What to watch for in disability insurance policy language

If you're shopping for disability insurance – or reviewing your existing coverage – be sure you carefully read your proposed/current policy's definition of disability. Insurance experts caution that such language could make a difference in whether a policy would pay a claimant.

“Maybe the key issue we see happening right now…is the definition of disability,” said Jeff Brunken, president of the MGIS Companies, a Salt Lake City-based provider of physician insurance and services products. “For physicians this is important because that’s what determines if the insurance policy will pay a claim. That’s what determines if you’re considered disabled under the policy.”

Brunken said some disability policies are "all-or-nothing" propositions. Such policies won’t pay out unless the doctor is completely disabled – meaning he or she can’t perform any type of medicine, not just his or her specialty.

Often, a doctor may become partially disabled – a surgeon hurts her hand, for example. She can still see patients but not perform surgery. If the surgeon wasn’t attentive to the policy’s definition of disabled, Brunken said, she may find herself facing a dramatic loss of income because the policy will consider her only partially disabled.

Having a disability insurance policy with a definition of disability tied to her specialty “saved my life,” said a former internist who asked that her name be withheld because, even after being disabled for more than a decade, she is uncomfortable with the label and the stigma some people attach to the term.

The former internist became disabled by chronic, severe depression following a nervous breakdown after one of her an employees embezzled money from her practice. She was unable to recover all of the money owed and closed the practice.

“I went to bed and didn’t get up for 18 months, basically,” she said. Over time, she realized she wouldn’t be able to return to practicing as an internist. Because her policy’s definition of disability was tied to her specific specialty, she could practice a different specialty and still get disability payments – she just can’t return to practicing as an internist. She hasn’t returned to practicing medicine but still receives a guaranteed, fixed income because of her disability policy.

“It was totally unexpected that I would ever need disability,” she said. “I’m so glad I made those [disability insurance] payments every month…You do have to be careful about what you’re buying.”

Another aspect of disability insurance to which doctors should pay careful attention is the policy’s definition of income, said Mark Dayton, vice president of marketing at the MGIS Companies.

With more physicians joining group practices or becoming employed or who are in new structures, such as accountable care organizations, they often find their incomes at least partially made up of incentive pay. If their disability insurance policies define their benefit in relation to base pay, physicians with an income including incentive pay will find themselves exposed.

“You’ve got to be really careful that you understand how that policy defines your income,” Dayton said. “We’ve seen people get really burned where they maybe move into a new situation where there’s a lot more incentive pay yet their policy defines it as their base pay.”

“You don’t want a disability policy calculating your benefit off of 20 percent of your income,” added Brunken. “That happens commonly.”