Disability insurance - two higher earner household

[Scott at MD Financial Services]

As long as you feel comfortable with your plan that is what matters. As I like to ask my clients, "what are your expectations of policy performance"? How do feel about the terms in your policy that allow you or disallow you to get on claim, justify income per the terms of the policy, meet the definition of disability, and be comfortable with any of the benefit offsets? Once we know those parameters then let's build a contract to meet your expectations. If in the group policy the elimination period, definition of disability, residual, definition of earnings, and income benefit offsets meets your expectations then a 'hardy pat' on the back to you.

Just a couple of notes:
I have not seen a group policy with a True Own Specialty definition in over 20 years so you might re-read the definition of disability, what they may mean by own occupation, is there a reduction in payment if you work post injury (if so it certainly is not a true own specialty definition), and what is the regulatory body that determines your occupation at claim time? I read a policy yesterday that said he will be considered disabled if unable to do his specific occupation but when you dug deep the occupation was described as 'any duties a physician might perform'. Not a big deal if you as the consumer are good with that but for most physicians that would not be the desired definition, but few folks ever read these things.

When you are mentioning 1/7 I am assuming you are referring to % of doctors that have a claim? Not sure about the stat if that is the case because you hear all sorts of different numbers but what you might want to ask is "What constitutes a claim for that stat". Not all claims are until age 65. In fact the vast majority (like 81%) of all claims are satisfied within 5 years. As for loss ratios you can typically look those up if you are so inspired and in some states it is even required that the carriers disclose that on their illustrations. Most Individual carriers have a anticipated loss ratio of around 70-80% of premiums brought in so they operate on a 20-30% Gross margins. Group policies have anticipated loss ratios that are considerably lower due to provisions that limit their financial liability, thus the costs are lower.

Finally on this comment "Well I've never heard of someone complaining about not being disabled so they could cash in their disability policy either". Well you should go sit in an office that specializes in disability insurance and you will be shocked at the number of doctors that ask how to become disabled. How many are on claim because they are to depressed to work but are happy to meet with you to go over policy details or other information at "The Club". We often get calls asking "If This happened to me or That happened to me, would that be a claim? If this is an issue that comes up and I can't do X medical specialty, how much can I earn and not have it affect my policy payout"? The list goes on, not a big deal but the environment one is in is what dictates what one might hear. In a cardiology office there is a lot of chatter about cardiac issues, in Peds office there is a lot of chatter about kids, in a ortho office there is a lot of chatter about bones and soft tissue, in an disability insurance office or attorney's office that deals with disability we do get a lot of "how do I....."

[Tim]

That’s a good point. I’ll have to ensure I verify the policy in place every year to avoid shenanigans like that.

"I also just think if I'm actually disabled, no amount of money is going to make me happy. As long as I'm not destitute living under a bridge, I'll be fine."
Is the glass half full or half empty? Much depends upon how you frame the purpose of the insurance. Your logic is perfectly fine.

Another point of view is how your catastrophic evident is going to impact your family. The reason for that is the impact is probably more on those that take care of you. I know an ortho trauma surgeon that had a severe car accident with a high comp wife physician and two very young kids. Can't work as he used to work.
The new life is very different, the LTDI insurance basically puts them back financially where THEY were. He has no choice to adjust to a new and different life, for the sake of his family. My BIL (a true POS) was very very selfish. Spouse was the only one of 7 kids that couldn't turn her back on him. Significantly changed my like and hers. Just had to make the best of it. You can view it as only you being not destitute if you wish.

On the plus side, most LTDI claims are not for life. Probably around 5 years.

[medicoFIRE]

That’s a good point. I’ll have to ensure I verify the policy in place every year to avoid shenanigans like that.

[Ethan Abramowitz]

Please note that the employer provided/GLTD policy is renewed every year. As such, the coverage provided by your employer is not guaranteed to be the coverage you have in the future. I am working with a physician now that was employed with the same group for over 15 years. She initially provided me with a copy of the GLTD plan issued in 2019 to review. I requested the policy issued in 2021. Her group reduced their coverage between 2019 and 2021, opting to reduce the own occupation coverage period from Social Security Retirement age to 36 months. She was unaware of this modification. As things stand now, the modification cost this physician 7 years of benefits=roughly $1.25 million.

[medicoFIRE]

Appreciate your input. I did a deep dive into the policy and it appears to be an own speciality group policy. My risk tolerance is high enough that I think I'll just stick with the group. I think it's a good idea for most people to buy LTDI own policy however, so I'm not against it. I also just think if I'm actually disabled, no amount of money is going to make me happy. As long as I'm not destitute living under a bridge, I'll be fine. I'm sure if you asked any disabled person if they'd give up every penny of their net worth to not be disabled, they would take that offer in a second. So it's sort of the reverse of the idea that "I've never heard of someone complaining about too much insurance at the time of disability." Well I've never heard of someone complaining about not being disabled so they could cash in their disability policy either. Not a big fan of that type of argument on either side. I think the best argument to buy LTDI is - will you be in a catastrophic state if the worst comes to pass? For example, if you had a house valued at 1 million without any insurance. Could you take a 1 million dollar hit and still be fine? If not, then gotta get insurance. At the end of the day the insurance companies make money or they wouldn't offer it. No way it's 1/7 that get disabled having paid in 100k to the system while claiming 2.5 million in benefits over the rest of their life. Math just doesn't add up and these companies wouldn't make any money. I understand the idea of managing risk, but I don't think it always applies to two high earner households, especially with a backstop of group disabilty policy even if it is admittedly not as good.

[Scott at MD Financial Services]

It says something about plan being covertible or something. How do these work if you actually get disabled? Lets say you are totally disabled. Then Let’s say you are no longer employed for obvious reasons- being disabled. Do you still have to pay the premiums monthing to receive your disability? But that was covered by the employer… so how much do you pay if you are disabled? Same as the amount the employer paid for it?

There is no premium due by the employer or insured if one is on claim.

[medicoFIRE]

Sorry about your BIL. Did he have disability insurance?

[Tim]

I’m looking for catastrophic coverage. For example, if I am paraplegic or something. Or I get go blind in both eyes. Or if I am stroked out and have a peg tube and tracheostomy tube. Why would group disability not cover something like that? Someone please tell me a story of an injury like the above that was not covered by group disability. I understand that if I get some recalcitrant back pain or something I may not get that covered. I just don’t understand why the group disability would not cover those scenarios above. 10k post tax would be plenty to cover what we need and my wife would continue to work to support other expenses.

“Or if I am stroked out and have a peg tube and tracheostomy tube”
First, your benefits will be taxable. Second, your SSDI benefit will be deducted for your group benefit. Third, A number of pieces of equipment will not be covered by any insurance plan.
Fourth, you will require 24 hour care. Again, I don’t think you have a good idea of what your costs will be.
Fifth, your wife will now need to save for 2 retirements.
Ask me how I know? My BIL stroked out.
The unfortunate reality, in this case it likely will last 5 years.

[medicoFIRE]

It says something about plan being covertible or something. How do these work if you actually get disabled? Lets say you are totally disabled. Then Let’s say you are no longer employed for obvious reasons- being disabled. Do you still have to pay the premiums monthing to receive your disability? But that was covered by the employer… so how much do you pay if you are disabled? Same as the amount the employer paid for it?

[Scott at MD Financial Services]

What you are asking for is an extremely large spread of issues which have been noted above by several of us. What you should do is read your own policy (not the summary), pay very close to the smallest detail and then make sure you are comfortable with that. If you comfortable with it then great, if not then do something about it. Nobody is here to scare you into it.

[medicoFIRE]

I guess at the end of the day, what I am asking for - specific examples when group disability failed someone. Like an example of something that was denied for group disability that would have otherwise been covered. Horror stories are welcome. It will take a lot to scare me so please don’t pull any punches.

[medicoFIRE]

I’m looking for catastrophic coverage. For example, if I am paraplegic or something. Or I get go blind in both eyes. Or if I am stroked out and have a peg tube and tracheostomy tube. Why would group disability not cover something like that? Someone please tell me a story of an injury like the above that was not covered by group disability. I understand that if I get some recalcitrant back pain or something I may not get that covered. I just don’t understand why the group disability would not cover those scenarios above. 10k post tax would be plenty to cover what we need and my wife would continue to work to support other expenses.

[Hoopoe]

I'm an ER doctor and my wife is a private practice dentist. We have a paid off home, loans all paid off, limited fixed expenses and are about 30% below our FI number (easily Coast FI) so I have thought about this a lot.

I am the higher earner so was heavily insured with group and private DI out of residency carrying around 13k of individual coverage and 5k of group coverage. My wife just had her employer DI covering 60% of income. We did the whole live like a resident thing now approaching 5 years and so no longer need DI coverage to cover retirement savings, just potential living expenses which have also gone down. My wife changed jobs a few months ago and and new job didn't offer DI as she is now an independent contractor. We didn't go with the extra expense of private coverage for her so I'm the only one covered now. I also dropped my individual DI down to around 6k just to have something and will likely carry this until we reach full FI number in a few years.

As you are early career I think you should have some sort of backstop, such as a $5k/mo policy. I might not like it, but I could live on that if there was an issue with group policy or some other coverage issue/divorce etc. On a dual physician salary you could easily afford that. It also falls into the "insure catastrophe" camp without being over the top. Alternatively, you should certainly look into a graded policy such as what Guardian offers. They are generally expensive but the policy starts out much cheaper than competitors and gets more expensive every year until costing as much as a fixed policy at 12 years and same total financial outlay at around 20 years (minus the time value of money). With a brisk savings rate you can be both well insured and drop the policy in 5-10 years without being silly this way.

[Ethan Abramowitz]

I have yet to work with a client that complained about being well insured at the time of disability. Conversely, I have worked with too many physicians over the years that declined to obtain IDI believing their employer LTD coverage was sufficient. Scott’s post above outlines a number of the issues that we see in LTD products. I would also add:
-The definition of “Covered Monthly Earnings”. This is used to establish your monthly benefit. Is it limited to base salary, or does it include total compensation?
- Does the policy contain exclusions or limitations for specific medical conditions?

I would suggest carefully reviewing your LTD coverage to ensure your subjective understanding of the coverage is consistent with the actual terms and definitions.

[nephron]

Consider risk of divorce

risk of divorce >>> risk of disability. They should create divorce insurance, although the premium would be too high. It'd be like eye glass insurance, only people who needed it would purchase it hence negating the idea of it being an "insurance" product. Insurance isn't meant for things where the risk is 50/50.