What Is Disability Insurance and Why Does It Matter?

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. I'm a disability insurance specialist and co-owner of MD Disability Quotes. My business partner Scott Nelson-Archer and our team have spent over four decades helping physicians protect their income. We've had the privilege of serving as the longest tenured vetted advisors for readers of the White Coat Investor. In this episode, we're answering a foundational question for physicians, medical professionals, and business owners: "What is Own Occupation Disability Insurance?" The challenge is that most residents are not taught how disability insurance works during training, even though you may hear about it during educational talks during grand rounds.

Amber Stitt [00:00:55]:
So many physicians move into practice without fully understanding their options until something changes and those options become more limited. So why Disability Insurance? Disability insurance is often described as income protection, or paycheck protection. At its core, disability insurance replaces a portion of your income, typically 60% of your monthly paycheck if you become too sick or injured to work. For physicians and other high skilled professionals, this protection is critical because your ability to earn an income is often your largest financial asset. The concept works similarly to other types of insurance. When you purchase a disability insurance policy, you pay a premium to an insurance company. In return, the insurance company agrees to pay a monthly benefit outlined in your policy if you are unable to work due to illness or injury. Think of this as your monthly paycheck from the insurance company.

Amber Stitt [00:01:56]:
That benefit can then be used however you need it, including paying your mortgage, or rent, covering student loans, managing household expenses, paying medical costs, or maintaining your family's lifestyle. Physicians invest years, often more than a decade, developing specialized skills and training. Your career may represent 8 figures of future income over time, yet many professionals spend more time ensuring their car, home, or personal property than protecting the income that pays for all of those things. The real problem isn't a lack of intelligence, it's a lack of exposure. These decisions often aren't explained clearly during training, which means many physicians are left to figure it out later when the stakes are higher. Disability insurance exists to protect that financial foundation because the reality is that long-term illness or injury can happen to anyone and in many cases, disabilities are not caused by accidents. Many long-term work absences are the result of medical conditions such as back injuries, cancer, heart disease, autoimmune disorders, or neurological conditions. These are health challenges that can affect even highly trained professionals.

Amber Stitt [00:03:15]:
To help paint the picture, I want to share a story from my first disability claim as an advisor, I had a client who had just finished training and we scheduled a catch up call to talk about his new job, normally one of the most exciting conversations I get to have. But during that call I learned he had been diagnosed with a spinal tumor. Instead of stepping into his new role in practice, he had to pivot. He took on an administrative position and was working from a wheelchair while beginning treatment. Because he had secured an individual disability policy in his final year of residency, just one year prior, he was able to receive benefits while still earning an income that gave him flexibility during a time when everything else felt uncertain. About a year later, we had one final annual review. He was in the hospital sitting with his father and he shared what the coming days were expected to look like.

Amber Stitt [00:04:13]:
After he passed, I worked with his wife to help settle a few admin tasks. One thing she said has always stayed with me, she was grateful they had the financial support to focus on being together as a family during that time. In the middle of chaos, having a plan in place doesn't change what's happening, but it gives you the ability to be present where you're needed most. Who needs Disability Insurance? The simplest answer is anyone who relies on their income to support their life needs disability insurance. Really, anyone who cannot retire tomorrow needs disability income protection. If your paycheck helps fund your daily living expenses, student loan payments, family needs, retirement savings, and investments, or long-term financial goals, then protecting that income becomes an important part of your financial strategy. Imagine being unable to work for a long period of time.

Amber Stitt [00:05:13]:
The average long-term disability claim lasts about 3 years. Many are partially disabled for much longer. Paid time off and sick days rarely cover that length of time. And most households do not have several years of income saved in emergency reserves. That's why disability insurance exists. To provide financial stability while someone focuses on their health and recovery. 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. 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.

Amber Stitt [00:06:06]:
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. Let's see how disability insurance can support your financial strategy, even if your salary doesn't feel extraordinary today. Over time, your income becomes one of the most powerful tools in your financial life. Your earnings fund, loan repayment, investments, retirement savings, homeownership, and family security. Disability insurance protects that engine because if the ability to earn an income stops unexpectedly, the financial ripple effects can be significant. That's why many financial planning strategies begin with protecting income. First, let's discuss the reality of disability risk.

Amber Stitt [00:06:59]:
Many people assume disability is rare, but statistics suggest otherwise. The Council of Disability Awareness says that approximately 1 in 4 twenty year-olds will experience a disability before the traditional retirement age. And again, many of these disabilities are not catastrophic accidents. They are often long-term health conditions that prevent someone from continuing their profession. For physicians whose careers depend on specialized physical, or cognitive skills, protecting that ability becomes especially important. So let's discuss the 2 types. Many physicians do have access to disability insurance through their employer. That can be a valuable starting point.

Amber Stitt [00:07:40]:
However, these are owned by the employer and should not be your primary source of protection because you have no control over your contract. Employer Group Long-Term Disability coverage typically replaces around 60% of base salary and may not include bonuses, or other forms of compensation. The way to remember the type is to picture a group of people getting this automatically from their employer. For many physicians, that means the coverage may not fully replace their income if you are production based. But more importantly, these plans typically are modified which means the contract will also offset, or not pay, if you are disabled in your specialty and able to work in any other job. The key is to look for the definition that states it is a true own occupation disability contract. This means that due to any illness or injury that keeps you from performing the material and substantial duties of your occupation you were engaged in at the time of claim, you are considered totally disabled. This is for your specialty, or subspecialty.

Amber Stitt [00:08:44]:
Plus these benefits will not offset if you receive any form of other income payments while on claim. Private coverage is yours and portable. Think freedom. Group coverage is there and stays with the group at that employer. More to come in episode 3 on this topic. An individual disability insurance policy can help fill those gaps for a physician and other medical professionals by protecting a larger portion of earnings and that is through private disability insurance. Individual coverage also offers a few characteristics physicians often value. Benefits can be tax free if premiums are paid with after tax dollars and the coverage follows you wherever your career takes you.

Amber Stitt [00:09:26]:
These plans are rate locked so you cannot have rate changes, or contract changes, which is different from group contracts. One of the biggest benefits is peace of mind. One of the most overlooked benefits of disability insurance is something less tangible, the ability to focus on your health. If someone becomes sick or injured, the last thing they need is the added stress of wondering how they will pay their bills. Disability insurance provides a financial safety net that allows someone to focus on recovery rather than worrying about immediate income loss. Many households do not have enough savings to cover even a few months of living expenses, and if income stops, disability insurance helps provide time to recover without that added financial pressure. Why Physicians Should Understand Disability Insurance Early. For physicians, understanding disability insurance early in your career can be extremely valuable. Your options are influenced by factors such as your age, gender, state of residence, your medical specialty, and most importantly, your health history.

Amber Stitt [00:10:31]:
Learning how this system works while you are still in training allows you to make thoughtful decisions before those variables change. Disability insurance may not be the most exciting topic in financial planning, but having control of your life is. And private disability insurance can give you that with the right contract. For physicians, medical professionals, and business owners, it protects something incredibly important: the income that supports your entire financial life. Your ability to earn an income is often your greatest financial asset. Protecting that asset helps preserve the plans you've worked so hard to build, from paying off student loans to supporting your family and investing in your future. The solution isn't to rush into a decision. It's to understand how disability insurance works early, so you can make informed choices while you still have the most flexibility.

Amber Stitt [00:11:22]:
Working with an independent broker can help you get there. Understanding how disability insurance works through that independent broker is the first step toward protecting that foundation. In the next episode of The Responsible Resident, we'll take a deeper look at a question many physicians ask, "Is employer disability insurance enough?" Many doctors assume the coverage offered through their hospital or health system fully protects their income. But when you look closely at how these plans are structured, there are important gaps physicians should understand. In our next episode, we'll break down why employer disability insurance does not fully protect your income and what physicians should know about those limitations. If this episode helped you think a little more clearly about your next step, that's the goal. 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!