Does Disability Insurance offered by Medical Schools to their Graduates Create a False Sense of Financial Security?

The majority of US medical schools provide their students with long term disability income coverage that provides a monthly benefit for claims occurring during school years AND guarantees the right to continue protection after graduation without having to be concerned about being denied coverage due to any underlying health history. 

This ability to secure coverage after graduation without having to satisfy any medical underwriting requirements could truly be a once-in-a-lifetime coverage opportunity for any medical students with current or pre-existing health conditions. Additionally, this coverage could be of interest to graduates without any health issues, as the pricing of this coverage is substantially lower than the contracts physicians typically secure during their practice years and are more likely to fit into the graduate’s budget during training. 

However, it is very important for graduating students to closely examine the terms of protection included in this portable coverage as the offerings from schools can vary greatly.  Depending on the insurance company the school chose to provide coverage during school years, the policy the graduates can obtain may include language that will severely limit or eliminate the policy’s benefit and cause someone in good health put off the decision to secure more comprehensive coverage, potentially leaving themselves unable to secure appropriate protection due to a future change in their health.  Here are several questions a graduate should investigate when considering this type of coverage. 

Can the coverage be canceled or modified in the future?

It’s important to evaluate if the coverage being offered to graduates provides an opportunity to obtain an individual “non-cancelable” policy either during training or when entering practice years. This type of contract guarantees the right to have coverage that can never be modified or taken away by the insurance carrier. 

If the graduate’s coverage is only provided through a “group trust” policy, the insurance carrier has the right to terminate the coverage,  modify the terms of protection or increase their pricing structure at any policy anniversary. This could leave a graduate financially exposed and require them to try to medically qualify for coverage and pay the higher rates that will be in effect at that time. 

Does the coverage include limitations for different types of claims? 

Unlike most individual policies, the coverage offered to graduating medical students can limit the payout for claims associated with specific medical conditions or outcomes to as little as one year. Currently, there are contracts being offered to graduates that will limit benefits for claims due to post-viral conditions, chronic fatigue, and muscular skeletal claims (which is one of the leading causes of disability). 

Is the policy’s benefit reduced or eliminated by an employer’s disability policy (during training or in practice)?

It’s important to evaluate if the coverage being offered, either during training or in practice, will include language that will offset the anticipated benefit by a future employer’s coverage. If the contract does include this offset language it typically occurs after the sum of disability benefits from all sources exceeds $5,000/month.  While the salaries earned by residents and fellows during training aren’t large enough to substantially impact their coverage, it’s very likely that the amount of protection provided by an employer during practice years will eliminate the opportunity to receive any benefit amount. 

How likely is it that the graduate will qualify to have their student loan payments reimbursed?

In many states, the coverage provided to medical students during their school years and after graduation will include an additional benefit to insure student loan obligations. These provisions can insure several hundred thousand of dollars of any payments that may need to be made during a disability. However, the terms of coverage can vary greatly and some contracts will only provide this additional benefit if the claimant is unable to work in any occupation and expected to never return to work at any time in their adult life. Other policies base this benefit on temporary claims that don’t prevent the graduate from continuing their training or employment. 

In summary, the coverage offered by medical schools to their students can be an invaluable opportunity for a graduating medical student with current or pre-existing health conditions and a low-cost solution for all graduates to improve their income protection during training and practice years. However the limitations, benefit offsets, and lack of permanence in some contracts can create a false sense of security and threaten the ability to secure more comprehensive and permanent coverage.