURANCE
Individual long term disability policies offer the most amount of protection, and they are also completely portable, meaning that you can keep this policy with you wherever you go. The biggest downside is the cost- expect to pay anywhere from 1-3% of your salary annually. This is a big difference when compared to term life insurance premiums, which tend to be very affordable.
What about group plans that are offered through your workplace or an association?
Here are some pros and cons to consider when it comes to group policies:
- More affordable
- May not have to go through underwriting (including medical exam)
- Not portable if you leave your workplace or discontinue your association membership
- Generally have weaker definitions of disability
- Limited riders compared to individual policies
- May result in having your benefits taxed
- Premiums may go up over time
- Benefits and coverage may change over time
- Not owned by you, but rather your employer or association
If you are paying for your premiums out of pocket, then this is considered after-tax money, which means that any benefits from this policy will not be taxed. This is a benefit of all individual disability policies.
On the other hand, if you or your employer is paying for your premiums pre-tax, then the benefits will be taxable. This makes a big difference if you happen to be on the receiving end of benefits.
For those that have pre-existing medical conditions, not having to go through medical underwriting is a big deal. A group policy may be the only way that these individuals can get any type of disability coverage at all.
Although these are more affordable, you can easily see why under the “cons” section. It will be up to you whether individual disability policies are worth the limitations of group policies.
GENERAL TIPS WITH DISABILITY INSURANCE
Similar to life insurance, the earlier you purchase your disability insurance policy, the better. We’re not getting any younger, and rates do increase as we age. Lock in those lower rates while you can.
Ladies: Expect that your rates will be higher than for men (on the flip side, men typically pay more for life insurance compared to a woman with a similar profile). There are some insurance carriers that offer unisex rates, which are more favorably priced for women. Make sure you ask about unisex rates when you’re applying for disability insurance.
Additional factors, other than age or gender, that affect your premium rate? The length of your elimination period (the shorter, the more expensive), the benefit period (the longer, the more expensive), the coverage amount, your occupation class (sorry large animal vets- you’ll be paying more than your companion animal friends), and your health.
A DISABILITY STORY
Here is a guest post that was submitted by a DVM. It details how she went from being healthy and working full-time to now relying on her disability benefits and unable to work in veterinary medicine to her previous capacity.
HOW DO I CHOOSE?
Insurance is all about calculating risk. There is no crystal ball here, so we all try our best to take the appropriate amount of risk for our situation.
Are you single or the sole breadwinner, where a disability would severely impact your ability to produce income as a veterinarian and support yourself and your family? How easily would you be able to pivot to having a different job (whether within or outside the field) with a similar income if you were disabled? In this case, an individual disability policy may be the best way to protect your income. You may even choose to supplement with a group policy.
On the other end of the spectrum: Are you married and able to live off of your spouse’s income alone? Or are you close to financial independence? One could argue that you may not need a disability policy at all. However, keep in mind that although you’re currently financially stable, a disability could significantly increase your living expenses.
Due to the more nuanced nature of disabilities, definition of disabilities, and the differing terms and conditions of each policy, it is recommended that you meet with an independent broker who can walk you through different options and take the time to help you find the best policy for your situation.
A good insurance broker will help you navigate all of the possible options for your unique situation. He/she should be able to fully explain all of insurance jargon in terms that you understand. Ideally, they would show you several different policies from different carriers and explain the strengths and weaknesses of each policy- this is how you know that you’re working with an independent broker. You will not get this kind of advice from an insurance broker who works for one insurance company, otherwise known as a captive broker/agent. They are only allowed to sell policies from the company they represent.
**A quick note: when it comes to working with a financial professional, whether you’re talking to a financial planner, a CPA, an estate planning attorney, or an insurance broker, you should always ensure that they are taking their time with you. You should not feel rushed, and they certainly should never make you feel ignorant or inadequate. As you see, when it comes to disability insurance, there are many considerations to take into account. Make an informed choice with someone who is willing to take their time with you.**
Do you have a story to share when it comes to buying disability insurance? Are there any other tips that you would add? Are you currently receiving benefits? Comment below!