Take a look at the numbers: Most employers’ disability insurance policies will cover roughly 60 percent of your current income. If you are earning $60,000 as a resident and you experience a disabling accident or injury, you will receive an annual benefit of $36,000. Chances are the monthly benefit of $3,000 would be well below the amount needed to cover your living expenses, medical school loan repayments and other obligations.
If your employer pays the disability insurance premium for you, your benefit amount will be even smaller, because it would be subject to income taxes. Only if your premium comes out of payroll deductions would you not have to pay taxes. That is because you would be paying the premium with after-tax dollars. The latter scenario, though, raises another question, Farmer said.
If you are shelling out your own earnings for a policy, you might consider purchasing an individual disability insurance (IDI) plan, which may offer additional benefits.
An individual policy that you buy independent of your employer has many advantages, Farmer added. In addition to often paying out a higher percentage of your income—depending on the parameters of the policy—these plans, unlike an employer-based plan, are portable.
“The coverage is yours, no matter how often you change employers, from residency to your first job and to any subsequent employers or private practice,” he said.
What’s more, an individual policy allows you to grow into coverage as your income potential grows once you have completed your residency. An employer-based group plan may only protect your current income, said J. Michael Hegwood, assistant vice president of brokerage marketing at AMA Insurance,
“So, a first- or second-year practicing physician now making $250,000 a year can exercise options that allow him to increase the amount of coverage he has in his current plan to reflect his higher income,” Hegwood said. “An employer-based group plan typically won’t let you do that.”
It is fiscally prudent, Hegwood added, to purchase your policy at a younger age. That is because you can often lock into lower premiums that, in the longer run, will save you money over the length of your policy contract.