Disability Insurance Basics for Medical Students and Residents

By Jamie K. Fleischner, CLU, ChFC
President, Set for Life Insurance

As a medical resident or student, sooner or later you will either be approached or in the market to purchase an individual disability insurance policy. Here is a primer to you to help you navigate the process.

Disclaimer: Jamie Fleischner/Set for Life Insurance is a paid sponsor of LifeofaMedStudent and thus has a financial relationship with the site.

Why do medical students, residents or physicians need disability insurance?

As a physician, your most important asset is your ability to earn an income. If you could no longer work, a disability policy would replace that income so you could continue to sustain yourself financially. You have spent thousands of hours and dollars to achieve the goal of becoming a doctor. A sickness or injury could keep you from being able to work which would be devastating both financial and psychologically. Therefore, it is critical to protect your income and future ability to earn an income with a disability insurance policy.

(#LifeofaMedStudent note: Adequate disability insurance is probably my strongest recommendation I can make. You are much more likely to be disabled at some point in your career than die.)

How much can I purchase?

Medical students may purchase up to $2500/month benefit in their last two years in medical school. Medical residents may purchase up to $5000/month benefit while in training. In the last 6 months of training, medical residents and fellows may purchase up to $6500 or $7500/month benefit, depending on medical specialty.

How much should I purchase?

Just because you are eligible to purchase up to $5000/month does not mean you need to go out and purchase the full benefit amount. While in school and residency, budgets are tight so think carefully about how much fixed cost you want to take on and how much benefit you actually need to protect. The minimum size policy is $2500/month. Some companies allow you to start with $2500/month benefit and increase it up to $17k/month benefit in the future (the current limit per company) without any further medical questions. Some companies will limit your increase options to $5000/month with a $2500/month policy which would limit the amount of benefit to $7500/month benefit in the future. This is where it is important to work with an experienced broker to help you maximize your benefits in the future while minimizing benefits while you are on a tight budget.

(#LifeofaMedStudent note: During medical school I purchased a $2500/month policy via MetLife. During residency, I also added a second $2000/month policy via Principle giving me a total of $4500/month coverage. Once an attending, my Metlife policy automatically increased to $5000/month (and will again increase to a max of $7500 in 2018). I increased my Principle policy to $11000/month (current total of $16000/month). I kept two policies because the Metlife was cheaper and included catastrophic coverage, while the Principle did not. However, the Metlife policy alone did not increase to a level of coverage I was comfortable with. I plan to keep the eventual $18,000/month coverage for several years and then slowly taper down as my net worth grows and I can essentially self-insure my future.)

Why get a policy while in medical school or residency?

A lot of people assume that they don’t need to purchase a policy while in medical school or residency since they may have benefits through their employer. Although this may be true, there are several reasons to consider purchasing a policy while in medical school or residency:

When you purchase an individual policy, you must go through a medical underwriting process which entails answering medical questions and disclosure of medical history. If you are young and healthy, you can purchase a policy with the ability to increase it in the future without any further medical questions. Therefore, if you have an adverse change in health, you are protected and do not need to disclose any health changes in the future that may have otherwise precluded you from purchasing benefits.
Policies are priced based on your situation at the time of application. Therefore if you move or change medical specialties in the future, the company cannot charge you more premium. For example, if you purchase your policy while you are doing a general pediatric residency, your policy will be priced as such. If you later do a fellowship in pediatric cardiology, the company cannot go back and charge more. Or, if you move from a less expensive state to a more expensive state (example, Colorado to California), they cannot charge more premium.
Discounts. Some brokers have discounts available if you purchase your policy while a resident or student. This can save you between 10 and 50% on your premiums depending on the discount.
Your policy is portable. Once you have the coverage, you can take it with you throughout your career.
Employer sponsored benefits may change at any time and are not portable if you leave your employer. It is important to have a policy to take with you throughout your career.

Policy language to look for in a disability policy.

Definition of disability. Make sure your policy covers you if you cannot work in your medical specialty regardless of income earned if you can work in another medical specialty or occupation. This is called “own occupation, regular occupation or your occupation” depending on the company.
Non-cancelable, guaranteed renewable. This means that once your policy is in force, the company can never cancel your policy, modify the language or change the premiums.
Residual. This will pay you benefits if you have a partial disability.
Increase options. This will allow you to purchase more benefits in the future without disclosure of medical history.

What is the process of purchasing a disability policy?

The first step is to find a qualified independent broker. This is someone who is not employed by an insurance company and can objectively shop around to find you the most suitable product at the best rate. If you choose someone who is an agent, they are employed by an insurance company and have a significant financial incentive to push their company’s product which may or may not be in your best interest.
Application
Phone interview or disclosure of medical history
Medical exam—This is waived by most insurance companies for medical students and residents.
Retrieval of medical records. If necessary, the company will request more information about your medical history.
Policy placed in force.
The average processing time is 3 weeks.

Other considerations:

The maximum limit per company is $15k or $17k (depending on the company). If your future income will exceed $450k, you may want to consider purchasing benefits from more than one company. This will allow you to be pre approved for up to $25k/month in the future.
Look for an experienced broker who has available discounts. An experienced broker will simplify the process for you and will take care of you for years to come. Discounts can save you between 10% and 50%.
Association policies are initially less expensive but long term are significantly more expensive than an individual disability policy.

For more information about disability insurance for medical students and residents, contact Set for Life Insurance today!

Jamie K. Fleischner, CLU, ChFC, LUTCF is President of Set for Life Insurance. Jamie is a graduate of Washington University in St. Louis and has helped over 12,000 medical students, residents and physicians since 1993. She has been recognized as one of the top disability insurance brokers nationwide for the last decade. Set for Life Insurance has the largest portfolio of available discounts in the country. For more information, visit www.setforlifeinsurance.com