Find out the advantages of purchasing disability insurance at a younger age.
Q: Several of my fellow residents have purchased disability insurance and suggested that I should, too. What are the pros and cons of buying it now, as opposed to waiting until I'm in practice?
A: Because rates are based on age and health status, a good reason to purchase disability insurance now is that the younger you are, the lower your premiums are likely to be. In addition, purchasing insurance as a resident will help protect your investment in medical school and residency, as well as your future income. Equally important, obtaining insurance will eliminate the risk of your being unable to repay student loans should you become disabled.
Purchasing now also will provide protection should you suffer a disability and be unable to practice the type of medicine you are training for as a resident. An example is the case of a young woman in her residency involved in a terrible car accident. Because she had purchased disability insurance, she was able to collect total disability for a period of time, then collect residual disability when she attempted to return to the residency in a reduced capacity.
If you can't afford to purchase much insurance during residency, you should consider purchasing a base policy with a guaranteed purchase option rider. Doing so allows you to procure a basic policy, then increase the benefits as your income increases.
Also, should you become an employee and enroll in a group disability plan, you can terminate, increase, or retain your individual policy as a base policy. Keeping the base policy provides diversification and flexibility.
A guaranteed purchase option rider ensures that you can buy more insurance at regular intervals without providing evidence of insurability, up to a specified age limit. In other words, you can increase your coverage as your income rises and your family grows.
Choosing a policy that is guaranteed renewable and noncancelable also is important. Such policies cannot be canceled or altered because of changes in your health status or age, and they can be renewed at the same premium for as long as you wish.
With flexible premiums and the benefit of longer coverage at a less expensive rate, buying disability insurance during residency is definitely worth exploring.
Send your money management questions to firstname.lastname@example.org. Answer provided by John Hill, CFP, CPA, managing partner of WealthPartners in Ridgeland, Mississippi.