Cost of Living Adjustment & Benefit Increase Rider: Crucial Disability Insurance Coverage Elements for Military Physicians
(DI4MDs.com is my preferred partner for disability insurance. They got me mine! Check out their article below. It is not a classic paid post you’ll see on some other blogs, but they have donated in support of the blog.)
Your ability to practice your specialty represents millions in career earnings and the military’s disability insurance benefits do not protect your total income. Your window to lock in critical protection for your total compensation is widest right now. Your annual military medical exam, while valuable, works against you when trying to medically qualify for individual disability insurance.
Leverage DI4MDs and our significant experience designing custom policies for our military physicians to build a policy that best protects your hard-earned income. We build plans that get the most out of your individual disability coverage now, by adding cost-of-living protection, and grow with your income in the future with a benefit increase rider.
Why military physicians should strongly consider a Cost-of-Living Adjustment (COLA) Rider
As a military resident physician, your initial individual disability insurance benefit maximum is $3,000 a month. Since this initial monthly benefit is lower, and it can take time for your income to qualify you for a higher monthly benefit, a COLA rider helps protect your purchasing power if a disability occurs before you’re earning enough to qualify for a higher benefit.
What COLA does
A COLA rider automatically increases your monthly disability benefit by 3%, compounded annually, starting after 12 months of disability. The longer you’re out on a disability claim, the more your disability benefit grows. Here’s what that looks like over time, using $3,000 as the monthly benefit at time of disability claim:
| Years on claim | Monthly benefit amounts with COLA Rider |
| Start | $3,000 |
| 5 years | ~$3,478 |
| 10 years | ~$4,032 |
| 15 years | ~$4,674 |
| 20 years | ~$5,418 |
Why a Benefit Increase Rider (BIR) is a must have feature
Because your initial individual disability insurance benefit is capped at $3,000 a month during your training and your income will not allow you to qualify for more until you become an attending and / or moonlight, you want to be able to increase your monthly benefit later regardless of changes in health / medical records in the interim. Our clients need flexibility to maximize their coverage as their income grows throughout their career, especially post-separation. That’s why the Benefit Increase Rider (BIR) is a must for military physicians. In short, a BIR protects your ability to increase your monthly benefit in the future up to $30,000 per month
- without new medical review
- and using the same discounts you locked in for your initial monthly benefit
Military physicians often moonlight with private practices for civilian pay. This represents a large amount of uninsured income that typically grows over time. Non-base pay can account for most of a military physicians’ income while they’re on active duty, and certainly post-separation. This income is often overlooked and requires income protection. Here is an example from one of our military physicians:
| Base Pay | $7,881 per month |
| Incentive Pay and Bonus Pay | $5,583 per month |
| Total Military Pay | $11,117 per month |
| Civilian Pay | $5,000 per month |
| Total Compensation | $18,464 per month |
| Uninsured income Individual Supplemental Disability Insurance Monthly Benefit | $10,583 per month $6,800 per month |
In this example the military only protects our physician’s military base income. This physician initially had only 40% of her income protected. Additionally, this benefit is taxable as income, further reducing this physician’s total coverage. Disability protection should replace at least 60% of income.
The solution for this under-insurance risk lies in designing custom individual plans that grow with folks’ income over time.
What The Benefit Increase Rider (BIR) does
The BIR allows you to apply for additional monthly benefit as you earn more income over the course of your career without additional medical approvals. With a benefit increase rider, you are able to maximize your coverage (up to $30,000 per month subject to income qualification) at regular intervals up to age 55. There is also a special window you can use to apply for more coverage if your income has increased 30% or more within the last 90 days, such as when you complete training or military service.
Post-separation, military physicians often qualify for substantially more individual income protection. Most importantly a BIR secures coverage increases with no additional medical underwriting. Typically, insurance companies review signed employment contracts, W2, paystubs, or 1099 documentation, and VA disability benefits to determine the amount of coverage increase they offer.
Why these riders are so critical for military physicians
- You can’t buy more base coverage – Since $3,000/month is the maximum benefit you are eligible to start with during residency as a military physician, the COLA rider is one of the few ways to grow the real value of your benefit without medical review during this stage of your career. As your income grows and you separate from the military, you can secure the ability to increase your monthly benefit before a disability with the BIR without new medical review
- You’re early in a long career – If a disability strikes during your residency / fellowship, you could be out on claim for decades. Compounding has more time to work in your favor. You will earn more as you grow in your career. Lock in the ability to increase your coverage in the future now when you start your individual disability insurance policy.
- Military service limits your starting benefit – Protecting your modest starting benefits from inflation matters more when there’s less cushion to begin with. Safeguard future earnings and ensure you can increase your coverage over time.
The Cost
COLA – Just $12-17 a month (about $144 – $204 / year) for this valuable income protection.*
* Based on a 30-year-old male outside CA, using all medical specialties
BIR – no cost to include on your policy. Any cost is quoted later when you exercise the option to increase coverage and is dependent on the additional monthly benefit qualified for and age at time you utilize the BIR.
Important things to know about COLA + BIRs
COLA provides the strongest value during a long-term disability, so physicians under age 50 should strongly consider adding it to their policy, it doesn’t do anything if you do not become disabled or have a claim less than 12 months. But, given how low the premium is relative to what’s being protected, it’s a small price to pay for meaningful long-term security when you are starting coverage early in your career and cannot qualify for more than $3,000 / month in income protection.
BIR only comes into play if you plan on earning more than your military physician salary and plan on separating and earning civilian pay. Many military physicians do at least some moonlighting and will ultimately practice outside of the military. For these physicians adding the BIR is massively impactful.
Have questions about structuring your disability coverage? Reach out — we’re happy to walk through your options.
Andy G. Borgia CLU
D.K. Unger
Jenna Borgia Karamanos
858-523-7518