Amber Stitt [00:00:00]:
Welcome to the Responsible Resident. I'm Amber Stitt. This podcast takes a common sense approach to financial decisions for physicians, breaking down complex topics into something clear, practical, and usable. Because you shouldn't have to have a finance degree to build financial freedom. In the first episodes of this podcast, we've talked about what disability insurance is and why employer disability insurance may not be enough, in addition to case studies of two claim stories. In today's episode, we're going to take the next step and walk through something physicians rarely see explained, "How disability insurance contracts actually work." The challenge is that most never read their contract in detail.
Amber Stitt [00:00:42]:
They are complex and usually 60 to 80 pages long, so physicians assume they're covered without fully understanding when benefits would actually be paid. This episode is based on our "Physician's Guide to Disability," which our team uses to help doctors understand the key features of a disability insurance policy. You can find a copy in the description box today if you would like to use it to follow along. "Why are Disability Contracts Confusing?" Disability insurance is one of the most misunderstood forms of insurance. Part of the reason is that disability itself can be complicated. When someone becomes disabled, the question is not always simply whether they are sick, or injured. Instead, the contract looks at a few key queestions: How limited are you in doing your job? What duties of your job can you still perform? Could your work environment be modified? These questions matter because disability insurance is designed to protect your ability to perform your occupation, not just whether you have a diagnosis. That's why the definition of disability inside the contract matters so much, because small differences in wording can determine whether a claim is paid, or denied, and the hoops you may have to jump through to get your insurance paychecks.
Amber Stitt [00:01:53]:
Before we discuss the 3 foundational elements of your disability insurance contract, let's cover the most important feature in any disability insurance policy, the definition of "disability". This definition determines when benefits are paid and under what circumstances. The first definition is the "Pure Own-Occupation" definition. It's also called, "True Own-Occupation". This is considered the strongest definition of disability and was discussed in greater detail in the previous episodes. Physicians invest years, often more than a decade, developing specialized skills and training. Your career may represent 8 figures of future income over time. If you are unable to work in your medical specialty due to illness, or injury, the policy will pay full benefits even if you choose to work in another occupation.
Amber Stitt [00:02:43]:
Most will want to do something else if they can, and this gives you a way to transition into the next phase of your personal journey while receiving disability income checks and while working if you wanted to. For example, a surgeon who can no longer operate could teach, consult, work in administration, or pursue another career and still receive full benefits. This protects the specific career you trained for. Next is the "Transitional Occupation" definition. A transitional definition also protects your specialty, but benefits may adjust based on new income. We rarely see this one, but it is worth talking about it. If you earn less in another role, the policy may help fill the gap. As your income increases, benefits may decrease.
Amber Stitt [00:03:27]:
This feels more like group disability policy offset provisions, so I don't recommend this version for my clients. The third is "Own Specialty, Not Engaged." With this structure, full benefits are paid if you cannot work in your specialty and are not working elsewhere. If you do earn income in another role, benefits may be reduced. This also feels more like group disability policy offset provisions. Some physician spouses ask for this version, if not a medical professional, for their contracts after reviewing quotes together and for a few dollars more to have more robust coverage. Many spouses take an Own-Occupation definition as an extra measure.
Amber Stitt [00:04:06]:
Even as a non-medical profession, the recommendation here would be case-by-case. Fourth is the "Limited Own Specialty", then any occupation language. Some policies offer own occupation protection for a limited period, often around 24 months. I saw one the other day for 60 months and that is more rare. After that the definition may change to any reasonable occupation. This means benefits could stop if the insurance company determines you are able to work in another job. This is why understanding the definition is one of the most important parts of evaluating a policy.
Amber Stitt [00:04:42]:
The employer flyer could say, "Own-Occupation" on it, but then the fine print shows how after 2 years this changes. At a high level, this comes back to one word: "Freedom". The clearer your contract is, the more control you have over your career. If something unexpected happens and if you want to move to an independent self-employed situation, you would just take your private plan with you, without having to start the process over. Understanding how your policy defines disability helps you know what your options would look like in a real life situation. I'd like to take a second to tell you about a free medical professionals blueprint that I created with you in mind. At some point in your career you realize it's not just about making more money, it's about making decisions that actually support your life.
Amber Stitt [00:05:31]:
That's exactly why I created "The Pathways Perspective for Physicians". It's a simple, non-technical framework to help you think through your career, your money, your risk, and how everything connects as your life evolves. You shouldn't have to have a finance degree to build financial freedom. You don't need to have everything figured out, you just need a place to start. You can download the free medical professionals blueprint at: StittStrategies.com/Blueprint. Next, let's break this down in those core fundamentals of what every disability policy should include. Now that you have picked your contract definition beyond the definition of disability, there are several other features that directly influence how a policy performs and to help bring this to life I'll share a client story shortly, but before we go there, I want you to keep 3 key components in mind. First, the contract definition, specifically selecting a "True Own-Occupation" definition.
Amber Stitt [00:06:35]:
This is what allows the policy to perform for both a full disability claim and a partial disability claim. We've already talked about contract definitions, so now let's focus on how partial disability works. These benefits are called "Residual Disability Benefits" in the insurance world, residual benefits apply when you are still able to work in your specialty, but your income has dropped below a certain threshold compared to your pre-disability earnings. Typically, this means that you've experienced a loss of income of at least 15% to 20% and you're either unable to perform all of the material and substantial duties of your occupation, or you're unable to work fulltime. It's important to note that while true own-occupation policies share similarities across carriers, there are meaningful differences, especially when it comes to how partial and recovery benefits are structured in each carrier's contract. One of the most overlooked features is the recovery component. "Recovery Benefits" come into play after you've medically recovered and returned to work, but your income hasn't fully rebounded yet.
Amber Stitt [00:07:45]:
This is especially relevant for physicians whose compensation is productivity based. For example, let's say you were earning $500,000 per year prior to an illness, or injury. You recover and return to work fulltime, but your income doesn't immediately return to that level. Maybe your base salary is lower, or it takes time to rebuild your patient volume during that period. The recovery benefit looks at the percentage loss compared to compared to your pre-disability income and pays a corresponding portion of your benefit to help bridge that gap. These provisions vary by carrier. Some may offer recovery benefits for a limited time, while others extend them for the full benefit period. This is where working with a knowledgeable advisor becomes important.
Amber Stitt [00:08:31]:
Now let's talk about timing. When do these benefits actually begin? This is the second part of your policy design, your waiting period, also known as the "Elimination Period". Whether you're dealing with a full, or partial disability, the elimination period is the amount of time you are self-insuring from the date of disability until benefits begin. You might hear this referred to as the waiting period, but in the contract, it's listed under the elimination period. These typically range from 90 days to 180 days and sometimes up to one year. A 90 day elimination period is the most common choice for residents. As your financial position strengthens, you may choose to extend that period to reduce cost since you're able to self-insure for longer. For example, in my own case, I've selected a 180 day elimination period as I am almost 50 years-old and have been working for a substantial amount of time with dual income in my home.
Amber Stitt [00:09:32]:
If I became disabled in January, I would begin receiving benefits in July. Some individuals, particularly women where rates can be higher, may choose a longer waiting period to manage cost. At the end of the day. This decision comes down to peace of mind and your household's current financial situation. You're designing a contract that should support you during uncertainty and it's something you can adjust over time as your situation evolves. Next up are "Purchase Increase Options". Before we jump into the two types, let's talk about my client's story. I'll never forget the day I was sitting in my car after my mammogram appointment when I received a call from one of my clients.
Amber Stitt [00:10:14]:
The overlap in that moment was hard to ignore while I had just finished my own personal mammogram appointment. She's a surgeon. I'll call her Claire. Claire had just been diagnosed with breast cancer and was preparing for her surgery to remove the cancer. She was reviewing her overall timeline of being off work to have surgery and recover, using a mix of PTO to have surgery and recover. She reached out to ask me how to file a disability claim if she needed it and what her waiting period was. At that point she wasn't technically disabled but needed to know what would happen if this did disable her. We walked through her policy together.
Amber Stitt [00:10:54]:
We reviewed her elimination period. We which in her case was 6 months. There was a pause on the phone. You could tell she was doing the mental math, thinking through what it would actually feel like to self-insure beyond her paid time off. If her recovery took longer than expected, then she asked if she could use her future increase option now to increase her plan because her income had changed. Her policy had been structured years earlier with that feature and it gave her the ability to increase her coverage without going through medical underwriting again. While she was in the middle of preparing for surgery, she was able to move forward with that increase to her monthly benefits. That was my first account seeing a disability contract work in action.
Amber Stitt [00:11:38]:
While my client had a big health change, her health, from an underwriting standpoint, was still protected because of decisions she had made years prior to secure coverage and a future purchase option. Ultimately, she didn't need to go on claim, thankfully, but that's not the part that stayed with me. What stayed with me was that moment when she realized how her policy would actually function in a real life scenario, and that she still had options available to her because of how it had been designed ahead of time. Because if that same situation happened today, she likely wouldn't be able to secure that same coverage. And that's the difference. These decisions aren't just about what you need right now, they're about protecting your ability to make choices later when your options may be limited. Now, back to how to choose your future purchase option. These features allow you to increase your coverage in the future without going through medical underwriting again, which is important because your health can change over time.
Amber Stitt [00:12:38]:
These features consider your current income, usually by your graduation date, new employment agreements, and or your filed tax returns. Think of this as financial underwriting to determine your eligibility to buy more based on income. This is one area that can feel a bit confusing because you'll hear different terms used like future increase options and benefit increase riders. While both allow you to increase coverage, they are structured differently. Think of future increase options as more flexible, but they come at a cost. If you want the ability to revisit your coverage annually and increase it as your income grows, this may be a good fit. This feature is purchased upfront and typically allows increases around each policy anniversary, with some exceptions like graduation. On the other hand, "Benefit Increase Riders", often identified by having a B in the name, though titles vary by carrier, are typically included at no additional cost if you qualify medically.
Amber Stitt [00:13:38]:
I'll cover that in more detail in episode 5, on underwriting. These benefit increase riders usually offer opportunities to increase coverage every 3 years, along with certain provisions that may allow increases between those checkpoints, such as graduation, or other qualifying events. Each carrier structures these provisions a bit differently, so just like with residual disability, this is where working with an experienced advisor can help you understand the nuances. For example, I often look at whether a physician plans to move into a production based model versus an academic setting. Since income growth patterns can vary significantly in many cases, physicians aren't able to increase coverage every year anyway, either because income hasn't changed enough, or because existing group disability benefits are factored into the financial underwriting. We'll go deeper into how much coverage you can actually qualify for and how carriers evaluate that in episode 6, where we explain how to calculate how much coverage you qualify for. If you'd like help reviewing your disability insurance options, or need an audit on your current plans, you're welcome to schedule a consultation with our team. My partner, Scott Nelson-Archer, and I work with physicians nationwide to be sure you have the correct policy design.
Amber Stitt [00:14:55]:
We truly love what we do, and our goal is to empower physicians with an independent perspective on their income protection options so you can make clear, informed decisions about protecting your future earning power. If you'd like to connect with us, you can schedule a complimentary consultation. That's a wrap on our Physician Disability Guide. If there's one takeaway, it's this: the decisions you make during training shape the options you'll have later. Understanding how coverage works gives you control, and control is what protects your future earning power. We'll keep building on this in the next episodes. If this episode helped you think a little more clearly about your next step, that's the goal.
Amber Stitt [00:15:36]:
You don't need to have everything figured out, but you do need to take ownership and take a meaningful step forward today. Thanks for listening to the Responsible Resident. As a reminder, this podcast is for general educational purposes only. It is not legal, tax, or individualized financial advice and coverage options will vary based on your personal situation.
