Nurses usually don’t wake up in the morning and think, “Gosh, I need some disability insurance!”
Am I right?
If you are a nurse, you are busy. Being on your feet, helping doctors and patients with examinations, and treating patients with care is part of your livelihood. Nursing can definitely be a very tough job, but a rewarding one both emotionally and financially.
However, have you ever thought about what could happen if you could no longer do your job?
What would happen if you became sick, ill, injured, and disabled?
How would you pay your bills if you could not work?
Moreover, how your lack of income affects your family?
What will happen to your future, financially and emotionally?
These are serious questions that need answering. As we will discuss, a disability happens anytime.
A disability quickly affects your future plans and the lifestyle you worked so hard for.
- Why Do You Need Disability Insurance?
- How Disability Insurance Protects Your Wealth
- Elements Of A Strong Disability Insurance Policy
- How Underwriting Affects Your Plan
- The Best Disability Insurance Available
- What About The Offering From NSO?
- What If I Have A Policy Through My Employer?
- How Much Does All This Cost?
- Now You Know How To Protect Your Income And Wealth With Disability Insurance
Let’s jump in and discuss the #1 reason why nurses need disability insurance
Why Nurses Need Disability Insurance
Disability insurance is, simply, a type of insurance that pays you a dollar benefit if you can’t work due to illness or injury. The benefit is a percentage of the salary or income you make (more on that in a minute).
Do you need disability insurance?
Many nurses tell me, “no”, (more on that in a minute) but if you:
Make money, and
You use that money to pay your mortgage, groceries, and other needs, and
If you and your family would be in a tough financial situation if you could not work, because of an injury or illness, then:
It is really that simple.
Essentially, if you will struggle to pay the bills upon an illness or injury, you probably need disability insurance.
3 Reasons Nurses Need Disability Insurance
There are really 3 reasons why nurses need disability insurance. We’ve talked about the first 2 ad nauseum in many other articles.
Here are the first 2:
- A disability happens way more than you think – this is true. Government stats report that a 30-year-old today has a 1 in 3 to 1 in 4 chance of experiencing a disability greater than 90 days.
Remember that anything injury or illness-related can be a disability if it prevents you from doing your job as a nurse. It’s not just “wheelchair-related” disabilities. A disability for a nurse could be depression, COVID-19, MS, a severe injury, and on and on…
- A disability can last a long time. There are stats stating that the average disability is 3 years. Maybe. Personally, I think that information is a bit flawed as it probably includes people who don’t want to go back to work. The claims departments I speak with tell me their average claims are around 18 months.
As a nurse, you probably see this every day – people who are in disability situations.
Regardless, can you survive financially without receiving a paycheck or income for 1, 2, or 3 years and more?
Think hard about that. This brings us to our #1 reason why nurses need disability insurance.
Here’s The #1 Reason: More Important People Rely On You
Your patients are very important. There is also a group of people who are more important. Who can be more important than my patients, you think? They pay my income.
True. They do, but they don’t love you as your family loves you. By far, if you have a family, your spouse and children rely on you more than you think. They love you more than anything.
If you are disabled without disability insurance, there will be tough questions that need answering and tough decisions need to be made.
Would you and your family be able to continue your standard of living without your income? If not, what is “plan B”?
Would your spouse have to work or work more? He or she would have to. How?
Would you need to sell your home to make ends meet? (Truthfully, I had a person call me about this. Her husband got disabled and was the breadwinner. With no money coming in, their mortgage was at risk. Sadly, no. It was too late. This is why disability insurance is way more important for “mortgage protection” than life insurance.)
I describe disability as the destroyer of dreams. Your future and family dreams could be destroyed. They don’t have to, though. With disability insurance, you have peace of mind knowing that you have a plan – and income – in place should the unexpected happen.
How Disability Insurance Protects Nurses’ Income And Wealth
People always ask me how disability insurance will protect their income and, equally important, their wealth.
Here’s how. First, let’s dive into some statistics.
According to the Bureau of Labor Statistics, nurses earn, on average, about $83,000 gross annually. Let’s average that to $6,917 monthly.
What if you were disabled for 2 years (24 months)? What would happen financially?
Well, you would lose $166,000 of gross wages over that 2-year period (24 X $6,917).
Where would that money come from to pay $166,000 over those 2 years?
This is why I asked all those questions at the beginning of the article. In order to replace $166,000, would your spouse have to work more? If so, what gives? (The kids, the house…something has to.)
Now, disability insurance isn’t designed to replace all of your gross salary. It’ll replace about 60% of it. Why? For one thing, you aren’t paying tax on that disability benefit.
So, disability insurance will help pay for the mortgage, groceries, etc. However, what people don’t realize is that it has a huge, positive impact on protecting your wealth.
Well, people tell me they will raid their retirement accounts if faced with a disability. That don’t understand the financial consequences.
Doing so will have a huge, negative impact. Let’s illustrate that next.
Here Is How Nurses Protect Their Wealth With Disability Insurance
OK, first let’s assume you saved enough. Let’s also say you are a female nurse, age 40, and make $100,000 gross or $60,000 after taxes and deductions. You have $75,000 saved through your 401k, and you contribute $500 each month to your 401k. Retirement for you is age 65.
You are suddenly disabled. However, you don’t have disability insurance.
So, gone is your monthly 401k contribution. But, you aren’t worried about that. Your main worry is money. You just need money to help pay the bills.
You turn to your retirement savings and request distributions from your 401k. These distributions are taxable and subject to a penalty.
Let’s compare how your 401k would look with and without a disability.
Assuming an 8% return, without a disability, you would have accumulated about $1,100,000 at age 65.
But, because you are disabled, you exhaust the $75,000. It’s gone. You are still disabled. Additionally, your spouse works more, and family helps with the kids. You take out a home equity loan to pay for things, too. Thankfully, the mortgage is paid. While you are grateful, however, it is a financial strain and stressful. It makes you worried.
After 2 years, you are back at work. You’ve used $120,000 ($5,000 per month) between your home equity loan and 401k. However, you are 2 years older. Moreover, you don’t have retirement savings anymore, so you start over.
You contribute $500 each month. At age 65, you have about $433,000!
Your wealth dropped because the $75,000 saved could not compound for another 25 years. Because it was gone.
Don’t forget that you have the home equity loan to pay back.
What do you think about this?
What Happens If You Had Disability Insurance?
If you had disability insurance, you would have been much better off.
Sure, you would not have contributed $500 each month for 2 years ($12,000).
However, your investment still would have compounded those 2 years.
What, you exclaim!
Yes, and remember…this is a 2-year disability. What if your disability was 5 years or more?
This is how disability insurance protects your wealth!
Elements Of A Strong Disability Insurance Policy For Registered Nurses
Hopefully, we have made a great case showing that nurses need disability insurance.
I’m ready to enroll now, John, you say.
Sounds great. First, though, let’s discuss the characteristics that make a strong policy.
You see, there are many policies that offer limited benefits.
You don’t want to mess with those policies. The worst thing that could happen is you file a claim, expect a payout, and don’t receive one.
So, let’s first discuss the basic elements needed in any disability insurance policy for nurses. We will then discuss additional insurance options and riders.
Disability Insurance Policy Basics
I speak to nurses about disability insurance every day. There are 2 major sources of confusion that these professionals hear from elsewhere. These confusing components are essentially “the basics”, but if you get these wrong, you could be in for a surprise when it comes time to make a claim.
The first is the waiting period or elimination period. In terms of disability insurance, it is not the period of time before your policy is in effect. That is correct for other types of insurance, but not for disability insurance.
The elimination period is the length of time – a waiting period – that elapse before you are eligible for disability benefits. It happens upon claim. For example, a 90-day elimination period means your benefit period begins after 90 days of disability. On the 91st day, you are eligible for benefits. Typically, you receive your first benefit 30 days after that.
This means you need to have adequate savings to carry you and your family until benefits begin.
The second is the benefit period. The benefit period starts when you are eligible for benefits and lasts until the end of the benefit period or if you return back to work, whichever occurs first. It is not the maximum timeframe that your policy exists. As long as you pay the premiums, you will have the policy until age 65 or 66 – at retirement age.
Typically, the maximum benefit period for nurses is to age 67, but that depends on what type of nurse you are and the carrier.
Remember, the average disability claim is 35 months (internet stats) or the 18-24 months (from claims departments). So, even a 5-year benefit period works.
3 Provisions That Make A Formidable Plan For Nurses
If you spend premiums on a disability insurance policy, you want to make sure you get paid.
In my opinion, there are 3 disability insurance provisions that make a formidable plan.
I call these “non”negotiables. Let’s discuss these now.
#1 The Definition Matters
The definition of disability matters. You generally want some type of “own occupation” definition. However, I will explain more later.
There are two “degrees” of the own occupation definition: “true” own occupation and the “modified” own occupation definition. (There are other own occupation definitions, but these are the two most common.)
Here’s what they each mean. The “true” own-occupation definition means:
- you will receive a disability benefit based on your inability to do your job (as a nurse), AND
- also work simultaneously in another job for an earned income (should you decide you can).
In other words, you can continue to work in another occupation while receiving disability benefits for the inability to do your job as a nurse.
So, if you can’t use your hands, but you can greet people at Walmart, you will receive disability benefits in addition to your earnings as a Walmart greeter.
Modified own occupation is a bit different. You will receive a disability benefit based on your inability to do your job. However, you can’t work in another job. So, if you worked as a Walmart greeter, you won’t receive disability benefits under the modified own occupation definition. This is a good definition, too.
Be Aware Of The Any Occupation Definition
Finally, there is the stringent “any” occupation definition. This means, simply, if you can work in any gainful occupation (for which you are reasonably suited, considering your education, training, and experience), the carrier denies your benefits. So, under this definition, you won’t receive a disability benefit based on your education and experience as a nurse because the insurance carrier says you can work as a Walmart greeter.
Do you want this definition? As a nurse, probably not.
However, let’s say you have a long-term problem with your left wrist or arm because of work repetition. Can you do another job? If you can, then the any occupation won’t pay a benefit.
Personally, I always like to play it safe and have clients’ policies contain the “modified” own occupation definition.
#2 Residual / Partial Disability Benefits
This rider will pay a benefit if you return to work in your occupation, and you experience an income loss of 20% or more compared to your pre-disability income. Usually, the amount of disability income you receive is a percentage of your total monthly disability benefit. For example, let’s say you return to work and experience a 40% income loss. If your monthly disability benefit is $4,000, you will receive $1,600 ($4,000 X 40%).
Why would you need this rider? Most disability insurance policies allow partial disability benefits upon total disability first. This means if you are only partially disabled (i.e. you can still work but not full-time), you will not receive any benefits until you have met the carrier’s requirements for total disability first. But, you are partially disabled, not totally disabled. Without this rider, you won’t receive any partial disability benefits until you have met the total disability requirements first. Ugh!
Typically, this rider circumvents the total disability requirement and allow you to receive benefits immediately (after you satisfy the elimination period).
Here is a very easy example. You lose feeling in your wrists and fingers. The doctor says you need to rest and limits your work to 2 days per week. Without this rider – or a plan that has a partial benefit without a total disability requirement first – you would not receive any disability benefits because you are still working.
#3 Guaranteed Purchase Option
This option allows you to obtain the coverage you need now with the option to purchase additional coverage in the future without evidence of good health. You just need to show your salary (through a W-2 or your tax return).
In other words, you can buy more disability insurance as your salary grows (subject to carrier income and coverage limits) with no underwriting?
How great is that?
You can develop type 2 diabetes, develop RA, or get hurt. Despite those diagnoses, you can still buy more disability insurance because of no underwriting.
You generally can purchase additional coverage every 2 years up to age 55. (You do not need to wait 2 years if you had a life change, defined as a marriage the death of a spouse, divorce or birth or adoption of a child; Instead within 3 months of a life change, you may purchase additional coverage.)
Optional Disability Insurance Riders For Nurses
After these 3 provisions, you can customize your policy any way you want. There are many disability insurance riders available.
Like purchasing options in a new car, purchasing riders increases the cost of your policy.
That doesn’t mean it is a bad thing. You just want to make sure it fits your needs.
You can add optional riders at an additional cost to your policy to best fit your needs and budget. Some popular rider options for social workers include:
- Retroactive injury benefit
- Mental/nervous benefit for the duration of the benefit period
- Catastrophic disability benefit
Contact us or review our article on disability insurance riders. We will be happy to answer any questions you have.
Disability Insurance Underwriting For Nurses
It’s important to understand how disability insurance carriers underwrite your application.
Oh, I just went through the life insurance process. I know how it works, you say.
Great. But, disability insurance underwriting is completely different.
Carriers aren’t insuring your mortality. They are insuring your morbidity. In other words, the risk of a disabling accident or illness and paying you a percentage of your salary.
So, carriers look at the following attributes in an application.
When it comes to underwriting, carriers look at your:
- Income / Salary
- Other hazards and lifestyle situations
Age is a factor. The older you are, the more expensive the policy – all things being equal, of course. This is why you want to start your policy as soon as possible.
Obviously, your health matters. If you have a chronic illness or had a severe injury in the past, likely that illness or injury won’t be covered. Additionally, carriers can limit benefits based on any health conditions. For example, if you take any anxiety or depression medication, nearly all the carriers limit the waiting period to a minimum of 90 days.
As we mentioned before, carriers insure a percentage of your salary. This percentage is usually 60% of your gross salary.
Your occupation matters as well. All the disability insurance carriers classify your occupational disability risk. The classification table is usually a 1 to a 5 (or 6 with some carriers). An occupation with a class 1 is most risky while an occupation with a class 5 is least. For example, carriers classify a construction laborer at a 1 and an accountant at a 5.
Usually, carriers classify the nurse occupation at a class 2 or class 3. Sometimes, higher classifications are available. We work with one that classifies at a class 5, depending on your duties. Other types of nurses, like LPNs and CNAs, are classified lower.
Finally, carriers also consider other situations and lifestyle choices like hazardous hobbies. Do you like to rock climb or use marijuana? If so, that hobby will be excluded from your policy.
What Do The Carriers Do With The Information?
The underwriters review all this information and make an approval decision or not. They routinely look up your medical background in the MIB, prescription drug databases, driving records, tax records, etc.
As we discussed, certain situations may limit benefits, benefit periods, and/or waiting periods. They may also increase premiums to compensate for an increased disability risk. For example, if you use marijuana, some carriers will rate your policy (i.e. increase the premiums).
Nevertheless, if your benefits are modified in any way, it still makes sense to purchase the policy. We discuss more in our disability underwriting guide.
The Best Disability Insurance For Nurses
You are probably wondering who we like to work with. First, we work with many disability insurance carriers. So, we are sure we can find one that meets your needs and budget.
Second, the “best” is only the best one that fits your needs, situation, and budget. We don’t try to fit a square peg in a round hole with such important insurance coverage.
However, not all carriers insure nurses the same. Look at this snapshot out of an underwriting guide. They classify the registered nurse occupation at a class 2 if you are not an office or supervising RN.
The carriers we like insure registered nurses at a minimum class 3. Moreover, there is no limitation of benefits.
Additionally, the carriers we like all have the:
- Own-occupation definition
- Partial disability benefits
- Guaranteed purchase options
And, additional options as we discussed. Moreover, the plans we like offer value-added benefits like retraining programs.
If you are Christian, we also work with a carrier dedicated to practicing Christians.
Contact us if you would like to learn more. We are happy to chat with you. Since we work with so many disability insurance carriers, I ams sure we can find a carrier that meets your needs and budget.
Be careful of blindly applying online without knowing what you are getting yourself into. Buying directly online, currently, is the wrong way to buy disability insurance. Why? As we illustrated earlier, there are so many moving parts with disability insurance. How do you know what you are applying for is right for you? If you apply online without the aid of a reputable broker or agent, you don’t.
What About The NSO Disability Insurance?
John, I love the article so far. I am just going to apply with the NSO, you say.
I say, hold up until you read this.
If you belong to your state’s nurses association, you have access to many benefits including disability insurance through the Nurses Services Organization (NSO).
The NSO is an organization that offers insurance for nurses. It is managed by Affinity Insurance Services which is the third-party administrator. New York Life underwrites the disability insurance plan.
In our opinion, the insurance program is neither good nor bad. New York Life underwrites many association insurance programs.
This plan is essentially an association disability insurance plan. Nearly all disability insurance policies offered through associations are on a group basis. This isn’t a bad thing. It keeps your cost low.
However, association disability insurance programs tend to be “plain vanilla”, which means they are simple and basic in nature and may not meet your specific needs. Additionally, because of the simplicity, they tend to be lower in cost as well.
Benefits of the NSO disability insurance include:
- Low monthly rates – we’ll get into why. The rates are cheap.
- Easy application
- Replacement of up to 70% of your average monthly earnings
- Own occupation definition
- Pre-existing conditions are covered (if eligible)
There are some disadvantages, though, which bear some detail. We discuss those next.
Disadvantages Of The NSO Disability Insurance Plan
As we mentioned, association disability insurance plans tend to be plain vanilla. They have to be to keep costs low and appease to the members. A low-cost plan doesn’t mean it is right for you.
Below are some disadvantages of the NSO disability insurance plan:
Integrates with social security – one reason why the plan is cheap is that it integrates with social security or any other benefits you receive. Although the plan allows 70% replacement of your income, likely any disability benefits you receive are reduced by other insurance benefits.
It appears no “true” partial disability benefit – in our opinion, this is a significant exclusion. Many long-term disabilities start out as partial. That is, you can work, but not full-time. Think about this scenario. Your doctor diagnoses you with multiple sclerosis. She advises you to slow down and focus on treatments for the next year. This is a partial disability. You can still work – and plan to – but just not full-time. Under the NSO disability insurance, it appears you would not receive any benefits because you need to be totally disabled first.
Doesn’t appear own occupation as a true own occupation. This isn’t a significant disadvantage as the NSO disability insurance has an own occupation definition, just not true. True Own Occupation definition allows you to work in another occupation while receiving disability insurance benefits. Moreover, their own occupation definition lasts only 24 months. If you are still disabled after that, the plan reverts to the “any” occupation definition.
Only a 5-year benefit period is available. The plans we use allow up to age 67, if you prefer that.
Is the NSO disability insurance plan right for you? Maybe. We think there are some disadvantages that outweigh the benefits and cost savings.
What If Nurses Have Disability Insurance Through Work?
John, great article, you say. I have disability insurance through work, and I am all set.
Most people do. However, you are unlikely “all set”.
If your employer of union pays for your disability insurance, that benefit is taxable to you.
Additionally, if you pay the premium yourself with pre-tax money (i.e. through payroll), that benefit is also taxable to you.
What does this mean? It means if you make a claim and receive benefits. You receive a tax statement for the benefits paid to you. You then include the benefit amounts on your tax return. Therefore, it is a taxable benefit.
Ugh! My HR person never told me this!
Most don’t. Thankfully, adding an individual plan makes up for this shortfall.
Moreover, it doesn’t cost much.
Here’s an example.
Let’s say you make $80,000 as an RN. You are a 35 year-old woman. You have disability insurance through your employer, in which they pay 100% of the premiums.
That means you have a $4,000 monthly benefit, which is 100% taxable to you if you receive a benefit.
The carrier allows an additional $1,350 monthly benefit. It contains a 90-day waiting period and to age 67 benefit period.
It also contains the own occupation definition along with a guaranteed purchase option and partial benefits.
The cost is about $82 per month or under $3.00 per day.
If she wanted a 5-year benefit period, the cost is about $52 per month.
In either case, you can see the extra protection is affordable.
The Premium Cost Of Disability Insurance For Nurses
After all of this, how much does disability insurance cost for nurses? That’s the $1,000,000 question. Well, the premiums you pay are a function of everything we discussed above.
However, disability insurance is not incredibly expensive.
The premium is based on everything we discussed in the underwriting section.
However, the cost of disability insurance has risen thanks impart to inflation and the current economic environment (as I write this).
Depending on your situation, disability insurance costs between $5.00 and $8.00 per day. Sometimes it is more; sometimes it is less.
If you have group disability insurance and want to add on (recommended), then it will cost $1 to $3 per day, give or take.
The cost is about the cost of lunch or a cup of coffee at your favorite coffee shop.
If you can afford a cup of coffee, or lunch, you can certainly afford disability insurance.
For example, a nurse, female, age 35, making $80,000 gross salary could have a $4,000 monthly benefit, own-occupation definition policy up to age 67 for around $240 per month or a little over $8.00 per day.
But, a supplement plan could cost $50 to $80 per month.
Think about what you spend each day. You can definitely afford disability insurance.
If you feel $8.00 is too much, we can adjust your plan to meet your budget. Some coverage is better than none! For example, a 5-year benefit period works and costs much less.
Remember the wealth example I showed above. It clearly shows how disability protects a nurse’s wealth.
Now You Know How Disability Insurance Protects Nurses’ Income And Wealth
We hope now you have a solid idea of why nurses need disability insurance. We went through what it is, important elements, costs, and underwriting. Additionally, we showed how no disability insurance coverage negatively impacts your wealth!
Confused? Don’t feel that way. We’re here to help educate you and protect your income and future. Don’t know where to start? Use this disability insurance needs analysis worksheet. Follow the instructions; it is rather easy to fill out (we at My Family Life Insurance try to make understanding insurance easy).
Next, feel free to reach out to us for our assistance or a quote. Or, use the form below. We only work for you, your family, and your best interests only. We have helped many nurses secure the right disability insurance for their specific situation, giving them and their families peace of mind.