Insurance is something you buy that you hope you will never need to use. The best case scenario with insurance is that you pay for nothing. Which is odd when you think about it. This is also why a lot of doctors question if and how much insurance they actually need.
When I started buying all the different types of insurance that I needed, it amazed me at how much it all added up to be. And, like I said above, these are payments I’m making and hopefully never needing. It can feel like putting money down the drain.
But it’s not. And it’s really important to understand why doctors do need insurance as well as exactly what types they do (and don’t need).
And that is what we are talking about in this post.
Why doctors need insurance
As a doctor, you future ability to practice and make money is your greatest asset. So you need to protect it.
It’s really as simple as that.
Having the correct insurance in place to protect you and your family in the case of financial catastrophe is extremely important.
Unfortunately, there are a ton of salespeople out there who are willing to sell you a lot of insurance that you do not need and that can actually hamper your wealth building quite a bit.
Every insurance product that doctors actually should have protects their future ability to practice and make money in one way or another.
In fact, I think this is the best barometer and test to determine if you need an insurance product or not: Does this insurance protect my future ability to practice and make money?
If yes, you probably need it. If no, you likely don’t.
With this is mind, let’s review the types of insurance that doctors absolutely do need
Term Life 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.
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.
To apply, you will need your basic demographic information, a list of all medications, as well as a list of all doctors you currently see. Have this information ready to expediate the process.
Once you apply, you will need to supply some information and generally take a physical. Once this is done, they will grant you the policy.
My life insurance is through Prudential.
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.
How Insurance Brokers Get Paid & Why It Matters
I am going to give you the 20% of information regarding disability insurance that you need to know to get 80% of the result. Your independent broker will be able to assist you with the rest of the details. Knowing this information will also allow you to check your broker and make sure they are working in your best interest. Or use one of my recommended brokers and I can personally vouch that they will do so.
Ok, disability insurance
This 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.
Once you know how much insurance you need, decide on the delay after disability before the insurance policy pays out. You should have an emergency fund of 3-6 months expenses so you can reduce your premium by choosing a longer delay period. Next, you need to figure out what terms and riders you want on the policy.
First, your policy NEEDS to be own-occupation. This means that if you are a surgeon and get hurt and can’t perform the duties of your old job anymore, the policy still pays you. It still pays you even if you are able to work as an intensivist, let’s say. This is important.
You also ideally will get a policy that is non-cancelable. This means that as long as you pay your premium, they cannot cancel your policy or raise your rates. Less ideal options are guaranteed renewable (they have to renew the policy but can raise the rates if they do so for all customers in your demographic category) and conditionally renewable (they can cancel the policy anytime they like).
In terms of riders, you will generally want to include:
- Cost of living adjustment rider to keep your policy up with inflation
- Partial disability rider to cover some of your monthly costs if you become disabled, can work, but cannot make the same amount of money as before your disability
- A future increase option that allows you to increase the amount of coverage in the future for a commensurate increase in premium price
It is also possible to stack disability insurance policies with more than one company to increase your monthly payout. But, this is really only necessary if your monthly expenses are really that high.
Similar to life insurance, to apply, you will need your basic demographic information, a list of all medications, as well as a list of all doctors you currently see. Have this information ready to expediate the process. Once you apply, you will need to supply some information and generally take a physical. Once this is done, they will grant you the policy.
My disability insurance is through Ameritas.
A quick note on group disability insurance
Also, I will note that some jobs offer group disability insurance. This is usually insurance that your employer has negotiated with a company that is not individualized to you.
Some can be good, some not so good.
You can supplement group with individual disability insurance. This is largely dependent on the product that your job offers. Speak with your HR person to get details before speaking with a broker to get the most objective advice possible.
Malpractice insurance is expensive but a bit less complicated than disability insurance.
Basically, you want to make sure that your malpractice insurance carries high enough coverage. Generally, you want $1 million/$3 million in coverage. This means that the insurance policy will pay $1 million for each claim and up to $3 million in each policy year. The cost of suits can add up but having a decision made above these limits is also rare.
There are also two types of malpractice insurance
Claims based malpractice insurance determines who is responsible for paying based on when the claim was made. For example, if you worked at one hospital with one malpractice insurance in 2015 and now and you work in a different hospital and are sued by a patient from 2015, the old policy would not cover it. That is because they base things on when the claim is made. If you have this type of policy, you need to buy tail coverage for when you leave the job to cover claims made after you leave. It is expensive but not worth the risk not to have it.
Occurrence based coverage is based on when the incident in question occurred. Therefore, in the above scenario, the old malpractice insurance would cover the claim since the occurrence was in 2015 when you had that insurance.
Occurrence based in obviously better.
Many group policies will be available based on your job. Again, talk to your HR rep to get all of the details about the policy. If they are not covering you at all or adequately enough, you will need to buy malpractice insurance on the market.
My malpractice insurance is through my employer.
Thankfully, most people are used to paying home and auto insurance and do so without thinking. This is obviously necessary.
Go to an independent broker and price out many companies. Compare their prices and what they cover to determine what is best for you.
In general, it is worthwhile to have high deductibles on your plan to lower the premiums. You are a high income earner and will have an emergency fund for unexpected things like a car accident.
Umbrella insurance is insurance that covers any and every claim that could go against you and exceed your policy limits. It’s like an umbrella in that way.
So, let’s say that your car insurance has a bodily damage limit of $250,000 like mine. And you get in an accident and someone sues you for injuries for $500,000. If there was a successful judgement against me, my umbrella insurance would cover the extra $250,000.
Same with a malpractice or home-based suit that exceeds your limits. It’s actually kind of rare to have a suit against you, even a malpractice suit as a physician, that exceeds your policy limits.
But umbrella insurance is so cheap that I recommend getting it. For instance, I have a $5 million umbrella policy for $395/year. Umbrella insurance usually can be obtained from the same insurance company as your home and auto policy.
As a note, umbrella insurance does not cover doctors above and beyond any malpractice decision in general. There are work based umbrella policies but these are rare and generally much for expensive.
Watch Jordan’s Masterclass Webinar on The 12 Steps to Financial Freedom for Physicians here!
Types of insurance that doctors do NOT need
The above list is essentially the only insurance products that doctors should have. It may seem like a lot but they all serve a very important purpose in protecting you and your family from financial calamity. They also all protect your future ability to work and make money.
So, anything not on the above list is obviously insurance that doctors do not need. But, I will still list them out here because they come up so often.
Whole life insurance
This is the mother of all insurance products that doctors do not need but are all too often sold.
Whole life insurance is a mixed investment and insurance product. It is a high commission product for insurance salespeople so it gets peddle really heavily to physicians.
The problem is that, especially in the early years of the policy, the premiums paid are not even worth the cash benefit for the policy. And while it is true that in later years, this relationship will inverse, the product buyer is almost always better off if they just invested that money wisely in broadly diversified, low cost index funds.
Bottom line. You don’t need ahold life insurance.
Any disability insurance that is not own occupation
Non-own occupation disability insurance will be cheaper. And that is for a reason. Because if you do get hurt and can’t work in your usual job, but can work in another job, you won’t get payments from the policy.
And that defeats the whole purpose.
Any insurance policy on a product, good, or service that you should be able to replace with cash
As a doctor and high income earner, you should have an emergency fund of 3-6 months of expenses. This will allow you to cover any (obviously) emergencies that pop up. Because they always do.
This includes broken items like appliances, HVAC, car tires, cell phones, and on and on.
So, you don’t need insurance policies on these items. By definition, insurance companies make money from selling their insurance policies. Or they wouldn’t be in business. If you can easily replace a broken item with cash, don’t get insurance for it.
In contract, it would be pretty hard for most people, even doctors, to just buy a new home or car if something happened. That’s why we do need car and home insurance.
But we don’t need insurance on our microwave…
When can doctors get rid of their insurance policies?
For life and disability insurance, the answer is easy – whenever you reach financial freedom! At this point, you will be self funding your retirement. If something happens to you and you can’t work or pass away, you and your loved ones will still be financially free.
For malpractice insurance, that’s another easy one. You don’t need it when you are done practicing.
Auto is always needed based on law and home insurance is always a good idea, even when financially free.
Umbrella insurance may not always be needed but it’s so cheap, I will probably be keeping mine even after financial freedom is reached.
Want to learn more about insurance for physicians? Check out these posts!
- What If Doctor Strange Had Disability Insurance?
- Life Insurance Advice for Physicians
- Creating an Asset Protection Plan for Real Estate
- Is An Accelerated Benefit Rider on Term Life Insurance Right for You?
What do you think? What insurance do you have? Is something missing from my list? Let me know in the comments below!