Most physicians need disability insurance, but they don't necessarily need a Cadillac plan. Follow these tips to get an adequate, if not extravagant, policy.
You're stuck. You're about to finish your residency and are anxious to move onto practice. Cash flow is super tight. You feel financial pressure every day. But there's more.
You've heard from other physicians that you need disability insurance, but you aren't sure of how to get it. You don't want to get screwed over by a pushy sales guy.
You wonder, "How can I keep these things cheap & reasonable?"
1. The biggest determinant of cost is the monthly benefit. Most residents and fellows prior to transitioning to practice can get up to $6,000 per month in benefit. However, just because you can get up to that amount doesn't mean that is right for you. Consider your medical school debts, consider the income from your spouse (if applicable). Are you the primary breadwinner or an equal contributor in income to your household? Could you live on $3,000 per month? $4,000 per month? By having a lower monthly benefit, this could drastically cut the costs of your insurance policy.
2. Look at the waiting period. The longer the waiting period, the lower the cost. Consider this: What do you have in reserves at the bank? I call this the “cash cushion.” I've seen many residents with $10,000, $20,000, $30,000, or even $40,000 in the bank and easily accessible investment accounts.
Consider that you could cut the cost of a policy significantly. The most expensive policy will usually have a 30-day waiting period while the cheapest policy will have a 180-day or one-year waiting period. This comes down again to lifestyle—if you are living on the cheap, $40,000 could take care of a whole year of living expenses. (Although, just remember that unless your disability really sucks, you will still have to pay your student loans back—so just make sure to factor that in when combining the group disability with the individual disability policy.)
3. Consider Your Benefit Period. Here's the deal you guys: Yes, disability happens and sometimes the disability can be horrible, it can be life-changing. Yet, most of the time, the average disability is a handful of years. It's the proverbial pain in the neck.
Keep in mind the most expensive policy will pay benefits to age 67. The cheapest policy will pay benefits for five years.
I usually suggest physicians go for a minimum of 10 years. And you can always change the policy down the line.
Do you really need the Cadillac Escalade with all the bells and whistles? In my humble opinion, I think most residents & fellows simply need a Honda Civic when it comes to disability insurance policies.
Keep it cheap! Keep it reasonable!
Consider your family's unique situation and what your needs are. There are a lot more bells and whistles that physicians need to be aware of. Some are awesome and some royally suck!
To learn more:
Dave Denniston, Chartered Financial Analyst (CFA), is an author and authority for physicians providing a voice and an advocate for all of the financial issues that doctors deal with. He is the author of 5 Steps to Get out of Debt for Physicians, The Insurance Guide for Doctors, The Tax Reduction Prescription, and his new book, The Freedom Formula for Physicians.
He’s glad to answer any questions about insurance policies or other financial matters. You can contact him at (800) 548-1820, at firstname.lastname@example.org, or visit his website at DoctorFreedomBook.com to get a copy of The Freedom Formula for Physicians.