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A Physician's Guide To Buying Life and Disability Insurance during Residency and Fellowship

When May comes around, we see a flurry of posts on our physician communities asking about how to buy disability and life insurance. One of the biggest fallacies out there in the physician finance world is that you just need to buy disability insurance before graduating. While it is definitely true that you want to make sure you take advantage of the significant savings you get on disability insurance policies during training and secure your disability insurance policy before graduation, we always remind the other residents and fellows on the group that they should be getting disability insurance much earlier - even as early as when they start internship. Depending on your personal situation, it may also make sense to lock down life insurance as soon as possible. This article goes into why, when, and how to purchase insurance during residency and fellowship training, as well as what you need to know about the process in terms of red flags and strategies to save money. 


Note: This article is part of our resources for graduating residents and fellows and transition to practice series. We’ve compiled a list of other relevant resources below. If you are not a part of our transition to practice series and would like to sign up, you can find the sign-up link at the top of our transition to practice guide.


Disclaimer: Please do your own due diligence before making decisions based on this page. We are not formal financial, legal, or otherwise licensed professionals, and you should consult these as appropriate. To learn more, visit our disclaimers and disclosures.


Quick tips on buying life and disability insurance during residency and fellowship




Resources


If you've never looked into purchasing a life or disability insurance policy before, we have additional resources to help you navigate the process:




Do residents and fellows need to buy disability and/or life insurance?


The answer to this is going to depend on the resident or fellow’s individual situation. Disability and life insurance are cornerstones in the basics of personal finance for physicians, but when to purchase these policies may depend on individual factors. One important thing to know is that just because you may have some disability and life insurance through your program or your future job does not mean that you shouldn’t buy your own policy. Those policies are inferior for several reasons.


Let’s start with disability insurance, because that is more of the no-brainer for most residents and fellows. Most physicians need disability insurance because for most physicians, it would be financially and personally devastating if they were no longer able to earn money as a physician. If you’re a resident or fellow, you’ve worked too hard to not have financial security for the rest of your life, and you want to insure that if anything unexpected happens (you get into a car accident, you fall down while skiing, you have an unexpected health diagnosis such as MS or cancer, etc.), you will not be without a source of income going forward. Unless you happen to be financially independent and can self insure - and by self insure, we mean you personally, not your spouse, parents, etc. - against this catastrophic possibility, you should buy disability insurance ASAP after finishing medical school.


Read this article on Do I Need Disability Insurance If… to see why most physicians who think they don’t need to purchase their own disability insurance policies really do. 


Life insurance is a harder answer. Until you have somebody that’s dependent on you financially or whom you would like to support financially in some capacity if you weren’t around, it may not make sense to get life insurance unless you want to lock in lower rates (life and disability insurance are cheaper if you get them when you’re younger), or if you have a fear or reason to believe that you may develop a health condition or risk factor that will either preclude you from being able to quality to get insurance or significantly raise your premiums. If you do have someone or multiple someones that depend on you for financial security already, you’ll want to get life insurance so that if something unfortunate were to happen to you, they’d have the financial means that you want for them.


Here’s one type of life insurance you probably DON’T need right now - permanent life insurance. If anybody tries to sell this to you at this stage of life, you probably need to run far, far away from them and any advice they give you, as they may not be acting in a fiduciary capacity. You can learn more about why not permanent life insurance below. Generally speaking, you only want to buy TERM life insurance at this stage, which is affordable and gets the job done.



When should I purchase disability and life insurance?


As soon as you know that you need disability or life insurance, you should purchase it. There’s a very widespread fallacy that you can wait until the end of residency or fellowship to buy insurance because that’s when the trainee discounts expire. While that should be an absolute deadline, remember that things can happen before then too. We have many, many members of our physician communities that have told stories of co-residents or co-fellows who have gotten into horrible accidents, had a devastating and life changing diagnosis, or otherwise not been able to qualify for insurance. We are big believers in getting disability insurance as soon as possible after graduating medical school.


If you are a female, please secure disability insurance BEFORE pregnancy. There are many things that can happen during pregnancy and/or associated conditions (gestational diabetes, pre-eclampsia, etc.) that can result in exclusions on your policy, increased premiums, or even outright denial.


Also, if you wait until you have a signed contract from a job later to get your disability insurance, it may affect your ability to secure the amount of coverage that you want. This is because disability insurance companies will only permit you to insure a certain percentage of your income, and this maximum applies across policies that your future employer may provide to you (which are inferior to your own policy for many reasons discussed below).


Start the process of getting disability or life insurance through one of our recommended life and disability insurance agents for physicians, who know the unique needs of physicians and who have helped thousands of our members. These are independent brokers that can shop options for you. They are paid by the insurance companies, so it doesn’t cost you anything to use them, but they can give you access to discounts and help you navigate the confusing aspects of buying the right insurance policy for you, like which disability insurance riders to pick.



How long does the process of buying insurance take?


Honestly, it’s not as long as you think. When you use an insurance broker that specializes in physicians, they will do much of the legwork for you. You will supply basic information on an intake form, they will shop around and get quotes for you, you’ll schedule a meeting with them to go over options, and then you’ll make a decision about which one you want to apply for. The whole process could be less than an hour or two of your time, and it only takes a few minutes to get started. Depending on the policy, you may require medical underwriting with an exam or labs, although there are policies that don’t require this.


A summary of the three step disability insurance purchasing process when using a broker


If my employer or future employer provides life and disability insurance, do I need to purchase my own policy?  


In the majority of cases, the answer is yes. In general, you want your own policy for a few reasons:

  • You usually pay taxes on the benefit you receive from work policy because they are paid by the company in pre-tax dollars.  You pay your premium for your individual policy in post tax dollars so then if you need to use your benefit, your benefit will be in post tax dollars (which could reduce the amount of money in your pocket by as much as 50% depending on what tax bracket you’re in and state and local taxes).  If you are disabled, having that extra money every month will make a huge difference in what you’re able to afford. 

  • You could change jobs (and statistically speaking, you likely will).  In most cases, you can’t take the employer policy with you or might have to convert it at an unfavorable price. More importantly, you don't want to take the chance that you won't qualify for an individual policy at that time (or that it is much more expensive because you're older) or that the new job's policy is not good.

  • There’s a good chance that group long term disability plans are not "own occupation." See below for why this is important.

  • They may not cover bonus income or may have a maximum monthly benefit associated.

  • They may also have offsets for Social Security Disability, or Workers comp.

  • They can be harder to claim. 



FAQs: Key Things to Know about Buying Disability Insurance  


There are some key things you should know. We have several guides with the most commonly asked questions about buying disability insurance for you, including our overarching Guide To Disability Insurance for Physicians


Do I Need Own Occupation Disability Insurance? 


The first thing you should know is that you really want an ‘own occupation’ disability insurance policy. This is important because you want to get benefits if you can’t do what you’ve been trained to do - not just if you’re so disabled you can’t work at all. For example, you can see a situation where you could have a hand injury that prevents you from doing procedures but doesn’t preclude you from doing outpatient visits, but that significantly reduces your earnings. Similarly, you may have a disability that prevents you from seeing patients 10 hours a day but doesn’t preclude you from another work from home job. For this reason, our recommended disability insurance agents for physicians will match you with companies that provide own occupation policies.


The importance of own occupation disability insurance for doctors

How much should disability insurance cost?


How much disability insurance will cost will vary widely based on a variety of factors such as: 

  • How much benefit you’re getting 

  • Your age (older is higher)

  • Your health status (the more things you have on your medical record, the higher your premium will be - additionally, this can actually preclude you from getting coverage or result in exclusions)

  • Gender (females pay more)

  • State (certain states are more expensive, so if you’re moving for your attending job, our insurance agents can help you navigate)

  • Specialty

  • The disability insurance riders that you put on your policy


How much disability insurance benefit should I get?


When you are in training, the answer is generally that you should get however much you can qualify for, as it won’t be much since your training salary is low. Your goal for now is to lock in on your age, health, and trainee discount, and preserve your ability to qualify for disability insurance at those preferentially underwritten rates, and increase your disability insurance benefit in the future as your income grows, without having to undergo underwriting again, as it will be much more expensive then. Those savings over the course of your career are very necessary.


When you buy your disability policy as a resident or fellow, it’s important to get a rider that allows you to increase the benefit to reflect your income without having to undergo underwriting again. While each insurance company has a different name for this, it’s generally something with the words future, benefit, or increase in the rider name. Read more about the future increase option rider for disability insurance here.


If affordability is an issue, just lock in on a cheaper policy as a trainee and get that future benefit increase rider, which will allow you to increase the policy later without having to re-qualify.


What are all of these disability insurance riders and which ones do I need to get? 


We hear you. These are confusing. As residents, as mentioned above, we believe in the future benefit increase rider. We also think the Cost of Living adjustment rider is important (COLA) early on in your career as the spending power of your benefit should you become disabled today will be far less 30 years from now.  You also ideally want your policy to be guaranteed renewable and non-cancellable so that your policy can’t be canceled or the premiums raised.


Partial disability is another important one given that many disabilities may not render you completely disabled, but may not allow you to work full time or do the same work, and you want to insure against that loss of income.


Each company has their own names for these riders, but generally offer similar options. The most common general categories for options include:


  • Future Benefit Increase Rider

  • Cost of Living Adjustment (COLA) Rider

  • Partial and/or Residual Disability Rider

  • Catastrophic Disability Rider

  • Own Occupation or Specialty Specific Rider

  • Guaranteed Renewable Rider

  • Non-cancellable Rider

  • Student Loan Rider

  • Retirement Benefit Rider

6 common riders for a disability insurance policy

Read about all of these riders in more detail, and when they might apply to you and our thoughts on which ones residents and fellows should consider getting on our dedicated article on Disability Insurance Riders. And, of course, using one of our disability insurance agents that work with physicians will be well versed in what doctors need.


What if I have a pre-existing medical condition? Will I not be able to get disability insurance?


Having anything (regardless of how substantial you may or may not see it as) on your medical record will generally be looked at carefully in the underwriting process. They are able to see what prescriptions have been filled under your name, prior encounters with the medical system, etc. Often times these issues will lead to exclusions for certain disabilities linked to your medical conditions on your policy, if not outright denial of coverage. It’s frustrating, but it is what it is. The insurance companies are in the business of trying to mitigate their risk, and this is one area where they will often exclude things we as physicians who know plenty of patients working despite similar medical issues may not agree with.


If you have a preexisting medical condition, have had recent encounters with the medical system, have a history of abnormal labs or need for prescription medications, it is very important to discuss this with your insurance agent BEFORE letting them submit an application. You can start the process of getting quotes, but make sure you go to your meeting and discuss this with them before letting them submit the application. Once you have been denied for coverage, it can become much harder to get coverage in another way. 


The recommended disability insurance agent brokers on this page know the various insurance companies and what they tend to be friendly towards and more likely to deny, and can tailor your application process accordingly. Also, they may know of a Guaranteed Standard Issue (GSI) policy at your institution that will guarantee coverage for you despite your pre-existing conditions.



FAQs: Key Things to Know about Buying Life Insurance  


There are some key things you should know before you begin the process of getting quotes for life insurance. We have several guides with the most commonly asked questions about buying life insurance for you, including our overarching Guide To Life Insurance for Physicians


How much life insurance do I need to get? 


This is a complicated question at early stages of your life, when there are still so many moving parts. Your family’s expenses and needs will likely change quite a bit over the next few years, as may the size of your family, and additionally, over the next decade or two, the amount of savings you have will (hopefully) increase, therefore decreasing your needs for additional protection for your family through life insurance. 


There are two approaches here - 1) to get what you think you’ll need in the future and lock down a lower price based on your favorable younger age, or 2) add more insurance on as you need it. 


You can always ladder policies to reflect these changing needs as well (see next section). You should regularly reassess your life insurance needs and adjust based on interim savings, major life events like marriage or the birth of a child, and how much remaining debt you have.  Typically, your need for life insurance will decrease over time as you accumulate a larger nest egg and life’s expenses decrease as your children get older, but every family’s situation is different.


Calculating how much life insurance coverage physicians need

We have a dedicated and more detailed article on determining how much life insurance you need as a physician which we encourage you to read, but in essence, you’ll want to factor in:

  • How much money does your family spend annually?

  • How much debt do you have that will not be discharged on your death (student loans may be discharged, mortgage will not)?

  • How much do you have in savings, and how much is readily accessible/easy to liquidate?

  • What do you want to provide your family with (do you want to pay for college, do you want them to stay in the same house or are you okay with them having to decrease expenses or work more, etc.)? 

  • When determining your policy amount, also account for lifestyle inflation and potential increase in expenses if childcare or other costs would increase. If you have employer or social security benefits, factor those in as well.


How can I save money on life insurance premiums? 


This is a good question, because while life insurance is generally cheaper than disability insurance and quite affordable, if you choose to get life insurance for the entire amount you need now for 30 years, it can get pretty expensive. Most people need more life insurance at earlier stages of their lives, and then can decrease the amount as their children get older and more self-sufficient and/or as they accumulate more wealth such that they are self-insured.


To address this, we often recommend laddering your insurance policies, so that they stack on top of each other, and individual ones expire gradually so that you pay less premium over time for insurance you no longer need.


We have a dedicated article on laddering life insurance policies so you can learn more about this savvy strategy. 


My financial advisor suggested a permanent life insurance policy (whole life, IUL, etc.) and said it’s better for doctors. What about that? 


Pause and deep breath. We are not absolute or near absolute about many things, but there are very, very few reasons why a resident or fellow should need a permanent life insurance policy at this stage in your career (or really ever). As a general rule, these policies are sold to younger physicians primarily to make the person selling them money. They are very expensive, and you will generally do (much) better by investing that money you would have spent in premium and buying a term life insurance policy. As another general rule, don’t mix insurance with investing.


You want TERM life insurance. If somebody’s pressuring you to buy something else, it’s probably time to run away from them and any other advice that they’re giving you. In fact, it’s one of our red flags that you need to run away from a financial advisor because they’re not serving as a fiduciary. Please contact one of our recommended insurance agents for purchasing life insurance for physicians instead.


If you still need to be convinced or need to bring up talking points with whoever is trying to sell you this, read this article on why permanent life insurance is a bad idea for physicians.



TLDR / Conclusion


  • Buying insurance at a young age and during training is strongly recommended to protect yourself and loved ones, and will also save you a lot of money over the course of your career.

  •  You likely need disability insurance and should get it as soon as possible after graduating medical school.

  • If you need life insurance, you want TERM life insurance. Run away from anyone trying to convince you to get permanent life insurance.

  • Use an insurance agent who is used to working with physicians so they can guide you on the nuances of insurance for physicians. Physicians have a unique skillset and financial trajectory, so the rules that apply to other professions may not always apply to doctors.



Additional resources for residents and fellows


If you’re a resident or fellow, make sure you watch the recordings of the transition to practice series events on our communities, which answer a lot of other FAQs we see during this time period, as well as other events tailored towards residents and fellows


Checklist of things to do as a Graduating Resident or Fellow


Securing your life and disability insurance


Contract negotiations and Job Search


Personal Finance


Student Loan Refinancing


Side Gigs for Residents and Fellows


Figuring out what to do with retirement accounts


Housing for physicians


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