How can high-income doctors get enough disability insurance?

September 13, 2022

4 min reading


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Between lost income and increased medical care costs, disabling injuries sustained by high-earning physicians can cause financial devastation that far exceeds that of their untimely death.

However, many physicians earning $600,000 or more per year will find it extremely challenging to secure adequate disability insurance protection for themselves, their practices, and their families.


Source: David B. Mandell, JD, MBA and Michael Lewellen

Employer-provided group coverage

There is no doubt that disability is a common enough risk to justify coverage. According to the CDC, 26% of US adults have a disability. In 2019, less than 20% of these adults were employed. In 2015, the CDC found that 36% of all US adults’ health care spending was related to disabilities.

David B. Mandell

David B. Mandell

Michael Lewellen

Michael Lewellen

Many doctors who work for universities and large corporations assume that the group coverage provided by their employer is sufficient to cover their needs. Unfortunately, group disability often limits either the term of coverage or the amount of benefits paid — ultimately providing high-income physicians with only a small portion of their annual compensation. Additionally, since group coverage is most often an employer-paid benefit, money received during disability is generally taxed as income to the insured. Finally, employer or group disability coverage can be terminated at any time, for any reason—not an extremely safe position for a physician to be in.

For these reasons, most doctors, especially those with high incomes, should secure their own disability insurance policies. Typically, this means having up to three types of disability insurance: traditional, white collar, and business. Here’s a look at each of these policies to better understand why each is necessary.

Traditional disability

Many physicians purchase a traditional disability insurance policy either during their residency or once they enter practice. These are individual policies offered by traditional carriers, and they are designed so that a payment can be made as soon as a disability renders a physician unable to work his “profession.” This is a critical distinction because it means that even if the doctor can work in another profession outside of the practice of medicine, he will still receive a benefit. When properly designed, these policies have residual or partial disability riders, a cost-of-living rider to protect against inflation, and the ability to increase income limits in the future.

Typically, these individual policies are better paid with after-tax dollars, which allows their payments to be taken by the doctor tax-free.

One hurdle that many high-income physicians run into with their traditional disability coverage is that most carriers cap benefits at around $20,000 per month, meaning they won’t provide any benefits above and beyond that. , even if this is much lower than the doctor’s income. Physicians who are also covered by an employer-sponsored group policy may receive a higher cumulative benefit limit, but the total benefit will likely still fall below their current working income. In these cases, a white collar policy may be necessary.

White Collar Disability

When a physician’s income exceeds the limits of traditional and group coverage, the next policy to explore is a white collar disability insurance policy. These policies have higher limits and make payments that “fill the gap” left by traditional and group policy payments. Benefits from white collar policies can range from an additional $5,000 to $500,000 per month. As with a properly designed traditional policy, white collar policies may specify that a physician is entitled to the benefit since he or she cannot work in his or her profession.

As with a traditional individual policy, white-collar policies are better paid with after-tax dollars, which allows their payments to be taken by the doctor tax-free.

White collar policy benefit periods typically last 5 to 10 years, which is not as long as a traditional policy will pay benefits. This means that a white-collar policy can replace the income needed to help a doctor pay off mortgages, student loans and other debts, but the shorter policy term can seriously affect a doctor’s ability to high income to save for retirement. Retirement insurance protection is a disability coverage option that provides contributions to a trust that the insured cannot access until age 59.5, which can help replace physician contributions to a 401(k) plan or other qualified plan.

Business insurance policies

Physicians with their own practices or partnerships may worry about how they would find the money to buy out a disabled partner who is no longer able to work. For them, a disability purchase policy provides an easy way to get those funds after a partner experiences an unexpected disability. Business disability policies can also be designed to pay overhead for a practice that is unable to meet revenue requirements after a physician becomes disabled. To help maintain services and obtain replacements when a provider becomes disabled, practices can consider key person disability policies so that employees and patients can rely on the provider’s open attitude. practice, no matter what.

Because the tax treatment of premiums and payments varies between policies, it is essential to work with experienced insurance and tax advisors who can help you select the right policy for your medical practice.


Balancing different insurance policy needs and managing their costs is a delicate process. Physicians, especially those with high incomes, need to understand not only the plethora of types of disability policies available to them, but also the many ways to structure these policies to provide adequate protection at affordable premiums.


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David B. Mandell, JD, MBA, is an attorney and founder of the wealth management firm OJM Group, where Michael Lewellen is a partner and director of financial planning. You should seek professional tax and legal advice before implementing any strategies discussed here. Mandell and Lewellen can be reached at [email protected] or 877-656-4362.

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