Disability Insurance Every Doctor Should Have

All right, let's talk for a few minutes about disability insurance. There's a lot of you out there that don't have disability insurance. That's a problem. Now, there's a few people that don't need disability insurance. If you're not sure if that's you, here's the easy test. What is your plan if you get disabled tomorrow? Financially speaking, what's the plan? How do you keep food on the table? How do you keep a roof over your head? How do you provide for your family? How do you save for retirement? If you've got an answer for that that doesn't require disability insurance, then sure, you don't need disability insurance. For example, some people, let's say there's an orthopedist married to a plastic surgeon, and they're like, you know what? If one of us gets disabled, we're just going to live on the other one's income. We make plenty of money. And that's a perfectly reasonable disability plan. Maybe somebody else has a very wealthy parent who's like, you know, if I get disabled, my mom's going to take care of me. Great. You've got a plan. Other people, you're financially independent. I no longer have disability insurance. We canceled it, saved the premiums. We don't need it. If I became disabled, we've got enough money. We can live with the rest of our lives. So this isn't something you have to keep forever. You only keep it until financial independence. But for the vast majority of practicing doctors, this is probably your most important insurance policy. Some statistics are as high as one out of seven doctors will use their disability insurance policy at some point during their career. It might be that they only use it for a few months. Most disabilities aren't permanent, but there are plenty of permanent disabilities. And if you don't have it, your other options are not great. Maybe there's still some job you can do, but it probably doesn't pay nearly as much as medicine. Maybe you're disabled enough that you qualify for social security disability. Maybe you've got a partner that can go to work and provide for the family. But generally, your financial life changes dramatically. And the goal for most people is that their financial life is about the same, whether they're disabled or not disabled. And so that usually requires a pretty significantly sized disability insurance policy. Probably typical for most attendings is a benefit of something like $10,000 to $20,000 a month. Usually kicks in after three months of being disabled. So you live on your emergency fund for a few months, and then the disability payments start coming in. How much do you need? Well, it depends on how much you spend. Disability insurance benefits from a private individual disability insurance policy are generally tax-free. So you don't have to replace the money that you're paying toward taxes now, not payroll taxes, not income taxes, but you do need to replace all your living expenses. And plus, since most of these policies only pay to age 65 or so, you also need to replace what you're saving for retirement, or at least enough for retirement, that you could also continue your lifestyle after age 65. So if you're spending $10,000 a month, maybe you need a policy that pays $12,000 or $13,000 a month. If you're spending $20,000 a month, you might want to look into trying to get a policy that'll pay you as much as $30,000 a month. And that's expensive. You get sticker shock when you go out and buy disability insurance because it's expensive stuff. A good policy, even if you buy it when you're young and healthy, typically costs 2% to 6% of the income that you're protecting. So if you're buying a $10,000 monthly benefit, that's going to cost you, ready for this, $200 to $600 a month. That's just what it costs. And if you're older, or you got some sort of medical problem, assuming you can still qualify to get disability insurance, it's going to cost a little bit more. You're much better off buying this early. You're probably better off, even though you're paying more years of premiums, the premiums are lower, aside from the fact that you need the coverage most early in your career. So the time to buy this is when you have an income, right? So as an intern, when you come out of medical school, it's time to get something in place. You probably can't afford as much as you need while you're still in training. And so when you come out of training, you need to buy more, either a separate policy or exercise a future purchase option rider that came with the policy. So there's also short-term disability out there. You generally don't need that. If you have an emergency fund of three months, that covers short-term disability. Now you might think it's a really good deal. Maybe you've got one of those policies that'll pay if you go on maternity leave or something. And maybe you want that sort of thing, look at the benefits. But short-term disability is not a financial catastrophe. The catastrophe is being disabled for decades. That's the catastrophe you're trying to insure against. So that's mainly where your focus ought to be. I would much rather see you buy a little bit more of a base benefit on your long-term policy than spend money on a short-term policy. Now, of course, that assumes you've got your financial ducks in a row, that you've got an emergency fund of some kind, some sort of resources to cover that first 90 days. And maybe by the time you actually start getting payments, might be closer to 120 days. And you don't want to be putting all your living expenses on credit cards for that time period. All right, so own occupation, specially specific coverage is what you're looking for. You probably want an inflation rider on there. You definitely need a partial disability rider on there. If you're in training, you probably need a future purchase option rider. But you don't need any of the gimmicky riders, the retirement riders, the student loan riders, the catastrophic disability riders. Just buy a bigger base policy instead of buying that sort of stuff. If you are in the position where you've got some dangerous hobbies, maybe you climb rocks and go scuba diving like I do. And those activities are often excluded from your disability policy. I mean, if you get disabled doing them, they're not going to cover you. So best to get these policies in place before you pick up dangerous hobbies or after you haven't been doing them for a year because you got really busy as an intern or something like that. Medical problems can also give you some exclusions is what usually happens. You know, if you've got a back issue that's excluded from what they will pay for. If you get disabled due to a back issue, it's not going to pay. So you definitely want to get these in place before you have those issues. If you do have those issues, talk to your agent about it and do the best you can. You might have an exclusion, but chances are good you'd be disabled from something else instead of that problem. So it may still be worth buying the policy. So how do you buy this? Well, the easiest way is to go to an experienced, independent insurance agent. And the best ones out there that we know of are on our recommended list. If you go to whitecoatinvestor.com, recommended tab, second thing down is insurance agents. And these folks, this is all they do. They sell disability insurance policies all day long. They can sell them from any of the big five or six companies. And they know the ins and outs of these policies and they can help you get the one you need. Because it's specialty, gender, state, and medical problem specific. Like for me, if I was going to buy a new policy as an emergency doc in Utah, as a male, I'd probably end up with the principal policy today. But that's not the case for somebody that's a gastroenterologist, a female living in Arizona. It could be a totally different company's policy that makes more sense for you. So you really do need to buy from an independent agent, rather than an agent that only sells from one of the companies. They're going to get paid well to sell this to you, right? They get a big commission. It's multiple thousands of dollars commission that they're being paid for this. And so use them, get advice, have them show you multiple policies, have them educate you on how these policies work. You only have to get this education once. Most people only buy disability insurance once, maybe twice. But you want to know what you're buying because it's a big purchase. It's not cheap. So if you don't have the disability insurance in place, please get disability insurance in place. Yes, there are doctors that are living on these policies. It happens all the time. Don't kid yourself that this can't happen to you. You're not invincible.