I was recently asked, “What do medical residents need to know about disability insurance? My first thoughts  were about getting a policy with Own Occupation protection and with the best benefit features.

But those things are important for every doctor who needs a disability policy, not just residents.

Then I thought about the unique situation of residents. As a group, what specifically do they need to know about disability insurance?

Residents generally have a challenging time financially and professionally. They are overworked and underpaid.

Because of the pressures of residency, their focus is often on everyday challenges and not on the light at the end  of the tunnel. Though they may not be focused on it yet, that light at the end of the tunnel is an incredibly valuable asset that most people will never be able to acquire:  a staggering amount of future lifetime earnings.

So, what do medical residents need to know about disability insurance?

Estimated Lifetime Earnings

Residents need to know and understand the value of their Estimated Lifetime Earnings. They need to know the number.

Sure, the number will only be an estimate, but it will give the residents a concrete number to work with, instead of a vague concept such as “a lot of money”.

For example, which is more sobering thought for you:

  • If I became totally and permanently disabled, I would lose a lot of future income, or
  • If I became totally and permanently disabled, I would lose about $17,000,000 in future income.

Regardless of the method used to arrive at their number, it is going to be BIG! It’s important for them to know that, no matter what their specialty is, their Estimated Lifetime Earnings number is going to be BIG.

How BIG?

Last year, I met a 31-year old medical specialist who had just finished a one year fellowship after residency. He was about to begin practicing at an annual salary of $350,000.

He didn’t have any disability insurance but he was ready to get some. He said he had never felt so exposed without it. The fact is that he had never really thought much about disability insurance.

In residency and fellowship, he was super-focused on the tasks at hand, not the financial consequences of becoming disabled without disability insurance.

But this was not because he didn’t have much to lose. Based on his beginning salary of $350,000, even without projecting any pay increases, his Estimated Lifetime Earnings to age 65 would be almost $12,000,000.

If we project a 2% annual income increase, his Estimated Lifetime Earnings would increase to almost $17,000,000.

He already possessed this potential asset before working a single day in his specialty, yet it didn’t occur to him to insure it. He didn’t see the light at the end of the tunnel.

If he had become long-term totally disabled before getting a disability insurance policy, his $17 million asset may have all but  disappeared, or at the very least been significantly diminished.

Think about it. If you had any other asset that was worth between $12,000,000 and $17,000,000, you would have it insured in a heartbeat.

What’s a Resident to Do?

Once a resident understands all that he or she has to lose if disabled, the next step is to determine how best to protect their future income in the event of a disability.

Insurance companies usually restrict the amount of disability insurance they issue, depending on current annual income. But most of the leading insurance carriers have special issue amounts for medical residents.

For residents that amount is typically $5,000, regardless of their current annual income.

A popular strategy is to buy a disability policy while still in residency. There are a couple of reasons for that:

  1. Lock in a lower premium rate on the initial policy by buying at a younger age
  2. Get a policy before you start having medical issues. For example, if you get treated for depression or anxiety, then try to apply for a disability policy, the insurance company might exclude coverage for disabilities caused by those medical issues. Same with back and neck issues. If you have back or neck issues before getting a policy, the insurance company will almost certainly exclude coverage for disabilities caused by those issues, either temporarily or permanently. It’s best to buy a policy before you start having these types of medical issues. If you are a medical resident, the best time is now.

$5,000 Policy + Future Income Options

A $5,000 policy is a great start, but when you get out of residency and begin practicing, you will need much more coverage. You may need two, three, or four times that amount during your working years.

That’s why it’s also important that you include Future Income Options on your first policy.  This rider allows you to increase your monthly benefit in the future, regardless of your medical issues, as long as you qualify based on your income.

Many of my clients purchased their first disability policies, then later developed health conditions that rendered them uninsurable.  Fortunately, they included Future Income Options on their first policy, so they were able to use the options to increase their policies despite their health conditions.  Otherwise, they could have been declined for additional coverage.

Now is the best time to apply for a disability insurance policy.  You can lock in the lowest premium rate for your base policy and by including Future Income Options, you can protect your future income as well.

What do medical residents need to know about disability insurance?

All doctors need to know about the need for disability insurance and about the most important policy provisions that are included in a high-quality, doctor-worthy policy. Medical residents need to know all that,  plus the following that is somewhat unique to their situations:

  1. They need to know how much their Estimated Lifetime Earnings will be so they can fully appreciate how much they have to lose if they become disabled.
  2. They need to get a “starter” disability insurance policy with the maximim amount of Future Income Options included in the policy.

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