Why Your Employer's Disability Insurance Isn't Enough
by Malik Amine
You spent 11+ years training to become a physician. Your ability to practice medicine is worth millions over your career.
So why do most doctors I meet have inadequate disability insurance?
The Math on Your Income
Let's say you're an internist making $250,000/year. Over a 30-year career, that's $7.5 million in gross income.
If you're a specialist making $400,000? That's $12 million.
Your ability to earn is likely your largest financial asset - bigger than your home, your retirement accounts, everything.
And yet, most physicians rely solely on their employer's group disability policy.
The Problem with Group Coverage
Group disability insurance through your hospital or practice seems convenient. It's often free or low-cost. But here's what most policies won't tell you:
1. Taxable Benefits
If your employer pays the premium, your disability benefits are taxable as ordinary income.
A policy that pays 60% of your salary might only net you 40% after taxes. Can you live on 40% of your current income?
2. Limited Definition of Disability
Many group policies use an "any occupation" definition after 2 years. This means:
- Year 1-2: You're disabled if you can't do your medical specialty
- After Year 2: You're only disabled if you can't do any job
Injured your hand and can't do surgery? Too bad. You can still teach or do administrative work.
3. Coverage Caps
Group policies often cap at $10,000-15,000/month, regardless of your actual income.
If you make $50,000/month as a cardiologist, a $15,000 benefit is a 70% pay cut.
4. Not Portable
Leave your job? Your coverage disappears. And now you're older, possibly with health issues that make individual coverage expensive or impossible.
What You Actually Need
A solid disability insurance plan should include:
Own-Occupation Coverage
True "own-occ" means you're disabled if you can't perform the duties of your medical specialty, even if you could do something else.
Some policies say "own-occupation" but have fine print. Read carefully.
Sufficient Benefit Amount
Aim for 60-70% of your gross income. For a $400,000 earner, that's $24,000-28,000/month.
Most insurers cap individual policies at $20,000-25,000/month, which is why you might need multiple policies.
Residual/Partial Disability
What if you can work, but only part-time? A residual benefit pays a partial amount if your income drops due to disability.
This is crucial for physicians who might transition to reduced hours or less demanding roles.
Cost of Living Adjustments (COLA)
Inflation protection ensures your benefit increases over time. A $20,000/month benefit today might only be worth $12,000 in 20 years without COLA.
Non-Cancelable and Guaranteed Renewable
The insurer can't cancel your policy or raise your rates (except if you change specialties).
The Right Strategy
Here's what I recommend for most physicians:
Step 1: Get Individual Coverage Early
Apply in residency or fellowship when you're young, healthy, and rates are lowest. Lock in "own-occupation" coverage now.
Step 2: Layer Coverage
Combine individual policies with group coverage to reach your target benefit. If your group policy is free and pays $10,000/month, add $15,000/month individual.
Step 3: Make Sure It's Non-Taxable
Pay premiums with after-tax dollars so benefits are tax-free. This is critical for individual policies.
Step 4: Review Annually
As your income increases, your coverage should too. Most policies let you increase coverage without new medical underwriting if you do it within the first few years.
Real-World Example
Dr. Sarah is an orthopedic surgeon making $450,000/year.
Her hospital provides $12,000/month group coverage (employer-paid). After taxes, that's about $8,000/month net.
Her actual expenses? $22,000/month (mortgage, kids' schools, student loans, life insurance).
We added:
- $15,000/month individual own-occupation policy (non-cancelable)
- Residual disability rider
- COLA rider
Total cost: $580/month
Now if she's disabled:
- Group policy: $12,000/month (taxable) = ~$8,000 net
- Individual policy: $15,000/month (tax-free)
- Total: $23,000/month
She can maintain her lifestyle while she recovers or transitions to a different role.
Common Objections
"It's too expensive."
Compared to what? A 35-year-old physician might pay $400-600/month for solid coverage. That's 1-2% of gross income to protect 100% of it.
"I'm healthy. I don't need it."
Most disabilities aren't from catastrophic accidents. They're from back injuries, mental health issues, cancer, autoimmune diseases. Things that happen to otherwise healthy people.
"I'll just buy it later."
Maybe. Or maybe you develop diabetes, anxiety, or a chronic condition that makes you uninsurable. Lock in coverage while you can.
The Bottom Line
Your group disability policy is a good foundation, but it's not enough.
Get individual coverage early, while you're healthy and rates are low. Make sure it's true own-occupation, non-cancelable, with residual and COLA riders.
Your future self will thank you.
Want help reviewing your disability coverage? Book a call and we'll walk through your specific situation.