By Dr. Francis Bayes, WCI ColumnistOn the WCI Forum or subreddit, I have wondered why people ask questions on topics that have been addressed in WCI blog posts or previous threads: “Please help with my asset allocation” (Evergreen). “Did I make a mistake with my Backdoor Roth” (Every January-March)? “How much insurance coverage should I get” (Every summer)?
Even with ChatGPT, I doubt that people will stop asking a variation of common questions every week. I would like to assume that the lack of critical thinking skills is not the issue. If we ask them why they asked the question, the top reasons, in no particular order, might be 1) “I am too busy to do the research;” 2) “I want the perspective of someone who’s already done it;” 3) “My situation is different!”
As I was buying disability and term life insurance a month before I started residency, I was tempted to ask a question on the WCI Forum because I sometimes felt confused, uncertain, or afraid. Buying either kind of insurance might be the most personal decision in personal finance. It requires consideration of four highly variable factors: health, risk tolerance, spending budget, and future income/savings rate. I am in no way an expert on insurance, but my experience of buying insurance might offer insights into how one should think about it.
#1 Anything Can Happen to Anyone at Anytime and Anywhere
My institution offers group disability insurance that covers 60% of our salary for a premium of less than 1% of our monthly salary. For most residents, 60% of their salary would be less than $50,000 before taxes and deductions. This sounded “good enough” until I considered its limitations, including non-portability and the inability to customize.
When I received quotes from the WCI-recommended independent insurance agents, I understood why physician trainees hesitate to buy disability insurance. The cheapest policy would have been 1.7% of my PGY1 salary, My preferred policy—with a more flexible Future Increase Option (FIO) Rider instead of a Benefit Purchase Rider (BPR)—would have cost 0.5% more. Disability insurance would cost more than my auto insurance, which is as necessary as my rent if I need to drive.
I was tempted to think that my own, portable disability insurance could be optional, especially because I do not have any medical conditions. I also don't have any interest in risky activities, such as scuba diving or outdoor rock climbing. Finally, I am a psychiatrist! Besides a car accident, getting assaulted by a patient might be my biggest risk of disability. (I have witnessed a patient punch an inpatient psychiatrist’s head from behind; the psychiatrist suffered a concussion but returned to work in a week.) As long as I am vigilant, what could go wrong?
Even if Dr. Jim Dahle threatened to smack me in the head, I might not have bought an individual policy had I not found my own way to internalize the risk. For some, seeing statistics like “1 in 7 doctors use their disability insurance” or hearing about other physicians’ firsthand accounts of using their disability insurance is enough. For me, I revisited Morgan Housel’s writings about risk:
- “Risk is what you can’t see [and] think only happens to other people.”
- “You should obsess over risks that do permanent damage and care little about risks that do temporary harm, but the opposite is more common.”
- “Small risks are overblown because they’re easy to talk about; big risks are discounted and ignored because they seem preposterous before they arrive.”
I also calculated the opportunity cost of buying index funds with the annual premium over four years to be about $24,000, which is a chump change compared to the potential loss of one’s lifetime salary.
If columns, podcasts, and forum threads have still not convinced you, write down your reasons for not buying disability insurance. The reasons should be good enough that you will not regret buying disability insurance should you become disabled. Just beware, someone else might have thought of the same arguments against disability insurance that Jim has already debunked.
More information here:
A Pain in the Butt – My Dental Disability Story
#2 It’s OK to Get a GSI Policy
I am thankful for the WCI list of recommended insurance agents; I purchased a term life insurance policy from one of them.
I did not buy a disability insurance policy from them because I had access to Ameritas’ Guaranteed Standard Issue (GSI) disability insurance through my residency program’s union (I am a card-carrying member). The GSI plan was 10% cheaper than the identical policy with Ameritas that one independent insurance agent offered. Still, another independent agent warned me that I should buy from a bigger, more financially secure company than Ameritas.
I hesitated about the GSI plan because of his warning, but more research confirmed that the benefit of a 10% discount was worth the risk. If Ameritas ever goes bankrupt (remember, anything can happen), my policy should be transferred to another company. Even if Ameritas stops issuing new policies, it would still service mine. My policy is also non-cancelable and guaranteed renewable, so a new company cannot change my policy. Had I not found such WCI posts, I would have asked a question on the WCI Forum.
In the end, I bought the GSI plan, and I was reminded that saying no, even to experts, is a personal finance virtue.
[FOUNDER'S NOTE FROM DR. JIM DAHLE: GSI policies can be a great option for lots of WCIers. If you have any medical issues or dangerous hobbies at all and have a GSI policy available through your institution, the best approach is to compare a GSI with a fully underwritten offering. You see, with few exceptions once you're declined for an underwritten policy you may be ineligible to qualify for a GSI policy. Our recommended agents should be able to help you with both a GSI policy (may require a referral) or an underwritten policy.]
#3 Term Life Insurance Is Not Worth Overcomplicating
My wife and I plan to start a family during residency, so we requested quotes for term life insurance along with disability insurance. Based on our income, we could only buy up to $1 million of coverage for each of us. I've previously explained why we did not wait until she was pregnant to buy the coverage. Simply, waiting a few more months was not worth the hassle.
Would we have saved money if we waited until we became parents? If I buy it a year later, I will pay $26 more per year for the duration of my policy. To come out ahead (on nominal terms) after buying my policy a year later, I would have needed to keep it for less than 24 years.
I only calculated the breakeven point for the sake of this column because we did not care about “timing it right” when we bought our policies. We also won't care 20-something years later. We have better motivations for achieving financial independence in less than 25 years. The only thing we care about is that my wife and I will have peace of mind as we try to start a family during my intern year. We cannot time risk management.
More information here:
Top 13 Reasons to Buy Disability Insurance as a Resident
#4 Start Laddering Term Life Insurance
We could only buy $1 million coverage for each of us, but we still “laddered” our policies. For now, we bought a 20-year policy for my wife and a 30-year policy for myself. We plan to buy a larger, 15- or 25-year policy for myself when I graduate from residency depending on how much I want to pursue academic research.
At first, I considered buying a shorter policy because the annual premium for a 20-year and 25-year policy would have been 42% and 18% cheaper, respectively, than a 30-year policy. If I were in a specialty that has higher compensation than psychiatry or if I was not interested in pursuing research, I would have bought a 20- or 25-year policy as an intern. However, I decided to go with my independent insurance agent’s recommendation to buy the 30-year policy because I did not want to be overconfident about my future income and savings rate. If I have to buy another 25-year policy (on top of a larger and shorter policy) four years later, the difference in total lifecycle cost would have been insignificant.
Although we might not be financially independent 20 years from now, we are optimistic that we will be on track to meet our financial goals. If so, we would let my shorter and larger policy expire. Also, I might not need the $1 million should my wife pass away after her 20-year policy expires because I would likely be the primary breadwinner of our household. But having the extra 10 years with the policy that we have bought will provide a safety net for my wife who might not be working by then. One million dollars will be worth less 20-something years later, but hopefully, it will pay for our child’s college and then some.
More information here:
How to Stay Focused When Everyone Else Is Getting Rich
The Perspectives of an Older Investor vs. a Younger Investor
“When It Does Happen to You, It's So Stunning”
Buying insurance was a harder process than I thought it would be. Since I started residency, I have also had many conversations about disability and term life insurance with my co-residents. I now understand why we have variations of the same questions on the WCI Forum or on Reddit.
Many physicians might not have even considered buying disability or term life insurance. I suspect that I have had such conversations with my co-residents because our residency program’s union recommended the GSI plan. To my friends in other programs, I have recommended WCI columns as well as the podcast episode (or transcript) in which Dr. Kelli Sekulovich talks about her disability (and the above quote). But such resources are still not enough to motivate them. When I learn that my friends who are in a procedural specialty do not have their own disability insurance, I understand why Jim wants to smack his colleagues in the head.
Every WCI reader should make sure that every one of their physician friends and colleagues has disability insurance unless they are financially independent. Another worthwhile goal for WCI readers would be never hearing about a GoFundMe page for a friend who died and left behind their family without a financial safety net such as term life insurance. Perhaps it is too morbid to talk about disability and death when someone finds out they are about to become parents. But ensuring that the child of our friend or colleague will have financial security despite the worst possible outcome might be better than the best baby registry item that we can buy.
Obtaining quality disability insurance is a must for any physician, so you can be sure to protect your hard-earned income. Get a quote from one of our recommended insurance agents and cross this task off your to-do list today!
Did you buy disability insurance when you were in residency? Why or why not? Would you have made the same choice today? How else can we motivate residents and attendings to buy disability insurance?
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.
We can’t talk about the important basics too much.
I was unexpectedly diagnosed at age 34 with a condition that made me uninsurable for term life ever since. It worked out okay since I saved a fortune in premiums and I surprised them by not dying.
Fortunately, I already had two of my own disability policies in place (from residency). I have needed to use both. If I hadn’t my pre-existing condition would have been excluded.
Anyone considering waiting until after the baby to get life insurance on Mom (or Dad!)- Mom is (probly) at highest risk of dying the year she’s pregnant (until she’s 60+). Would you want the unlikely but tragic situation of Mom dying, baby lives, Dad has baby to raise and now needs to hire a whole team to do what they were going to do together (or quit work)? Plus if MD Dad should die then, Mom and Baby are really screwed. Get coverage (or find out you can’t) soon as you plan starting a family.
(And that’s why, with our kids 7 years apart, I bought a second 20 year policy when we anticipated Kid2. Thanks financial advisor back then who pointed out this risk.)
Traditionally, people bought insurance when they got married, which is never a surprise. Now that both spouses frequently work, some people put it off until they have children, which are often a surprise. Quite a dilemma.
Is traditional wisdom to start self-insuring once your NW=term life insurance payout?
Investment nest egg + life insurance payout = FI number. So if you need $5 million to be FI and have $3 million in your portfolio, you should still be carrying $2 million in term life.
Wouldn’t you have to calculate a different and possibly lower “FI number” for only your spouse (also factoring in funds for raising any kids if applicable) since you would be dead and won’t incur any more future yearly expenses that are factored into your original “FI number”?
I’d think you would be self insuring once NW= FI number for your beneficiary/ies without you.
How much lower is your FI number for your spouse and kids vs just for you? I can’t imagine it’s much more than 5 or 10% lower. What expenses go away? Food and some plane tickets? That’s about it. All the housing and taxes and utilities etc are all the same. The number is going to be so close to the FI number for the family including you that it’s safe to just use that.
As a frequent reader of the site and not an official member, thanks for banning “nycEMMD” on the forum. My appreciation to the moderators (or website staff)
Not sure the moderators will ever see that particular note but I’ll try to pass it along.
awesome post Francis! is the GSI policy true own occupation with appropriate riders of partial disability, future purchase option and COLA? Pretty awesome that it is actually cheaper, especially if it has all these other riders. I always thought that a GSI policy would always be more expensive since the insurance company is taking more of a risk not really looking at your health, and if it is cheaper than a fully underwritten policy it’s b/c its not true own occ definition or doesn’t have some of the important optional riders. Was it also cheaper compared to other true own occ companies outside of Ameritas?