By Dr. Jim Dahle, WCI Founder
Many doctors wonder, “Should I buy disability insurance as a resident?”
Long-term disability insurance protects the most valuable financial asset of a doctor—your ability to trade your time for money at a high rate for the next 30-40 years. There is a reason it is not cheap (expect to spend 2%-6% of income protected)—because doctors actually use it. Some estimates are as high as 1 out of 7 doctors will receive benefits from their long-term disability policy at some point during their career.
Most financially savvy doctors consider this their most important insurance policy. It is certainly one of the most complicated because disability, unlike death, is not black and white. Buy your policy from one of our recommended independent insurance agents. Not only do they have access to many unique discounts and the policies of every one of the Big 5 Companies (Ameritas, Berkshire/Guardian, MassMutual, Principle, and Standard Insurance Company) selling true own-occupation, specialty-specific policies for doctors, but they also sell hundreds of these a year to white coat investors. They really know the ins and outs. If they can't get you coverage at the best possible price, no one can.
Lots of residents wonder if they should buy disability insurance. The short answer is almost always yes. The long answer is a bit more complicated. Read on!
Should I Get Disability Insurance as a Medical Resident?
Here are 12 reasons to purchase disability insurance during your medical residency. If residency is a great time to buy disability insurance, wouldn't it be even better to buy it before residency? There are now companies selling policies to medical students, typically with a benefit of $2,000. When should you buy disability insurance?
#1 You Have an Income to Pay for Your Policy
The reason why I generally recommend most doctors wait until residency to buy disability insurance is that residents have an income and medical students generally do not. While it is entirely possible to get disabled as a student, I just can't justify telling a student to use either borrowed money or money that should be going toward food and housing on disability insurance. Besides, you're going to need to buy a policy in residency anyway because the ones they will sell you as a student simply aren't big enough for your needs. Buy insurance with your first residency paycheck because now you have an income.
#2 Residents Get Disabled
The most important reason to buy a policy in residency is that you may get disabled during residency. It happens all the time. The whole point of a policy is to protect your income in the event of a disability. While most 17-year-olds think they're invincible, a 28-year-old resident taking care of ill and injured people all day should know better.
#3 The Younger You Are, the Cheaper the Disability Policy
Residents are younger than attendings. Perhaps not in every situation, but certainly YOU will be younger as a resident than YOU will be as an attending. The younger you are, the cheaper the policy. That's just the way they're priced. In fact, it is so much cheaper to buy when young that if you multiply it out by your entire career, even though you're paying premiums for more years than if you bought later, you still pay less in total premiums! If you're a super-saver aiming for early financial independence (and early ability to cancel your disability insurance policy), you might be able to save even more with a policy that offers graduated premiums.
#4 A Disability Insurance Policy Is Never More Valuable
Most disability insurance policies will pay out until you are 65 or 67 years old (or a minimum of two years whichever is longer). That means a policy bought at age 27 could pay out for 40 years. A policy bought at 37 can only pay out for a maximum of 30 years. Thus, a policy bought during residency is simply more valuable.
In addition, your need for disability insurance is never higher than when you are young and have little in assets to live off of for your entire life. You would think that a policy bought at that age would cost more money, right? But that's not the way it works.
#5 Less Chance of a Serious Medical Condition
As you go through life, you are more likely to pick up serious medical illnesses or injuries. These will either increase the cost of your insurance, create exclusions such that disabilities due to that condition offer no benefit, or keep you from getting insurance at all. It is best to get your policy in place before developing any of these issues. No time like the present.
#6 Less Time and Money for Dangerous Hobbies
You know what else is frequently excluded from disability insurance policies? Disabilities due to engaging in dangerous hobbies like skydiving, rock climbing, flying, and SCUBA diving. Most residents have neither the time nor the money to do any of those activities, so now is a great time to get coverage without those exclusions. Even if you pick up those hobbies later, they'll still be covered. Even if you engage in those hobbies, you are far more likely than at any other time during your life to be taking a break from them during residency. If you haven't done them in the last 3-12 months and have no plans to do them in the next 6-12 months, you can honestly answer that question “no.” Plus, you may have relocated for residency to a place where the opportunities to go climbing or SCUBA diving are practically non-existent.
#7 You Benefit from a Larger Benefit to Income Ratio
Most disability insurance policies won't offer a benefit larger than about 60% of your income. They don't want living on disability benefits to be more attractive than working. Plus, the payout from individual long-term disability insurance policies is generally tax-free. But in early residency, you can qualify for a benefit of $5,000 per month, or about 100% of your income.
#8 Might Be Considered a Cheaper Specialty
Disability insurance costs more for doers than for thinkers. A hand surgeon, dentist, or interventional cardiologist will pay much higher premiums than an internist or a psychiatrist. However, sometimes the intern or resident version of a doctor might be considered to be a different, cheaper specialty than the attending version. That can save you even more money. Yes, the policy will still pay out just fine based on your proceduralist income since an own occupation policy pays based on your occupation at the time of disability, not your occupation at the time of purchase.
#9 Access to Unique Disability Products
A resident typically works in a large medical institution. This often qualifies them for a multi-life discount or even, for women, the increasingly rare but cheaper unisex policy. Many institutions also offer a Guaranteed Standard Issue (GSI) policy that allows those with medical conditions to still get coverage. These policies and discounts will be much harder to get once you leave residency.
#10 Portability Matters More
Some residencies now offer a group long-term disability policy as a standard benefit to their residents. Some of these policies are even true own-occupation policies and allow the resident to take over the payments and take the policy with them when they leave. However, most group policies are inferior to a solid individual long-term disability policy in significant ways, particularly the definition of disability and the portability. Yet portability will never matter more than to a resident because almost all residents go on to a different job upon graduation! Buying a policy before arriving at a new institution that offers a group policy is also important as that new group policy could keep you from qualifying to buy as much individual disability insurance as you would prefer. Either way, best to buy during residency.
#11 Locks in Insurability
When you buy a long-term disability policy as a resident, you should not only buy as much as they will sell you, but you should also pay a little extra to get the Future Purchase Option rider. This allows you to buy a larger disability insurance benefit when your income rises as an attending without having to prove insurability. Even if you take up SCUBA diving or develop diabetes, they still have to sell you insurance. It will be at a rate appropriate for your now higher age, but it will be based on your health at the time of purchase of the original policy. If you are still healthy without any bad habits, you might not even exercise this rider and just buy a different policy instead and save that rider for later, just in case. But if you are not healthy, this may be the only way to get more than your original $5,000 benefit.
#12 Student Loans May Not Go Away
While federal student loans are discharged in the event of permanent disability, that may not be the case for some private student loans, including refinanced student loans that were originally federal loans. In addition, many disabilities are not permanent. While federal student loans offer lower Income Driven Repayments (IDR) and most private loans will at least allow a short period of hardship deferral, student loan payments and no income due to disability could be a nasty combination. That doesn't mean you need to pay extra for a special student loan rider, but it does mean you definitely need a reasonably-sized basic disability insurance benefit. The last thing you need when you're disabled is a plummeting credit score and compounding debt.
How to Make Your Disability Insurance Affordable While in Residency and Fellowship
While you're in training, there are several strategies to enhance your disability coverage benefits while maintaining affordability.
Benefit Update Rider
Start by selecting a basic level of coverage that qualifies you for the benefit purchase or update rider. This rider enables you to increase your coverage every three years without having to prove your health status again. For example, The Standard offers residents a $1,000 monthly benefit along with the benefit update rider. Adopting this approach helps ensure maximum future disability income protection with minimal premium costs during your training period.
However, it's important to be aware of the risks associated with opting for a lower benefit amount. Should you become disabled during residency, you may find yourself limited to a lower payout if you file a permanent disability claim.
Graded Premiums
Additionally, consider opting for graded premiums. Most of the leading five disability insurance providers offer this option, which can significantly reduce your premiums during residency and fellowship. Once you transition to an attending position, you have the opportunity to adjust your premiums to a level rate, though it's worth noting that these adjusted premiums will reflect your current age at that time.
The time to buy disability insurance is early in residency. If you're wondering if you need disability insurance as a senior resident, you're already behind the eight ball. Even if your residency offers a policy, you probably still need a good individual one. At a minimum, meet with an experienced independent agent to go over the differences between your group policy and the best policies and make an informed decision.
Have more questions about disability insurance and what kind of policies would be the best for you? Hire a WCI-vetted professional to help you sort it out.
What do you think? When did you buy disability insurance and why? If you had it all to do over again, when would you buy it? Comment below!
Excellent advice and I totally agree!
I bought my disability insurance just before graduating training. I wish that I’d done it sooner if I had been better educated as over the course of my 7 year training, a medical condition arose that resulted in a more limited policy than if I have just got it sooner!
I agree, we bought disability policies as residents (back when you could get a “lifetime” policy), and although it can seem like a “waste” of disposable income when you are struggling to get established, it is the smart move. I luckily had a long and safe career as an Emergency Physician, but my Orthopedist husband fell and injured his non-dominant hand, rendering him unable to do surgery. With his specialty specific policy, he was able to retire and we do not need to take early withdrawals from our retirement plans. Get the best and biggest policy you can!
Thoughts on Social Security disability?
I’m getting close to the point where my written plan calls for dumping my disability policy, and it’s good to know that SS will provide a modest amount of coverage in the event a major disability occurs. For those who own a policy and get disabled, how does SS affect the payout?
Depends on the policy. Read it carefully. You may qualify for benefits from the policy but not SS. Some policies (generally group ones) decrease your benefits by any amount you get from SS or another policy.
Social Security Disability is a joke. I was disabled for a two year period back in 2013-2015. Even with a closed period claim, it took until December of last year to get my money. It provided zero help when my wife was in medical school, and getting the money when she’s an active duty fellow is way less bang for the buck.
As an Air Force HPSP medical student graduating this May and starting a civilian emergency medicine residency should I still get disability and life insurance even though I will be active duty after I graduate residency?
Yes. Make sure your agent knows. You may wish to buy a policy that will still work while you’re on active duty, but even if you suspend it for a few years, you’ll be glad you have it afterward.
What should I do if my residency program provides long-term disability after 12 months of employment? I’m trying to decide if I should purchase an individual policy at the start of my 5-year residency with the option to increase it upon graduating versus going my first year without disability insurance and waiting til they provide it my second year through the fifth year at no cost.
I’d buy the individual policy and view the group policy as icing on the cake.