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Disability Insurance and COLA?


Becoming a physician requires many years of rigorous and expensive schooling followed by years of hard work. This is why it can be so disappointing to lose the ability to work due to a disability. Sadly, one in seven doctors needs to turn to disability insurance to help them bounce back financially after a disability.  So what exactly is physician disability insurance, how does it work, and do you really need it? Keep reading for more insight.

What Is Physician Disability Insurance?

Disability insurance is a type of insurance policy that provides you with financial protection in the event you can no longer work due to a disability. Physician disability insurance is a type of insurance designed for physicians. 

Let’s say you get into an accident or experience an illness that makes it impossible for you to work and receive your regular income. If you have a disability insurance policy, you can receive income through your policy benefits each month. 

You can purchase disability insurance through an insurance company, but it is also available through some employers and through the Social Security office. You can choose to purchase a short-term or long-term policy.

How Disability Insurance Works

Generally, disability insurance replaces 45% to 65% of your gross income. Some employers offer disability benefits as a part of their benefits package. If you already have coverage through your employer, you can choose to purchase additional disability insurance to supplement that coverage. This is a good idea because if you lose your job or decide you want to leave for a new opportunity (one that may not offer disability insurance as a part of their benefits package), you will no longer qualify for that employer group plan. 

How Much Physician Disability Insurance Do I Need?

How much disability insurance you need as a physician might depend more on how much you can afford to buy. Residents, for example, might not be able to buy as much as they need and instead may purchase minimal coverage. The largest policy you can usually buy equates to two-thirds of your gross income, but you can choose to buy less. Most residents tend to buy $5,000 a month's worth of coverage and attending physicians usually upgrade their coverage to $10,000 or $15,000 a month. 

How Much Does Physician Disability Insurance Cost?

How much you’ll spend on a disability insurance policy will depend on quite a few factors including how much you earn (the more you earn the more you pay) and how old you are. Your job can also impact how much you’ll pay. If you work in a role that places you at a higher risk of injury, that leads to higher premiums. 

Let’s look at an example of how pricing can work. If a physician is healthy and in their 20s or 30s, they can expect to pay 2% to 6% of their monthly benefit as their premium. So, if their monthly benefit is $10,000, they can expect to spend $200 to $600 a month. 

You only receive benefits from a disability insurance policy if an injury or illness prevents you from performing your job. The benefits you receive if you do ever need to cash in on this policy are tax-free as you use after-tax dollars to pay for your premiums. 

Who Needs Physician Disability Insurance?

If you can no longer work due to a disability, a disability insurance policy can really come to the rescue. That being said, not everyone will find this type of insurance policy worth investing in. Only YOU can decide if you need disability insurance. If you’re not financially responsible for anyone else and feel you have enough savings to remain financially independent, you may feel comfortable skipping this policy. But if you have a family to support, or you are still growing your wealth, you may want to consider this option seriously. 

All of that being said, after all the money and time you spent to gain your professional expertise, you deserve to have financial protection in the event a disability makes you unable to take advantage of your hard-earned skills. 

What Is a Disability Insurance COLA Rider?

Inflation is an unavoidable part of life and is something we can all plan for—sometimes decades in advance. At Fortress we have curated a series of articles where we address how physicians (and others) can get a “head start” on inflation, so you don’t feel its effect as strongly in the future.

No matter what plans we lay, life may have a different idea about what’s in store for us. There may come a time where a physician—who spent a lot of money on tuition and a lot of time in school—finds they are unable to work due to an injury or illness. This is when disability insurance can step in to help policyholders maintain their standard of living even if they can’t work for a temporary or extended period of time.

When someone goes to purchase disability insurance, they may choose to add a cost of living adjustment (COLA) rider. This rider can help policyholders fight the effects of inflation.

Keep reading for more insight into what a COLA rider is and why you may choose to buy one.

What Is the COLA Rider?

A COLA rider can help ensure that disability insurance benefits you’re paying for keep up with inflation. Adding a COLA rider to your disability insurance rider can be expensive, but you’ll find that you can easily recoup the costs if you do ever need to use your policy’s benefits as a COLA rider can greatly increase that benefit amount. You’ll especially get your money’s worth if you end up needing to utilize your policy benefits early in your career.

The way this works is the COLA rider adjusts your policy’s monthly benefit on an annual basis. This increase can be based on a fixed percentage or may be linked to the consumer price index.

Is the COLA Rider Worth Purchasing?

A COLA rider can be very well worth it if you end up needing to tap into your disability insurance benefits one day. That being said, not everyone may find this extra cost worth it. It can be helpful to first make sure you have the maximum amount of coverage you qualify for based on your income before you consider purchasing a COLA rider. That way, you can make sure you’re gaining access to as large of a benefit amount as possible before you worry about inflation.

Your age can also help you determine if this is the right move to make. When someone is young, and has limited assets, adding a COLA rider to their disability policy can help secure their financial future. If someone is inching closer to the end of their career, they likely don’t need to worry about inflation affecting their benefits too harshly.

It’s also worth noting that COLA riders only increase monthly benefits after someone has already been disabled for 12 months, so only those filing longer term claims can really benefit from this rider.

The Takeaway

In short—COLA riders help disability insurance policies keep pace with inflation. If someone is already maxing out their potential coverage, they may find that a COLA rider gives them some extra peace of mind that they’ll have ample financial protection if one day they become unable to work.

If you’re still not sure of whether or not disability insurance is the right fit for your needs, or whether or not you need COLA, don't hesitate to contact the author of this article, Chris Gure, of Fortress Financial to chat about your options together! For more topics please visit Fortress Physicians on Substack

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