Pillar_Term Insurance for Physicians, The Definitive Guide

Insurance for Physicians: A Definitive Guide

We know we need some sort of policy, but how do we know how to find the best term life for our needs? And what makes term life so much better than whole life? The answers to these questions – and a lot more – will be covered.

Term life insurance is a fairly straightforward product. It’s a life insurance policy that pays out a death benefit if you pass away during the specified term. Term life policies are mostly sold in 5-year increments, starting with  5-years, up to 35 years. The 20 and 30-year terms are the most common. 

Chances are you will outlive the term you’ve selected, which helps make term life so affordable. Like other insurance’s (such as auto, homeowners, or disability insurance), you pay a premium so the insurance company will take on the risk of insuring you.

Who Should Purchase Term Life Insurance?

Term insurance should be purchased by anyone who has people in their life depending on their income. Whether it’s a spouse, a family member, your children, or a combination of all of these. This is a benefit you will never personally use so the decision should be based on who needs your income.

If you’re single and don’t have any dependents and no one is depending on your income, then you probably don’t need a term life policy right away.

Physicians are in a unique position because they are usually the breadwinners in their households. It’s also quite difficult for others to make up for the loss of a physician’s income. For this reason, a policy should be purchased once you’re married, have children, or someone depends on you financially. 

How Much Does Term Life Insurance Cost?

One of the major benefits of a term life policy – especially compared to whole life – is how much coverage you can purchase with an affordable premium. Even though term policies are known for affordability, there are multiple factors that influence how much you’ll pay.

The premium will be based on your gender, height, weight, and medical history. Your prescription medication and immediate family medical history will also be factored in. Don’t worry, if you could lose a few pounds it won’t automatically disqualify you from getting a policy. However, some insurance companies are more generous than others when it comes to weight guidelines. 

A family history of cancer and cardiac issues can also have a strong determination of which category you’ll be rated in. Depending on the category the insurance company classifies you in will determine how much in premiums you’ll pay.  

Smokers are going to pay higher premiums. But if you happen to have quit smoking more than two years ago, then you no longer have the smoker’s rate. If you end up quitting smoking after you’ve taken out a policy, you can apply for a non-smokers rate after you’ve quit for at least two years. 

Whatever family history you have, make sure you disclose it to your insurance agent. Not only is omitting health information misleading, but it could mean your policy gets canceled, either before or after your death. Just answer the questions as honestly as possible. 

Overall, you can expect to pay the smallest premiums the younger and healthier you are. While you can’t help your immediate family’s medical history, you can help yourself by buying a policy as soon as possible, once people are depending on your income. Buying it while you’re young means you’ll lock in the lower rate for the length of your policy.

Where to Purchase a Policy

When it comes to finding an insurance agent you trust, I highly recommend you start by asking your fee-only financial advisor who they would recommend. If you know other colleagues who have purchased term life, then you could ask for their recommendation.

Your hospital or employer may also have an option for term life, so this is another resource for you to consider. 

You can purchase your policies directly with the insurance companies. In order to find the best carrier, you’ll need to research the ratings of each company. You can find the financial ratings through sites such as A. M. Best, Standard & Poor’s, Fitch, Moody’s, and Weiss.

Another possibility is through your existing homeowners or auto policy. They may be able to offer a term life policy and you could ask about a bundling discount while you’re working with them.

How Much Term Life Insurance Does a Physician Need

You now know who you’re going to purchase from but how do you know how much you need to purchase?

Knowing how much to purchase can be a bit of a conundrum.  If you purchase too little insurance, then your family won’t have the funds they need. If you purchase too much, then it’s money you could have spent elsewhere.

The answer to the question is made more difficult when you factor in your family’s personal needs. But luckily, there is a way to determine the amount of coverage needed. 

The first calculation you want to consider is how much it would take for your family to continue to live in your home, pay for the big expenses, and pay for a college education for your children. 

A good rule of thumb when it comes to term life insurance is to purchase seven to ten times your gross income.  But this isn’t only factoring in your current income. You also have to use your future income potential when you’re calculating your numbers. For physicians, this can make your death benefit much more robust.

It’s not uncommon to need a $2 or $3 Million policy once you determine the amount of your expenses.  But you may find your numbers are even higher.

Most insurance companies are not willing to put together a policy based on twenty to thirty times your current gross income. If you do find yourself in the position where you need a substantial amount for a death payout but it exceeds the “rule of thumb” then you will need the help of your insurance agent. A good insurance agent will be able to present your information to the carrier to explain why you need additional coverage. 

Your agent can explain to the carrier if you have multiple children or a very large mortgage. Perhaps you have a special needs child or another family member who would need a significant income. 

The Length of a Term Life Insurance Policy

An agent can help you determine your carrier, the amount of your policy, as well as the length of term to choose. 

The reason why length is an important factor in a policy is that the longer the term, the higher your premium will be. This makes sense because you will be older and potentially at greater risk for health problems. The longer the term, the more of a risk the insurance carrier is taking with you. 

As you contemplate the length of the policy you need, you should think about the expenses you’ll have later in life. What kind of expenses do you imagine having at the 20-year mark or in 30 years? Refer back to the financial roadmap we discussed earlier. Think about the timeframe you’ve assigned to your financial goals.

Your financial picture can look quite different at the 15, 20, or 30-year mark. While you may not have it all figured out at this moment, you can get a general idea of what you can accomplish by a certain time. 

Even without us knowing our entire future, picking a term for term life insurance is pretty straightforward. You can choose an annual renewal or you can purchase in 5-year increments. Most companies offer policies from 5 years up to 35 years.

Having your financial roadmap laid out will help you determine the length of your term life policy. If you don’t have everything figured out just yet, that’s ok too. The goal of the term life policy is for your dependents to be covered in case your income is no longer coming in.

When to Purchase Term Life Insurance

Like disability insurance, the best time to purchase your term life policy is when you’re younger and (presumably) healthier. Since you will be subject to medical underwriting, it’s best to start the process earlier in your career, versus later.

By purchasing your term life policy when you’re younger, you will have access to the lowest rates possible. The longer you wait to purchase, then the higher your premiums will be. One of the 

If you are married or married with children, then you’ll want to get your policy completed as soon as possible. If you’re single, it doesn’t mean you shouldn’t consider purchasing term life insurance. You will have to pick a beneficiary (or beneficiaries) which might look different from someone who is married.

Different Types of Term Life Insurance

Like other insurance and financial products, there are different versions of a policy under the term life umbrella. Let’s take a look at your options for term life. 

Level Term

Level term is the most popular of the term life insurance varieties. Level term simply means your death benefit will be the same during the term of your policy. Whether your payout is in 5 years or 25 years, the death benefit would be the same should you pass away during your selected term.

Level term is popular because your premium should remain the same during your selected term.

Decreasing Term

Where a Level Term policy means your death benefit remains the same, there’s another option available called the decreasing term. A decreasing term means your death benefit reduces each year of your policy. 

A decreasing term policy generally means you’ll have much lower premiums. It’s designed to help your loved ones with one or two specific expenses – such as paying off a mortgage. 

Annual Renewable Term

An annual renewable term means you renew your policy every year, instead of the 5-year increments. This type of policy is not very popular but it is available through some insurance companies. 

Return of Premium

A handful of term life insurance companies offer the option for you to purchase a “return of premium” policy. The idea behind this is if you do not end up having a payout (because you outlived your policy) then a portion of your premiums would be returned to you. 

Think of this option as being similar to the auto and homeowners’ policies where you are eligible for a refund if you don’t have any claims. As you can probably guess, choosing this kind of term life insurance will make your annual premium much higher versus a level term policy.

Available Riders for Term Life Insurance

If you have purchased long-term disability insurance before, then you might be familiar with the concept of riders already. A rider is the insurance-speak for an option in your policy. As with a disability policy, there are riders available to further customize your term life policies. 

Riders do make your premiums more expensive, but in some cases, they can make your policy more comprehensive. Here are a few riders you may come across.

Accelerated Death Benefit

A common no-cost rider with a term life policy is an Accelerated Death Benefit. This allows you to access part of your death benefit, should you be diagnosed with a qualifying terminal illness. Each carrier has their own definition of a terminal illness, but usually, it’s if you have less than a year to live. 

Basically the accelerated death benefit acts as a lien on your policy, and it also accrues interest. Upon the death of the insured, the death benefits would be reduced by the total accelerated death benefit (the lien). 

There is usually an administrative fee involved if the accelerated death benefit is accessed. Overall though,  it’s a benefit you want to be included in your term life policy, and most will. In the unfortunate scenario where you would need to access your death benefit sooner, this could be a helpful option to utilize.

Waiver of Premium

This is a rider available to you if you were to become disabled during the term of your life insurance policy. It would cover the cost of the premium while you were unable to work. If you already have a long-term disability policy in place (which all physicians should) then this is probably not necessary.

Conversion Rider

A popular option for policies is what’s known as the Conversion Option or rider. This option allows you to change your term life policy into a permanent, cash-value policy. With this option, you would be able to convert your policy when you’re older, regardless of your health status, without going through the medical underwriting process again.

With a conversion option, you’ll be able to maintain the same underwriting classification when you convert your policy. You’ll be classified the exact same way as you were when you bought your policy initially when you were presumably younger and healthier. 

This can be an advantage with your rates because your premium will be based on the age you were when you first took on the policy. 

If you do choose this option, make sure you understand the differences upfront. This is converting to a permanent policy, which means it will become quite a bit more complicated.

Some carriers will allow you to convert at any time during the life of your policy. Other carriers will limit your conversion option to a specified time period – perhaps to the first five or ten years of your policy. Your best bet is to choose this option with a carrier that allows you to convert at any point in the life of your policy. And again, you’ll need to know all of this information upfront. 

Laddering Your Term Life Insurance Policies

Knowing your options with term policy lengths, the death benefit, and riders are essential when choosing a policy. But there is one more option you may want to consider as you’re purchasing your term life policy.

There are approaches physicians can take when purchasing and it’s referred to as laddering. Laddering is simply purchasing two policies at once, which end at different terms.

Why would you consider laddering? Physicians have a unique advantage versus other professions. Since you earn an above-average salary throughout your career, you have the opportunity to invest, save, pay off debt, and cash flow your expenses. 

Going back to your roadmap, you can achieve specific goals by specific times. Some will occur in 10 years, other achievements will take longer. The further along you are on your roadmap, the less likely you’ll need term life insurance.  

For example, you could purchase a $2M policy with a 20-year term. You could add a second $1M policy with a 30-year term. Naturally, the $2M will be more expensive than the $1M. 

Once you’ve had twenty years on your financial journey, then you should have growth in your investments, savings, paying down debts. Once you’ve achieved what you’ve wanted to, then you might not need any of the insurance. You could cancel the last million dollars and save by not paying the premium.

Even if you don’t cancel your policy and you still need the last million, you’ll have it for ten more years.  The good news is, you’ll be saving on the premium because you purchased it so early. 

If you have an insurance agent you’re working with, then they should be able to help you run the numbers for the laddering scenario. There are even some policies that can offer the same benefit in one, singular policy.

Term Life Insurance is a Must for Physicians

You have many, many choices to make as you’re working your way through your financial roadmap. There are multiple options available to you as meander towards your retirement goal. Getting your term life policy in place is one step to help you along your journey.

Purchasing a term life policy is affordable, easy, and should provide all the coverage you’ll ever need. Making sure your family is cared for – should the worst happen – will provide you with greater peace of mind. 

Term life insurance is straightforward. And even though it’s not complicated, it’s important enough to be one of your pillars of financial success. If you are looking for a way to make better financial decisions starting today, you can start by purchasing a good term life policy.

Whole Life Insurance

Whole Life Insurance isn’t needed and this is why.

Buying insurance is like hedging your bets against the gamble of life. If something goes wrong, purchasing an insurance policy is how you keep those little mishaps from turning into huge problems. If you get in an automobile accident, for example, the car and medical insurance you’ve been paying for exist to soften the financial blow.

But life insurance is a little different because it doesn’t really exist to benefit you. 

It’s there to make sure your loved ones are financially protected in the case of your death, which can lead some well-meaning consumers to purchase the wrong policy out of guilt and fear. Life insurance salesmen make a living off pressuring others by using these emotions to their favor. 

Remember, insurance agents do not have to act in your best interest because they have no fiduciary duty to you. 

Medical professionals are especially targeted by insurance agents looking to sell whole life policies. Here’s why you should turn them down. 

What Is Whole Life Insurance?

Whole life insurance covers you for your entire life. A term life policy provides coverage for a specific period of time, while whole life is designed to last until you pass away.

It also comes with an added investment component. The insurance company invests part of your premiums so they earn interest while you pay for the policy. Customers can even borrow against that invested part, which is known as the cash value. This is another reason why policies are so expensive. Insurance companies charge extra so they can invest part of that premium.

Unfortunately, investment returns on a whole life policy are low, and the return-on-investment is the lowest during the first seven to 10 years of the policy. If you try to cash out a policy early on, you’ll get back less than what you paid in.

Whole life insurance is often twice the cost of term life because insurers take a big risk in providing coverage for someone’s entire life. The likelihood of someone with a 20-year term life policy dying while their coverage is in effect is small, so premium costs are cheap. But if you keep a whole life policy, the insurance company will have to pay out when you pass away eventually – or when you decide to cash in the policy.

Why Doctors Don’t Need a Whole Life Policy

The goal of life insurance is to cover your family’s expenses in the event of your death. People who are married, have children or own a home need a life insurance policy to protect their family if they pass away early. A life insurance policy provides enough money to replace their income for a few years and handle any outstanding debts. That’s why single people with no dependents don’t need life insurance – there’s no one relying on their income.

The life insurance policy only needs to last as long as there are significant financial obligations the remaining spouse couldn’t handle by themselves. If you earn $200,000 a year, have a mortgage of $400,000, and are married to someone who earns $45,000 a year, your life insurance policy will prevent your partner from having to sell the house in the event of your death.

Chances are if you’re a doctor and are reasonably responsible with your finances, you won’t need life insurance when you’re 85. Your mortgage will be paid off, your kids will be adults and you’ll be living off your retirement account. You won’t have any income that needs to be replaced if you pass away.

That’s the crux of why doctors don’t need whole life policies. By the time you’re 70, retired, and have no debts, you don’t really need to be covered at all. At that point in your life, your death would not catapult your family into a financial tailspin. There’s only a 20-30 year stretch of your life when you need a policy, and after that, you can prepare in other ways.

Once your term life policy has reached its end date and your financial obligations have decreased, you can use regular savings accounts to do the same job. Just save enough to cover funeral expenses, make sure your will and other arrangements are finalized and rest easy.

Auto Insurance

You’ve got your dwellings covered, now you need to cover your other big purchase – your car. You can’t have a physician’s insurance checklist without talking about auto insurance.

You might think that auto insurance is one of those fix-it-and-forget-it things. But having the right coverage is especially important for physicians.

The Basics of Automobile Insurance

Other than knowing you’re required by state law to carry automobile insurance, have you given much thought to the subject? If I had to guess the answer’s probably no.

When you’re talking about auto insurance, there are 3 types of coverage which will fall under these policies: liability, comprehensive, and collision.

Liability Coverage

Not all states require liability coverage, but it’s a good idea to carry it. Think of liability coverage as covering any third-party costs with an accident. You’ll want to have at least $500,000 in coverage. Liability coverage includes two different categories: property damage and bodily injury. Liability coverage in your policy will cover costs associated with fixing the other driver’s car and also paying any medical bills associated with the accident.

Comprehensive Coverage

Comprehensive coverage is coverage for repairs related to any damage to your vehicle which doesn’t involve an accident. This is the coverage you need when you have damage from a hail storm or if a tree limb falls on the back of your car.

Collision Coverage

Collision coverage is the coverage you use when you are involved in an accident – either by yourself with your car only or if you’re in an accident with another vehicle. 

How to Save on Automobile Insurance

Since every driver is required to carry insurance, you’ll be able to find multiple quotes to fit your budget. But how can you save on auto insurance without jeopardizing coverage you need? Here’s where I want to caution physicians. It’s important for physicians to carry more coverage for auto insurance than the average person. Here’s why.

If you’re ever involved in an accident and the other driver finds out you are a physician, suddenly there is more of an incentive for the driver to potentially file a lawsuit against you. Most people know physicians make more money than the average person, and there are people who will take advantage of this fact. It’s sad but true.

Similar to your homeowners or renters insurance, you need to work with an agent to get the best policy. Ask about discounts if you carry more than one policy with the company. You could also get a discount for paying your premium annually versus quarterly. It’s worth asking your agent to get the right policy in place and take advantage of every discount.

Renters Insurance

There’s a lot that goes into homeowners’ insurance, but what if you aren’t a homeowner yet?

Many of you reading this are in an apartment and have a landlord you pay rent to each month. If that’s the case, then you will need to make sure you have proper renters insurance. Fortunately, renters insurance is inexpensive but it can cover you in case something unexpected happens to your belongings.

The Basics of Renters Insurance

Imagine if your apartment had a fire and destroyed all your belongings. Or what if the pipes burst in the apartment above you and your furniture took the brunt of the burst pipe? You wouldn’t want to pay out of pocket to replace these items, would you?

If the answer is no, then you need renters insurance. Renters insurance is designed to protect and replace your belongings in case of vandalism, fire, or other damage in your apartment. 

You might think your landlord should cover the cost of any damage which occurred inside your apartment. Here’s the kicker – your landlord’s insurance only covers the dwelling, not your personal belongings

One more thing, if you have a roommate and they have renters insurance, then you still need to purchase your own policy. The policy only covers your belongings, so make sure everyone under your roof has their own policy.

How Much to Spend on Renters Insurance

As I mentioned before, renters insurance is very inexpensive. It’s one of the few things in the insurance world where you get a lot of value for very little money. 

You’ll want to have ample liability coverage and you might need to add flood insurance if you live in a flood zone. Take an inventory of your belongings so you can confirm you would have enough insurance coverage to replace everything – even if you lose it all.

There’s no excuse not to have renters insurance and you can have an agent work on quotes for you as well. 

Homeowner’s Insurance

One of the most important items to mark off your insurance checklist is your homeowner’s insurance.

If you’re already a homeowner, then chances are you have purchased homeowners insurance or are shopping around for coverage and premiums. But it’s worth discussing this coverage a little more in-depth. 

Why You Need Homeowners Insurance

There are several reasons you should purchase a homeowner’s insurance policy. 

Requirement By Mortgage Lender

The first – and arguably the most persuasive –  is because it’s likely a requirement from your mortgage lender. The lenders want assurance their investment is protected in case of fire, vandalism, or some other hazard. Having a policy in place will satisfy this requirement from your mortgage lender.

Major Catastrophes 

What are the other reasons besides your mortgage lender makes you? A comprehensive insurance policy protects you in multiple scenarios. A policy will protect your unattached structure in case of wind, fire, vandalism, thunderstorms, tornadoes, and even hurricanes! All of these scenarios could be major catastrophes but having a good policy in place will help you recoup the cost of the damage. 

Protecting Your Personal Belongings 

It’s not only your structure that is covered. Your personal belongings on the inside of your property are covered with a homeowner’s policy. Think of all the valuable belongings inside your four walls: appliances, jewelry, clothing, furniture, just to name a few. 

Protection Outside The Home

Your coverage isn’t limited to your structure or what’s inside your four walls either. Depending on the hazard, it’s possible you’re covered when you’re away from home. For instance, if your golf clubs are stolen from your car, even though you weren’t home at the time. Your homeowner’s policy might cover this despite the fact you weren’t inside your home.

Personal Liability 

Depending on your policy, you could also have personal liability. This is the coverage in case of a lawsuit against you for an injury on your property, or even away from your home. It can help with legal and medical fees associated with an accident. 

A homeowner’s policy not only provides you peace of mind, but can also provide additional coverage to your home, its contents, and anyone who is visiting your property (whether invited or uninvited).

What to Purchase With Your Homeowners Insurance

There are a few items you should review with your homeowner’s insurance policy.

The Deductible 

The first is the deductible. How much will you be responsible for with each claim? Most policies have a minimum of a $500 deductible, but you can increase the amount if you want to lower your premium. 

The Cost To Rebuild 

You will need to work with your agent to calculate your rebuilding costs for the structure. This factor makes up a large portion of your premium. 

Coverage For Personal Liability 

You’ll also need to confirm coverage for your personal liability. As physicians, I highly recommend you carry more coverage in this area versus someone in another profession, and we’ll discuss this further a little later on. This is the part of the policy which covers costs associated with lawsuits.

Natural Disasters Based On Your Location

There are a couple of other items you should confirm coverage, depending on your state. The first is flood insurance. The second is earthquake insurance. These aren’t always included in your policy, so ask your agent about it, especially if you’re in a state prone to either of these natural disasters.

Working with a knowledgeable, trustworthy agent for homeowners insurance is critical. You’ll want to use someone who can help you build the most comprehensive policy and still stay within your monthly budget.

Rebuilding Costs and Homeowners Insurance

One item you want to make sure you have reviewed in your homeowner’s policy is the rebuilding costs. Remember, you’re insuring the structure of your home, not the land you built your house on. This means you should not factor in the value of the land in the rebuilding cost.

If you were to include the land in the rebuilding costs, then your cost would be inflated and it would cause your premium to be higher. If you are trying to make sure you have adequate coverage and want to stay within your budget, then start with a review of your rebuilding cost in your policy.

Discounts With Homeowners Insurance

It may be a requirement for you to carry a homeowner’s insurance policy, but one thing it doesn’t have to be is a budget-buster. There are ways to save on your policy while still purchasing the right coverage.

The first way is to shop around! I’m amazed at how many of my clients don’t take time to shop around for different rates. I get it, it’s not very exciting to call agent after agent trying to get a quote or trying to get this done when you’re in the process of purchasing a home. But by putting in a little effort, you can save money on your premiums.

Speaking of premiums, by paying your premium annually, versus monthly, you can get a discount. Make sure you ask the agent what incentives there are for paying premiums upfront. Some states require you to put your premium in escrow so this may not be an option, but if your state doesn’t require it, then ask about the discount.

You can lower your premium by taking on a higher deductible. If you have your emergency fund built up, then this is a smart option to consider. Many policies have a $500 deductible but you can lower your premium by raising your deductible to at least $1000.

Lastly, don’t forget about combining with other insurance policies. If you can purchase from the same company that provides your automobile coverage then you should qualify for a discount. Don’t leave anything on the table!

Don’t Skimp with Homeowners Insurance

The important point to remember with homeowners’ insurance is it’s not a place you want to skimp too much. There will be times it’s important to pay a little more because your coverage will end up being more comprehensive. Like other areas in your life, a little bit of research and comparison shopping can end up getting you the best policy possible for your budget. 

Long-Term Disability Insurance 

We’ve talked about insuring your home, automobile, and how to protect yourself from personal lawsuits. Now it’s time to discuss insuring your current and future income with long-term disability insurance. 

A physician’s financial portfolio will never be complete unless it includes a comprehensive long-term disability policy. Your job is not only physically demanding but think about how your work would be impacted if you were to be injured. 

Why You Need LTDI

Long-term refers to any disability insurance which kicks in after a longer designated period, typically 90 days. There are many types of physically limiting possibilities that could cause a need for this type of disability insurance for physicians. Some of the more common causes are cancer, autoimmune disorders, mental illness, anxiety, and burnout, in addition to injuries.

There are a couple of other major differences when you compare short-term versus long-term disability coverage, other than the time-frame.

One difference is the payout period between the two different types. For short-term disability coverage, the payout is generally within a week of filing the claim. With long-term disability insurance, you’ll have a longer period of waiting of at least 90 days. Each plan has its own specific timeline, but this further illustrates the difference between the two types.

The timing of when your funds would be paid out is referred to as the elimination period. In some cases, the elimination period for long-term disability can even be as far out as 360 days. Generally speaking, the longer the elimination period for your policy then the lower the rate of the premium.

Long-term disability insurance is one of those must-haves for physicians. As much as we’d like to think we will remain healthy as long as we’re practicing medicine, there are times when it’s not the case. This is where disability insurance can help bridge the gap between income and the ability to work. 

Statistics tell us a story. One in four Americans will experience a situation before age 65 in which they need to make a disability claim – and doctors are not exempt from this average. This is coupled with the fact, physicians are double the rate of the average person. Between accidents, illnesses, and physician burnout, there are multiple scenarios where a disability claim could occur. 

Many of you reading this may assume you have enough coverage through your group disability insurance through your hospital. The group coverage can provide some benefit, but it is severely limited when it comes to replacing your physician’s income.

With today’s long-term disability policies, you can tailor them to your specialty and income requirements. 

One of the greatest benefits of purchasing your own LTDI policy is how portable it is for you. If your career takes you to multiple states, then you’re still covered. If you choose to exclusively work locums or 1099 work, your policy will be there for you. The portability of your policy means you don’t have to worry about anyone else making a decision on your policy – except for you. 

Why are Riders Important for Physicians?

At first glance, you may be tempted to overlook adding riders to your policy. If you’re on a strict budget as a resident, the thought of adding more to your policy is not extremely appealing.

Truthfully, you should think of riders as a way to customize the coverage and as a way to make your plan as comprehensive as possible. Riders are a way to ensure you will be able to bring in an income even if you are unable to work. What may seem like a nonessential expense right now, could end up getting your family through an otherwise stressful time.

Don’t think of riders to a disability policy as a “nice-to-have” but rather as a necessary component of building an overall strong financial plan.

Before you can decide which riders you need to include, the very first step for you is to find an agent who is familiar with your needs as a physician. You’ll want someone who’s in tune with what’s occurring within the marketplace currently. Plus you’ll want to work with someone who has access to as many carriers as possible – this will allow you to receive the most competitive quotes.

With this in mind, be sure to review this list of riders that are important for a physician to include in their policy. If you have questions about how these riders will impact your rates specifically, then be sure to discuss these specific ones with your insurance agent.

How to Compare Disability Insurance Riders

When comparing disability insurance riders, it’s important to focus on more than just the price of the policy. You’ll want to find out what features are valuable to you, and what you don’t actually need to pay for based on your unique situation. 

Generally, physicians want Long-Term Disability Insurance policies that are non-cancellable, guaranteed renewable, and have a true own-occupation definition. Once those filters are applied, then you’ll want to dive into these four main areas: 

  • How are Benefits Calculated for Partial Claims,
  • Mental, Psychiatric, and Substance Abuse Benefit Limitations,
  • Future Increase Option Vs. Benefit Purchase & Benefit Update Riders, and
  • Cost of Living Adjustment Riders

By reviewing these differences in policies, you should be able to narrow your choices down to a few policies to select from. 

The Cost of Disability Insurance

The first question many people ask when shopping for a policy is how much the annual premium is going to be. Like many types of investment or insurance products, the price really does depend on exactly what you choose to add or delete in your policy.

But as a general rule of thumb and for your planning purposes, male physicians should plan on budgeting around 1%-3% of your gross annual income. For female physicians, you should expect to pay a higher percentage of around 3%-5%. We will explain why there is a disparity between the two later on.

For example, if you’re a male physician earning the national average of $208,000, then your annual premium would range from $2,080 to $6,240. Female physicians with the same parameters could expect to pay $6,240 to $10,400.

Depending on where you are in your career, this can definitely seem like a substantial amount to pay each month. So when your agent calls to give you the quote, you need to understand what specifically is impacting your cost of disability insurance.

When to Purchase an LTDI Policy

Since I work with quite a few residents, I’m often asked when is the best time to purchase an LTDI policy. The answer is, almost anytime is a great time to purchase a policy. If you are an attending physician and haven’t purchased a policy yet, it’s OK because it’s something you can start looking into right away.

If you’re a resident, I strongly recommend you purchase your policy while you are in your residency or during your fellowship. Here’s why I make such a strong recommendation. When you try to purchase a policy, you will have to go through the medical underwriting process. During your residency, this will presumably be the time in your career when you are the youngest and healthiest.

Purchasing during your residency will lock in the lowest rates possible. If you’re concerned you won’t be able to afford a decent policy, don’t worry. There are riders you can purchase so your coverage can “grow” with you, as your career in medicine grows. 

One more thing, the discounted rate for a resident is good for about 90 days once you’ve completed your training. So if you can’t get your policy together until then, you should still be able to take advantage of the lower rates. 

7 Reasons to Purchase Disability Insurance During Residency

  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.

However, the primary reason physicians should buy disability insurance isn’t because the risk of being disabled is ultra-high. It’s the financial impact of not being protected. As physicians, you’ve worked too hard for your medical degree and invested too much of your time honing your craft to lose what you’ve worked for at a moment’s notice,” states Michael Relvas of MR Insurance Consultants.

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.

  1. 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 ensure 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 that 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.

  1. 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 that 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.

  1. 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.

Multi-Life Discount

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.

Female Physicians

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 that 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.  

  1. 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.

  1. 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.

  1. 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 inadequate coverage for yourself any longer.

If You are an Attending Physician

There are still some of you who choose to wait after this 90 day period. By waiting past this point, you do run the risk of having premiums quoted at a higher rate, compared to when you were in training. But don’t worry, You can still work with an agent to put together a quote for you, no matter where you are in your career. A common reason for putting off purchasing a disability insurance policy is simply the cost. Before becoming an attending physician, your salary is paltry at best. You have student loans, rent or a mortgage, maybe even a credit card payment or a car payment too. All of these expenses make it hard to stomach the thought of adding another payment.

A tight budget is certainly understandable during this time. However, you can rest assured that if you can find room in your budget, you are making a very wise financial decision. Adequate disability coverage is worth making adjustments to your spending habits. There is never a better time than now to put together a monthly budget, and one that incorporates the cost of a comprehensive disability policy.

Disability Insurance Through Your Employer Versus Purchasing Your Own Policy

At this point you might still be wondering why you need your own long-term policy versus solely relying on the plan through your employer. While it’s certainly a benefit from your employer that you’ll want to take advantage of, it’s simply not enough- and there are several reasons why.

The number one reason you should purchase your own policy is that group policies are written in a language that is referred to as Any Occupation versus Own Occupation. 

You may find yourself moving quite a bit in your career, whether it’s to a new city or a new venture in your backyard.  Having your own disability insurance that stays with you throughout your career is beneficial if you end up as a 1099 contractor or working locum tenens for another practice. It’ll be one less decision you have to make as you look for ways to grow in your career. Think of your own disability policy as being portable- wherever you go, so goes your policy.

If you are a high-income specialist, such as an Orthopedic Surgeon, Neurosurgeon, Anesthesiologist, or Plastic Surgeon, you could benefit from the purchase of multiple disability insurance policies. Unlike health insurance or medical coverage, there isn’t a “Primary” or “Secondary” insurance provider. You can receive the benefits from both (or multiple) carriers, which could potentially cover more of your high-earning salary. Even if you aren’t practicing in one of these specialties, it’s still worth looking into and making sure you have as many gaps covered as possible, financially speaking.

Yes, it’s true your employer absorbs most of the cost of the premium for disability insurance and you can benefit from being a part of a group plan. But as previously mentioned, there are several disadvantages to relying solely on your employer. You’re better off combining this benefit with your own disability policy.

Disability Insurance For Physicians is a Must for Financial Success

The bottom line is, as your earnings increase, it’ll be more and more important to make sure your finances are protected in case of an accident or illness. It may seem as if you are paying money each month for something with very little return. Unfortunately, though, the statistics show there is a very real possibility you may need this type of insurance one day.

You’ve already taken an important step in researching the basics of disability insurance for physicians. Now it’s time to work with an agent and find the right coverage for your future. 

Umbrella Insurance

As a medical professional, your insurance needs aren’t boilerplate. An accountant doesn’t need to think about malpractice insurance when they forget to add the right number of zeros to a spreadsheet – doctors don’t have that luxury.

Likewise, the income brackets most doctors find themselves in, bring along a host of insurance considerations. Where most people can purchase the cheapest insurance plans available, someone with significant assets needs to be more fully covered.

Who Needs Umbrella Insurance?

Homeowners People with significant savings or assets High-income earners who are likely to be sued
People who own pools, trampolines, or other household items that can lead to injury Dog owners Gun owners
Landlords Inexperienced drivers in the household Coaches of kids sports
Frequent party hosters People who serve on the board of a nonprofit Drivers who drive on congested streets or highways often
People who post reviews of products and businesses often People who participate in sports that could cause harm to others Boat owners
Public figures People worried about liability claims when traveling outside of the U.S. Anyone who owns something that could cause damage to others.

That’s where umbrella insurance can help, and where your current car insurance plan may be leaving you exposed. Here’s what you need to know.

What is Umbrella Coverage?

Also known as personal liability insurance, umbrella insurance is a back-up insurance plan that kicks in after your other insurance coverage has paid out, covering accidents that occur on your premises or because of you. 

The primary goal of umbrella insurance is to protect your savings and assets from lawsuits and damages that are over your homeowner’s and auto insurance coverage. 

Umbrella insurance is like an extra blanket on a cold night – you might not need it all the time, but you’ll be glad you have it when the time comes.

What Does Umbrella Insurance Cover?

Umbrella insurance covers property or equipment that can damage or harm others, like a pool, dog, or trampoline.

Let’s say something happens at a party at your home to a new friend. Their medical bills are over $100,000, but they also sue you for $500,000 for lost wages and emotional distress. If your homeowner’s policy has a personal liability limit of $400,000 and a deductible of $5,000, you would be out of pocket $5,000 and your homeowner’s policy would cover the remaining $395,000. 

Without additional coverage, you’re responsible for paying the remaining $200,000 out of pocket. Maybe this money has to come from your retirement savings, causing you to have to work a few more years before retiring. 

If you also had a $1 million umbrella insurance policy, it would pay the remaining $200,000 of the judgment. You wouldn’t have to jeopardize your hard-earned retirement savings. 

Umbrella insurance policies cover a wide array of incidents, including:

If your friend slips on the deck during a pool party at your house, you could be personally on the hook for their medical bills – unless you have umbrella insurance. 

If you’re a landlord, umbrella insurance will protect you if the roof caves in and hurts your tenants.

You are required to pay attorney fees related to a lawsuit. 

Your dog attacks your neighbor, and they sue you for their medical bills, lost wages, and pain and suffering. 

You cause an 8-car accident, totaling all 8 cars and your auto insurance coverage isn’t enough to replace all 8 vehicles, let alone all victims medical bills. 

Your teenager throws a party while you’re working a night shift, and serval underage children are arrested for driving under the influence after leaving. Their parents sue you. 

A 2013 report found that 78% of all umbrella insurance claims are related to car accidents, with youth drivers as the biggest cause. If you have dependent children who are driving under your auto insurance policy, you should seriously consider umbrella insurance.

What Umbrella Insurance Does Not Cover

Generally, umbrella insurance covers a wide range of accidents. However, there are a few cases where your umbrella insurance policy won’t cover the bill. 

  • If there is damage to your own personal property, and no one outside of your household was injured. 
  • Damage or criminal acts that were done on purpose by you or a member of your household. 
  • Liability from a business or professional activity. 
  • Liability you agreed to assume in a contract you signed. 
  • Liability caused by war or armed conflicts. 
  • Your own injuries. 

Umbrella insurance is one of the few insurance policies that is so broad, that it only lists the events it does not cover. In general, most other liability claims are eligible for coverage by your umbrella insurance policy. 

In both of these scenarios, the injured party would file a claim with your homeowner’s insurance to pay for the costs they incurred. If that’s not enough to offset their expenses, they would file another claim with your umbrella insurance. If you didn’t have an umbrella policy, you’d have to front the rest of the money yourself.

The person could also decide to sue you for emotional distress and lost wages in addition to getting their expenses reimbursed. Umbrella insurance would pay for your legal costs as well as any extra judgments you’d have to cover. 

Umbrella coverage seeks to protect you from having all your assets liquidated and seized because of a lawsuit or injury that occurs to you or your property. This type of insurance makes sense when you start to accumulate things you can’t afford to lose. A thorough policy will cover all your properties, vehicles, boats, retirement accounts, and limited partnerships or LLCs.

How Much Does Umbrella Insurance Cost?

The amount of coverage you need varies based on your income, assets, and risk factors. Most policies start at $1 million and go up to $10 million. Your policy should be enough to cover all your current assets. As you build your career and acquire more wealth, you may need to buy a larger policy.

Buying umbrella insurance is incredibly affordable and average policies cost between $150 to $300 a year for $1 million worth of coverage. For less than $25 a month, you can sleep peacefully knowing that almost nothing could happen to take away your holdings. 

Keep in mind that your insurance agent will likely require you to max out your liability coverages on your homeowners and auto insurance policies before adding umbrella insurance, causing your premiums to increase on your other insurance policies as well. 

How Much Coverage Do I Need?

Umbrella insurance is sold in units of $1 million of coverage, starting at $1 million. Most insurance agents will recommend you to take out the maximum amount of coverage allowed, within reason. 

The nicer your home, the richer your area, and the income level and net worth of your friends are all influencing factors when deciding on how much coverage you need from your umbrella insurance policy. 

Is Self-Insurance Enough?

Some argue that instead of paying an insurance company a premium every month for umbrella coverage, you should self-insure instead. Self-insurance means having enough liquid savings that you could afford to cover any kind of lawsuit or another catastrophe by writing a check. One example of being self-insured is canceling your collision and comprehensive coverage, instead of saving enough to cover the cost of a new car.

When it comes to umbrella insurance, having enough in liquid savings is almost impossible when you’re dealing with other financial obligations. It’s more financially sound to pay a small insurance premium every month instead of trying to cover all your bases.

A large claim could dramatically change your plans, including your path to retirement. 

How to Buy Umbrella Insurance

Most major insurance companies offer umbrella insurance, but they all have different policies and rules on what they will and won’t cover. Some won’t pay for any damage that occurs if you’re using an ATV or Jet Ski, for example. Others might be firm on how much they’ll pay out in specific scenarios.

Before you sign up for umbrella coverage, compare the policies you find and ask about any loopholes, exemptions, or restrictions. Do your research thoroughly before signing up.

If you decide to purchase an umbrella policy, the insurer will likely ask you to max out the liability coverage first on your auto and homeowners policies.

You don’t have to wait until you earn your first $1 million to buy an umbrella policy; you can buy it when you’re still a resident. Call your current insurance provider and ask them what their rates are or find an insurance broker who can give you quotes from various companies.

Final Remarks on Insurance for Physicians

When reviewing your insurance policies, don’t forget that gaps in any of these policies could cost you a significant amount of money should something go wrong. For a relatively low cost, you can increase your coverage to protect your assets.  

Protecting your livelihood, your family, and your career with the proper amount of insurance is a must for physicians. 

Ryan Inman