Physicians buy disability income insurance more frequently than any other profession. Because they see the sick and hurt everyday, they know what can happen to them. Also, they have worked long, challenging hours to complete their education and to build their practice. A disability could deprive them of the rewards of their labor.

As a result, doctors are often careful consumers of DI products. The natural question for the DI professional is, what products are available for this market? This article provides some answers.

Some may wonder, are DI insurers still cautious about insuring doctors? As readers will recall, DI carriers became very cautious with physicians in the 1990s because of losses incurred from older, very rich policies that were loosely underwritten. It became difficult for DI professionals to find carriers offering realistic amounts of income replacement, and quality of policies declined, too.

But today, the market is different. The carriers have not returned to the liberal underwriting practices of the 1980s, but they have introduced changes in the last few years that are very favorable for doctors. For example, protection in “your occupation” to age 65/67 (for all medical specialties) is available once again. Also, several options now exist for obtaining more coverage if a doctor has hit the monthly benefit limit of $10,000 to which most carriers now restrict doctors.

The types of coverage available to physicians (and other individuals) fall into 3 categories:

1) Individual Coverage: The aim of individual coverage is to replace the personal income of the physician when sick or hurt?to pay the mortgage at home, keep the children in their schools, cars in the garage and food on the table. An individual policy with a benefit period to age 65 or greater with protection in your occupation is recommended. A recent innovation in this area is the introduction of policies to protect savings in retirement plans over and above the coverage offered to replace income.

2) Business Overhead Expense: Small business owners on disability claim often are faced with the choice of covering expenses at home or at their business. For practices that have 10 or fewer employees, physicians of any specialty can purchase up to $30,000 of monthly benefit to cover business expenses, including the salaries of support staff, to save them from having to make that choice. In contrast to individual policies, overhead expense policies are short term, with 1- to 2-year benefit periods. The goal is to allow the owner to recover and return to work, while keeping the lights on, or to determine that recovery is not possible and then to sell the practice.

3) Buy-Sell: Practices with 2 or more doctors (maximum of 10) often enter into buy-sell agreements to avoid being forced to share ownership of the practice with a surviving spouse or a child of the partner. These agreements typically focus on the death of a partner. Often, they include language covering disability as well but without providing a funding mechanism for the disability?thus, creating a liability without a funding mechanism. All buy-sell plans should cover the possibility of disability of one of the partners, given that the odds of disability before age 65 are much higher than of death before age 65. A disability buy-sell plan can help fund this agreement. Up to $2 million per partner is available. Buy-sell agreements ensure that the disabled partner has a buyer. Such policies also remove the partners from having to determine when one is really disabled by allowing the insurance carrier to be the arbitrator for when a claim is triggered (in line with the buy-sell agreement).

Some carriers also now offer catastrophic illness riders. These riders pay additional benefit if a severe disability is incurred (usually the triggers relate to inability to perform activities of daily living, like bathing and feeding). Some riders offer up to $8,000 of additional benefit.

Another version of this catastrophic illness coverage is a “cash” long term care insurance policy. The trigger for going on claim is stricter, but with a true cash plan, once the insured qualifies, the benefit can go up to $500 a day?no bills, no services days. It works like a catastrophic disability plan.

What about disability definitions?

As noted above, true “own occupation” definitions that insure physicians in their specialties are once again available, with benefits payable to age 65/67. So, if a disability renders a doctor unable to practice in his or her specialty, the doctor will be eligible for disability benefits, even if he or she is able to work in another occupation for wage or profit.

Consider this scenario:

An oncology practice with 2 physicians and 8 employees such as nurses and administrative staff:

The physicians, ages 46 and 48, each earn $450,000.

Overhead expenses (rent, employee salaries, fringe benefits, telephone, equipment rental, etc., but not doctors’ salary): $50,000.00/month.

The doctors are well and working. They are both very busy with running their successful medical practice. They have a good relationship and are able to enjoy a nice standard of living. The 2 families see each other socially and belong to the same country club.

If one doctor could not work for a year or more, what would the cash flow be, even with the other doctor putting in extra time? What would happen to their personal and family relationship when the healthy doctor is working harder and receiving less income? Will they have to take in another doctor? What if the disabled doctor never returns? What if both are disabled at the same time? (We actually had that happen to a medical practice we insured.)

These are possibilities that should be addressed while both are still well and working.

Suggested solution:

o $14,500 of individual monthly benefit with protection in their occupation to age 65; this policy should include residual (covers partial disability), cost of living protection, and $8,000 a month of catastrophic illness protection.

$25,000 of monthly overhead expense benefit for each partner up to a maximum of 24 months with an additional $12,500 a month to hire a substitute physician.

$900,000 of disability buy-sell benefit for each partner. (This amount may not cover the full value of the practice, but it ensures the doctors will not have to fund the buy-out completely out of cash flow.)

Should they be interested in additional disability benefits, they can buy a group long term disability plan that would provide an additional $5,000 of monthly benefit. It will likely have a more restrictive definition of disability, however.

In conclusion, the disability insurance market has improved significantly for physicians in the last few years. Definitions of occupation have gotten better, limits have increased and product innovations have led to more ways of protecting a doctor’s greatest financial asset the ability to earn an income. DI producers working in the physician market have many opportunities, including access to specialty firms that can provide up-to-date information and expertise, so their future is bright.

Michael J. Eskra, Sr., CLU, RHU, and David R. Eskra are principals with DIBroker in Coral Gables, Fla. Their e-mail addresses are, respectively mikesr@dibroker.com and david@dibroker.com.


Reproduced from National Underwriter Edition, June 18, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.