More and more frequently, medical students are being offered disability insurance and are considering purchasing it. In turn, they ask me for my opinion. Here's an example from a couple of years ago:
“I will be starting medical school in the fall and am in the midst of figuring out a few details. The school I plan to attend (in-state medical school) is really pushing disability insurance for students. They provided contact information for a few companies including the AMA, UNUM Provident, Northwestern Mutual, and InsMed, but also suggested just contacting a broker. I have not had much luck finding guidance on disability insurance for medical students. Does it make sense for every medical student to get disability insurance?”
Medical Student Disability Insurance
Should medical (and dental and other high income professional) students insure their income before they even have their high income? Residents do, so why not medical students—aside from the fact they don't even HAVE any income? That means most of them would be buying disability insurance with borrowed money.
Traditionally, my answer to this question has been, “No, don't buy disability insurance until you graduate from medical school.” I generally counsel docs to buy disability insurance early in their intern year. But buying it as a medical student is far from the strangest idea I've heard around here. I mean, there are always the obvious risks of not buying insurance:
- You could get disabled even as a medical student.
- You could develop a medical condition in med school that would make your disability insurance cost more or even keep you from getting it at all.
- You could take up a dangerous hobby (rock climbing, skydiving, flying, or scuba diving) that would later require an exclusion on the policy.
In addition, the earlier you buy insurance, the younger you are and the less it costs. This time when I got the question, I decided to look into it a little deeper and even solicit some opinions from a few of the trusted disability insurance agents that have been vetted by thousands of white coat investors over the years along with White Coat Insurance's Travis Christy. Let's get into the weeds on this topic.
More information here:
Top 12 Reasons to Buy Disability Insurance as a Resident
How Much Insurance Can a Medical Student Buy?
Typically, until they have an attending physician contract in hand, a resident physician is limited to a benefit of just $5,000 per month. How much can a med student get? It turns out they are generally offered a benefit between $1,000-$2,500 per month. There are even some carriers that will treat a final-year medical student the same as an intern and allow $5,000 per month. Between $12,000-$30,000 per year is not a lot of money, but it beats a kick in the teeth. Especially since most medical students don't yet have enough quarters worked to qualify for Social Security Disability Income should they actually become disabled.
A good individual disability insurance policy typically costs 2%-6% of the income protected; that works out to be $20-$150 per month or $240-$1,800 per year for these little medical student policies.
More information here:
How Much Disability Insurance Should You Buy?
How Much Future Purchase Option Can You Buy?
Having disability insurance as a medical student is nice, I suppose, but the truth is that your risk of becoming disabled is very low. Plus, you're borrowing money at 5%-10% to buy these policies. Maybe it is just better to wait until you actually start getting paid as an intern. However, there is one really great reason to consider buying early. Even when you're low risk and even when you're using borrowed money to do it, it's the ability to lock in future insurability. This usually comes in the form of a Future Purchase Option rider. These disability insurance riders are tacked onto your policy for an extra fee and allow you to buy more insurance later, even if you develop active cancer and rheumatoid arthritis and have a heart attack and take up scuba diving.
There has traditionally been a significant limit on how large these Future Purchase Options riders can be. When I bought my policy from The Standard as an intern a couple of decades ago, the benefit was $2,500 a month and the largest Future Purchase Option rider I could get was for another $5,000 a month. So, a ratio of 1:2. I was curious whether that was typical, so I asked the agents. I was surprised to learn that it is possible to lock in the ability to buy up to $30,000 per month of benefits while only paying for a $1,000 per month benefit now. That's a pretty valuable option.
However, some of the Big 5 companies limit you to 2X-3X your purchased benefit. If you bought a $2,500 policy, you could have a Future Purchase Option that would allow you to buy $7,500 more.
Who Should You Buy Disability Insurance From?
Keep in mind that most of the Big 5 companies generally won't let you buy a policy as a first- or second-year student. As Scott Nelson-Archer from MD Disability Quotes explained to me:
Ameritas: $1,500 for third-year medical students, $2,500 for fourth-year med students, their occupational class would be 4M, and the Future Increase Option is limited to 3X the base benefit.
Guardian: $5,000 for fourth-year medical students (those within 12 months of starting residency), and the Future Increase Option would be 3X the base benefit (i.e., $20,000 total) or they can get the Benefit Purchase Rider. The occupation class will be 3M.
Mass Mutual: $2,500 for third- or fourth-year med students, their occupational class would be 3P, and it offers two types of riders. One, the “BPO” rider, would allow future coverage of as much as $20,000 a month, and the other, the “FIO” rider, would allow 3X the base benefit.
Principal: $2,500 for third- or fourth-year medical students, their occupational class would be 3A-M, and they can increase the benefit up to $20,000 per month.
Standard: $2,500 for third- or fourth-year medical students, their occupational class would be 3P, and they can increase the benefit up to $20,000 per month.
As you can see, if you want a policy as a first- or second-year medical student, you can't get one from one of the Big 5. You'll have to look into some of the other options.
What About UNUM Provident?
Scott Nelson-Archer said:
“They only have a few programs that have a true own occupation definition; everything else is a not engaged definition, not a bad deal for certain specialties. But they have a narrow appeal and they are typically 20% above market pricing.”
What About Northwestern Mutual?
While it's strengthened its disability offering recently, many white coat investors have had a bad experience doing anything with Northwestern Mutual. There are certainly good reasons to avoid NML for disability insurance beyond the fact that its agents will likely try to sell you whole life insurance, too.
What About the AMA Insurance Program?
We've written before about issues with the disability insurance offered through the American Medical Association.
If you've been looking into the AMA's disability insurance, you might want to take a closer look at the actual contract rules and how it pays. It turns out, it's not all you might think it's supposed to be when you compare it to individual disability insurance plans. The main issue is the definition of “totally disabled” is super strict. You have to be unable to do your job and not work elsewhere to get benefits. That's a tough pill to swallow, especially next to “own occupation” plans that pay out if you can't do your specific duties, even if you could work in another medical specialty or a completely different occupation.
But there's more. Because it's a group plan, the benefits could be reduced because of any other group disability insurance you have in place at work or in residency. This could mean the AMA plan might cancel out benefits you're already getting elsewhere. In addition, premiums are not guaranteed with the AMA plan, and they can go up over time.
Long story short, the AMA's disability insurance might not be the best bet for physicians. It's got some tight restrictions. It could mess with other coverage you have. And might not be there for you when you really need it. If you're in the market for disability insurance, you might want to shop around for an individual plan that's more in tune with our unique needs.
What About InsMed?
Larry Keller of Physician Financial Services had the following to say about InsMed:
“The InsMed coverage is something I would avoid if I was healthy and would qualify for individual coverage. The definition of disability is also not very liberal. The definition of total disability states the following: ‘For the first two years, the Resident must be unable to perform the substantial and material duties of his/her occupation as a resident. Thereafter, qualification for disability is the inability to perform the duties of any “reasonable” occupation based upon education, training, and experience.' This alone should deter those interested in it, but there are other issues associated with it as well.”
More information here:
Own Occupation Disability Insurance – A Key for Doctors
The Big Problem with Medical Student Disability Policies
All of the agents were really quick to point this out, but the biggest problem with buying disability insurance as a medical student—aside from the fact that you can't get a decent policy until at least your third year—is that the companies don't yet know your specialty. They assume it will be one of the highest-risk ones, and they charge you accordingly. You can move to a better occupational class (assuming you match into a lower-risk specialty) after Match Day, but until then, you're going to pay something extra.
Should a Medical Student Actually Buy Disability Insurance?
As you can see, it's not bonkers to do so. Deciding on disability insurance as a med student isn't straightforward—it's about striking a balance. On one hand, snagging insurance early can mean cheaper rates and having a safety net if something unexpected happens, letting you focus on your studies and future career without the added stress of “what ifs.” Plus, with options to bump up your coverage as you start earning more, you're basically investing in your future self.
But, there's the flip side. Med school isn't cheap, and you're likely already piling up loans. Tacking on insurance premiums can feel like just another expense, especially when you're banking on not needing it anytime soon. The odds of getting sidelined by a disability during school are slim, which makes shelling out for insurance now seem less urgent.
So, it's a toss-up. It comes down to how you're handling your finances and how much you value peace of mind over immediate costs. While it's a bit of a gamble, getting covered could be a smart move for the long haul, ensuring you're protected right from the start of your medical journey.
My personal opinion? I think I'd still wait until intern year to buy.
More information here:
The Physician’s Guide to the Best Disability Insurance Companies
Buying Insurance Was Even More Difficult Than I Thought
Other Tips?
If you decide to move ahead and purchase disability insurance as a medical student, keep the following tips in mind.
Location, Location, Location
Disability insurance has different costs in different states. For example, it's terribly expensive in California. If you're going to do residency in California (or another high-cost state) but are doing medical school somewhere else, buy it as a medical student. It may be prudent to request a quote from one of our trusted agents to discuss options and find out if you live in an area of the country where premiums are cheaper before moving to another state for residency. For that reason, it may make sense to buy as a student instead of waiting. Additionally, for visa holders interested in the flexibility of receiving disability benefits abroad, it's worth noting that some states offer this option without restrictions if you purchase the policy while residing there, while others impose certain limitations.
Own Occupation
As always with disability insurance, the definition of disability is the most important part of the policy. Make sure you get a policy that has it. Scott explained:
“If they want own occupation as a feature, they can usually have it with the Big 5 companies, but some carriers might have a limit based on the state they live in due to the occupation class we have to assign in med school.”
However, you're not going to get as good of a definition of disability when you move away from the Big 5.
Discounts
As always, pay attention to discounts. Your medical school might qualify for one and your residency might not and vice versa.
The Bottom Line
This is a gray area in physician personal finance. If you want to buy coverage as a medical student, you can. You'll need to buy a product like the AMA or Unum one if you want it during the pre-clinical years. As you move into rotations, you can get a stronger individual policy. But most docs are going to wait until they finish school and start making money before insuring their income.
Want to talk to an experienced, vetted independent disability insurance agent? Request a disability quote!
What do you think? Did you buy disability insurance as a medical student? What policy did you get? Would you do the same thing if you had it all to do over again? Why or why not?
[This updated post was originally published in 2022.]
The White Coat Investor may receive compensation from White Coat Insurance Services, LLC; licensed in all states including MA and DC; CA license #6009217; NY license #1758759 (exp. 6/2025); Registered address: 10610 S. Jordan Gateway, #200 South Jordan, UT 84095. This does not affect the cost or coverage of insurance.
Well written overview with some great research on the subject. I would add one thing. When making the purchase just don’t buy from any agent, look for a disability expert. Insurance agents know about disability, but experts really know the subject and have leverage with carriers and are experts on the claim filling, which is very important. Find out how many physician clients they have and ask about claims they handled on policies you are considering.
Standard made the “Lease with the Option to Buy” plan one step better. They recently increased their limit to $30,000 month for physicians. As a result, once purchased, the $1,000 monthly benefit can be increased up to $30,000 without additional medical underwriting.
That’s great news.
Completely off-topic, but have you written about the ethics of investing in private equity? I have sufficient assets (>$50 M) that it might make sense financially, but I don’t know how I feel about it morally. It seems that when PE buys hospitals or medical practices the quality of care often declines.
It’s certainly optional but the private equity is a very large umbrella term that covers everything from the guys pulling cash out of your hospital to your small business.