Why you should buy disability insurance RIGHT NOW (even the interns)

Hello, Spousal Unit here in my first post. Indy and I got married in the middle of medical school applications, I’m a Muggle (non-medical type) who works from home and makes sure our two Tiny Humans grow into productive members of society. This situation works since it allows me to easily tag along as Indy’s career takes us all over the country.

In 10 years of marriage, Tiny Humans and I, as well as Indy, have built a lifestyle that depends on Indy’s income. Since starting residency, we would have been unable to sustain our lifestyle in any meaningful way if her income disappeared.

As a loving husband to a doctor and friend of many single, child-free doctors, I will say that if you don’t get disability insurance ASAP, you are doing things wrong. It doesn’t matter what your family situation is. Unless you are already financially independent, you need to get disability insurance yesterday. I’m not an insurance salesman, nor do I have any vested interest where, when, or from whom you buy your insurance, I just don’t want your life ruined if you can’t make money from doctoring anymore.

This is the first post in a series about disability insurance. We’re going to chat in broad strokes about what it is and what you need, with future posts diving into specifics about the needs of different groups likes interns or active duty military.

When we talk about disability insurance, we’re talking about long-term disability coverage that you buy from a third party outside of your institution. Your employer probably offers you short and long-term disability insurance, perhaps even at a heavily subsidized rate. Buying insurance through your employer is all well and good until you graduate residency or move onto another gig. You want a policy that you take with you wherever you go. You also want a policy that is tailored to your preferences and needs with specific riders, which I’ll get into a bit later.

Residency sucks and is hard on people. Even if you don’t get fatter and unhealthier, you will get older. The longer you wait to buy this stuff, the more expensive it will be.

My wife has had friends and co-workers suffer all kinds of bad luck in residency. One was hit by a car on his way to work. Another burned her hands in an accident. Someone else developed a seizure disorder. You could get cancer, have a heart attack, or have pregnancy complications that keep you out of work long enough to lose your paycheck at any stage of your career. And once you have developed a major problem, it can be too late to get coverage for that problem (or any possible complications from it). Some diagnoses can make it hard to get any disability coverage at all.

What would you do as an intern if you found yourself unable to work and earn a living? Even if you don’t have student loans, if you can’t practice medicine, do you have a backup career plan?

Once you match to a residency, you need to get in touch with an insurance agent who specializes in own-occupation coverage for physicians. White Coat Investor has a great list of agents and tons of resources for researching this topic further.

What is disability insurance?

Long-term disability insurance is meant to replace a portion of your income in the event you are unable to work (typically for more than 90 days). In most cases, insurance will replace 60% of your pre-disability income. The policy might be reduced by the amount of any benefits you get from your employer or Social Security, but you have an assurance of getting that 60%. If you’re an intern making $50,000 a year, it’s a relief to know that even if you wind up completely without the ability to work and get an income that your family will get $30,000 a year.

The critical part is that it needs to be what’s called an Own Occupation policy. Most disability policies (including things like Social Security disability) look at whether it is possible for your to do ANY job that you are qualified to do. There are lots of things that could prevent you from working as a surgeon but that wouldn’t make you totally unemployable. For example, you can’t safely operate if you have nerve damage in your hands, but you might still be able to work as a car salesman. For OB/GYNs, some kinds of wrist and hand injuries can keep you from operating while allowing you still work in the office.

Own occupation policies will look back at what you’ve been doing for the 12 months leading up to the date of disability, and consider how you earned your income. Let’s say that you are an OB/GYN resident who can’t operate anymore but who can still do office gynecology. A standard policy wouldn’t pay out at all, because you are still able to work in some capacity. But without the ability to operate, your income could drop dramatically. Own-occupation coverage ensures that you still get compensated for that drop in income.

The other silver lining of the own-occupation policy is that if you are collecting benefits from an own-occupation policy, you can still earn income from unrelated sources. So if you use that free time outside of the OR to become a successful real estate investor or writer, you don’t lose your disability income.

Keep in mind that insurance policies like this are purchased on an after-tax basis. Since you’re paying for the policy with take-home pay that’s already been taxed, any benefits paid out are tax-free. So as a married resident, that $30K would be more like you making close to $40K from a job once you factor in federal, state, Social Security, and Medicare taxes. It’s not the same as having the full income you were getting before, but when you consider that you aren’t paying for professional clothes, cafeteria lunches, or gas to commute, you may fare better than you would think.

What is the right time to buy disability insurance?

The right time to buy disability insurance is when you have an income and aren’t otherwise financially independent. That means you need to be shopping for this stuff in July of your intern year or as close to it as possible. It’s a cost of doing business that might cost between 1 and 5% of your total salary. Indy’s policy is about $2K a year and provides an income of up to $6,000ish a month in the event of disability. It may sound like overkill, and most of your classmates probably won’t be doing it, but what if you end up being the person who develops the seizure disorder, or the surgeon who injures their dominant hand and can’t operate, before graduating residency?

What does it cost?

I can’t give an exact cost because it depends so much on individual factors. Age, tobacco use, prior conditions, and even what kind of discount deal your agent has with your institution all help. You can save money by paying in cash up front every year instead of making monthly payments. Your policy will cost less if you are willing to self-insure for a period beyond the initial 3 month waiting period (that is, if you buy a policy that kicks in sooner than the typical 90-days after disability). For example, if you have a solid 6 month emergency fund, maybe you can wait 4-5 months before your disability starts to pay out?

Women tend to cost more to insure, all other things being equal. As a population, women go to the doctor more often and file more claims (such as for prolonged hospital stays for pregnancy complications). There are unisex policies out there which can help reduce the cost for women, but if you are a man know that you may be paying more for a unisex rate, so consider quoting it out both ways.

What are riders?

Think of an insurance policy like the U.S. Constitution. Riders are functionally the same as amendments; they expand or place limits on the original policy. The standard policy might be very short and not cover all the possible situations that you are worried about.

We’ve already talked about a few examples of riders, like the own-occupation coverage or the waiting period before benefits start. A good insurance agent will walk through all of the rider options with you and help you determine which ones are necessary. Some riders out there are statistically a complete waste of money like mortgage payoff insurance.

Some features you want to look for include:

  • Guaranteed renewable – You can’t be denied the ability to renew your policy each year
  • Cost of living adjustments
  • The ability to buy more coverage without medical underwriting

This is just a start, but those are the biggies to look for. If the agent you talk to can’t get you those or is clueless, look elsewhere. I’ll have a post coming soon that does more of a deep dive into the specifics on disability insurance riders. For now, go find an agent yesterday to make sure you are protected.

Love, Spousal Unit

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