It’s no secret your time in residency or during a fellowship is intense. The sleepless nights, the long shifts, the constant inundation of information – I’m sure you don’t need too many reminders.
And for many of you, this is also a time of major decision making for your personal life. You’re reaching an age where you could be contemplating marriage, buying a home, picking a city to call home, maybe even starting a family. There are a number of major life moments you could be faced with right now.
Residency is also a time to start getting serious with your finances. You may be on a rice and beans budget right now, but in a few years you could literally be making quadruple what you’re currently earning. There are many steps you can take now to set yourself up for financial success, but one of the best things you can do during residency is to purchase long-term disability insurance.
Seems rather easy right? You think you can take advantage of your hospital’s group insurance policy. Or if you really want something specific, perhaps you’re wondering if you can call on the same person who handles your car insurance. Nope, not exactly.
It’s time to put some thought into the decision to take on a personal policy while you’re a resident, and we want to help you make the best decision possible.
1. You are Your Best Asset
Let’s start with the very first reason you need to purchase long-term disability insurance during residency. You are your number one asset. You’ve invested years upon years in your education and training.
Not only have you given an enormous amount of time and energy, but you’ve paid for this as well. Yes, you probably have a mountain of student debt to show for this investment too. But if you have a proper policy in place, it’ll ensure you can meet your monthly obligations should something happen to your ability to earn an income.
In your medical profession, you’ve undoubtedly seen numerous accidents and illnesses. Some could have been prevented, others are just “wrong place at the wrong time” scenarios. As you’ve clearly seen, there’s really no warning system in place when it comes to triggering a disability.
You never know what can happen from one day to the next. As a physician, it’s easy to focus on the care of your patients, but you need to take time to make sure you’re covered in case you are out of work.
Long-term disability insurance can provide anywhere from 40%-60% of your income should you find yourself unable to work due to an accident or extended illness. As a resident, this income might not seem like too large of an amount. However, you have to think beyond your current situation. In a few years, you’ll be earning 4 or 5 times what you’re earning now.
2. Get the Best Rate on Premiums
If for no other reason, you should purchase long-term disability insurance during residency because it’s when you will receive the best quote on your premiums. It benefits you (just as it benefits the insurance carrier) to insure you when you’re at the youngest point of your career.
The bottom line is, by purchasing now when you have your age and health on your side, you know you are purchasing at the lowest possible rate. The longer you wait to purchase your policy, the more expensive your premiums will become.
It seems like an easy enough explanation, but sometimes it’s hard to see past your present circumstances. When you’re in your residency, it can be hard to find room in your budget for an expense such as insurance.
Choosing an Agent
One other point to consider when it comes to purchasing during your residency, in which the insurance agent you choose to work with for this. It may be tempting to use your friend’s brother’s roommate who is just starting out. But a disability insurance policy for physicians is too important.
You want to work with an agent who is familiar with the needs of physicians. Your specialty will be a big factor in the cost and coverage of your policy. You need to work with someone who understands the complexities of coverage for a physician, and what’s the best for your specialty.
You also want to work with an agent who has access to as many of the insurance companies as possible. Currently, there are 6 companies which write personal disability insurance policies for physicians – Ameritas, Berkshire Life (a Guardian Company), Ohio National, MassMutual, Principle, and Standard Insurance Company.
By working with someone who has access to as many of these companies as possible, you can get a plan which is tailored to you and offers the best coverage. You will also get the most competitive quote possible.
There are nuances between each insurance company, particularly some of their coverage and language. An experienced agent will understand this challenge, and be able to point you in the right direction.
3. Your Salary Influences Coverage
If you’re at the beginning of the research phase for your personal long-term policy, then you’re probably most anxious to understand the cost of the premiums. You need to know how much to budget and if what you’re considering will truly provide enough income.
How Much to Budget
Generally speaking, male physicians should plan on budgeting 1%-3% of their salary and female physicians should budget 3%-5%. But here’s the important thing to remember – this is initially based on your salary as a resident, not your salary when you’re a full-fledged attending.
There are several factors which determine how much you will ultimately pay for your policy. The biggest factors are your specialty, the state you purchase your policy in, and your age. Again, it’s another reason why purchasing in your residency is a smart way to make sure you’re paying the least amount possible.
There are opportunities to increase your coverage – along with your premiums – once you are earning your higher salary. You can do this by purchasing what’s known as a Future Increase Option, or FIO rider, for your policy. If you purchase long-term disability insurance now with the FIO, then you will be able to increase your coverage as your budget expands. You will be able to do this without going through the medical underwriting process and exam again.
As far as where you live is concerned, certain states are more expensive than others. California and Florida have the highest disability premiums. If you know you are moving to either of these states – or moving away from them after residency – then you can make your decision to purchase accordingly.
What to Purchase
In addition to the FIO rider, there are 3 other important items to include in your disability policy: The Partial or Residual Rider, the Cost of Living Adjustment (COLA) Rider, and your policy should include Own-Occupation language.
The Partial or Residual Rider will allow you to receive a payout if you have to reduce your hours after your disability. No matter if you return to the same line of work or not, if you have reduced hours then you’ll receive a payout.
The COLA rider will allow your payout to be adjusted to keep up with inflation. This could be very important if you purchase long-term disability insurance in your 20’s and then need a payout in your 40’s or 50’s.
Own-Occupation is a Definition of Disability used by insurance companies. It will pay you even if you are no longer able to perform the job you had prior to your injury. You will still be eligible to receive a disability benefit because you can not perform your original duty. It’s then up to you which type of work you will perform (if any), while still drawing disability.
These will affect your cost but will make your policy much more comprehensive. Many of you are trying to purchase the most budget-friendly option available, but you also want to make sure you have adequate coverage in case you need it sooner than later.
4. You Have Access to Other Discounts
One option which is available to both male and female physician is to purchase a Multi-Life Discount policy. This will allow you to harness “strength in numbers” so you can get an even lower rate on premiums.
Let’s say you’ve spoken with an agent and you’re working to get the most competitive rate possible. The agent comes back with a couple of quotes and they are still too high. How do you find room in your budget then?
You should ask your agent about a Multi-Life Discount. This is where you and at least 2 other residents can go in together and purchase your own personal long-term disability policies.
This is another reason for you to purchase during your residency – you are working with more people who are in the same financial boat as you. Your chances are higher of finding people who are also looking to take on personal disability policy.
As long as you work for the same employer, you can get a quote for the Multi-Life Discount. The applicants can also be either male or female – they do not all have to be the same gender. A Multi-Life Discount basically utilizes a unisex rate for applicants.
Not only is this an effective way to save on your policy, but for female physicians, this is a highly effective way to avoid paying the higher premiums.
If you’re a female physician, then the higher percentage of how much to budget for premiums probably jumped out at you. Yes, it’s true. Female physicians should expect to pay more for their premiums. This is mostly due to the fact women have unique challenges with pregnancy and childbirth. Insurance companies are also utilizing statistics which claim women make more disability claims versus men.
Female physicians have two options to help lower their premiums: the first being the Multi-Life Discount. The second option (if Multi-Life isn’t really an option for you) is to ask your agent about a unisex policy. Have your insurance agent quote a unisex rate for you so you can see compare the savings, versus a “female” policy.
5. You Can Update Your Policy as Life Changes
Many residents have a hard time justifying the cost of a policy during residency. It’s understandable because your salary is quite low. You may think it’s virtually impossible to take on another monthly obligation.
Personal long-term disability policies can be modified and updated (even canceled) when necessary. The issue seems to be most physicians “set it and forget it” once they’ve signed on the dotted line. You will want to revisit your policy periodically, to make sure your coverage is still adequate based on your ever-changing needs.
Not only can you modify this when your budget can take on more of a premium, but you can also do this when you have a major life event. For instance, if you get married or have a child, and you have the FIO, then you can modify your policy.
Don’t be afraid to look at your long-term disability policy as something which will change throughout your career – just as your circumstances will.
6. Your Group Policy Isn’t Enough
If you haven’t put a lot of research into a long-term policy, you may be wondering why you can’t just utilize your hospital’s group insurance policy. This is a common question, but for physicians, the hospital’s group policy doesn’t provide enough coverage for you.
Terms are Different
The major reason you can’t rely solely on the hospital – either now or later in your career – is because the terms of the policy are quite different. The coverage provided by a group policy has completely different parameters around it, which also includes if you get a payout or not.
Typically a group policy is written with what’s referred to as Any-Occupation language. Unlike Own-Occupation, this type of language will restrict your payout if you experience a disability but still have some capacity to work. The insurance company will then define what type of work you’re eligible to perform, and potentially not allow you any disability payout.
You do not want an insurance company telling you what type of job you can perform. You may be a surgeon but if you experience a trauma to the hand then obviously this could affect your ability to perform surgery. The Any-Occupation language would allow the insurance company to define the type of work you could perform, such as an office job, and therefore you wouldn’t receive a payout.
The Best Coverage Is with a Personal Policy
Compare the Any-Occupation to the Own-Occupation language of a personal policy. Own-Occupation works to the physician’s advantage – not the insurance company. Own-Occupation is the least restrictive Definition of Disability.
But there’s good news about your group policy. Although it’s best to not rely on it solely, you can use the group policy in addition to your own personal plan. Yes, that’s correct! The policies can be stacked and you could benefit from both the group and your personal policy.
7. You Can’t Cover a Disability with Your Savings
Let’s be honest. When you’re a resident or fellow, chances are extremely high you do not have adequate savings built up yet. You’ve focused on your education for the last several years and have had to do what you could in order to get by financially.
An emergency fund is an important step in improving your overall finances. But even if you have set aside the suggested 3-6 months of your salary, it may not be enough to cover you if you’re out of work due to an extended illness or injury.
What are the chances you could be required to dip into savings to cover a disability? According to the Social Security Administration, you have a one in four chance of filing a claim from the time you are 20 years old until you reach retirement age and the claim will last for at least one year.
This is yet another important reason why purchasing your policy as a resident is the best route. If you do have emergency savings already, then you won’t have to wipe out what you’ve worked hard to build up. However, if you don’t have any savings, by having a disability policy in place, you can make sure you do have some income still coming in, should something happen to your ability to work.
A Purchase During Residency is One You Won’t Regret
Your plate is full right now, which makes it difficult to think about purchasing a long-term disability policy. Although it may be tempting to put off this important task, it will be worth your time to make sure you have coverage in the event of lost income.
As physicians, you’ve invested too much and worked too hard to have your income cut short by a disability. Don’t put off investing in adequate coverage for yourself any longer.