I give many talks to physician groups, especially newer physicians such as residents and fellows. Two of the most common questions I get after these conversations are what type of insurance they should get and when they should get it. Here I have covered all the types of insurance that doctors actually need. But I want to talk about when doctors should get life and disability insurance.
To begin, let’s start by refreshing the purpose of life and disability insurance.
Life insurance
Life insurance is really important. Life insurance is a policy that will pay out to your loved ones (beneficiaries) if you die.
Therefore, if you have someone dependent on your income, such as a spouse and/or children, you need life insurance. The type you need is “term” life insurance. This is life insurance that covers you for a period of time or term. If you die within this time period, the policy will pay you out. The policy expires after the expiry of the term.
Disability insurance
Self-employed disability insurance for doctors is coverage that you pay for so that if you become disabled and can no longer work, the policy will pay you enough money so that you can continue living your life. It is much more expensive than life insurance, but it is absolutely necessary. Disability is a financial disaster. You have to protect yourself from it.
The real question is how much disability insurance do you need. To find out, calculate your monthly expenses minus taxes (since the policy payout is usually tax-free). Also, try to calculate a budget that is more of a limited budget. You need your policy to be able to cover at least this amount of the monthly payment.
Where to Get Life and Disability Insurance?
The good news is that the life insurance landscape is fairly easy to navigate. It’s essentially a commodity, so you simply evaluate the options from various reputable companies and choose the cheapest one with the terms you want.
Disability insurance is a bit more complicated. For both life insurance and disability insurance – but especially disability insurance – I recommend using an independent broker who works with many companies to help you. You can find great independent brokers. Remember, you are not paying extra for these brokers. They make their money from the companies whose products they use. By working with many companies (instead of one) in your best interest, they can provide you with the best product.
Now on to the big question…
When Should Doctors Get Life and Disability Insurance?
Life insurance
Again, life insurance is like a commodity. You choose how much coverage you want and pay the appropriate premium based on your current health.
I would recommend taking out life insurance right when you need it – meaning when you have people who depend on you (and your income), such as a spouse and/or children.
Don’t make my mistake. I didn’t get life insurance until the end of my stay after I started my financial comeback. But 2 years ago my wife and children depended on my income. If I died, they would be in serious trouble. It was irresponsible of me.
So once you have addicts, suck it up and get it, even if you’re a local. (Note that some residences will have a small life insurance policy for residents. This is not enough if you have dependents. You need additional coverage.) My life insurance for $3 million coverage costs $2005 per year.
Some people ask if they should get life insurance early, even without dependents, in case their health deteriorates and premiums rise in the future. In this case I say no. Wait until you really need it.
Disability insurance
Get ready because there are many more nuances to disability insurance.
First, disability insurance is more expensive. My self-employed disability insurance policy costs $5,000 a year. That’s more than twice my life insurance policy. This is because you are far more likely to become disabled in your career than to die unexpectedly. However, this cost is more difficult for residents to cover. Fewer attending physicians have a good excuse for not covering this important expense because nearly all early- to mid-career physicians, including trainees, are not yet financially free. They need to work and earn money to cover their expenses, so they need disability insurance right away (unlike life insurance).
So when should you get it?
My recommendation is to get it as early as possible. If you already attend, get it today. If you’re an intern, you 100% need to get it before you complete your training because you’ll get a small discount compared to waiting until you start work.
However, many trainees refrain from such expenditure while still in training. Plus, almost all training programs will have a disability policy that covers trainees. The problem with these residency policies is twofold. First, they are usually not a profession in their own right. Second, they are usually for a small monthly amount with no possibility of future increases. So again you need extra coverage.
The other problem is that the older you get, even just a few years from the start to the end of training, the more health problems appear. And that means higher premiums for your disability policy.
Take me for example. I got my policy right before I graduated. It was a stroke of financial luck, as I learned about the importance of this coverage right before I graduated. However, during my time without coverage, I was diagnosed as carrying HLA-B27 a gene associated with a higher risk of ankylosing spondylitis. Although I never experienced this condition, my premium ended up being higher as a result.
Finally, if you already have a condition(s) that would make it difficult to get coverage, consider whether your employer offers Guaranteed Standard Disability Insurance (GSI). If this applies to you, talk to your HR department for more details.
There is a saving grace for trainees that strikes a balance between getting coverage early and managing premium costs. Some disability companies offer coverage to residents with limited benefits for a very modest premium. However, they do offer an option for future increases in cover as your income rises as a visitor.
This is a win-win for both the doctors receiving disability insurance and the insurance companies.
In hindsight, that’s what I would have done. Ultimately, the point here is that you need to adequately protect yourself from financial disaster.
Life and disability insurance are the two most important ways to do this for doctors. Knowing that is one thing. But putting it into action is even more important.
Jordan Frey, MD, is a plastic surgeon at Erie County Medical Center in Buffalo, New York, and founder of The sensible plastic surgeon.