It’s that time of the year again. Graduating med students have started their first jobs, existing residents have been promoted to a new post-graduate level, and experienced attendings are in the midst of contract renewals. As you continue working, make sure you get the pay and the benefits that you deserve. Be sure to check for these 7 things as you enter the next phase of your career:
1. Look for a salary increase and cost-of-living adjustment. Within this past year inflation has skyrocketed. The price of homes, cars, food, and other items has increased dramatically. In order to keep up with the rising cost of goods, you should receive a cost-of-living adjustment to your pay. This will help you maintain your buying power and standard-of-living over time. A cost-of-living adjustment is automatic in most jobs, but it is not always included in physician contracts. If you haven’t noticed a cost-of-living adjustment to your base pay, reach out to your human resources department to inquire about it. Be sure to negotiate that in your next contract if it is not in your current one.
2. Enroll in health insurance for yourself and your family. Health insurance is something we all need. Although we may live healthy lifestyles, we cannot predict the future. We don’t know if we’ll get sick, get in an accident, or be diagnosed with an illness that requires specialized care. In order to reduce the financial burden of these unexpected costs, we need health insurance. Health insurance can be quite expensive but, most, if not all, of the cost is usually covered by your employer. Be sure to clarify this and ensure that you’ve enrolled. If you have a spouse, children, or other family members that you support, ask about the monthly cost of adding them onto your health insurance plan. Inquire about vision and dental insurance as well. These additions tend to be quite affordable but usually require separate insurance policies that you can get through your employer.
3. Make Health Care FSA and Dependent Care FSA contributions. A Health Care FSA is a flexible spending account. Money in this account is used to pay for out-of-pocket health care expenses like the cost of prescription drugs, surgeries, fertility treatments, and doctor’s visits. While you can pay for these expenses with money from your regular checking or savings account, you may want to consider using a Health Care FSA instead. Why? Because any money you put in this account is exempt from federal, state, and FICA taxes (which could save you hundreds if not thousands of dollars each year).
A Dependent Care FSA is very similar. Instead of using the money in this account for out-of-pocket healthcare expenses, the money in a Dependent Care FSA is used to pay for childcare expenses or nursing home expenses you may have to spend on your children, aging parents, or other dependents. You can put a couple thousand dollars into a Health Care FSA each year and up to $5,000 (per household) into a Dependent Care FSA each year. Any money you contribute is protected from taxes. Just be sure to only put in the amount you will use because any unused money does not roll over to the next year.
4. Contribute a percentage of your pay to retirement accounts and see if you get a match. Another benefit to clarify is retirement. Most organizations will have a 401K (if you work for a for-profit business) or a 403b (if you work for a non-profit organization). You can contribute to these investment accounts with pre-tax dollars and stack money for your retirement over time. Doing so not only allows you to start building wealth but it also helps you to save thousands of dollars in taxes each year. The max amount you can contribute each year changes but is currently at $20,500. Some organizations also have a 457b account, which is similar to a 401K, and gives you a chance to stuff an additional $20,000 in pre-tax dollars into investment accounts each year. Using this account allows you to build even more wealth and save even more money in taxes.
Along with contributing your own money in these accounts, many organizations also offer a retirement match. This is when they incentivize you to invest money for your own retirement by giving you extra money to do so. Oftentimes, they will match what you contribute to retirement up to a certain percentage of your salary. This can result in $10,000 to $20,000 (or more) dollars each year that your organization puts inside of your own personal retirement account. This retirement match is a free benefit you may be eligible for after your first full year of working at that organization so don’t hesitate to ask about it and utilize it. It could net you thousands of extra dollars per year, expediting your ability to reach financial freedom.
5. Check for disability insurance and life insurance. Most jobs will offer long-term disability insurance. This means they will pay you a certain portion of your salary (up to a certain amount) each year, if you were to get disabled and were unable to work. This is a great benefit that is usually free for most people. Unfortunately, it may not be enough. You will likely need to take out your own independent, specialty-specific, own-occupation disability insurance that you can get through an independent insurance agent. (The benefit given by your job is nice but insufficient to meet most people expenses). Along with disability insurance, your job may also offer life insurance. This is a benefit that pays a certain amount of money to your family if you were to die. Similar to disability insurance, this benefit is often free and can be a great addition but is usually insufficient. Most people will need to purchase their own term-life insurance policy and long-term disability insurance policy through an independent insurance agent.
6. Reexamine your malpractice insurance. As a physician, lawsuits aren’t uncommon. Patients may sue for all kinds of reasons, and regardless of whether it was your fault or not, hiring an attorney to defend you can be expensive. All doctors need malpractice insurance. Thankfully, this is usually given to you by your job. Just clarify what it covers and what type of policy you have. If you have an occurrence policy (which is the most protective) then great! If you have a claims-made policy (which is less protective), make sure that they also offer you tail insurance (which will protect you against lawsuits that are filed even after you leave the organization). Unlike life insurance and disability insurance, the malpractice insurance you get from your job should be sufficient. Just be sure to clarify which type you have, what it covers, and ensure you are protected from lawsuits even after you leave the organization.
7. See if you have access to any perks (tuition assistance, mortgage assistance, or discount tickets). Some jobs offer even more perks and incentives than money and insurance. For example, if you work for a large health system that is affiliated with a university, they may offer tuition assistance for yourself and your kids. After you have worked at the organization for a set amount of time, they will pay part of the cost for you to take courses at the university. Many jobs will also pay a portion of the cost for your children if they choose to pursue a degree there. Other jobs have even offered mortgage reimbursement. This is when they pay up to 10% of the cost of a mortgage for physicians who chose to join the organization and stay in the area for a certain number of years. Some jobs may not have the funds to do tuition assistance or mortgage assistance but may be able to offer other perks such as reduced costs for attorney fees to help you set up a living will or trust fund for your family. Others may even offer discount tickets for community events, concerts, and professional sports in your area. Ask your human resources department which perks you may be eligible for.
To summarize, don’t let another year go by without looking at your contract and double checking your benefits. You could be missing out on tens of thousands of dollars each year. Check and see what you’re eligible for and don’t forget to negotiate for what you want.
5 Things To Do Financially In The Month of July:
July 1st is a big day in the medical world. It’s when graduating medical students start their first day as doctors, and experienced resident physicians get “promoted” with more responsibilities and a pay raise to match. Whether you’re in the medical field or not, the start of July marks the halfway point of the year and can be a great time to re-evaluate your finances and make any necessary changes. Here are 5 things we should all be sure to do in July:
1. Create a spending plan. For the interns who are now getting paid, the residents physicians experiencing a salary increase, or the attending docs that have more money than they ever have before, now is the time to create a spending plan. Going from barely having any money to a steady [large] paycheck can be exciting. However, if you don’t manage your money wisely, you may find that your money is gone sooner than you think or realize that you wasted it on things you didn’t need. Having a spending plan can help prevent this from happening. It’s having a basic outline of the things you need to purchase and reserving money for other things that may be important to you, without going overboard. It’s determining which bills and other costs you need to cover each month (rent, electricity, internet, car insurance, etc) and thinking about how much money you also need to set aside for other things like groceries, gas, personal grooming, etc. The goal is to figure out the max amount you can afford to spend on certain items each month so that you never have an issue paying your bills and have also managed to save money for other priorities and still have some money left over to enjoy.
2. Make sure you have insurance. You can try your best to plan for certain life events and expenses, but you can’t predict everything. For large expenses that we can’t predict, we need to have insurance in place to cover those costs. Although signing up for insurance may not be the most exciting task to complete, it’s absolutely essential. We all need some form of medical insurance to cover basic health expenses, prescription costs, and any hospital bills. We also need long term disability insurance so that we have income security in case we get diagnosed with an illness or get an accident that precludes us from working at our full capacity. Lastly, those with families or other people who rely on their income also need term-life insurance so that their families have a means of financial support if they happen to die before they have become financially independent.
3. Get a handle on your student loans. Many people have student loans. Physicians who are in residency or young professionals who work for non-profit hospitals and public institutions may qualify for public service loan forgiveness (PSLF) or some other type of student loan forgiveness plan. In order to sign up for this program or ensure that your payments over the last 12 months were properly counted, it is essential that you complete the employer certification form each year. Anyone with federal student loans may also want to consider signing up for an income driven repayment plan like PAYE or REPAYE so that your monthly payments are based on your income instead of a much higher amount that you may not be able to afford. Those who are already enrolled in an income driven repayment plan must complete the mandatory annual recertification to remain in the same plan each year. Once you determine a repayment plan and re-certify any forms, it may also make sense to have your monthly payments automatically withdrawn from your bank account. Many loan servicers will even lower your interest rate if you sign up for these automatic payments.
4. Pay down your debt. For those who want to build wealth and become less reliant on each paycheck, it’s imperative that you prioritize paying off your debt. Many people accumulated credit card debt in their early twenties or have used credit cards to cover moving expenses, furniture costs, or previous vacations. Other people may have taken out car loans or borrowed money from other sources to make ends meet. Although it may not be feasible to pay all of our debt off instantly, it’s important to come up with a feasible payment schedule to get rid of the debt sooner rather than later. Simply paying the minimum amount each month will cause us to pay a lot of extra money in interest and may really impede our ability to build wealth and financial security. Making a goal of having at least one of our credit cards or loans completely paid off within the next 12 months might be a decent place to start.
5. Start investing. Part of adulting means setting aside money for retirement, creating a savings account and investing money in a way that helps build your net worth. Many people have elaborate investment plans or try to play the exhausting game of picking individual stocks to purchase. While that may work for them, investing doesn’t have to be complicated. You can start by funding your employer-sponsored retirement account and a Roth IRA (or backdoor Roth IRA). Simply choose a percentage of your income you want to contribute towards retirement (ideally, you’d want to start off around 10%) and choose to invest the money in various index funds or a target retirement fund that invests your money in thousands of different stocks and bonds. When I started residency, I prioritized paying off debt and only contributed about 5% to retirement. Once I paid off the debt, I drastically increased that percentage and started fully funding my emergency fund and other savings.
My point? If you want to ensure you’re on the road to financial stability and independence, start by completing the 5 steps above.
Quick Guide For Managing Loans, Insurances, and Budgets
Of note, this article was originally published on Doximity’s Op-Med for resident physicians.
As resident physicians who work crazy hours, we have a lot on our plate. With so many competing responsibilities, it can be difficult to balance our personal lives with our careers and some things may inevitably fall by the wayside. While there are many things we can put off for another month or even another year, our finances shouldn’t be one of them. Here’s a financial check list of three things you must do to make sure you’re on the right track:
Have a concrete plan for your student loans
Figuring out what to do with your student loans can seem a bit overwhelming. Here are a few steps to help you navigate through the madness.
Decide whether or not to consolidate or refinance your loans. Consolidation is when you combine all your loans into one giant loan and this can usually be done through the federal government. Refinancing is when you combine your loans with a private company outside of the federal government. Refinancing your loans usually allows you to get a lower interest rate on which can save you money over time but it makes you ineligible for several government loan forgiveness programs like public service loan forgiveness (PSLF). Since I’m enrolled in PSLF, I chose to consolidate my loans through the government instead of refinancing them with a private company.
Pick a repayment plan that you can afford. If you have federal student loans, you will be automatically enrolled into the standard repayment plan. This plan may require a higher monthly payment than you can afford. If this is the case for you, as it was for me, switch into one of the income driven repayment plans that cap your student loan payment at 10-15% of your discretionary income.
Sign up for public service loan forgiveness if your residency qualifies. Enrolling into the program isn’t binding and may give you the chance to get tens of thousands of dollars in student loans forgiven, tax free. Take five minutes out of your day and submit the form to officially enroll, if your resident program meets the qualifications.
Make sure you have insurance
Many of us didn’t think much about insurance in medical school. We probably had health insurance from our parents or our schools and didn’t worry about anything else. Now that we’re out in the “real world,” here are three things to do to make sure we are thoroughly protected in residency:
Verify that you have medical insurance. Even though most of us are young and healthy, we still need health insurance. Whether it’s for yearly checkups, acute illnesses, the birth of a baby, prescriptions, or unforeseen injuries, we have to make sure we’re protected and have an affordable way to cover these costs. As residents, most of us should get free or low-cost coverage through our programs. Just make sure you’re enrolled.
Get disability insurance. After taking out loans and spending most of our 20s in school, let’s make sure that our income is protected. If we get in an accident, are diagnosed with an illness, or simply have an injury that prevents us from working to our full capacity, disability insurance will kick in and give us money to replace the income we may have lost. Group disability insurance policies through our residencies usually don’t have enough coverage or adequate protection. I purchased an individual specialty-specific disability insurance policy that will pay out $4,000 a month if I am unable to work at 100% capacity as a resident. The policy will increase and pay out $12,000 a month when I become an attending.
Decide if you need life insurance. Life insurance pays money to our families if we were to pass away. While many of us have a life expectancy well into the 80s, life can be unpredictable. If something were to happen to us, we’d want to make sure our family was taken care of. As a resident, many of us have a small life insurance policy from our employers, but if you have a spouse or kids who depend on your income, that group policy may not be enough. You may need to purchase additional term life insurance.
Create a monthly spending plan
As resident physicians, life is much different now than it was when we were medical students. Instead of getting one lump sum of money each semester, we now get paid on a consistent basis. In order to make sure we’re not spending too much money and are actually saving a decent amount for emergencies, paying down debt, retirement, and vacations, it’s imperative that we implement a spending plan. I categorize my spending into 3 buckets:
Things I need to buy, which are necessities like rent, bills, and food.
Things I want to buy, which are discretionary entertainment expenses like concert tickets, movies, books, meals at restaurants, or clothes.
Things I should buy, which are investments I make to increase my net worth whether that’s by paying down debt, saving money into a separate account, or investing toward retirement.
Simply allot a percentage of your check to each of these three buckets to make sure you’re living within your means and making responsible spending choices.
To summarize, getting your finances in order doesn’t have to be difficult. Have a concrete plan for your student loans by deciding whether or not to consolidate or refinance your loans, enrolling into an affordable repayment plan, and signing up for PSLF. Next, make sure you have all the insurance you need like medical insurance, disability insurance, and life insurance. Lastly, create a spending plan to ensure that you’re paying your bills, increasing your net worth, and investing in your own self-care.
6 Reasons I’m Not Buying Whole Life Insurance (and you shouldn’t either)
If you’re a physician or high-income earner, you’ve probably been approached to purchase whole life insurance. While many of your fiscally responsible colleagues may warn you not to buy it, many other financial advisors seem convinced that whole life insurance is a must-have. With such conflicting advice, you may be confused on who to listen to and unsure about what to do. Several of my physician friends are in the same boat. In fact, many of them have asked me to help them understand why “whole” life insurance is so bad and “term” life insurance is ideal. Here was my response:
Most whole life insurance policies, universal life insurance policies, indexed life insurance policies, (and basically anything other than term life insurance) is sold to us under false pretenses. These policies are branded as a way to “guarantee” our family money when we die. However, if you delve into the fine print of these polices you will see that they aren’t nearly as good as they sound. In fact, there are 6 main problems with whole life insurance:
1. You don’t need it. Unlike disability insurance, where we insure against the unpredictable risk of becoming disabled, life insurance is different. We already know that we will “pass away” at some point. Thus, dying isn’t necessarily a “risky” event, it is an EXPECTED event. Any event that you can expect to happen, you can plan for yourself. Since you can plan for this event yourself, you only need to insure against the risk that you could die before this plan is fully carried out. In other words, you don’t need life insurance for your “whole” life. You only it for a certain period of time or “term.”
2. It’s inefficient. In order for whole life insurance companies to guarantee your family money after you die, they must have money to give them. Insurance companies aren’t charities, so they definitely are not giving your family money out of their own pocket. What they do is collect a large amount of YOUR money to pay into THEIR system. In fact, the financial advisors who sell you whole life insurance put a large portion of your money into their own pockets as profits, then take the rest and “invest it” into low-yield accounts. If you die young, your family may not get much of anything at all because you’ve haven’t paid into the system for long. If you die old, your family won’t get nearly as much as they should because the insurance company still needs to make a profit. With whole life insurance, you end up paying a huge chunk of money to an insurance company that will give you and your family much less in return.
3. It’s expensive. Whole life insurance policies pay out to your dependents after you pass away. Thus, insurance companies will want you to pay for the cost of that benefit upfront. Paying for this benefit is insanely expensive. In fact, whole life insurance costs about 10x more than term life insurance. This means you could easily be paying hundreds if not thousands of dollars each month for this policy. That’s a lot of money to spend on an inefficient insurance product you don’t need.
4. There are lots of hidden fees. The vast majority of whole life insurance products have a slew of hidden fees. These expenses take away from the value of the product and drastically decrease the benefit your dependents receive when you die. In fact, most of the money you pay the insurance company for a whole life insurance policy is paid directly to the agent who sold you the policy as “commission.” I can think of many more ways you can spend your money, than to pay tens of thousands of dollars in commission fees to an insurance agent.
5. The benefit isn’t as good as you think. If you look at the fine print of these whole life insurance policies, you’ll see that the benefit it provides to your family isn’t very good. In fact, the “returns” are actually negative in the first few years. This means that if you die shortly after you purchase a whole life insurance policy, your family may not get anything at all, even though you’ve paid thousands of dollars in premiums. If you die much later in life, the average returns on your money are only 2-4%. In contrast, average returns from the stock market are 7-10%. This means that if you had simply placed your money into an index mutual fund, you’d have been able to give you family drastically more money and paid much less in fees.
6. There’s a better alternative. The biggest reason I’m against whole life insurance is that there is a much better way to proceed. You can save money for your loved ones without ever having to purchase whole life insurance. How? By maxing out your retirement accounts so that you can save and invest money in a tax-efficient way. By converting money each year to Roth accounts (like a Roth IRA) so that your family can inherit the money you save tax-free. By purchasing a “TERM” life insurance policy so that if you happen to die before you’ve been able to pay off your student loans and stack enough money for your family, the insurance company will provide a hefty benefit to your family.
My point? As busy young professionals, we already sacrifice a lot. The last thing we need to do is to get tricked into purchasing an insanely expensive insurance product that has lots of hidden fees. There is a much better alternative. Save money for your family yourself and purchase a “term” life insurance policy to cover yourself in the meantime. Don’t buy whole life insurance.
9 Things I learned when I purchased disability insurance
As an incoming resident physician, I need disability insurance. Although a group policy is offered through my employer, it doesn’t provide enough coverage to adequately cover my monthly expenses or insure my future income. Thus, I purchased an individual long-term disability insurance policy. This is what I discovered:
1. Disability Insurance is expensive. Quotes from different companies from $100-250 per month. Apparently, a substantial number of people use disability insurance, so companies raise the price to cover the payouts and ensure they aren’t losing money. Many companies offer “graduated” premiums (which allows clients to pay a reduced monthly premium for a few years in exchange for a higher premium later in life) to make it more affordable. I still opted for a “level premium” with a set rate and it’s $110 a month.
2. The definition of disability is important. The definition of disability is variable. Some people might consider themselves disabled if they can’t work full-time, while others may only consider themselves disabled if they are unable to work at all. The broader the definition of disability, the harder it is to claim the benefit. Physicians need “own-occupation” disability insurance so that if we are unable to meet the specific demands of our own specialty (i.e. Surgery) we will get compensated, even if we can technically still do the work of another specialty (i.e. Family medicine). As a family medicine resident who plans to specialize in sports medicine, I still opted for an own-occupation definition of disability.
3. Gender bias is real. Disability insurance is more expensive for women than it is for men. Insurance companies claim that women are more likely to get disabled and seek payout from disability insurance (due to factors like pregnancy) so they charge us more for it. To avoid paying such high premiums, I purchased a “unisex” policy (which is the same price for men and women). These policies offer similar coverage and tend to be cheaper than gender-based policies for women.
4. Some companies are better than others. When I contacted a few disability insurance brokers, I realized that one company was vastly cheaper than the others. Mass Mutual was the only company that offered an individual unisex disability insurance policy for female resident physicians. Since unisex policies are cheaper for women than gender-specific policies, the monthly premium for disability insurance from Mass Mutual was vastly cheaper than any other company. On the flip side, Principal offers discounted gender-specific policies for men, so many male residents purchased individual disability insurance policies through that company instead.
5. Certain “riders” or added protections are essential. When I shopped for disability insurance, I had the option to buy additional protections. As a resident physicians with high-income potential there were 3 main riders I needed: 1) a cost-of-living-adjustment rider (so that my payout will increase with inflation each year), 2) a residual & recovery rider (so that I am compensated for any partial disability until I am back to my full productivity), and 3) a future purchase option (so that I can purchase more disability insurance after residency when my salary increases without having to re-qualify or pay a much higher price). Since I have a substantial amount of student loans, I also purchased a student loan rider so that if I get disabled before I pay off my debt, the disability insurance policy will pay me an extra $1700 for up to 10 years to cover my student loan payments.
6. There is a limit on how much individual disability insurance we can buy. By law, resident physicians can only purchase an individual disability insurance policy with a max benefit of $5,000 per month. (They don’t want to incentivize us to become disabled by compensating us more than our current salary). We can purchase more disability insurance as attending physicians, but we need to have an individual disability insurance policy as residents so that we are fully covered now and can upgrade our coverage later for a cheaper price.
7. It’s cheaper if you’re healthy. As I filled out the disability insurance policy application, I answered a TON of personal questions. Insurance companies take a very thorough history to determine our risk of being disabled in the future. I was asked about my own medical history and that of my family. They wanted to know if I had broken any bones, got in any recent car accidents, and whether I had ever smoked cigarettes. I was also asked if I had plans to travel out of the country or engaged in any high-risk behaviors like rock climbing or sky-diving. They wondered if I had ever gotten pregnant and the result of my last “wellness check” from the physician. Because I was young and healthy, my rate remained low.
8. The price varies by state. I currently live in Florida, but I will begin residency in Atlanta, GA. Apparently, my disability insurance premiums are lower with my Georgia address than they are when I use my Florida address. Insurance companies look at hobbies, accident rates, and other data and determined that we pose a greater or smaller risk to them depending on where we live. California is one of the most expensive places, Georgia is one of the cheapest.
9. Be wary of group policies through professional organizations. As physicians, we can buy into the group disability insurance policy through the American Medical Association or our specialty-specific organization. These policies seem cheaper and looked enticing. However, after doing some research I saw several drawbacks. First, the premium was not “level,” meaning the cost of policy could increase every few years as I aged. Secondly, they did not offer sufficient “future purchase options” so I couldn’t upgrade my coverage as often as I’d like (i.e. when my salary increased as attending physician). Lastly, buying into these group policies would negate or significantly reduce the payout from any disability insurance coverage I already have from my residency. Group policies usually cancel each other out, individual policies do not.
Bonus: Many residents are eligible for the guaranteed standard issue policy at their institution. Every doctor needs their own individual long-term disability insurance policy. However, there is a special version of policy available to many pysicians-in-training. It’s called the guaranteed standard issue (GSI) policy and it allows physicians-in-training to get their own individual long-term disabiity insurance policy for a lower rate and with guaranteed approval. They get to skip the medical underwriting portion of the application can instead be guaranteed approval at a lower rate. Unfortunately, many insurance agents don’t tell clients about this policy so be sure to ask about it. These GSI policies are usually available to residents, fellows, and other physicians who just finish training with the past l3 months.
My point? Disability insurance is a must for resident physicians. It’s a bit expensive, especially for females, but we can get around that issue by purchasing a unisex policy and/or opting for a graduated premium. When we buy this insurance, we need a definition of disability specific to our own specialty, with the 3 main riders for complete coverage. Purchasing this policy in residency is cheaper and gives us the protection we need. Be mindful of what address you use on the application since the price varies by state and remember that group policies through professional organizations may be insufficient.
Disability Insurance 101: why you need it, what to include in your policy, and how to purchase it
When we’re first starting our careers, our focus is trying to advance and increase our pay. With our tight budgets, one of the last things on our mind is paying for added insurance. Trust me, I get it. However, as [future] high-income earners, long-term disability insurance is essential. It may not be at the top of our priority list, but it should be.
What is it and who needs it?
Unless you are already financially independent or were lucky enough to have a trust fund in your name, disability insurance is a must. Although we’d like to think we’re invincible, we are not. If some unfortunate event occurred that caused you to become disabled and prevented you from doing your job, you’d still need a way to support yourself. You can’t predict whether you’ll be disabled in the future so you must insure against that risk right now.
You may be tempted to wait to purchase this coverage when you make more money, but I’d caution you against that. The younger, healthier, and earlier in your career you are, the more you need disability insurance. You have your whole life ahead of you with decades of potential high earnings, long-term disability insurance protects you in case this were to change.
Do you still need it if you have a group policy through your employer?
More than likely. Long-term disability insurance may be offered by your employer, but that policy may not offer sufficient coverage. Most employer group policies only pay out 60% of your income if you get disabled, up to a certain maximum per month. The amount they provide may not be enough to cover your monthly expenses, pay back your student loans, and still allow you to save for retirement. As a rule of thumb, the higher your salary, the more likely you are to need an individual long-term disability insurance policy, outside of your employer.
Secondly, group policies may be less likely to pay out if you do become disabled because their definition of disability may be too broad. In other words, it may be harder to meet your job’s definition of disability to even apply to receive the benefit. For example, you may consider yourself disabled because you can’t do your current (high-paying) job as well, but the insurance company might deem you able to do some other (lower-paying) job and refuse to pay out, leaving you to deal with the decrease in pay on your own. You want to protect yourself against that risk by getting your own individual long-term disability insurance policy.
Some people may be able to purchase a group disability insurance policy through certain professional organizations. Although these policies seem enticing, they can have several drawbacks. The premium may not be “level,” meaning the cost of the policy may increase every few years as you age, eventually costing you a substantial amount as you get older. It also may not offer sufficient future-purchase options that allow you to upgrade your coverage as your salary increases.
What to look for in a good policy?
A good individual long-term disability insurance policy has 3 components: enough coverage, a specific definition of disability tailored to your own occupation, and additional riders for added protection. Let me explain.
Along with enough coverage and a specific definition of disability catered to your [high-paying] job, you also need to purchase disability insurance “riders.” Riders are added protections you pay for to ensure that you have all the coverage you need. Examples of riders you should consider purchasing are the: cost-of-living-adjustment (COLA) rider so that your payout will increase with inflation each year, residual and recovery rider so that you are compensated for any partial disability until you are back to your full productivity, and a future purchase option so you can purchase more disability insurance if your salary increases without being denied or charged outlandish rates because of your age or medical conditions.
How do you purchase it?
As a graduating medical student, I knew I needed disability insurance. I emailed a few vetted brokers/agents that had a track record of working with high-income professionals and entered some basic information on their websites to get quotes. Once I found a policy that had the benefit I wanted with the riders I needed and an own-occupation form of disability, I then chose the cheapest policy.
The insurance agent asked me a bunch of medical questions as he filled out the application on my behalf. He inquired about my hobbies, medical history, and travel plans to discern my “disability risk” as requested on the form from the insurance company. I then reviewed the information in a secure portal and signed the form online. I was approved within 24 hours.
Are there any good deals for doctors?
Yes! Many physicians-in-training qualify for something called the guaranteed standard issue (GSI) policy at their residency or fellowship training program. The GSI policy not only gives you a discount on the price but it also guarantees you will get approved. Most disability insurance comapnies will assess your risk for being disabeled in the future by asking about your personal and family medical history. If you have a chronic condition, have had a series health scare in the past, or have a benign condition like an essential tremor they could deny you coverage. This is not the case with a GSI policy. Everyone who submits and application can get approved. Since these policies don’t require any “medical underwriting” or extensive approval process they are a great option for physicians who are still in training and looking for an individual disability insurance policy at a lower rate.
To summarize: Disability insurance is a must-have for high-income professionals. We can’t predict what may happen in the future so we owe it to ourselves to get insurance that will “protect our income” just in case we were unable to work for some reason. Oftentimes, group policies from our employer are helpful but not sufficient. We need an individual own-occupation disability insurance policy with extra riders until we become financially independent. Be aware that you may be able to get the guaranteed standard issue policy at your training institution which is a great option for many people. If you don’t already have a policy, I encourage you to get one today.
Tell me, was this helpful? What additional information about disability insurance would you still like to know?
Types of Insurance We All Need (in addition to health insurance)
Many of us are young and healthy with our entire lives ahead of us. As we continue to progress in life, we need to make sure we are doing so with the right protection. In other words, we need insurance. I don’t just mean medical coverage and car insurance though. Let me explain.
1. Almost everyone needs long-term disability insurance. Unless you have a huge trust fund, enough passive income to completely cover your monthly expenses, or enough retirement savings to deem yourself financially independent, you need disability insurance. Why? Because if some unfortunate event were to occur that prevented you from working, you’d still need a way to support yourself. Disability insurance guarantees you a certain monthly income if you were to get fully or partly disabled, suffer from some medical illness, or get into an accident that prevented you from working your job. Since you can’t predict whether you’ll be disabled in the future, you need to insure against that risk right now. The younger, healthier, and earlier in your career you are, the more important it is to have disability insurance.
Although long-term disability insurance may be provided through your employer, group policies from your employer may not offer sufficient coverage. The payout from your employer is usually capped at a certain amount and may not fully replace your income. Plus, group policies may be less likely to pay out if you do become disabled because their definition of disability may be too broad. In other words, it may be harder to meet their definition of “disabled” and thus you may be less likely to receive the benefit when you need it. My point? Most high-income young professionals should purchase an individual, long-term disability insurance policy outside of their employer.
2. You may also need life insurance. Life insurance guarantees a portion of your salary to your spouse or dependents should you pass away sooner than expected. This is critical if someone else depends on the money you make. I will be honest and say that as a single female with no kids, I don’t have an individual life insurance policy. However, if I get married to someone who is dependent on my income or have kids, it will be one of the first things I purchase.
There are two types of life insurance: whole life insurance and term life insurance. Term life insurance provides a benefit to your family if you die during the term of the policy (usually 30 years). Whole life insurance provides a benefit to your dependents regardless of when you die. Whole life insurance may sound more appealing, but you may want to think twice before purchasing it. Unlike term life insurance, whole life insurance is insanely expensive (about 10x more than term insurance), has a lot of hidden fees, and is unnecessary for many high-income earners who can provide money to their families in a more efficient manner.
My point? Most people need term life insurance to make sure their families don’t struggle financially if they were to die sooner than expected (within the next 20-30 years). If you were to die after that time, then you should hopefully have enough money saved (via retirement accounts and other high-yield investments) to take care of your family.
3. Some professionals need malpractice/liability insurance. Most physicians are familiar with this type of insurance and most non-physicians don’t have to worry about it, but even still, I think it deserves a quick blurb. Malpractice insurance protects you in case you make a mistake at work that severely impacts someone else’s quality of life. You want to ensure that the patients or clients you work with can’t sue you and take everything you own. The ideal amount of liability insurance depends on your career specialty and other risk factors that put you at increased or decreased risk of being sued.
There are two main types of malpractice policies you can purchase: a “claims” policy and an “occurrence” policy. Claims policies cover you if someone files a claim against you during a certain period of time or while you work for a certain organization. The downside is that if someone waits to file a claim against you when you no longer work for that company, then a claims policy will not cover you. On the other hand, an occurrence policy covers you for any event that “occurred” during the time frame you were at the organization or under the policy. With an occurrence policy, if someone waits years to sue you then you are still covered because the action in the suit “occurred” during the time you were covered under the policy. As you can imagine, occurrence policies are more expensive but offer much better coverage. If you are working a job that only offers a claims policy, then you need to make sure you have what’s called a “tail” (added protection that will cover you in case someone sues you after you’ve changed jobs).
My point? Consider getting malpractice or liability insurance. The best kind is an occurrence policy, however, that is also the most expensive. If your job already covers the cost of a “claims” liability insurance policy, be sure to purchase “tail” coverage so that you have liability insurance after you change jobs.
4. Consider adding an umbrella insurance policy to supplement your car and home insurance . While liability insurance covers you if someone sues you for something you did at work, umbrella insurance covers you in case you’re sued for something you did outside of work (i.e. civil disputes, business deals, etc.). For example, umbrella insurance can pay for your legal fees if your dog bites someone in the neighborhood, you accidentally injure someone at a social function, or some toddler gets injured at your child’s birthday party. It also acts as additional automobile and homeowner’s insurance. Although umbrella insurance doesn’t cover your own injuries or damages to your own property, it does protect you and cover your legal fees from harm you may cause to someone else.
Since umbrella insurance is added insurance, you can only purchase it after you have already purchased a certain amount of automobile or homeowner’s insurance. As a rule of thumb, umbrella insurance is purchased in benefit increments of a million dollars and it is usually best to purchase enough to fully cover your net worth (including the value of all your assets and potential future income). A policy with a benefit coverage of $1 million usually costs $100-$300 a year.
To summarize, get insurance and enough of it. In addition to medical coverage, car insurance and homeowner’s insurance, most high-income professionals need disability insurance if they themselves are dependent on the income they receive from their jobs. They also need term life insurance if someone else, like a spouse or kids, is dependent on their income. Malpractice/liability insurance is useful in case someone tries to sue you for something you did at work and an umbrella insurance policy protects your net worth from unforeseen lawsuits outside of work. As [future] high-income young professionals, it is imperative that you get the insurance you need to protect yourself and your net worth.