Disability insurance can be purchased on an individual or group basis. Group insurance is usually provided by an employer or purchased individually. Although initially low in cost, group policies do have limitations. They can be cancelled (by the company or insurance company), rates increase as you get older, and premiums are subject to adjustments based on the claims experience of the group. In addition, group and association contracts often contain restrictive definitions of disability as well as less-generous contract provisions.

Coverage Limits

Most insurance companies will issue disability insurance coverage equal to approximately 60 percent of earned income; however, there are a few special groups that are provided with “special limits” to their policies. These special limits may permit them to purchase benefits in excess of what their current earnings would normally allow. 

The Cost of Disability Insurance

Premium rates are based on several factors such as age, gender, monthly benefit amount, riders added to the policy and the occupational classification the insurance company assigns to your medical specialty. The younger you are when the purchase is made, the lower the cost of the insurance. Therefore, you should consider purchasing a policy as early in your career as possible to guarantee lower premium rates. Although women are better risks for life insurance coverage, this is not the case with disability insurance. Rates for females are substantially higher and their policies can cost up to 50 to 75 percent more than policies for men. The occupational classification assigned by an insurance company to a professional significantly impacts the premium rates and policy provisions offered. For example, if you are a doctor who performs invasive procedures, you may be placed in the “surgical” category, with a more restrictive definition of disability, with higher premiums charged than those of a non-invasive, non-surgical physician. Each insurance company has its own occupational classification guide and may thus tackle the same medical specialty in different ways.
 
What to Look for in a Disability Policy

The renewability provision is one of the key features of an individual disability income insurance policy. This provision determines the length of time your disability policy will remain in force.  If you purchase a policy that is Non-Cancelable and Guaranteed Renewable, you can remain in control of your financial security. The insurance company cannot cancel, increase your premiums, change any provisions or add restrictions to the policy -- even if the issuing company no longer offers similar policies in the future.

Definition of Total Disability

Arguably, the definition of disability is the most important aspect of a disability policy. As a professional, you must pay careful attention to the definition of disability found in your policy, as it will ultimately determine how claims are handled. 

Definitions of Disability Insurance. 

“Own-occupation”
Although difficult to find, “Own-Occupation” (also known as true or pure “Own-Occupation”) is usually the definition of choice for physicians, CPAs and other professionals, as it is the most liberal definition of total disability available. This type of policy pays benefits if you are disabled and “not able to perform the material and substantial duties of your occupation.” In addition, you would be considered totally disabled if you were not able to work in any other capacity. (Example: Selling items on eBay.)

“Modified Own-Occupation”
This type of disability policy has become the most prevalent in the industry today and typically pays benefits if you are “unable to perform the substantial and material duties of your occupation and you are not working.” Although benefits are still contingent upon your ability to work as a doctor, CPA or attorney, this definition generally will not allow you to continue receiving full disability benefits if you are at work in some other capacity.

“Any Occupation”
This definition is the most restrictive -- it is commonly found in group or association policies. Under this definition, you are eligible to receive benefits only if you are found to be “unable to work in any occupation which you are reasonably suited to by education, training or experience.” Unfortunately, it is the insurance company that makes this determination, and highly trained specialists such as neonatologists will find it extremely difficult to fully benefit from this type of policy. You should take every precaution to avoid purchasing a policy that contains this definition.

"Hybrid Definitions"
Many policies offered to professionals today might incorporate an “Own-Occupation” with a Modified “Own-Occupation” definition. Here, the policy would contain a true “Own-Occupation” definition for a limited time period (typically one, two or five years), and then convert to the more restrictive Modified “Own-Occupation” definition described above.  Until recently, in certain states such as California and Florida, and for certain medical specialties, this often was the best definition of disability made available. 

Optional Riders

Residual Disability Rider

Unless your policy contains a residual disability rider, you may have to be totally disabled to collect any benefits. While an “Own-Occupation” policy protects your ability to work in your occupational field, it may not sufficiently protect your income level. There are many disabilities that might allow you to continue to work on a limited basis, while suffering a loss of income. Adding a residual disability rider to your policy would allow you to continue receiving benefits proportionate to your loss of income, even if you returned to work in your occupational field on a part-time basis.
Furthermore, with policies such as Modified “Own-Occupation” or “Any Occupation”, this rider might allow you to continue receiving benefits if you decided to work in another capacity, or if the insurance company determined that you could work in another “reasonable” occupation with reduced earnings.

Cost of Living Adjustment (COLA) Rider

A COLA rider is designed to help your benefits keep pace with inflation after your disability has lasted for 12 months. This adjustment can be a flat percentage or tied to the Consumer Price Index. Ideally you want a COLA that is adjusted annually on a compound interest basis with no “cap” on the monthly benefit.  Although important, if cutting the cost of coverage is an issue, this might be the first optional rider to consider excluding from your policy.

Future Purchase Option Rider

This rider is a must for young professionals. It provides you with the ability to increase your disability coverage regardless of your future health, as your income rises.  It is important to know how often you can increase your coverage, and your incremental options.  Some companies may allow you to use your entire option in one year as long as your income warrants the increase; others however, may limit the amount you can purchase.