The physician’s guide to disability insurance

No one likes to talk about disability insurance. But as a physician, you know the realities and the dangers of a sudden accident or injury. After all, you’re the ones who help people in these situations recover. In this guide, we’ve demystified disability insurance for physicians in Canada. By the end of this guide, you will know what disability insurance is, the types of disability insurance, the costs associated with it, and how to choose the right plan for yourself. 

What is disability insurance? 

Disability insurance, sometimes known as income protection insurance, offers you protection against loss of income. It replaces a substantial amount of your paycheck if you become disabled. Most insurance companies replace 60 to 80 percent of your income, regardless of whether the loss of your earning ability was due to a sudden accident or a degenerative illness.

The disability insurance benefit is paid until you return to good health and can resume work or until the end of your disability period, whichever comes first. 

Do physicians need disability insurance?

Any physician who values their income and medical speciality should protect it with a comprehensive disability insurance plan. In our opinion, getting disability insurance when you are young and healthy, ideally at the beginning of your residency or just after that, is better than getting it later in life. Getting disability insurance after a health issue or injury can often be more complicated than if you get it preemptively. 

Types of disability insurance for physicians

There are two types of disability insurance—short-term disability insurance and long-term disability insurance. 

Short-term disability insurance (STD)

STD insurance covers the loss of income from a temporary health condition arising from a sickness or accident. The benefit payout can start as early as one to 14 days after submitting a claim and the coverage can last between six to 26 weeks. STD insurance is typically used for minor accidents and health issues such as a sports injury or back problems that might prevent you from being able to work for a few weeks. 

STD insurance is often used in conjunction with long-term disability insurance where STD insurance takes precedence—it provides coverage during the elimination period of an LTD insurance plan. 

Long-term disability insurance (LTD)

LTD insurance covers serious, more persistent health issues. The coverage usually begins right after STD insurance coverage ends and the coverage period can be between two to five years. Most LTD coverage continues till the insured physician reaches the age of 65. 

STD insurance is commonly used for serious cardiovascular and cerebrovascular issues, mental health trouble, serious accidental injuries, and more. 

What are the different definitions of disability?

Disability is defined in three ways:

1. Own occupation
2. Regular occupation
3. Any occupation

Own occupation

Own occupation policy protects you from a loss of income that occurs when you are unable to perform the duties of your specific profession. With an own occupation policy, you can continue to receive benefits even if you’re able to work in another capacity. 

Own occupation policy is the most ideal for physicians who have years of training to acquire the specific skill set for their profession. 

Regular occupation

A regular occupation policy works in a similar way to an own occupation policy—you will receive the disability benefit if you’re unable to work in your pre-injury occupation. However, if you choose to work in a different occupation your benefits will be reduced or stopped. 

Any occupation

With any occupation policy, the rules are quite strict. You will receive benefits as long as you are not capable of working in any occupation. Even if you’re not working but the insurance agency is not entirely convinced that you can’t perform any occupation, your benefits will be withdrawn. Because of how stringent the rules are under this type of policy, it has the cheapest premiums. 

Let’s understand this with an example.

Dr Mark is a neurosurgeon who, after a fall from the stairs, develops a hand tremor. Here’s how the different definitions of disability will affect him:

If Dr Mark has own occupation disability insurance policy, he will be entitled to the full benefit. Yes, it’s true that he can perform other duties apart from surgery, that he most likely will perform anyway! But he will still get the disability benefit because he is unable to perform the duties that he has specially trained for and earns a major part of his income from. 

With a regular occupation policy, Dr Mark will receive partial benefits or no benefits at all if he chooses to perform other duties apart from surgery. He can teach, change his speciality, or take on a more administrative role at his place of work—and in any of these situations, he might not get complete disability benefits.

Finally, with any occupation policy, Dr Mark would not receive benefits even if he would have lost his arms! The insurance company would have deemed him fit to perform other duties or take on another job altogether. In this type of policy, the benefit is only paid in the event of a debilitating disease or injury.

Disability insurance riders

Disability riders are actually life insurance riders— optional add-ons to your life insurance coverage. There are two key types of disability riders:

Disability Waiver Rider, which eliminates the need for premium payments should the policyholder acquire a permanent disability from an accident or illness.

Extreme Disability Rider, which provides access to a portion of one’s life insurance death benefit in cases of total permanent disability.

Read more about the differences between disability insurance and disability riders

Cost of disability insurance for physicians

Disability insurance generally costs about 1 percent to 3 percent of your annual salary. As of November 2023, the salary for general practitioners and family physicians in Canada was between $88,755 to $450,137 (Govt of Canada Job Bank). Let’s calculate what the cost of disability insurance would be based on these figures:

Know more about the best disability insurance companies in Canada

What factors affect the cost of disability insurance?

The cost of disability insurance depends on:

1. Your age 
2. Gender 
3. Income
4. Health condition
5. Smoking status 
6. Occupation

There are also certain variables that you choose while buying a disability insurance policy that affect the cost. These are:

• Benefit amount: This is the payout you receive when you claim disability benefits. The higher the payout, the higher the premiums. The payout depends on your income and occupation but is generally between 60 to 80 percent of your annual salary
• Waiting or elimination period: The time between the start of your disability and the benefit payment period is known as the waiting or elimination period. Most LTD insurance plans allow waiting periods between 30 to 365 days. The longer your waiting period, the lower the premiums
• Benefit period: This is the length of the term of your benefit, or how long you will receive the benefit payment. Common term lengths are 2 years, 5 years, or until age 65. The longer your chosen benefit period, the higher your premium
• Disability definition: The most important factor when determining the cost of the premiums, is the definition of disability (explained above)

Disability insurance for incorporated physicians 

If you’re an incorporated physician in Canada, you can buy a disability insurance plan through your corporation and get a monthly disability benefit in case the need arises. There are several different plans that insurers offer for corporations and that help cover different types of expenses. Some of the coverage that you can get as an incorporated physician is:

1. Business overhead expenses: With this type of disability insurance plan, you can use your benefit payout to pay for eligible business expenses while you are disabled 
2. Group disability plan: You can own a group disability plan and offer it to your employees
3. Fund a buy/sell agreement: In case you or your partner are disabled, you can use a disability payout to purchase shares from a disabled shareholder or partner 

Individual vs group disability insurance

It is possible that as a physician, you might get disability coverage from your place of work or from a medical association. Unlike other insurance products, disability insurance is coordinated. This means that your employer-offered benefits, association-offered insurance, and individual plans, all work in sync, so even if you buy more disability insurance it will not give you more coverage than what you’re eligible for overall. Insurance companies coordinate benefits with each other to make sure you are only paid out your maximum eligibility, so if you buy more than your income can justify you may be overpaying.

Here are the advantages and disadvantages of group disability benefits:

Advantages of group disability insurance

Disadvantages of group disability insurance

Read more about getting individual disability insurance even if you’re covered through work

Choosing the right disability insurance for physicians

Disability insurance is a crucial aspect of financial planning for physicians in Canada. But as we mentioned at the beginning of this guide, disability is not an easy conversation. Our licensed advisors will help you through the process of finding and choosing the right disability insurance for physicians in Canada. Schedule a call with us today!