How doctors can protect their income in case of illness

Going From Treating Patients to Becoming the Patient: How to Protect Your Income

You’ve likely invested over 10 years of your life and over $200,000 into your education on your path to becoming a physician—a career that requires your mind and body to be in sound working order. Breaking a couple fingers on a soccer pitch or getting a concussion on an ATV may be moderate inconveniences to the average person, but to a doctor, the wrong injury at the wrong time can end a career. 

This is naturally a daily concern for doctors and medical professionals, and can weigh heavily on you when you should most be enjoying yourself. Would you have the right protection if you suddenly became the patient? Our provincial health plan may help with some medical bills, but how will you replace your income? 

Fortunately, with the right insurance, physicians can breathe easy knowing that their income is protected. The key is to understand your insurance options and ensure you’re set up for success. 

How common are career-ending injuries and diseases, really?

Incurring a disability is more common than one may think:

• One in three working-age Canadians will become disabled and unable to work before 65
• One in seven Canadians have a disability

And the most common disabilities may be eerily familiar to you:

• 31% – Mental Disorders (depression, substance abuse, dementia)
• 16%: Cancers
• 12%: Cardiovascular diseases
• 8%: Injuries
• 5%: Musculoskeletal diseases

Doctors are not immune to any of these, and in fact, may be more susceptible to some.

Your greatest asset is the ability to earn an income. If we assume you will make an annual income of $400,000 all the way until age 65, here’s the amount you’d lose if you became disabled at various ages (assuming a 2.5% increase per year):

Age of disability and lifetime earnings lost: 

Age / Lifetime Earnings [potential loss income]

25: $26,961,021

30: 21,971,283

35: $17,561,081

40: $13,663,106

45: $10,217,863

50: $7,172,771

What is Disability and Critical Illness Insurance?

Disability Insurance provides a monthly income to you while you’re unable to earn an income due to an illness, disease or injury. The coverage can last for a short or long period of time and most plans will pay you to age 65 if you’re unable to work. 

The monthly payments can start as early as 30 days after a disability and will continue to pay you until you’re able to return to work.

Critical Illness provides a lump-sum one-time payment 30 days after diagnosis of a critical illness (cancer, heart attack, stroke, etc). The payment is received regardless if you take time off from work or not to focus on your recovery. The proceeds can be used for anything (providing additional income, paying down debt, seeking treatment out of country, etc)

Difference between DI and CI:

Both disability and critical illness contracts can offer the income protection physicians need, however they are very different.

Disability pays you on a monthly basis for the duration of your disability. Once you return to work or you’re no longer disabled, your payments are decreased or stopped altogether. A critical illness policy pays a 1x lump-sum upfront amount whether you are working or not.

Many professionals continue to work throughout a recent diagnosis or disability. If this is the case, there are circumstances where you would not be eligible to collect disability payments but you would collect critical illness benefits.

For a young professional, it’s important to maintain a good disability plan, as there are circumstances where if you incur a disability early in your career (ex: at 35 years old), there could be 30 years of monthly payments ahead of you.

There are also other key differences such as waiting periods (amount of time you need to wait to collect payment), conditions covered and other key items which need to be considered when evaluating what coverage works best for your unique circumstances.

As you can see, it’s crucial that you understand what insurance policies you have in place and are confident you’ve got the right type for your situation and concerns. Here’s our top considerations on reviewing and selecting your insurance policies as a physician.

Top 10 things to know about disability and critical Illness Insurance for physicians:

1. Providers – Who are the players? There’s no shortage of insurance providers in Canada. However, for physicians, most disability and critical illness plans are placed with either RBC, Canada Life, Manulife or the OMA (through SunLife)

2. Benefit Amounts – OK…so how much do I get? For disability coverage, monthly benefit amounts can vary depending on one’s need. We often see monthly benefit amounts ranging from $7,000 – $25,000 / month based on the personal and family needs and income of the physician. For critical illness, a lump-sum amount is determined which often ranges from $100,000 to $1,000,000. 

3. Benefit Period – How long do I get paid for? For disability insurance, plans for physicians will usually pay until age 65. Therefore, there could be over 30 years of payments that could be at risk. Critical illness insurance is a 1x lump sum payment, therefore a very different structure than disability coverage. 

4. Elimination Period – How long do I have to wait to get paid? For disability insurance this can range from 30 days to 2 years. The physician chooses this, with the cost of a 30 day wait period being significantly more expensive than a plan with a two-year elimination period. We often find that a 90-day elimination period is cost effective while providing you income shortly after a disability. For critical illness coverage, the payment is made 30 days after diagnosis as long as one is still alive.   

5. Independent Coverage (RBC, Canada Life, Manulife) or the OMA? – Who should I go with? 

Guaranteed Rates: The OMA’s rates are not guaranteed. With any association plan, features and premiums can change at any time without the consent of the insured. In addition to association wide increases, premiums often increase in “age bands” as you get older. For disability coverage, independent providers’ rates are locked in and guaranteed to age 65. 

Discounts: Both independent providers and the OMA will both offer discounts for medical students and recent graduates. The OMA discounts are generally valid for while you’re a student or resident and two years after graduating. The independent providers offer up to 30% discounts which are locked in for the duration of the contract (ex: to age 65). 

Portability: With many association plans (OMA), you need to be a member of the association to qualify for the coverage. When you own your own policy through an independent provider, your policy is portable no matter if you’re working in Ontario, out of province or another country.

6. Premiums – How much is this going to cost me and for how long? Payments are often made monthly or annually on disability and critical illness policies. The cost is determined by your age, sex, benefit amount and your smoking status. The younger you are when you acquire coverage, the less expensive your rates will be with all other items being equal. You can reduce or cancel your policy at any time without any fees or penalties. Policies acquired which are owned by the physician through an independent provider (RBC, Canada Life, Manulife) offer guaranteed locked-in rates (i.e. they cannot increase rates on you). Policies offered through an association plan (ex: OMA) have the right to increase rates at any time. This was evidenced in September 1, 2021 where the OMA increased rates on many disability plans by over 25%.

7. Tax Treatment – Do I pay tax on the benefit? It depends!  We know that doesn’t provide a great amount of clarity. Many physicians are incorporated and the answer generally depends if the physician owns and pays for the policy personally or through their corporation. However, we generally recommend that disability policies be owned personally and paid for with personal dollars, which makes the monthly benefit 100% tax-free at a personal level. A critical illness benefit is generally received tax-free to the policy owner (as long as the premium is not deducted for tax purposes). Every situation is unique and we recommend speaking with your accountant on your specific situation to determine the answer for your specific situation. 

8. Return of Premium – I can get my money back if I don’t use the policy? The short answer is YES and it can be a great forced savings plan. If you don’t incur a disability or get sick, your money can be refunded to you. For critical illness policies, there are options where 100% of your premiums can be refunded to you at any time after 15 years. On disability plans, there are options where 50% of the premiums are refunded to you if you do not become disabled. The OMA does not offer these programs, however in the past has offered premium refunds when premiums received have been in excess of claims paid. It’s important to note that since 2018, no refunds have been issued and in 2021, premiums were increased by over 20% for many members.

9. Riders & Options – What are the must haves? There are many options and riders to add to a core plan. The most common riders for physicians:

Disability coverage:

1. Own Occupation: Provides you with coverage if you are unable to practice in your specific profession / occupation, even if you begin working in a new field or career.
2. Future Increase Option: Will allow you to increase your coverage in the future without the need to provide evidence of good health even if your health has deteriorated. You will be required to prove that your income warrants additional coverage. This is one of the most important riders for medical students or early-stage physicians. 
3. Health Care Rider: Provides special disability coverage for those who have contact with bodily fluids or invasive procedures.
4. Residual Disability: If you return to work 50% of the time, this rider will provide coverage for the 50% of the time you cannot work. 
5. Inflation / Cost of Living: Provides protection for your purchasing power and the impact of inflation. Your monthly benefit would increase on an annual basis based on an established index that measures inflation.

Critical Illness coverage: 

1. Loss of Independent Existence: If one cannot perform by oneself, two activities of daily living (ex: bathing, dressing, toileting, feeding, etc)
2. Return of Premium: Upon death or at any time after 15 years, policy premiums are 100% refunded back to the insured. 

Critical Illness Options: 

10. Underwriting – OK, I know I need coverage, what medical and financial info do I need to provide? Depending on when you’re acquiring coverage there may or may not be the need to submit medical and/or financial evidence. If you’re a medical student, resident, fellow or graduate in your first year of practice, the underwriting process can be much easier with often very little or no evidence required. In addition to this, if you apply during these time periods, there are often 25 – 30% lifetime discounts on disability plans available to you. It’s advisable to take advantage of the limited underwriting requirements and lifetime discounts if you’re currently within one of the career stages above.  

Do I really need both disability and critical illness coverage? Although both policies can provide benefits for the same type of illness or disability, they are very different plans and differ based on the following terms:

• Illnesses covered 
• Benefit amounts
• One-time payment vs ongoing monthly payments

Determining the “Right” amount of coverage: This is usually one of the last questions asked when working with physicians. Quantifying the amount of coverage one needs is best done by completing an integrated financial plan. The IP360 process will examine your household income, lifestyle expenses, assets and debt. By examining your overall situation on an integrated 360 basis and not on a singular or silo-based approach, shortfalls of income and assets can be quantified based on your personal circumstances and family objectives. 

Real-life case study:

Over the past two years, we have witnessed a similar situation on two occurences: A client being diagnosed with cancer. It’s important to note that a cancer diagnosis can be a covered condition under both disability and critical illness policies, and yes you can collect on both. However, in both of these cases, the client continued to work through their treatment. Although they worked slightly less hours than they had previously worked, they were never “off work”. It’s important to remember that to collect on a disability plan, one must satisfy for the “elimination period” which is often 90 days to collect their first monthly benefit. Both of these clients continued to work through their treatment, therefore they did not meet the required elimination period, thus never collecting a monthly disability benefit. With critical illness coverage, as long as one is still alive 30 days post diagnosis, a lump sum one-time benefit is paid irrespective of if they continue to work or not. Therefore in this situation, they qualified for the lump-sum critical illness benefit and have not qualified for disability coverage.

Should I just get critical illness coverage then? It’s a fair question, but the short answer is no. As highlighted above, there’s too much at risk based on your income earning potential over a 20 – 30 year time period. Simply put, you cannot acquire a $15M critical illness policy and there are many situations where one would collect disability and not critical illness coverage (ex: an injury which left you unable to work). The general maximums for critical illness coverage are $1-2M, while disability plans can provide lifetime coverage for much greater amounts.

As illustrated above, there are many options and items to consider based on your unique circumstances. No two situations are the same and there is certainly not a “one size fits all” prescription to disability and critical illness insurance for physicians. Similar to “contraindications” in a medical setting, evaluating your individual needs is imperative to meet your financial health objectives.