You’re Not Bulletproof: Plan for the Possibility of Becoming Disabled

In my work as a physician, I see a variety of unfortunate accidents and injuries.  Just last week, I saw a young 30-year-old pilot who crashed his plane and is now quadriplegic.  I also saw a heavy equipment operator who was crushed by a metal beam, resulting in a neurological injury with no use of his right arm.

Are You Feeling Lucky?

Many people think about the possibility of death, but much fewer think about the possibility of becoming permanently disabled.  However, you are much more likely to become disabled during your career than to die.  In fact, according to the United States Social Security Administration, one in four Americans will become disabled before retirement.

Should you Rely on Social Security Disability?

You could rely on the government (taxpayers) to care for you in the event that you become disabled.  However, there are several problems with this:

1. Social Security benefits are relatively low: Social Security Disability benefit payments are based on your average lifetime earnings, but generally do not exceed $3000 per month, even for the highest earners.  I would recommend looking up your estimated disability benefits on ssa.gov.  Is this enough to care for you and your family?
2. It can be difficult to qualify: To be eligible for social security disability payments, you need to demonstrate that you are unable to work in any capacity.  If you have a traumatic brain injury and could not work as a physician, but still had the mental capacity to work at McDonald’s, then you would not qualify for social security disability benefits. In comparison, if you have own-occupation individual disability insurance, you would qualify for benefits as long as you were unable to perform your usual occupation.
3. Do you really want to burden the already burdened taxpayers? If you place a high value on personal responsibility, I hope your answer to this is a resolute “No.”

Should you Rely On Group Disability Coverage Through your Employer?

Another option would be to rely on the group disability insurance provided by your employer.  However, this is also suboptimal.  There are a variety of exclusions with group disability insurance, the payments may be low, and it is not portable, meaning that you will lose your disability coverage if you have a lapse in employment or change jobs.

A Better Option: Purchase an Individual Disability Policy

Ultimately, I recommend you be proactive and purchase an individual disability policy, especially if you have a high income. This will cover you regardless of your employment status, and you can choose the exact benefits you need in the event that you become disabled.

Disability insurance is MUCH more complicated than term life insurance.  The White Coat Investor has done an exceptional job discussing disability insurance over the years, and I will not recreate the wheel. However, I did want to go over some of the basics of disability insurance.

Long-Term NOT Short-Term

First, we’re talking about long-term disability insurance (disabled for > 90 days), NOT short-term disability insurance (disabled for < 90 days).  Your emergency fund should be your short-term disability insurance, and your employer may also offer a plan that provides some benefits.

Own-Occupation is Key

You should purchase own-occupation long-term disability insurance.  This means that you will receive the disability benefits if you are unable to do your usual profession, even if you are able to work in some other capacity.  For example, a surgeon who could no longer do surgery but could see patients in the clinic would still receive disability benefits.

Know How Much You Need

You should purchase disability insurance with enough monthly benefit to cover your monthly expenses AND your retirement contributions in the event that you become disabled.  Disability policy benefits end at age 65, so you will still need to save for retirement to maintain your standard of living at retirement.

Note that when calculating the disability benefit you need, you do NOT necessarily need to replace your entire income.  Also note that if you pay for disability insurance with after-tax dollars (which you will generally do unless you own a business and deduct the premiums pre-tax), then the disability benefit payment will be tax-free.

The specific amount of disability benefit to purchase will vary according to your expenses, your current retirement savings, and your spouse’s income.  However, most higher income professionals will purchase a $5,000 or higher monthly benefit.  Disability insurance is more expensive than term life insurance (I pay $130/month for a $5000 monthly benefit), but just like term life insurance, once you reach financial independence, you can cancel your policy.

Do Some Research Before Purchasing Your Policy

When you’re ready to start looking at policies (which should be NOW), head over to The White Coat Investor to learn more about the details and to find an independent agent that can quote you multiple policies from the major companies.

You could also just contact each of the major disability insurance companies directly to compare policies.  The major players are Guardian, Ohio National, Principal, Mass Mutual, and Standard Insurance.  You can learn about some of the differences between the different companies here.

Disability Insurance Summary

The Bottom Line

Don’t pull the covers over your face and deny the possibility of becoming permanently disabled.  Yes, it’s one more thing to do and one more expense, but you NEED to insure against catastrophe.  Your freedom is on the line.

Remember, It’s Not About the Money; It’s About the Freedom