As a physician, I am sure you are aware that securing a robust disability income insurance policy is imperative for protecting both the incredible effort put forth to be where you are today, as well as the future earnings potential you have as a specialist. What you may not know, is that as a female you may pay nearly 40% more than your male counterparts for the same policy.

You may be asking yourself, “why is disability insurance so much more expensive for women?” From the actuarial perspective of the insurer, and from historic claims experiences, females are more likely to experience a long-term disability. Conversely, life insurance is more expensive for men, because they are more likely to die prematurely.

These are the realities we face as proposed insureds, and since there are no indications the trends will reverse, we must plan accordingly. Female physicians must be much more strategic about how they protect their income to minimize the impact it will have on their bottom line. In this article I will outline some of the ways you can protect the majority of your paycheck for as little as possible.

Strategies for Minimizing the Cost of Protection:

1. Understanding the Power of Discounts: this one may seem obvious, however many people forgo taking advantage of discounts because they think, “Why pay a discounted rate, when I can pay nothing?” This is a short-term savings strategy, but over the long run (assuming you will eventually implement a protection policy) you will end up paying more. Let’s look at the example below:

In this example, Betty had access to a “Multi-life discount” through her hospital program. Still a resident physician with limited cash flow, she decided to take advantage of this 20% discount and paid insurance premiums throughout training for a base policy. Her classmate, Alice, decided to wait until after completing training to put a protection plan in place. Right off the bat, Alice is paying more for the same coverage. Additionally, Alice will find waiting to secure coverage was indeed a short-term savings strategy, because by age 43 she’d already paid more in insurance premiums than Betty even though she has had coverage 5 less years.

Betty understood that by placing a discounted base policy, she could increase her coverage following training, and the additional coverage would enjoy the discounts she had access to during training, no matter what age she exercised her increases. Alice lost access to her residency program discounts shortly after graduating and will now be required to pay the full amount for her coverage. At the end of their careers, Alice had paid over $40,000 more than Betty in premiums. Betty, now retired, had periodically invested her savings since age 43 and used her earnings to put a down payment on a second home2! Way to go Betty, your foresight in residency certainly paid off.

While this example shows that in a perfect world, you’ll end up paying less should you take advantage of program discounts, it does not illustrate the risk associated with Alice’s decision to wait until 35 to secure coverage. Not only is coverage more expensive for Alice because her policy is not discounted, but also because she was older when she purchased her coverage, assuming she is still healthy and able to be fully underwritten. This leads us to our next strategy…

2. Understanding the Effect of Age and Health on Costs: Gaining access to a “multi-life discount” is fairly simple; it typically only takes a handful of program members securing coverage from the same carrier to allow for at least some discount in premium. However, they are not always available, and regardless of whether this is the case for you, you’ll need to know the effect that aging has on your cost of insurance. Let’s look at another example:

As shown in the table above, the acquisition cost of insurance increases by around 15-20% every 5 years that you age. Any policy you will purchase as a physician will (or should) be issued as “non-cancellable, guaranteed renewable” meaning once the monthly benefit is put in place, your monthly cost will never increase. With this in mind, one of the best ways to keep costs down over time is by purchasing the greatest benefit your income (and budget) warrants at the youngest age possible. As your income steadily increases from year to year, you can add to your monthly benefit in small increments. If you experience a large income spike, you’d want to increase coverage as much as possible at once in order to minimize your cost of insurance per $1000 of benefit.

In practice, the best way to do this is through the use of “Future Insurability Options” (FIOs). This rider allows you to double or even triple your original monthly benefit as income increases, without having to go though underwriting again. For example: on a $5,000 monthly benefit policy, you can have FIOs of $10,000. This $10,000 sits in a bucket from which you may add to your original benefit each year in any amount. Each time you add to your monthly benefit, the amount of additional benefit is deducted from your FIO bucket, and priced at the “attained age”, or age that you exercise the right.

As a rule of thumb, you’ll want your initial policy to contain a future insurability provision for these reasons: 1. Lock in your health rating to ensure you can increase coverage without policy exclusions (pre-existing conditions not covered under your policy), regardless of changes in health; 2. Ease the process of increasing coverage by circumventing underwriting in the future; 3. Avoid the effects that both aging and health degradation have on your ability to protect your income.

3. Compare Coverage Between Carriers for YOUR Occupation: insurance companies segregate occupations into different classes of risk based upon the likelihood of individuals in these occupations experiencing a long-term disability. While the same occupation will likely fall in the same range of risk class between carriers, some insurance companies have more favorable risk class ratings for certain occupations than others.

So, depending on whether you specialize in surgery, clinical care, research, or a blend of these roles, you will be classified differently in terms of the risk you pose to the insurer (and therefore will pay more or less depending on how favorably their actuaries view your occupation). Often physicians will purchase coverage from a certain insurer solely because a friend recommended them. If this is your strategy (and your friend is in another specialty), there is a good chance you are paying too much for the coverage you are receiving.

Obviously, as a physician you do not have the time to meet with advisors from every insurance company in order to find which can offer you the best pricing. Best practice here is to work with someone who has the ability to represent all physician specific insurers so that you can compare the advantages and disadvantages between carriers, not only in terms of pricing, but contract strength and claims paying ability as well (hint-hint, nudge-nudge, PhysicianDisabilityQuote.com). By doing so you can ensure that the recommendations made are in your best interest and the policy you’ve implemented is tailored for your specific situation.

I hope that you’ve found these strategies useful and can deploy them as you determine which disability protection plan is best for you. As a disclaimer, the most important consideration is whether your income is adequately protected, and just because one contract is less expensive than another does not mean you are getting a good “deal”. With that said, our goal is to provide you with the understanding needed in order to choose the best plan for the best cost. Through our experience and expertise, we will help you protect your income so that you can get back to doing what you do best, protecting others.

¹First 5 years of Physician B’s policy use graded premium, converted to level at age 35.

² Break even occurs at age 43, assumes an average annual periodic investment of $1,863.93 over 21 years at 6% for an ending balance of $80,880