Disability Insurance and Life Insurance Questions

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Dr JPH

Dr JPH

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I did a search and found some useful info here on SDN...so I guess I am posting this just to reassure myself that I am thinking about this the right way.

First of all, disability insurance.

Most people I have spoken to agree that getting disability insurance NOW (about to start PGY-1) is the way to go. I can lock in a rate on my current income and then in the future when my income increases, I can simply buy more coverage (at a higher rate of course) but at least I will have some coverage at the lower rate.

Also, I have come to the conclusion that own occupation insurance is the way to go...this way they cant claim I am not disable (abled? :) ) if I can do some other job. Basically...if I cant be a surgeon, I am disabled.

I have also found that non-cancellable & guaranteed renewable coverage is best. This way my locked in rate cant go up and they cant cancel my policy when my income goes up (thus making their potential payout greater).

So thats where I am sitting with that.

Anyone care to share (privately if you wish) what they are currently paying for disability insurance and what type of coverage they have?

Also, all the reading I have done says that it is a good idea to have your OWN insurance, even if a practice or hospital offers coverage.


Now...LIFE insurance.

I cannot find ANY reason to buy life insurance.

#1 - I have no dependants
#2 - my fiancee (future wife if she picks a date) has a good job, makes good money and plans to continue working

All the resources tell me that the only people who need life insurance are those who have people who are DEPENDANT on the income.

My fiancees insurance agent is trying to sell her whole life insurance...because the rates are lower for her now and she can borrow against the policy.

Well, my math says that her monthly premium would earn more in private investments.

PLUS...she doesnt NEED the insurance. Even when we get married, we will be able to support ourselves independently if need be.

So I dont see any reason that her or I need insurance.

Now, if/when we have kids then we will obviously explore that. But is there a reason to lock in a rate now on the chance that we may need coverage later? My brain is telling me that the potentially higher rates later in life will be worth it...the low rates we would pay now might be great, but in the long run the money we are paying now in life insurance premiums would earn more as investment money, thus in 20 years the net gain would be greater than the potential savings of a lower locked in rate.

Did any of that make sense?

Any comments?

Am I on the right track? :p
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Disability - agree in general with your points. You likely will have a policy provided by your residency that will pay $2000-$2500/month before tax. That will limit your ability to get extra coverage, b/c companies don't want to insure more than 60% of your income. But you can probably find a policy that will pay $1K/month. (If you pay for the policy yourself with after tax dollars, any payouts are tax free - another advantage to a private policy) As you note, the reason to get DI now is to lock in a policy that can grow with your income.

Re: life insurance, whole life is generally regarded as a way to make money for life insurance agents. Term is the way to go. The reason to buy insurance now is not that it is cheaper than it will be 5-10 years hence (which it is), but that you know you can buy it. After you get MS or lymphoma or HIV from a needle stick or whatever 3 years from now, you won't be able to buy life insurance at any price. Is that likely? No. But it's possible - just a risk/reward decision you need to make in your budgeting.
 
Agree with above. Whole life is rarely a good decision unless you're the agent selilng the policy. Term life is the way to go if you need a policy at all. I was in the same boat a few years back...no dependents and unmarried...this agent was twisting my arm like crazy to buy a bunch of whole life. He said it would be necessary to pay off my debts if I died...he went so far as to say my debtors could go after my parents to get the money. I was 27 years old at the time. I told him he was a freaking idiot and had no idea what he was talking about. And, more often than not, that is the case.

I have often recommended "Personal Finance for Dummies" as an excellent guide to financial issues. It has a lot of information that may not be common knowledge to us career students. Tons of good advice regarding investing and insurance.
 
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FliteSurgn said:
Agree with above. Whole life is rarely a good decision unless you're the agent selilng the policy. Term life is the way to go if you need a policy at all. I was in the same boat a few years back...no dependents and unmarried...this agent was twisting my arm like crazy to buy a bunch of whole life. He said it would be necessary to pay off my debts if I died...he went so far as to say my debtors could go after my parents to get the money. I was 27 years old at the time. I told him he was a freaking idiot and had no idea what he was talking about. And, more often than not, that is the case.

I have often recommended "Personal Finance for Dummies" as an excellent guide to financial issues. It has a lot of information that may not be common knowledge to us career students. Tons of good advice regarding investing and insurance.
Click to expand...

Other good references

Money magazine (aimed at adults who won't ever make much more than you do as a resident)

Kiplinger's Personal Finance (same topic, but aimed at a more affluent clientele)

Worth (again - same topic but even more upmarket)

Medical economics (www.memag.com) A good mix of personal and professional finance advice.

The Wall Street Journal. Complete Personal Finance Guidebook , which I think is good. It appears to be the successor to The Wall Street Journal Guide to Understanding Personal Finance, which I know to be good. The latter book is about 200 pages and each page is a concise summary of some pertinent financial topic. e.g. life insurance gets a page, t-bills get a page, etc.

Finally, the book YOU HAVE TO READ. The Millionaire Next Door. The two sequels are very good as well.
 
Thanks for the insight.

I met with my financial advisor today and he was going over different options for life insurance and investment strategies.

He was talking to me about whole life insurance.

The numbers he was giving me showed that if I purchased $50,000 in coverage (limited pay whole life) by the time I am 38 (I am 26 now) my % return would be greater than my premiums and therefore I wouldnt need to contribute any more in order to maintain the $50,000 policy. So 12 years worth of contributing (at $500/year) would yield a policy that is paying for itself. He said its another way to use my money in a mid-term to long-term investment. The numbers come out as a way to triple my investment in about 15 years. Semi-conservative way to build equity.

The reason he recommended that is because between my fiancee and I we are living well below our means so his description of it was to use the policy as an investment tool (tax free dividends) so that by age 40 the policy could be liquidated and result in tax free equity if we want the cash or simply maintain the policy (which wouldnt cost anything...lifetime premiums would be paid up) if we had kids. He said that as long as the rest of our finances were secure we could use the policy just to build cash, never intending to collect the death benefits.

He said term life insurance would be a waste of our money right now because I have no dependants and a term policy doesnt build cash value.

He gave me a huge variety of disability insurance options and told me to go through them and get back to him, but he recommended maximum coverage because I am going to be a surgeon. His brother is a physician (anesthesia) and he said he would recommend a similar policy to me.

We also went through my Roth, personal savings and future 401K options. Basically recommending maxing out all the investment options where an employer is matching my contribution.
 
Does your financial advisor get a commission off of anything you do? If so, find someone else who charges by the hour or a flat annual rate. Based on the advice he's giving you, this guy sounds like he's on commission which means he's not your financial advisor, he's a salesman for the financial companies.

You won't get any useful information on your disability options until you apply for a policy, take a physical, etc and actually get a quote back from underwriting. If you have a policy through your residency, you're not going to get any decent amount of coverage. You need the right to purchase more as your income increases - that's the only value in the policy at this point.

Re: whole life vs. term. Why are you trying to combine life insurance with an investment. How about paying $100/month extra on your car payment or maybe 5% more on your grocery bill to get life insurance. The fact that term insurance doens't build cash value is pointless. Does your medical insurance or homeowner's insurance build cash value?

At this point, life insurance and disability insurance are essentially of equal value to you - you're buying them now when you're healthy so you know you'll have them if you get sick 10 years from now.

If you want to buy life insurance now, you need to buy the amount you need when you're the breadwinner and you have a spouse and 2 kids in private school. $50K is a joke. You need $500K or likely 2-4 times that.
 
Avoid whole life like the plague. Whole life is life insurance PLUS a forced savings/investment account. Do you want to be forced to put money into that account every month (if you miss payments, you often forfeit the already paid premiums)? You made it through med school and gained a surgery residency, so it's a certainty that your disciplined enough to make your own wise investment decisions. Just buy term (at a fraction of the cost) and invest the difference into whatever you want.

The above poster is correct: This guy is a commissioned salesman, and the commission is usually 10 times greater for a whole life policy than for a term policy. Thus, the guys who make it in the insurance industry are very adept at selling whole life, whether it's good for their clients or not.

READ THIS:
http://www.smartmoney.com/insurance/life/index.cfm?story=lifeterm&hpadref=1
 
I would like to suggest a book that I read in college called the wealthy barber. Don't know author or publisher, but it is very good small book that I think all beginners will find useful.

My vote is term insurance (only if you need it). Insurance agents always like to say you can build cash value and you can borrow against a whole life policy but it is just a plain bad investment. I also like it when they try to sell you life insurance on your children.

When you have kids is what you want to look for in my opinion is renewable and convertable term insurance. Remember, if you invest right you should not need any life insurance after are even before you retire. I have two kids and a wife and will be a pgy 1 this year. Depending which calculations you use I need anywhere from 750 to a million in life insurance. I used selectquote.com and was very pleased with the rate I got for 750.

As far as disability insurance thanks for the reminder. I really need to educate myself better in this area.
 
I guess I am the only one who feels different here. I went with th ewhole life because my father when he ended his practice had quite a bit of networth. The insurance planning he did was primarily for estate tax purposes. He was paying about 120K / yr on his life policies in a trust. When he passed his estate taxes were less than 10%. if he had not had the insurance it would have been around 55%. When I asked about Life insurance he said if he had bought earlier he woul have paid around 30k or less/yr.

Seeing how that effected my family was enough to get the whole started. Term gets more expensive than whole in the long term and only covers until you in the 70's. I plan on outliving my term.

Good luck
 
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