WCI #163: Guide to Physician Disability Insurance

This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.

Here's your host, Dr. Jim Dali. This is White Coat Investor Podcast 163 Disability Insurance welcome back to the podcast. We're glad to have you here. Getting quality disability and life insurance should be the first financial chore for a doctor to complete. Most docs don't have the ideal policy for their gender, specialty, state or health status, and one in seven doctors get disabled at some point during their career. Because these policies can only be purchased through brokers, we've put together a list of vetted agents who are experienced with working with the specific needs of medical professionals and who have your best interest at heart. If you have questions about insurance and what kind of policies would be the best fit for you, check out our insurance recommended list@whitecoatinvestor.com insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this and the White Coat Investor can help. Our quote of the day today comes from Robert Dorigozzi, M.D. he's a retired cardiologist who wrote a book, came out before mine actually, about how physicians can become financially secure. But he said considering the average physician's income, all that is required to live comfortably and retire when you wish is a little fiscal discipline and the avoidance of stupid mistakes. Totally agree with that. You know when you're making income, that's in the top 1 to 2% of America. Really, all you got to do is manage your money well and you should do very, very well. Thanks for what you do out there. It is not easy work. It took a long time for you to learn how to do it. I know some of you are on your way into work, on your way home, maybe working out, maybe on a walk, maybe out gardening. I don't know what you do while you're listening to this podcast, but thank you for your daily work. It's not easy whether you are in pharmacy, dentistry, medicine, law, whatever. Thank you. A couple of things I want you to know about. We have a promotion thing going on, but we're promoting you. We're promoting you and what you've accomplished and hoping to use your experiences to inspire your colleagues. What I mean by that is if you have paid off your student loans at some point in the last year or two or three, we want you to share it with us on social media Use the hashtag livelike a resident. But most importantly, what we'd like you to do is submit a Google form with your picture of you holding up, maybe a sign of how much student loan debt you paid off and a little bit of information about you. And we will promote you across our social media channels in order to inspire people to do the same thing you've just done. We want to celebrate with you your marvelous accomplishment. So you can find that@whitecoatinvestor.com debt free. Also, if you are in the market for a new home, you may need to use a physician mortgage if you have a better use for your money than a down payment. We keep a list of of recommended physician mortgage providers that are available in every state. You can find that@whitecoatinvestor.com under our recommended tab and you can just click on your state there and see what's available. So if you need that product, that's a great resource to use to find people who are offering those products. Now keep in mind it's a little bit harder to secure any mortgage these days. Lending standards have definitely tightened up with the economic downturn due to the pandemic, so don't be surprised if they're looking for a little bit higher debt to income ratios or a little bit lower debt to income ratios if they're looking for a little bit better credit scores than maybe they used to. It's a little bit harder these days to get a mortgage, but these people can walk you through it. They're used to working with doctors and can help you if you are having any sort of an issue with them. I'd like to hear about it early in the process if possible. You'd be surprised how much can be resolved with a quick email from me. And that goes for anybody that we have on our recommended list, whether they're doing student loan refinancing or insurance or financial advising or whatever. If you're having an issue with them, I want to hear about it and hopefully we can get it resolved to your satisfaction earlier rather than later. Too often I hear a complaint after it's all over with and there's nothing I can really do to help you. I'd much rather hear about it early on. All right, today we've got the episode I promised to you a few weeks ago. We're going to do an episode all about disability insurance. We get feedback from time to time that you guys want us to focus an episode on a single subject. Now, we don't plan to do that every week because I like having your questions on here. I like having what you're interested in drive the content of the podcast. But from time to time we're going to have an episode that is focused on a single subject. And today's subject is going to be disability insurance. And so I have brought on a guest to help me with this. Obviously, I know a lot about disability insurance, but I don't work in this field every single day. I don't sell disability insurance. I don't even have a disability insurance policy anymore. So I thought it would be worthwhile getting somebody who actually does work in this field every day. So I grabbed Matt Wiggins of Pattern Insurance and we're going to bring him on and we're going to talk with him about some of your questions about disability insurance. We have a number of questions that have been recorded on the Speak Pipe, sent in by email, even a few from the Facebook group that we're going to try to answer during this podcast. If you are interested in learning more about Matt or engaging his services, you can find him@whitecoatinvestor.com Pattern Yes, Matt is a paid advertiser at the White Coat Investor. But hey, why not get the best experts out there to partner with you for your business? It's a win for him, it's a win for us, it's a win for you when we get you to a good agent. So let's get Matt on the program now. All right, so I'm here with Matt Wiggins of Pattern Insurance and we're going to be talking about disability insurance. I wanted to start before we got into some specific questions we took on the Speak Pipe over the last few weeks. I wanted to just spend a few minutes on the basics insurance. Let's talk a little bit about why someone would buy disability insurance, why they might not buy disability insurance, what it is, how it works, etc. You want to give us a rundown just for a couple of minutes about the basics of disability insurance?

Yeah, absolutely. And I'll tell you, I started off in the financial world selling a lot more life insurance, working on investments and disability insurance. I didn't see it as that important. And so as I began to work with more and more doctors and become more and well versed on exactly the likelihood of disabilities, about one out of every five doctors over the course of their career uses a long term disability policy. I started realizing how important this stuff is. And so when we began working exclusively with doctors about 12 years ago, of course it became a cornerstone of what we do because if you don't protect your income, what really is protected you think about retirement and everything else. If you get disabled and you can't actually earn your income, then all of that goes out the window. You can have the most fancy financial plan or investment plan in the world. You could have this great fire plan and everything else. It all goes out the window if you get your income cut off short early. So it really is kind of very foundational to have this policy in place that will replace a large portion of your income. If you get disabled. It could be an injury, an illness, anything that's not self inflicted and it's going to replace a large portion of that income and help you keep going on those plans that you have. So we think it's absolutely crucial.

Yeah, I think it's really important as well. In fact, it's chapter one in my financial boot camp book. Just because I agree you got to get it in place. If you are like most doctors, this is the largest piece of your financial plan is really your income and you got to protect it. You know, it's basically a policy. Most people pay their premiums monthly. You can't pay them annually, but most people pay them monthly. And basically that premium entitles you to a certain benefit, a certain amount of money you get every month in the event that you become disabled. Typically you got to be disabled disabled for three months before a long term disability policy kicks in. And then from that point until you recover from the disability or until age 65 to 67, depending on the policy, it will pay you that benefit. You know, a really good policy will pay you that benefit no matter what else you're doing in your life. A less good policy, that benefit may be lessened if you are able to do something, even if it isn't going back to doctoring.

And it's important to know. I always say there's really three Ds in disability insurance. There's definitions, discounts and deadlines. And so you were just talking about the definitions. Knowing the definitions in your policy really makes a difference between a bad policy, an okay policy and a great policy. And then there's always deadlines and discounts to know when to get the policies, when you have certain discounts available, deadlines for getting certain types of coverages, there's a lot to know. It's not an easy form of insurance to get your head around. But I'd say if you, if you know the definitions and if there's any deadlines or discounts, you're doing pretty well.

I Think part of the issue is that disability is so gray, right? I mean, life insurance is such a black and white thing. You're either you're alive or you're dead or dead. I mean, I'm an emergency physician, I see all the gray between those two areas and only lasts about 15 minutes, you know, and then it's resolved. You're alive or you're dead. But disability is 50 shades of gray. You know, there are just so many ways to be disabled and so many, you know, it's a continuum of how disabled you are. And so because of that, the contracts have to be much, much more complicated. And because it's so much more common to be disabled during your career than it is for you to die during your career, it's also much more expensive. So a lot of people get sticker shock when they go to buy these policies. You know, they don't realize that it's pretty typical to be paying 2, 3, 4, 5, 6% of the amount that you are protecting. So that means if you got a $10,000 a month benefit, you might be paying somewhere between 200 and $600 a month for that benefit. It's not cheap stuff, it's expensive.

That sounds about right. The bad thing too is whenever doctors go to get life insurance and disability insurance at the same time, you can go out and get a $5 million 20 year term policy fairly inexpensively, and then you show up and try to get 10,000amonth in disability insurance and it's either the same or sometimes could be a good bit more expensive. And they're saying, wait, why is that? And you have to think about the lifetime benefit of that though. If you're getting $10,000 a month, that's $120,000 a year that they would pay you tax free if you became disabled. A lot of These contracts are 20 or 30 years out, so it still ends up being millions of dollars. They're protecting you and it's a much likely scenario than you passing away. I think when you weigh the cost and benefit, it ends up making sense. But you're right that initial sticker shock does happen sometimes.

Yeah. Okay, well, let's get into some of the questions from the listeners here. Our first one comes from Ricky, who has a question about Ohio National. Let's take a listen to that, Jim.

I thought this would make an interesting discussion as you're asking for questions regarding disability in an upcoming podcast. I already had this question answered in a forum, but I think it would be great for the podcast listeners to Hear this. I got new disability insurance through Bob Baiani. He was great. I had left Northwestern Mutual, which was awesome, using your advice and great meeting Bob. However, Bob, for my disability insurance did not recommend using Ohio national because of a downgrading three times in a row of its bond rating. It was still rated in the A range. I think it was the little A's and Moody's. And Bob said this was really bad and this company was possibly going to go bankrupt or something and then I would lose my disability insurance. I appreciate his honesty. He did not sell me the policy. I end up going through some of his competitors that are advertised to your website because they still felt that Ohio national was still pretty strong financially. Is this a real problem, though that Bob was speaking about? Should I be really worried that? I went with Ohio national and its bond rating has gone down three years in a row. Also, I think on the forum you had said that sometimes companies will pick up my disability insurance if Ohio national as a company goes under. Please let me know your thoughts. Thanks.

All right, so Ricky's basically asking, is Ohio National a bad company to use due to their low bond rating? What do you think? Is that one of the big five or six, or is it not?

It's a great question. We absolutely include them in the big six. They have a true own occupation policy. They really strengthen that by offering clarification letters about your specialty being what they're protecting. They even have some other documents they'll send out if you want to have them to clarify how they pay own occupation claims. So I do think the strength of their contract is just fine. As far as the actual company, we do put a lot of precedent on having a strong financial company. And so I would say that from our experience, what we've seen, what we've seen insurance companies do through the years, I do think that it's a company you could put your trust in. Also. The thing about insurance companies is if they ever become insolvent, in other words, they go bankrupt. They can't, you know, meet all their bills and everything else. There's a whole process by which their block of business gets transferred to a solvent company. It's kind of an auction process and the government kind of oversees that. And so while you don't want to go dumpster diving for an insurance company, they certainly are well within the safe range. Now, if you can land with a company that has much stronger ratings and the prices are pretty close and everything else. Absolutely. That could be maybe a deciding factor for you if you've Already got an Ohio national contract policy, or if you've got a quote that's 10% cheaper, 15% cheaper than the others, we absolutely think they're one of the six and one you should consider going with.

Awesome. How does that process work? I mean, if company goes under, there's this auction process. Are there ever policies that aren't transferred or are they pretty much all transferred and your policy is going to work out the way you expected when you signed it?

It's a good question. So that's one of the main reasons that you buy a non cancelable and guaranteed renewable policy. We think both of those are very, very important. Some agents are out there trying to strip away some of the things like guaranteed renewable or non can only type stuff. But what happens is if you have that kind of a contract, then when that exchanges hands from insurance company to the other insurance company, the new insurance company can't change anything. They can't change the pricing, they can't change the wording in the contract. It's pretty bulletproof. And so I'd say every doctor should make sure they're getting their policies to be non cancelable and guaranteed renewable and then you don't have to really worry too much about that. I think there was one case maybe back in the 80s sometime where a company became insolvent because of how they did it and how things went. The insurance regulators and the whole marketplace just said, we're sorry, all you folks are out of luck. But it hasn't happened since then and there's been a lot of companies that have become insolvent and it transferred very peacefully. But yeah, if you don't have non cancelable guaranteed renewable coverage, they can make some tweaks and changes for sure. That's why we think you should lock that in.

All right, let's take our next question. This one comes in from Dave, who is an interventional radiologist.

Hi Jim. I have a disability insurance question. I have two own occupational policies. In addition to an employer policy, I.

Practice radiology, specifically interventional radiology. However, as part of my job, I do practice some diagnostic radiology as well. My question is, if I were to.

Become physically disabled, an unable to practice.

Interventional radiology, but still able to practice diagnostic radiology, would I still be able to receive a benefit or even a partial benefit? For example, if I were to become disabled and unable to practice interventional radiology, I may no longer have my current job.

Okay, Dave doesn't provide us a lot of specifics here, but he's got three policies and is wondering how they're going to pay in the event that he could still do diagnostic radiology but couldn't, you know, use his hands or whatever to do procedures. You want to take a stab at that one?

Yeah, I'll take a stab at it. Without knowing all the details, obviously I can't give them anything to pinpoint, but here's what I can tell you. You know, Guardian came out with a definition not too long ago that said if you make 50% of your income or spend 50% of your time doing interventional procedures and you get disabled and can no longer do them, then they go ahead and consider you totally disabled and pay you the full benefit. So they're the only company that's really come along and drawn a hard line in the sand of the six true owned occupation companies. So with that one, it's really easy. If you're doing 30% interventional radiology and 70% diagnostic and you get disabled, they're probably going to pay you a partial or residual claim. So maybe they'll pay you 30% of the benefit to equal that 30% loss of your income. If it's 51% from Guardian, though, and you have that definition, then you can bank on them going ahead and paying you the full benefit. If you can't do your procedures anymore with the other companies like Principal and Ameritas and some of the others, we have found that it's a little bit more nebulous. Sometimes that can be in your favor, sometimes it's not. They're going to define it as the material and substantial duties of your own occupation that you're doing at the time. So if you're kind of in that borderline 40, 50% interventional duties procedures, and then you're with one of those companies, they may look at you and say, you know, since you can still do diagnostic, we're going to pay you that 40 or 50% or whatever it may be of the benefit to equal the loss of income that you've experienced. That's kind of something they could do. However, we have seen them in situations where you were doing 60% interventional, 40% diagnostic, something like that, and they went ahead and paid the full benefit. So it really comes down to how they classify you and your duties. What percentage of your income was coming from it. The higher amount of your income that's coming from it, the more likely they are to pay you a full benefit. But at least, you know, if you have those companies with those riders, those residual or partial disability riders, absolutely important to get on your policy, at least you know they're going to pay you an equal percentage of benefit to the income that you've lost and pay you a partial benefit. If they don't go ahead and you know, give the total amount.

That's helpful. All right, our next question came in via email. I'm currently a resident. I'm thinking about trying to become pregnant and ideally having a baby around the time that I finish residency. I currently have disability insurance that is own occupation through one of your recommended people. Thanks for that. For the normal amount that residents are able to get. I did not have any health problems or high risk hobbies when I bought disability insurance and still do not. Are there any considerations that I need to think about as far as pregnancy and disability insurance? For example, if I developed a pregnancy complication, would this affect my ability to increase and or change my disability insurance for more coverage or different riders when I transition from being a resident to an attending, would this count as a new health problem? Does pregnancy by itself pose any sort of an issue as a pre existing condition for disability or life insurance? I'm wondering since the time I am thinking about having a baby will be the same time that I would expand my insurance and I just want to make sure I can anticipate any problems that might come up. Plan to talk with my insurance pro about this, but maybe there are other women who might benefit from this information. So let's talk about pregnancy and disability insurance.

Absolutely. Well, first of all, there are a lot of questions in there. So I think what I'm going to do, what might be helpful for the listeners is just to be able to talk about pregnancy and disability insurance kind of in general. And I think it'll answer all the questions. But this is a touchy subject. First of all, congrats on being pregnant. Congrats on getting disability insurance. One of the own occupation companies. That's awesome. So let's talk about pregnancy pre getting disability insurance. If you're thinking about getting disability insurance and you're thinking, well I'm either pregnant or I'm going to be pregnant. The way it typically works is if you are pregnant and you're in the first or second trimester, they will go ahead and issue you a policy, but it's going to have a pregnancy exclusion on it. So basically any complications from pregnancy, labor and delivery, anything like that, they're just not going to cover it until you have a normal birth, everything's healthy and then they'll go back and they'll take that off. After you've gone back to work post pregnancy, if you're in your third trimester, they actually will postpone giving you a policy until you have then been back to work for a certain period of time. So during those trimesters, it kind of does matter when you apply for the coverage and when you get it, whether or not you're going to get it with a temporary exclusion or you're going to get it postponed before they'll give it to you after you have your disability insurance, absolutely imperative that you get it with the future increase options. And different companies call it different things. You have benefit purchase rider, future increase option with guardian, benefit update with principal. They all call it different things, but it's basically the guaranteed right to increase your coverage in the future, regardless of any changes in your health. And so if you already have a disability policy, it doesn't matter what happens in your health as long as you have those riders to increase your coverage, you could go through a bout of some type of cancer, you get pregnant and have complications, you could have anything happen, really. And they cannot change the pricing or the features or the definitions or anything in the coverage. So that's why we absolutely say when you're getting these policies, you want to make sure you get the right to increase. No more medical questions, physicals, labs, nothing asked again in case something like that happens. So pre getting the policy, absolutely. It can matter. It can affect you getting that policy and post getting the policy, it shouldn't have any impact on you being able to increase your coverage.

Awesome. Let's go on to our next one here. This one's anonymous, but also about disability insurance. Let's go ahead and listen to that one. Hi, Dr. Dali. I'm in the process of purchasing an individual disability insurance policy. My insurance agent has told me that there is a maximum amount of coverage I can purchase, and that amount is based on my current salary. Is this accurate?

Thanks.

So basically talking about the maximum amount you can purchase and how that's calculated, where that comes from. You want to talk about that?

Yeah, absolutely. So the way that it works, and there's a lot of confusion out there about that, when you're in training, typically if you're a resident, you can get up to $5,000 a month in coverage. Once you are in your final year, you're about to transition from training to practice, you can get 65 to $7,500 a month in coverage. These are all special programs for you while you're in training. Once you get out of training, the amount of coverage you can get is contingent upon two things, contingent upon your amount of income and how much other disability insurance you have, either other policies, individually or group insurance from your employer. What happened was back in the wild wild west of the, I think it was the 80s, and essentially a doctor could go in and be making 200,000, $300,000 a year and they could apply for $500,000 a year in disability benefit. Well, what do you know, A lot of doctors and a lot of people were getting disabled more than the norm. And so the insurance industry kind of came in and said, hey, look, how do we do this in a way that really helps people that need to be helped without creating this kind of almost like a marketplace for, hey, let's go get a bunch of coverage and then let's get disabled and try to make ourselves get disabled. So what they do is they look at your income and let's say you're making, and this goes way down the list, let's say you're making like 50,000 a year, they'll cover 60% of your income and that's tax free. So it should make up almost all of your post tax income. Once you're making 300, 400, 500,000, they begin drawing that down. And so at 400,000 a year in income, they might only protect maybe 52% of your income. By the time you get to a million dollars in income, they're only going to protect maybe about 25% of your income, maybe 30 at best. And the reason they do this is because if you have a doctor making a million dollars a year and you keep them on that 60% benefit calculation, that same doctor who's working their tail off to make a million dollars a year is going to say, hmm, I'm taking home about 600,000 after tax, or somewhere around there, I can get disabled and bring home 600,000 after tax. Which one are you going to do? So they do decrease the amount you can get and then whatever they determine your eligible amount is 50%, 55%, whatever it is they're going to cover. Then they look at how much group coverage you have from your employer or any other policies and they subtract that and then you're able to get that on that next policy. So, you know, a lot of doctors come to us and say, hey, I'm making this big salary. How come my quotes only for this much we have to talk about, well, first of all, they're only covering 50% of your income. And then you've got this other policy from your employer. So that leaves you with, you know, 10,000amonth in coverage or whatever. It may be so long winded, but I hope it really gives you a good sense of. There's very specific calculations that go into how they do it, but it absolutely, especially after training, it's going to be dependent on your income.

Let's talk about the options. If you want more than that. I mean, a lot of times you can go to a second company and get a little bit more, or perhaps you can use some of the writers that I'm not a huge fan of, you know, retirement writers, lump sum writers, student loan writers, you know, catastrophic writers, to maybe increase that coverage a little bit. Can you talk about those options for someone who actually wants more coverage than the company will sell?

Yeah, absolutely. And you know, to tell you the truth, when we talk to certain specialties or subspecialties, if we're talking to orthopedic surgeons, if we're talking to neurosurgeons, Mohs surgeons, interventional cardiologists, I mean, if we're talking to the higher income earning specialties or subspecialties, sometimes we'll recommend getting two policies. So let's say you're in training and you get 5,000amonth in coverage. It might be best to get 2,500 from one company and 2,500 from another. Doesn't really affect too much. You still have 5,000amonth in coverage. The price is going to be pretty comparable. But then you get the right to increase both of them up to a higher limit. This year they have all gone up. They're all sitting at like 20,000amonth in coverage. Some of them will work together and get up to 35,000amonth in coverage. And again, that's tax free. So at 35,000amonth in coverage, you pretty much have to be sitting at about that million dollars a year in income to get that with no other employer coverage. So they can work together. And you know what, honestly, you could have five policies making up that 30,000amonth in coverage. It's not a number of policies thing. It's just a certain cap on what they call they have issuing limits and participation limits. Issuing is how much each company will issue on their own participation, is how much they'll work together with other insurance companies to get you up to. So it's absolutely a viable way to do things. And then if you want to add some riders, if you max that out, you can get a retirement protection rider that will put money directly into a retirement trust for you that allows you to continue saving for retirement beyond the benefit that you're getting. There's also student loan riders where you can have money going directly to your student loan providers or servicers to help with student loans if you have them. We typically don't recommend those unless you're already maxing out the base benefit. Because honestly, we'd rather you just get as much base benefit as you can, protect as much as your of your income and don't have it where it's funneling to a trust or to a servicer. Have it come to you and then you decide what your biggest need is at that time.

I think that's good advice. I'm not a big fan of those riders either. But it is a way that you know if you're already at the max amount of coverage and you want more, you can, you can get a little bit more. All right, let's take our next question. This one comes from Steven.

Hi, Dr. Daly. I have a question about disability insurance. For someone who plans on becoming financially independent and canceling a disability insurance halfway through their career, do you recommend a level premium or a graded premium? The second question, how many years does it take to reach a break even point with a graded premium? Thanks for all you do.

Okay, Steven's drank the Kool Aid, right. He's been reading the Physician on Fire blog. He's been doing all the white coat investor recommendations. He's planning on becoming financially independent halfway through his career. And he's thinking maybe he can save some money on a graded premium policy. Let's talk about graded premium versus level premium policies. How many years it might take to break even, which companies offer them, et cetera.

Sure. Well, here's what I'd say. This is from my standpoint, worked with thousands of doctors through the years and you know, this isn't one of those things. The proverbial hill to die on. For us. We're happy if you get graded or level, depending on what your plans are. What we have found, typically Guardian has a graded premium option. That's the one we see most people use if they're going to do graded as with Guardian. And we've done a lot of calculations. What we found out is typically between years 12 and 14 is where the annual crossover point is. So once you get past that 12 to 14 years, you're paying more on an annual basis. It typically takes about till you're 18 to 20 years 18 to 20 before the cumulative amount that you've paid becomes more than you would have if it was level. So for some people who say, hey, look, you know, halfway through my career is 15 years down the road, you could probably save some money going graded. The one thing we always bring up, and I will go ahead and self disclose and say, most of our clients, they do get level. I think the reason is because I just asked him one question. I say, look, there are some people who know exactly. They're very convinced that they know exactly what life is going to look like for the next 20 to 30 years and they're very solid on their plans and they know all that kind of stuff. But then there's a lot of people who say, you know what, how I feel about taxes, how I feel about lifestyle, how I feel about being insured could be very, very different 15 years from now. And so I may get there and even if I become financially independent, I may look around and say, yeah, but for two or three hundred bucks a month or whatever it is, because you got it way back, long time ago when you were healthy and young and had discounts, I really couldn't replace this just yet. So even though I'm financially independent, maybe I want to keep a little bit of this disability insurance round. And the last thing you want is to get there and it gets really steep and expensive later if it's graded. So the last thing you want to do is get there and have this thing ballooning up and getting super expensive and causing you to make a different decision than you would have otherwise. So it's kind of one of those things. You got enough stuff in your life that's kind of different. It's changing on you, shifting sand all the time. The medical world in general is. And so to have that kind of locked in level, the peace of mind that's there, you can keep as long as you want. It doesn't change that. Peace of mind is good. But like I said, if you're the kind of person I know, there's guys in my office right now who are like, I would never buy level, I would buy graded. And they're more detail oriented and they kind of map things out and they're like, I know exactly how long I want disability insurance for. I think it's perfectly fine. You just have to know if you make a mistake in that regard, it could get really expensive.

So which companies? Just Guardian. That's the only one that offers it.

You know, Guardian's the only one that we've done a graded option with. I'm pretty sure that MassMutual offers a graded option, although we've never really used that with them. And I think there's some stair stepping that Standard has done in the past too. But Guardian's only one that we've done.

All right, let's talk about Guardian. Actually, this next question comes from Ron, who wants to hear about Guardian. Let's hear what Ron has to ask.

I have a question about disability insurance. Guardian tends to have the highest premiums for disability insurance. And I read online that that is because Guardian has the best definition of disability for physicians, especially for those that are doing procedures. But I've also read online that the Guardian has among the highest commissions in the disability world. I'm wondering if the increase in the price for the Guardian policy is worth it and that it's, you know, worthwhile in regards to the better definition of disability or if this is just going towards the insurance agent's commission.

All right, Ron wants to know whether Guardian costs the most because it's the best or because it pays you the most. Let's talk about commissions and how they vary between companies and. And then about Guardian specifically.

Well, this is. I'm going to peel back the curtain here. So this is, this is why you come to White Coat and you try to get the truth about all this. Right? So a lot of the insurance companies are going to pay the exact same commission first year. So they're going to pay 50% plus some overrides, what they call it. It probably gets up to about 70% of the first year premium. And that goes to a broker, someone who helps you hopefully do a good job of checking out all your options in an unbiased way, like we do at Pattern, and make sure that you get the right policy and the right price. So that's how they get paid. What happens after that is there are renewals that kick in. So every year they get paid a little bit of something to service your policy. You kind of want them there in case you need to increase your coverage, you have questions about the policy, you need to go on a claim. It's good to have someone there who's not at the home office of an insurance company. The calling there, you know, they're looking out for the insurance company. So you want to make sure you have someone on your side who's kind of looking out for you. So they do pay a little something. Those can be quite different. Guardian typically pays a lot on renewals and not only that, it pays into perpetuity. It never ends. Companies like Principal pay you close to the same amount as Guardian. Depending on the level of volume that you do in selling this kind of product. But then at year 10, it literally drops to almost nothing. I think it goes from like 10, 12, 15% to 1. So there are definitely some people out there and I know them. I get invited to all these, you know, swanky events, all these insurance companies and I kind of, I can't stand them too much, but I go to them anyways and sometimes I even speak at them. But I hear these people who drink the Kool Aid from any of these companies and all of the companies have Kool Aid drinkers. Oh, we're the best because of this, we're the best because of that. And when I get down to it, you know, your question is kind of insightful. There are a lot of times financial reasons that certain companies are sold above others. Now let me step in and say though, Guardian absolutely is the highest rated company of all the true own occupation companies, the big six. And they have the longest tenure, the best track record in a lot of regards. So there's some Kool Aid to be drunk there. That's not bad Kool Aid, it's pretty good. But at the same time you want to make sure if you're talking to someone about a policy that you can ask them questions like this, well, how do you get paid and are you being financially motivated in any way by this? If someone's selling your Guardian policy, they should tell you, well, they pay me the first year the same amount and for 10 years about the same amount, but they'll pay me more beyond that to keep servicing your policy. And so hopefully that's not going too much into their reasons for their motivation for recommending Guardian. They have two different policies. Guardian has kind of a Cadillac package policy that's super expensive. And all the Guardian Kool Aid drinking brokers or agents out there want to sell you that because they're saying you have to get the absolute most robust top level policy you can get. And then they've got another policy that's about half that price and it's still at that half price point. That less robust policy. It's still on par with principal and emeritus and some others and a lot of their features. So it's not a bad policy. And to tell you the truth, we work with a lot of doctors who take that one. So I would say when you're thinking of Guardian, absolutely top notch, certainly want to know the two options between their most expensive and their least expensive option. They're both still true own occupation with that 50% procedure definition. So very, very similar policies. But I would say that most of the good brokers out there are not selling it because it benefits them. But some of the long term folks who are in this for the long haul, they see the benefits of selling it. They might be doing it because of those renewals lasting all the way into perpetuity.

I think that's helpful in helping people understand what the conflicts of interest are there. Particularly with Guardian specifically, let's peel them.

Back the curtains a lot more than most folks would. But you know, I've just found that especially the folks who come to white coat the shop, all these other places, you know, they want to know what's going on. And I think the best decisions could be made the more knowledge doctors have. They're smart folks, they just need to be given the information so they can make good decisions.

We got a few more minutes here and I got a couple of questions on Facebook last night that I think are worth probably talking about. I didn't give you any advance warning of these, but I'm sure you can handle them. None of them are too bad. The first one is, could you touch about procedural subspecialists such as GI or cardiology in terms of what specifics to look for in disability insurance? Is this process different if you're a procedural specialist versus non procedural specialist? I think is really what the question comes down to.

Well, that's a great question. I mean I get asked all the time by psychiatrists or family medicine docs or pediatricians and like, do I really need this? And I'm like, yeah, you know, you guys get disabled just as frequently and you need to protect your income. So that's a conversation I have all the time. But when you're a procedural specialist, you're relying on fine, fine motor skills that if you get disabled, let's say you get into a car accident and something happens where you develop some type of a tremor or you have persistent back pain or things like that. There are things that could knock you off your game. Not being able to do those fine motor skills and do those procedures that wouldn't knock you off your game as far as, like I said, being maybe a pediatrician. As long as you can see patients, maybe manipulate the young patients or whatever a little bit here and there. I mean you need to be physically have dexterity but not quite the fine tuned motor skills of a procedural specialist. So I think that being absolutely certain that you get a true own occupation policy that's protecting your procedure specifically. And if it's to the tune, where obviously you're doing more than 50% of your money or time is coming from procedures, then you might want to think about a guardian or someone who has some very specific language about procedures in there. Because at the end of the day, you know the difference between you being able to do your procedures and the money you can earn over the course of your career versus if that gets taken away and what you can still do more generally, the difference is very, very great. So I'd say you're looking for the same things, but the cost of making a mistake in the definitions or the policy you get or the writers or the things you need to have on there, the cost can be much higher in that situation.

Yeah. A related question is, what about psychiatrists? How worthwhile is it to even get disability insurance, as most of these are specialty specific, geared to physical ailments. What do you tell those that truly do no procedures at all?

Well, here's what I say. I say the majority of disabilities, there's been different studies out there, But I think 75% of disabilities come from illnesses, not injuries. And I'd say a psychiatrist is just as likely to become ill. And cancer is actually one of the top disabling things out there, so they're just as likely to get any of those things as a procedural specialist. So I'd say the likelihood of something happening that could potentially disable them is just as important, that it's just as likely. And then I'd say on top of that, if you can't communicate, if you can't sit or stand for long periods of time, listen to your clients, something happens. AUDITORIUM there's so many different things they don't think about that they need to be able to do to take in the information, to ascertain what's going on, to communicate things back. Something happens cognitively. There's so many things that can happen if you get cancer and you're just straight going through all that that you go through and you can't work, you can't see people, you're sick. Then again, you could be a psychiatrist or you could be an interventional radiologist and you're going to go on a disability claim. So I just always tell them, especially if they're younger, especially if they don't have a lot of savings and things like that, it's probably prudent for them to get it. If I'm in their shoes, I'd rather pay 2 to 3% of my salary. I'd rather bring home 97% of my salary and know that 60% of it, you know, almost 100% of my take home pay is protected in case something happens. Then to think I saved, hey, I saved 2 or 3% of my income and something happens and I don't bring it home. So I just think it's super important to protect the income. Even for a psychiatrist or anybody that's non procedural.

And I think it's worth pointing out that they get a big discount too. I mean this stuff is a lot cheaper for a psychiatrist than it is for a plastic surgeon. It's just a lot cheaper. They're in a different class of occupation.

Yeah, and the thing is, you said discount. It's actually, it's just rate classes. I mean they have different rate classes. And so someone who is some type of an interventional proceduralist type person is going to be like a, a 3M or a 3:00am and then the numbers go up from there. They get up to 6m, 6am, whatever the company's using. And as the different rate classes go up, actually that means it gets cheaper and cheaper and cheaper. So you're right, you're not gonna have a psychiatrist paying the same rate as a Mohs surgeon. And then if you do it early on, then you're also gonna have the opportunity to get discounts. And those discounts typically are based on your employer. Are there discounts set up? Is it a big employer or not? Can you go in with several people to get it? There's all sorts of things you can do to get discounts. But yeah, you're getting a cheaper rate as a psychiatrist or someone who's not doing procedures. And then look for discounts. We find them for residents, for fellows, for attendings, who've been attending for 20 years. I mean there's discounts out there for you most of the time.

Okay, last set of questions. And these are related. Is it better to keep an old disability policy with a good price that is not strictly own occupation or get a new one? I'm now 48 and the premium difference is greater than 50% of the premium to get a true own occupation policy. And the second related question is, should I drop my Northwestern Mutual disability insurance that I just bought recently? Obviously that's also not a true own occupation policy. So can you talk about what to do if maybe you didn't buy an own occupation policy? What to do now?

Yeah, it's a great question. So I do think that this comes into the whole realm of financial planning. I mean if you're 48 years old, and the difference is going to be huge. And that's just based on age. If your health has changed at all, you might end up in a position where it's even bigger than you're thinking, or you may be denied the ability to get another policy. So a lot of times the answer at that point in time is, well, if you've got enough savings, you paid off all your debt, you're in a good position where if you got disabled and they only paid you a portion of the benefit on top of the savings that you have, along with no debt, and you could live off of that portion plus your savings with no debt, if everything's lined up that way, then maybe it's worth keeping and not paying more for that. On the flip side of that, you're also entering the years where, you know, I mentioned a statistic earlier on, something like one out of every five doctors over the course of their career gets disabled. That's coming from, you know, not a whole lot of doctors in their 30s and a whole bunch of them in their 60s. And so the older you are, you're also more likely. That's why it's more expensive to experience an event where you become disabled. And so, you know, it might be one of those things where you say, hey, my savings aren't where they should be. Maybe I just bought a house and I've got some debt that I've taken on. Maybe now is the time to pay a little bit more to make sure that I've got this true own occupation coverage. So if something happens, I'm not dwindling away the savings. That's not even where it should be and I can't pay this debt. You know, I hate to sound like a politician, ride the fence and say it depends on the financial situation, but it really does. But I hope that at least gives you some idea of things you should be thinking about. What happens if I get disabled? Do I need to have all of my income paid to me? Or can I take something proportionate from one of these policies along with what I've saved? If I'm in a good position with no debt, or if that's not the case, maybe it's worth paying more and switching to an occupation policy. One caveat, though. Never get rid of a disability policy until the other policy is in place and the first payment has been accepted by the insurance company. That's when it becomes enforced, is when the first payment's been received and applied to your policy. Otherwise, doctors in the past have gotten rid of their old policy and then went for the new one, only to find out in some set of labs they had to go through because they were older that they maybe couldn't get coverage or it was twice as expensive as they thought it was going to be. You should always hold onto that old policy until you get the new one completely enforced.

That's good advice.

And Northwestern Mutual, I can jump to that really fast. It's kind of the same thing. If you just bought one though, and you're young and you're healthy and you probably have discount opportunities, don't get rid of it till the new one gets put in place. But I would absolutely consider swapping. First of all, the price difference. You may end up saving money by switching to one of the true owned occupation policies. I'm going to say most of the time doctors save money when they switch to one of the big six true owned occupation policies from Northwestern Mutual. They're typically expensive or you're on a greater premium with them and their steps up pretty heavily. So I think you will potentially save money and get a better policy if you just bought that one. If it's been years and years, that can be different sometimes, but if it's just happened, it's probably a good idea to switch.

Plus sure appreciate you being on the White Coat Investor podcast, Matt. It's great having you on here. For those who don't know, you can get more information, you can get a second opinion on your disability insurance. If you don't have this critical coverage in place, you can contact Matt and actually get it in place. Whitecoatinvestor.com pattern will take you right there and you can get a quote and get on the phone with him and talk to him about your options, anything you'd want to say. You got the EAR of 25,000 or 30,000 high income professionals here. Anything else that really they need to know about disability insurance before we let you go?

Yeah, you know, I think disability insurance, it's complicated and some of the stuff we talked about today, I tried to be as plain spoken as I can, but honestly, it's insurance and it's a complicated insurance. The whole reason we exist is to take something that's complicated and make it as simple and easy as possible. So whether you're going for a second opinion on what you have, whether you're looking into it for the first time, if you want to get someone to give you unbiased advice, someone who's worked with group, who's worked with thousands of doctors through the years, and we really Take the time to educate you on this and make it as simple and easy as possible. That's what we get. The feedback we get is, hey, you made this simple and easy for me. That's the best compliment we can get because that's what we're shooting for. So just keep pattern in mind. We'd love to help anyone look at your policies or even if you're taking a crack at it the first time. Getting it right the first time is super important. If you don't and you have these questions, should I switch? Should I do all this? It gets kind of messy. So I'd say get it right the first time.

Thank you very much, Matt for being on the podcast.

Sure. Thanks for having me.

All right. That was great having Matt on. We had him at WCICON back in March as well. We had a panel of three insurance agents and it was really fun. I tried to pull up some controversy in it and get some disagreement and surprisingly there was little. You know, there's a few topics in disability insurance that are controversial, but most of the time these folks that are really educated about it really agree on all of the important stuff. Don't forget, if you have paid off your student loans recently, go to whitecoatinvestor.com debt free. Tell us your story. Help us use your story to inspire others to do the same. If you need a physician mortgage, check out our Recommended Mortgage page. Thanks to those of you who've left us a five star review and told your friends about the podcast. Getting quality disability and life insurance should be the first financial chore for a doctor to complete. Most docs don't have the ideal policy for their gender, specialty, state or health status, and one in seven doctors get disabled at some point during their career. Because these policies can only be purchased through brokers, we've put together a list of vetted agents who are experienced with working with the specific needs of medical professionals and who have your best interest at heart. If you have questions about insurance and what kind of policies would be the best fit for you, check out our insurance recommended list@whitecoatinvestor.com insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this and the White Coat Investor can help. Head up, shoulders back. You've got this and we can help. We'll see you next time on the White Coat Investor podcast.

My dad, your host, Dr. Dahl, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney or financial advisor, so this podcast is for your entertainment information only and should not be considered official personalized financial advice.