I give a lot of talks to groups of doctors, especially young doctors. And especially residents and fellows. Two of the most common questions that I nearly always get after these talks is 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 now when doctors should get life and disability insurance.
What do life & disability insurance do?
As a primer, let’s start with a refresher on the purpose of life and disability insurance.
To start, life insurance is really important. Life insurance is insurance that will pay out to your loved ones (beneficiaries) if you pass away.
Therefore, if you have anyone depending on your income like a spouse and/or kids among other possible dependents, you need life insurance.
And the type of ice insurance 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.
Own occupation disability insurance for doctors is insurance that you pay 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.
But how much disability insurance do you need? To find this out, calculate your monthly expense, minus tax because the policy payout is tax free generally. Also, try to calculate a budget that is a more shoestring budget. You need your policy to be able to cover at least this amount of monthly payment.
Where should doctors get life & 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.
I recommend using an independent broker that works with many companies to help you. You can find great independent brokers that I have vetted here.
Disability insurance is a bit trickier. I definitely would recommend using one of my recommended independent brokers to help you with this. 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.
When should doctors get life & disability insurance?
And with all of this fresh in our minds, let’s get to the question at hand!
We will start here with life insurance since it’s a bit more straight forward. 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.
So, you really can get life insurance whenever you need it. And you only need it when you have people who depend on you (and your income) such as a spouse and/or kids.
Ultimately, my advice is that you should get life insurance right when you need it. Whether you gain dependents in residency or as an attending, that is the moment you should get life insurance.
Don’t make my mistake. (Or any of my other top 11 mistakes.) I did not get life insurance until the end of my residency after I had started my financial comeback. However, for two years before I actually got life insurance, 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, when you need it, suck it up and get it, even if you are a resident. (And 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. Even if you need a low rate doctors’ loan to make this payment, it is worth it.
The last point I will make about this is that some people will ask if they should get life insurance earlier on even without dependents in case their health declines and premiums rise of them in the future. In this case, I say no. Wait until you actually need it to get it.
Get ready because there is of course more nuance with disability insurance.
First, disability insurance is more expensive. My own occupation disability insurance policy costs $5,000 annually. More than double my life insurance policy. But again, that is because it is more important. 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. (There is no excuse for an attending physician to not be able to cover this important cost.)
Second, pretty much all early to mid career doctors including trainees need disability insurance. Because they are not yet financially free. They need to work and earn money to cover their expenses. Therefore, unlike disability insurance, all doctors pretty much always need disability insurance right away.
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 receive a slight discount compared to 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 an ability 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 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 stuff right before I graduated. However, during the time I didn’t have coverage, I was diagnosed as carrying the HLA B27 gene with higher risk of ankylosing spondylitis. Even though I have never experienced this, my premium was ultimately higher as a result.
Threading the needle
There is a pretty good option 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 allow the ability 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. If you are looking for this option, I recommend consulting with one of our vetted independent insurance brokers.
Starting with the first step
Ultimately, the point here is that you need to appropriately protect yourself from financial catastrophe.
Life and stability 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. And now you know how to assess your situation and determine when you need to obtain these important policies!
This is always the first step. But after that, there is more. And I go through all of the next steps in my webinar on The 12 Steps to Financial Freedom for Physicians that you can watch for free here!
What do you think? When did you get life and disability insurance? Do you wish you got it sooner? Or waited longer? Let me know in the comments below!