Why do I need insurance?

This is a common question among young physicians. It should be a question you ask yourself during residency or internship, but unfortunately, like many things it is of low priority during that time period. It is brushed off into the “I’ll get to it later” pile of things to do. I hope this article reaches more residents so that they will be aware of just how important insurance is for them.

***You don’t need life insurance if you don’t have a family and don’t ever plan to have a family. (But then again, life can change in the blink of an eye.)

***You don’t need disability insurance if you are independently wealthy and can afford to pay for your bills out of your own savings until you die. (But then why are you a doctor…? Your liability with that much money to your name is huge!)

The life insurance and disability insurance your employer may provide for you are pretty horrible and do not stay with you if you change jobs.

The majority of doctors will need their own Life Insurance and Disability Insurance, at the minimum. Umbrella insurance is something to consider a little later.

Life insurance and disability insurance will vary in price for the same person with the same risk factors based simply on their sex. Life insurance costs more for males because it is believed males are more likely to die younger and therefore, are more likely use their life insurance payout. The opposite is true for women, they are believed to be more likely to become disabled, and therefore, are more likely to use their disability insurance payout. It’s unclear whether the data backs up these beliefs, but that is the simple reality of the insurance market right now.

LIFE INSURANCE

You will almost certainly need life insurance, unless you have no family and no plans for a family, as mentioned above. I would venture to say it’s a necessity for any physician to have their own life insurance.

Here are the key words to know:

Term
Long-term (30 year)
Level Premium

Stay away from these words:

Whole
Convertible

Here is the number:

$2 million

Commentary:

Life insurance really isn’t all that difficult compared to Disability Insurance as there are fewer variables. The only thing that I think residents have problems understanding is the need for a $2 million policy. That is so much money! …right?

It’s actually not. Just to use round numbers, let’s assume Dr. Smith makes $200,000 a year gross and works for 30 years. That’s $6 million dollars over his/her lifetime. A $2 million policy is then more than reasonable. I would even venture to say that if you are the sole income provider in the household then it makes sense to have a $3 or even a $4 million policy. This becomes less important the longer you have been working, but in the unlikely event that you die during residency or fellowship, you will really want that policy in place so your family won’t be strained financially. You must also remember the massive opportunity cost you have from being in medical school for 4 years and then residency for 3-7 years.

A $2 million policy is more than reasonable.

TL;DR

Buy a $2 million dollar 30 year term, level premium policy from a well known company for as cheap as possible, by the end of residency at the latest. If you already have a family, you really need it during your intern year.

Any company with a long history is probably fine. Joe’s Inshurenz from a guy on the sidewalk probably isn’t reputable.

DISABILITY INSURANCE

You almost definitely need disability insurance, unless you are independently wealthy as mentioned above. You will want it as soon as possible, and ideally during your intern year. Yes, that early.

Here are the key words to know:

Non-cancelable
Guaranteed Renewal
Own Occupation (make sure this is specialty specific)
Future Increase Option (FIO)

Here is the number:

60-70% of your gross income (ie. if you make $200,000, you would receive $120,000 or $140,000 if you had to claim disability)
However, note that if you paid the premiums yourself (which you will if you have your own insurance), then this disability benefit is not taxable.

Commentary:

Not all disability insurances companies are made equally though. The most common ones which try to make their products more “physician specific” are Berkshire (Guardian), Principal, and MetLife.

(Update: From what I’ve heard, Berkshire (Guardian) is still very strong and the other players are still, Principal, Standard and MetLife. However, disability insurance continues to change with more companies trying to alter their “own occupation” definitions. Northwestern Mutual in particular doesn’t have a true own occupation definition. Buyer beware.)

The differences in their policies aren’t huge, but it really depends on how important certain things are to you. In my opinion, the biggest thing to look into is whether mental illness is covered. Also, I have heard that Principal offers better rates for females, but I can not confirm that personally.

Disability insurance is ridiculously expensive especially as a resident. However, you are paying for it because you can’t afford to take the risk. You have already invested too much time and money into becoming a doctor. Make sure that if you become disabled that you will be able to care for yourself financially at the minimum. You don’t want to be a burden to your loved ones.

TL;DR

Buy a non-cancelable, guaranteed renewable, own occupation (specialty specific) insurance policy with a future increase option by the end of residency at the latest. If you already have a family, you really need it during your intern year.

TL;DR²

Buy a $2 million dollar 30 year term, level premium policy from a well known company for as cheap as possible, by the end of residency at the latest.

Buy a non-cancelable, guaranteed renewable, own occupation (specialty specific) insurance policy with a future increase option by the end of residency at the latest.

If you already have a family, you really need the above during your intern year.

-Sensei

Agree? Disagree? Questions, Comments and Suggestions are welcome.

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