When Should Doctors Get Life and Disability Insurance?

— Protect yourself from financial catastrophe

MedpageToday
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I give a lot of talks to groups of doctors, especially newer doctors such as residents and fellows. Two of the most common questions I get after these talks are what kind of insurance they should get and when they should get it. I've covered here all the types of insurance that doctors actually need. But I want to address when doctors should get life and disability insurance.

As a primer, let's start with a refresher on 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 pass away.

Therefore, if you have anyone depending on your income, such as a spouse and/or kids, you need life insurance. The type you need is "term" life insurance. This is life insurance that covers you over a time period or term. If you die within that time period, the policy will pay out. The policy ends after the term is over.

Disability Insurance

Own-occupation disability insurance for doctors is coverage that you pay into so that if you become disabled and cannot work anymore, the policy will pay you enough money such that you can keep living your life. It is much more expensive than life insurance, but is completely necessary. Disability is a financial catastrophe. You need to protect yourself against it.

The real question is how much disability insurance you need. To find out, calculate your monthly expenses, minus tax (because the policy payout is generally tax free). Also, try to calculate a budget that is more of a shoestring budget. You need your policy to be able to cover at least this amount of monthly payment.

Where to Get Life and Disability Insurance?

The good news is that the term life insurance landscape is pretty easy to navigate. It is basically a commodity, so you just price out the options from various reputable companies and choose the cheapest one with the terms you want.

Disability insurance is a bit trickier. For both life and disability insurance – but especially for disability insurance -- I recommend using an independent broker who works with many companies to help you. You can find great independent brokers. Remember, you don't pay 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 get you the best product.

Now, let's get to the big question at hand...

When Should Doctors Get Life and Disability Insurance?

Life insurance

Again, life insurance is like a commodity. You pick out how much coverage you want and pay the corresponding premium based on your current health.

I'd recommend getting 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 kids.

Don't make my mistake. I didn't get life insurance until the end of my residency, after I had started my financial comeback. However, for 2 years prior, my wife and kids depended on my income. If I passed away, they would have been in serious trouble. It was irresponsible of me.

So, once you have dependents, suck it up and get it, even if you are a resident. (Note that some residencies 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 $2,005 annually.

Some people ask whether they should get life insurance earlier, even without dependents, in case their health declines and premiums rise in the future. In this case, I say no. Wait until you actually need it.

Disability insurance

Get ready, because there is much more nuance with disability insurance.

First, disability insurance is more expensive. My own-occupation disability insurance policy costs $5,000 annually. This is more than double my life insurance policy. This is because it's much more likely that you will become disabled in your career than pass away unexpectedly. However, this cost is harder to cover for residents. Fewer attending physicians have a good excuse not to cover this important cost, because pretty much all early- to mid-career doctors, 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 are already an attending, get it today. If you are a trainee, you 100% should get it before you graduate training, because you will get a slight discount compared with if you wait until you begin your job.

However, many trainees balk at such an expense while still in training. Plus, pretty much all training programs will have a disability policy that covers trainees. The problem with these resident policies is twofold. First, they are generally not own-occupation. Second, they are usually for a small monthly amount without the option for future increase. So again, you need additional coverage.

The other problem is that the older you get, even just by a few years from the beginning to the end of your training, the more health problems crop up. And that means higher premiums for your disability policy.

Take me for an example. I got my policy right before I finished training. This was a stroke of financial luck, since I learned about the importance of this coverage right before I graduated. However, during the time I didn't have coverage, I was diagnosed with carrying the HLA-B27 gene linked to higher risk of ankylosing spondylitis. Even though I have never experienced this condition, my premium was ultimately higher as a result.

Lastly, if you already have a condition(s) that would make it difficult to get coverage, consider whether your employer offers guaranteed standard issue disability insurance (GSI). If this applies to you, speak with your human resources department for more details.

There is a saving grace for trainees that strikes a balance between getting coverage early and managing the cost of premiums. Some disability companies are offering coverage to residents with limited benefits for a very modest premium. However, they offer the option for future increases in coverage when your income rises as an attending.

This is a win-win for both the doctors getting disability insurance as well as the insurance companies.

Looking back, this is what I would have done. Ultimately, the point here is that you need to appropriately protect yourself from financial catastrophe.

Life and disability insurance are the two most important ways to do this for doctors. Knowing this 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 Prudent Plastic Surgeon.