Disability Insurance for Canadian Physicians

In a previous blog post (“Insurance for Canadian Physicians”), I had listed disability insurance as the single most important coverage you need after you finish your medical training. The same caveats apply as before, namely that I am not a certified financial planner or insurance expert, and that my opinions are based on experience and advice from colleagues. In this post, I will explain why I think disability insurance is vital, and explain the most useful ‘riders’ to the policies.

What is disability insurance? As a young and impressionable med student long ago, an insurance broker asked me, “If you had a machine in your basement that slowly printed out money every day, but had the potential to break down, would you want insurance on it?”. Their point was that especially early in your medical career, your biggest asset is the value of your ability to use your skills to work as a physician, referred to as “human capital”1. Later in your career, your biggest asset may be your practice, home, or investments, but this is not the case in most debt-laden new MD grads. Like most of my colleagues, I had no other marketable skills, which meant that I had only one potential income stream.
Disability insurance is a policy that provides monthly (generally tax-free) income while you are recovering from illness or an accident. According to an RBC Life Insurance 2019 report, mental health issues like stress, anxiety and depression was the leading cause of disability claims, with 1 in 6 individuals being younger than 402. The payments can be short- or long-term, for partial or total disability, and will kick in anywhere from 30 to 365 days after the illness, depending on the details of the policy3.

What is the cost? The cost of the premiums depends on your health status (e.g. age, medical conditions), specialty, the amount of monthly payment you would want and when you would get it if you were disabled, and the ‘riders’ you have selected. A ‘rider’ is a provision that adds benefits to the basic insurance policy to customize it for your situation and preferences, but cost extra4.

What riders should I get?

In my opinion, there are 3 riders that you want to add:
1. Own occupation: This allows you to switch to a new career path while continuing to receive the full benefits of your disability insurance. For example, a cardiac surgeon with a hand injury who can no longer operate may decide to pursue research and teaching at an academic centre. They would continue to receive their monthly benefit plus whatever they make from the university2. If you are a psychiatrist who doesn’t do procedures, this rider may not be worth paying extra for.
2. Guaranteed insurability/future income: When you first sign up for disability insurance, the insurance company will arrange history, physical and blood and urine testing; the healthier you are, the lower the cost of your premiums. This rider allows you to increase your coverage as your income rises later in your career (within limits), without having to re-do the health status assessment3. Since in general you are healthiest when you are younger, I think this is worth having.
3. Cost-of-living adjustment (COLA): When I was young, the price of a Big Mac at McDonald’s was 99 cents; prices for goods and services go up over time. The COLA rider increases your monthly benefit pay-out at the rate of inflation.

What do I need to decide about my policy?
The whole idea behind disability insurance is to let you sleep at night knowing that if you were to become disabled, you could take care of yourself and your dependents, keeping in mind that your expenses may go up depending on the nature of the illness. At the same time, you don’t want to waste money by paying too much in premiums and being ‘over insured’.

Here are the questions you need to be able to answer:
(a) How much would I need per month in benefit payment? This really depends on your lifestyle and number of dependents (i.e. a frugal person with no dependents vs extravagant person with 2 divorces and 6 children). To give you a rough idea, many new grads will select coverage that would pay $10-15K per month. Ideally, you would already have done the math to know how much you spend per month.
(b) How many years would I want to receive benefits? You can either pick a certain number of years, or up to a certain age. According to the Canadian Institute of Actuaries 2012, the average length of disability is 5.75 years (if it lasts longer than 90 days)2. Most physicians I know do not skimp on this, and select pay-outs until the age of 65 (a common retirement age) as opposed to a set number of years.
(c) How long can I last until the first payment? The ‘elimination period’ is a set number of days after your illness until you receive your first cheque. The shorter the period, the more expensive the premiums. Most MDs will select 90 days, as ideally you will have 90 days worth of expenses saved up in a rainy-day fund already. I hope this was a useful introduction to what I consider is the most important insurance you need as a new staff physician. Don’t be afraid to consult with mentors and colleagues, as well as an insurance professional to spend a little bit per month to buy some all-important peace of mind.

– Author: Dr. Krishna Sharma, Chief Medical Officer, Specialty Medical Partners.

1. Human capital definition: types, examples, and relationship to the economy. W Kenton 2023. https://www.investopedia.com/terms/h/humancapital.asp
2. The complete guide to disability insurance for Canadian physicians. A Phua. https://policyworkup.ca/disability-insurance-guide
3. Disability insurance for Canadian physicians: what you need to know. https://invested.mdm.ca/disability-insurance-for-canadian-physicians-what-you-need-to-know/
4. Rider: definition, how riders work, types, cost, and example. J Kagan 2021. https://www.investopedia.com/terms/r/rider/asp