By Dr. James M. Dahle, WCI Founder
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:
“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
So, what's the answer? 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. 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 stud get? It turns out they are generally offered a benefit of between $1,000-$2,500 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 the 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. 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.
However, there has traditionally been a significant limit on how large these future purchase options riders can be. For example, 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. Larry Keller calls it the “Lease with the Option to Buy” plan, and it's available through The Standard.
However, some of the Big 6 companies limit you to 2X-3X your purchased benefit. So, 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 6 companies generally won't let you buy a policy as a first- or second-year student. As Scott Nelson-Archer and Pradeep Audho 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: No program for medical students, but they may apply as residents a year before they start residency, which would make their limit $5,000 at that time, and the future increase option would be 3X the base benefit (i.e. $20,000 total).
Mass Mutual: $2,500 for third- or fourth-year med students, their occupational class would be 3P, and they offer 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.
Ohio National: $2,500 for fourth-year medical students only, their occupational class would be 3M.
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 6. 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?
Many white coat investors have had a bad experience doing anything with Northwestern Mutual, but 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.
“They don't have the own occupation as you know but they are some of the most aggressively trained sales people with conviction that they have the best deal for a doctor, again about 20% above market but they put most into annually renewable contracts which start out low and make the doc feel good about what they are buying. They also talk up the dividend which is great but simply represents that they had charged too much because that is profit from selling policies and at the end of the day some of those polices are not even eligible for a dividend.”
What About the AMA Insurance Program?
We've written before about issues with the disability insurance offered through the American Medical Association.
Stephanie Pearson-Ravitz explains:
“I have found association policies to be quite inferior in language and benefit. Most tend to be modified own occ in order to be totally disabled you have to be unable to do your job AND not be gainfully employed. The cost may not be level throughout the entirety of the policy.”
“AMA is really a bad deal because it is a group plan, most residencies have a group plan and in those plans from the residency they have an income offset provision for other group plans so the resident is buying something that potentially is then eliminating what they were getting from their program for free.”
Chuck Krugh said:
“Not a fan of the AMA (or any association disability insurance). Check out this blog post for more details. Here is a testimonial from a doctor who had a Guardian policy and an AMA policy. The Guardian policy paid him and the AMA didn't: ‘ . . . I have had a well known National Medical Association disability policy for more than 10 years. I decided, after getting advice from my financial planner, to have a more comprehensive disability and life insurance plan . . . I was leaning toward a cheaper policy and wished to keep my costs down. In fact, I was extremely hesitant to get partial disability coverage. After all, I thought if anything was going to happen to me, I would in all likelihood be totally disabled . . . I felt very stiff in the mornings and I started tripping and falling very easily. This concerned me and the symptoms progressed quite rapidly. In September, I saw a Neurologist and he diagnosed me with Parkinson's disease. I was flabbergasted! Due to the stress of all this I have had Psoriasis of my legs, arms, and trunk; my joints experience aches and pains and I have a difficult time sleeping . . . I have tremendous difficulty doing procedures such as trigger point or joint injections and also with doing EMG/NCV testing. This has affected my practice because of the expectations that other physicians have from me and has drastically reduced my referral base . . . When I called the National Medical Association insurance organization I was told I would have to be disabled fully for three months and be totally disabled before I could receive any benefits. I have no intentions of not working . . . Guardian has gotten all the necessary records they need and they are cooperating with me very well. I would recommend this policy for any other doctor. You never know when a disease will afflict you and I guarantee you that you will be very surprised when it does. It is better to be prepared for yourself and your family with your own individual policy.'”
What About InsMed?
Larry 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. However, Stephanie thinks it probably isn't something that every student ought to buy. She said:
“Honestly, there are only a handful of times when a student should purchase DI. I recommend coverage after Match. Then they know what field and where they are going and can often capture trainee discounts.”
Pradeep said he doesn't sell many to students:
“I typically don’t do much in the med student space, so not familiar with what is marketed to them. I work mostly with residents, fellows, and attendings.”
My personal opinion? I think I'd still wait until intern year to buy.
If you decide to move ahead and purchase 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.
Larry Keller explains that this is really important for visa holders:
“Some states may not allow a visa holder to receive benefits overseas but other ones will. Typically, in compact states and this situation, Berkshire (Guardian) is best.”
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 6 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 6.
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? Check out the WCI list!
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? Comment below!