Disability Insurance 101: why you need it, what to include in your policy, and how to purchase it

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When we’re first starting our careers, our focus is trying to advance and increase our pay. With our tight budgets, one of the last things on our mind is paying for added insurance. Trust me, I get it. However, as [future] high-income earners, long-term disability insurance is essential. It may not be at the top of our priority list, but it should be.


What is it and who needs it?


Unless you are already financially independent or were lucky enough to have a trust fund in your name, disability insurance is a must. Although we’d like to think we’re invincible, we are not. If some unfortunate event occurred that caused you to become disabled and prevented you from doing your job, you’d still need a way to support yourself. You can’t predict whether you’ll be disabled in the future so you must insure against that risk right now.

You may be tempted to wait to purchase this coverage when you make more money, but I’d caution you against that. The younger, healthier, and earlier in your career you are, the more you need disability insurance. You have your whole life ahead of you with decades of potential high earnings, long-term disability insurance protects you in case this were to change.


Do I still need it if I have a group policy through my employer?

More than likely. Long-term disability insurance may be offered by your employer, but that policy may not offer sufficient coverage. Most employer group policies only pay out 60% of your income if you get disabled, up to a certain maximum per month. The amount they provide may not be enough to cover your monthly expenses, pay back your student loans, and still allow you to save for retirement. As a rule of thumb, the higher your salary, the more likely you are to need an individual long-term disability insurance policy, outside of your employer.

Secondly, group policies may be less likely to pay out if you do become disabled because their definition of disability may be too broad. In other words, it may be harder to meet your job’s definition of disability to even apply to receive the benefit. For example, you may consider yourself disabled because you can’t do your current (high-paying) job as well, but the insurance company might deem you able to do some other (lower-paying) job and refuse to pay out, leaving you to deal with the decrease in pay on your own. You want to protect yourself against that risk by getting your own individual long-term disability insurance policy.

Some people may be able to purchase a group disability insurance policy through certain professional organizations. Although these policies seem enticing, they can have several drawbacks. The premium may not be “level,” meaning the cost of the policy may increase every few years as you age, eventually costing you a substantial amount as you get older. It also may not offer sufficient future-purchase options that allow you to upgrade your coverage as your salary increases.


What to look for in a good policy?

A good individual long-term disability insurance policy has 3 components: enough coverage, a specific definition of disability tailored to your own occupation, and additional riders for added protection. Let me explain.

Along with enough coverage and a specific definition of disability catered to your [high-paying] job, you also need to purchase disability insurance “riders.” Riders are added protections you pay for to ensure that you have all the coverage you need. Examples of riders you should consider purchasing are the: cost-of-living-adjustment (COLA) rider so that your payout will increase with inflation each year, residual and recovery rider so that you are compensated for any partial disability until you are back to your full productivity, and a future purchase option so you can purchase more disability insurance if your salary increases without being denied or charged outlandish rates because of your age or medical conditions.  


How do you purchase it?

As a graduating medical student, I knew I needed disability insurance. I emailed a few vetted brokers/agents that had a track record of working with high-income professionals and entered some basic information on their websites to get quotes. Once I found a policy that had the benefit I wanted with the riders I needed and an own-occupation form of disability, I then chose the cheapest policy.

The insurance agent asked me a bunch of medical questions as he filled out the application on my behalf. He inquired about my hobbies, medical history, and travel plans to discern my “disability risk” as requested on the form from the insurance company. I then reviewed the information in a secure portal and signed the form online. I was approved within 24 hours.


To summarize: Disability insurance is a must-have for high-income professionals. We can’t predict what may happen in the future so we owe it to ourselves to get insurance that will “protect our income” just in case we were unable to work for some reason. Oftentimes, group policies from our employer are helpful but not sufficient. We need an individual own-occupation disability insurance policy with extra riders until we become financially independent. If you don’t already have a policy, I encourage you to get one today.

Tell me, was this helpful? What additional information about disability insurance would you still like to know?