We’ve done a lot of education about the need for disability insurance for physicians on our communities, but after purchasing a disability insurance policy, it’s important to know when you need to increase or decrease your disability insurance benefit. Many physicians appropriately purchase a future benefit increase rider when they purchase their disability insurance. However, we often see questions in our physician communities about whether or not they should actually accept the increase in benefit (and the increase in premium) that they are offered when the insurance company offers it to them through their rider. Below, we’ll talk about how to approach this decision in a way that makes sense for your personal situation.
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Overview of the future benefit increase rider on a disability insurance policy
We’ll keep this brief, as we have a dedicated article on the future increase option disability insurance rider that you should read if you’re considering whether to add this. We strongly advocate that physicians get their disability insurance when they are still in training, when they have access to discounts and while they are young and hopefully healthy. That said, their salaries are also the lowest they’ll ever be at this time, and accordingly, the amount of disability insurance benefit they qualify for is often relatively low compared to their future salaries and the income they’re hoping to protect.
The future increase rider allows them to increase their disability insurance benefit to reflect increases in salary as their careers progress - without having to go through the medical underwriting policy again. This is important as underwriting becomes harder with age, and many physicians would end up not qualifying for disability insurance or having their premiums go up significantly if they had to purchase a whole new policy.
You can use this rider multiple times, though terms vary, so read the fine print, and when in doubt, contact the disability insurance agent that sold you the policy. The rider can be called various different names based on the company issuing it, but will usually contain some combination of some or all of the words ‘future,’ ‘increase,’ and ‘benefit.’
How do I know if I’m eligible to increase my disability benefit under this rider?
Every company has slightly different policies, but essentially you will submit your salary information periodically either annually when you are up for renewal and payment of your premium, or every 2-3 years. Some policies also allow you to utilize the option at other times such as if you drop or lose your employer disability insurance policy (as those can limit how much benefit you are eligible for in your personal policy), or after a qualifying life event.
If your salary has significantly increased, the company may reach out to offer you an increase in your monthly benefit that’s proportional to that increase. Note that you will have to proportionately pay more for that increase in disability insurance premium.
Should I accept the increase to my disability insurance benefit if I’ve been offered it?
The answer is that it depends on a few things, so don’t automatically just take it if it’s offered to you. Also remember that you don’t have to take the entire increase [internal link]. While the temptation may be to just make it simple because you could always use more benefit, we don’t think anybody should over insure themselves. At the end of the day, accepting an increase also means paying more premium, which is money that could be instead invested and grow your net worth.
In the calculations below, remember that assuming that you have your own independent policy that you pay in post tax dollars, you will not pay taxes on the benefit you receive, so keep that in mind when comparing it to your current salary, which you do pay taxes on.
Here are some questions to ask yourself as you approach the decision:
How much benefit do I currently have, and is it enough to cover my expenses if something were to happen to my ability to earn money as a physician?
If the only benefit you have is the amount you secured during training (typically $5000ish), chances are now that you’re qualifying for an increase, you’ve grown into a bigger lifestyle or your family may have grown. If your monthly expenses exceed the amount of the benefit, it’s probably a good idea to accept an increase, assuming you don’t have significant savings.
However, if you’ve increased your benefit before, or if you secured your disability insurance after graduating training, chances are you have a decent sized policy, and that you’ve put some money in the bank and investments by now. Again, ask yourself, if you were to become disabled today, if your disability benefit would, in conjunction with your accumulated assets, allow you to maintain your lifestyle.
If you aren’t sure what your ideal disability benefit insurance benefit would be because you just accepted the max they gave you in training, read this article on how much disability insurance benefit you need as a physician.
If you still need to save for retirement, add the amount that you need to save every month to secure your retirement to your monthly expenses to these numbers. Read how much money you need to retire if you’re not sure what your retirement number is.
How comfortable would I be living on the budget that my current disability insurance allows me to live on?
There’s getting by and then there’s being comfortable. While we don’t think that you should pay for enough benefit to allow you to actually inflate your lifestyle if you were to become disabled (that’s just a waste of money), we do feel you really have worked too hard to be forced to make significant lifestyle downgrades if you were to be disabled. If you find yourself saying, ‘Well, we’d just take less vacation,’ or ‘We’d sell this house and downgrade,” or “We’d pull the kids out of private school,” when you’re looking at your current benefit, you should probably consider increasing it. You’ll have enough change in your life when you’re disabled without the added stress of figuring out finances and other significant changes to your life.
How much money have you saved and invested since you bought the policy?
As we alluded to in a prior section, as you progress throughout your career, you’re going to have more and more money in the bank (or investments). This is also money that can be leveraged if necessary in the event of disability, as well as which can continue growing in the background.
Keep in mind that you definitely don’t want to chip away at these assets at an early age if it’ll threaten your retirement savings, so make sure that your benefit allows you to continue to save in addition to just paying expenses if you haven’t hit ‘coast FIRE’ yet - the point at which you just need to pay for ongoing expenses but that no more money needs to be contributed to retirement.
If, on the other hand, you’ve achieved financial independence and could safely start withdrawing from savings while remaining secure through retirement, you probably don’t need to increase your benefit.
Are you at a point in your life where your lifestyle and expenses have stabilized, or do you anticipate further increases in spending?
This is very important to keep in mind. At early stages of your career, you may still be inflating your lifestyle to the level that you’ve worked hard to achieve, you may anticipate rises in expenses as your kids approach college age or otherwise, or you may still be building your family.
For example, if you know your housing expenses are going to increase because you still haven’t bought the forever home, you want to factor that into the amount you need monthly when calculating how much disability benefit you need.
Similarly, if you are still building your practice and see your income increasing in the future, you’ll want to make sure you don’t lose your ability to increase your benefit later if your lifestyle changes.
TLDR: If you think that your expenses are going to increase past what they are now, consider at least accepting the minimum increase so that you don’t lose the ability to increase your benefit later (more about this below).
Similarly, are you at a point where you see your expenses decreasing in the future?
Let’s say you have paid off your student loans or you have paid off your mortgage (congrats if you’ve done either btw!), you may actually have seen your monthly expenses decrease since you last bought or increased your disability insurance. In this case, it may not make any sense to increase your benefit, even though your salary has gone up, because your expenses have gone down in a way that you anticipate staying down.
In fact, particularly if you’re closer towards financial independence, you may even be at the point where it makes sense to decrease your disability insurance coverage benefit.
Do I have to accept the whole offer for an increase in benefit and premium?
You will usually have the option of accepting the maximum amount that was offered to you or accepting a percentage of the amount that they offered you. Most insurance companies do insist that you accept at least 50% of the amount of benefit increase that they determined you were eligible for.
What happens if I decline to accept the increase?
Again, each company is different, but for many, If you don’t accept any of the increase and you do this repeatedly, they may say that the rider will be removed from your policy. It will usually state in the letter with the offer what the terms are, so that you know if you’re in danger of losing the rider, but if you aren’t sure, contact your disability insurance agent to clarify.
Regardless, your original policy will remain in effect even if you don’t accept the increase or if you let the rider drop off.
Conclusion
The decision to accept or reject the disability insurance benefit increase offered to you by your insurance company through your automatic increase rider is one that should be approached with intention. You shouldn’t overinsure yourself and pay premium for coverage that you don’t need, but you also don’t want to be in a situation where you have to downgrade your lifestyle that you’ve worked so hard for if you do become disabled. Generally speaking, physicians at the beginning of their careers do tend to utilize their increase option, whereas the closer you get to financial independence and retirement, the more it makes sense to rely on your savings over paying large amounts of disability insurance premium for insurance that you don’t need.
Additional disability insurance resources for doctors
Explore our related articles and resources for disability insurance:
As always, you can also reach out within our online physician community from support from other physicians.