“If you get hurt or become too sick to work, what happens to your income?” It’s one of the first questions that Scott Dial, a disability-income expert who works with TMAIT, asks medical residents and new physicians. For most people — 40 percent, to be exact — that answer is usually “I don’t know” followed by “I think my employer has something,” or “my spouse will have to work.” The average healthy person is rarely counseled on handling a disability.
But the high risks inherent in the medical profession, and the higher financial reward, mean that most medical residents are well schooled in how disability and life insurance can protect them from debt and dramatic lifestyle change. They’re also surrounded by illness and injury, so most understand how vulnerable people are to an event that would keep them from taking home a paycheck. In fact, the chances of a disability requiring long-term care — at any age — are greater than 50 percent.1
But that doesn’t mean that residents always make the right move at the right time.
“It’s very, very common for residents to leave their medical residency program with no plan for protecting their new assets,” says Dial. “Since income is the most important asset, financial planning must begin with income and life protection. And there’s tremendous financial value in starting early.”
After a grueling residency — new pressures arise
Medical residency is well known as a tough and challenging time, and most programs do provide a layer of disability protection.
But once residents leave their program and begin practice, new pressures and risks enter the picture — and the insurance safety net of the residency program is gone. According to Dial, “Among working physicians, musculoskeletal disorders are the top disability claim based on current open claims, followed by mental disorders.”
He says that, “Mental disorders are actually the number one claim that Social Security sees — and in private insurance, we’re seeing more and more every year.”
According to Robert Michelin, a life insurance executive who works with TMAIT, it’s not just the psychological and physical wear and tear that new physicians must manage. They’ve made a tremendous financial investment with their education, and money is still being expended.
Increasing debt obligations
“They have high debt while they’re also rapidly accumulating,” says Michelin. “There’s a spouse, kids, house, car, possibly new loans for starting a practice. In some ways, life is moving even faster, and they’re going through a lot of money—more than the average person.”
Of course, losing the ability to work doesn’t release anyone from obligations to creditors. And in the unfortunate event of a physician’s death, the family is left to shoulder the debt while finding ways to bring in an income. That’s why most financial planners agree that life insurance and a long-term disability policy purchased for an individual are the solution to preventing disaster, if purchased correctly.
Employer group coverage has limits
New physicians tend to see the group disability coverage offered by new employers as their primary income protection. However, these group disability plans are limited in several important ways, and they can leave a physician with an income gap if he or she is unable to work.
“A lot of new physicians tell me ‘I have coverage at work.’ But how will they handle the gap left by those policies?” That’s a key question for Dial, who says that, “A common approach for group disability policies is to cover 60 percent of income, and to cap benefits at $5,000 a month. Depending on current income, the gap can be significant.”
Combining policies for full protection
The good news is that physicians can simply combine their employer group coverage with a combination of plans that are tailored to physicians. This combination could include a long-term disability policy purchased by the individual physician from a professional association or directly from a provider. Many association group long-term disability plans have broader coverage and key features that employer-sponsored group plans do not. For example, TMAIT’s long-term disability policy has a five-year Specialty Option that recognizes a physician’s specialized skills. Many employer group policies may stop benefits once the physician can manage any kind of gainful employment. New physicians might also consider adding optional riders that cover a range of factors—cost of living, office overhead and more—for full protection.
1. Survey by KRC Research for the Life and Health Insurance Foundation for Education, October 2006.
