Buying individual disability insurance as a resident and foregoing the free disability insurance

[strongboy2005]

I'm an intern at a 4-year EM program. My residency program offers a group disability insurance policy. All residents are automatically enrolled. It is not the best policy. It provides only 24 months of own-occupation coverage after which it changes in any-occupation. It also can't come with me after I'm an attending - I'll have to buy a new policy at that time when I am potentially not as healthy and will be older. Individual policies can have a future increase option rider that would allow me to increase the coverage without medical screening exam - which could be a financial life-saver if I develop a chronic medical condition in the next 3.5 years. This is not an option with the group disability insurance I have now. That all being said...

This individual insurance policy is expensive! It's about $2,000 a year! So I'm going to pay $8,000 over the course of the residency for essentially the same coverage I'm already getting? How much are those extra benefits worth?

I would like some perspective from people who bought individual disability insurance as a resident and from people who decided to forego it and just keep the "free" disability insurance provided by their residency. It's just really painful to pay $8,000 of precious few dollars to get what is almost essentially the same protection. The only real difference is the protection of having locked in a low rate while young and healthy and being able to secure a future increase in coverage without a medical exam. How much is this actually worth? Will I get back the $8,000 I pay over these next few years by locking in early?

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[The White Coat Investor]

The good stuff is expensive. You can just buy the bad stuff and hope for the best if you want. Lots of people don't have anything at all. I know of one doc living on his disability insurance. He only bought $2500 per month worth. He had a positive outlook on the experience, but I bet he regretted not buying more.

I bought a policy for $2500 a month as an intern and upgraded it to $3500 a month the year after that. It had another FPO for another $4K I later exercised. The total I pay is $3288 a year. (premiums are 3.7% of benefits) I was probably paying something like $1000 per year early in residency (remember this was about a decade ago) and $1500 a year by the end of residency. I now also have a group policy for $10K of benefit per month. It isn't as good a policy as my individual policy. However, it's a heckuva lot less expensive at something like $76 a month, or $912 a year. (premiums are 0.8% of benefits.) Another group policy I used to have was $150 a month for $5000, or 3% of benefits. In general, you get what you pay for. The more you pay, the more likely the policy is to pay out. I generally recommend everyone have at least part of their disability insurance need filled with a good solid, specialty-specific, individual policy. In your case, I'd buy the policy for $2K and then have the group policy on top of it. If you think $2K is expensive, keep in mind there are doctors paying up to $17K a year for disability insurance. That's about as much as my malpractice.

 

[LBKCLU]

As an Emergency Medicine Resident, you can purchase as much as $5,000 month in addition to the group LTD plan provided to you by the hospital and regardless of your earned income. If $2,000 annually is expensive, there are other strategies that you can use the lower your initial premium outlay. One of them is a graded (annually increasing) premium which will reduce your initial premium outlay by 35-40%. The other is a level term premium (like a level premium term life insurance policy for 1 or 5 years) until you complete your training and convert it to a level premium.

It is also important to compare the policies that are available to you, including any discounts available to you via your hospital affiliation.

There is another strategy that I routinely use that allows you to protect your future insurability (your right to purchase additional insurance) by purchasing a very small amount of coverage today and then increasing your monthly benefit when you complete your training and your income rises. This works very well for those physicians that either can't afford or don't want to spend a lot of money on premiums for coverage today but want to the ability to increase their coverage, regardless of their health, in the future.

You can also read several of my disability insurance contributions to www.whitecoatinvestor.com by using the links below:

http://whitecoatinvestor.com/comparing-disability-insurance-policies-part-1-of-2/
http://whitecoatinvestor.com/comparing-disability-insurance-policies-part-2-of-2/
http://whitecoatinvestor.com/updates-in-the-disability-insurance-marketplace/
http://whitecoatinvestor.com/updates-in-the-disability-insurance-marketplace-part-2/
http://whitecoatinvestor.com/updates-in-the-disability-insurance-marketplace-part-3/
http://whitecoatinvestor.com/updates-in-the-disability-insurance-marketplace-part-4/
http://whitecoatinvestor.com/updates-in-the-disability-insurance-marketplace-part-5/

If you want to discuss your situation or would like me to review what has been presented to you, feel free to call or send me an email.

 

[Foster23]

Hi,
I can you give you some insight as I bought a individual policy from Guardian (own occupation, FIO, COLA) when I started my internship. I'm a PGY-4 now, and I have no regret in making the purchase as I can carry this policy to my new job as an independent contractor. I'm in pretty good shape still, but not having to redo bloodwork and physical is a bonus. I only pay about $60/mo during my internship and now i'm paying $78/mo as a senior. I think you should explore graded option where you can pay much less during your residency and pay a bit more once you have more financial freedom as an attending. Without the ability to moonlight during intership, I don't think I could've handled a $2000/yr policy. Once you are able to moonlight, you can easily take on the additional expense. You can consider waiting till PGY-2 where you can start moonlighting to cover the cost. Keep in mind that MOST residents do not purchase DI policy during residency, so you're still ahead of the game.

 

[strongboy2005]

I only pay about $60/mo during my internship and now i'm paying $78/mo as a senior. I think you should explore graded option where you can pay much less during your residency and pay a bit more once you have more financial freedom as an attending. Without the ability to moonlight during intership, I don't think I could've handled a $2000/yr policy.

I got a new quote today and this is what they are offering me. I am completely healthy and only 27 years old. Their offer is $60,000 per year benefit, $11,000 per month future purchase option rider, partial disability benefit rider, and 3% cost of living adjustment rider. Of course, it is true own-occupation, non-cancellable, and guaranteed renewable to age 65 with a 90 day elimination period. They are quoting me $3,270 ($273/month) per year for this policy ($3270/$60,000 = 5.45%). 5.45% seems very high, so maybe I am being ripped off. For the same coverage with a more reasonable 3.5% of premium charge, it would be a $2100 ($175/month) per year premium for the same policy. I have seen people getting coverage for as low as $60/month, as you said. I don't know where people are seeing these offers or if perhaps they are just not getting as much coverage.

 

[tinkerbelle]

I bought own-occupation disability insurance for $1600/year as an intern. The coverage was for $5k/mo. Although I had the option of increasing the amount once I was an attending, I didn't bother. $5k/mo will cover my basic expenses if needed. I think I was the only intern who paid for my own disability insurance. Most residents seemed to wait until they were 3rd years to buy coverage. It was painful parting with so much money as a resident, however, it helped my peace of mind.

 

[gman33]

Current R2. I bought a policy intern year with Northwesten Mutual.
I pay about $200 a month for $4k month policy.
This is on top of a smaller, garbage policy through my employer.

Disclaimer. my family works for NM.

 

[Rendar5]

Buy disability to the max you can. You worked this hard, protect your income. Whatever you get as a resident, increase it once you are an attending. If I am in a major accident, I don't feel like losing 80% of my income, potentially for life.

 

[Foster23]

I got a new quote today and this is what they are offering me. I am completely healthy and only 27 years old. Their offer is $60,000 per year benefit, $11,000 per month future purchase option rider, partial disability benefit rider, and 3% cost of living adjustment rider. Of course, it is true own-occupation, non-cancellable, and guaranteed renewable to age 65 with a 90 day elimination period. They are quoting me $3,270 ($273/month) per year for this policy ($3270/$60,000 = 5.45%). 5.45% seems very high, so maybe I am being ripped off. For the same coverage with a more reasonable 3.5% of premium charge, it would be a $2100 ($175/month) per year premium for the same policy. I have seen people getting coverage for as low as $60/month, as you said. I don't know where people are seeing these offers or if perhaps they are just not getting as much coverage.

I have the same coverage as you do. The 11,000/mo future rider will allow me to max out at 16,500/mo when I become an attending. The key is that I can trigger this option without having to do a new set of blood work or physical exam, ect. My policy is payment is graded, meaning I picked the option to pay a bit less now, but I will be tagged with a higher monthly fee as an attending. You should looking into the option of "graded" vs "level" premium. You will come out ahead if you can afford the level policy, which I think most residents can't. The only time you can come out ahead with a graded premium policy if is you will cancel it at an earlier time.

Here is a simple explanation by WhitecoatInvestor
http://whitecoatinvestor.com/graded-versus-level-premiums-for-disability-insurance/

 

[MD Financial Services Scott]

I got a new quote today and this is what they are offering me. I am completely healthy and only 27 years old. Their offer is $60,000 per year benefit, $11,000 per month future purchase option rider, partial disability benefit rider, and 3% cost of living adjustment rider. Of course, it is true own-occupation, non-cancellable, and guaranteed renewable to age 65 with a 90 day elimination period. They are quoting me $3,270 ($273/month) per year for this policy ($3270/$60,000 = 5.45%). 5.45% seems very high, so maybe I am being ripped off. For the same coverage with a more reasonable 3.5% of premium charge, it would be a $2100 ($175/month) per year premium for the same policy. I have seen people getting coverage for as low as $60/month, as you said. I don't know where people are seeing these offers or if perhaps they are just not getting as much coverage.

That is very high, I just helped a 29 year old today buy his disability insurance and got him $6,000 with $9k of Future Purchase options LEVEL premium to age 65 for $1565 with a True Own Occupation. If you go with an increasing rate that can drive the cost down into the $60-$70 range but then they increase at about 7-12% per year depending upon the age of the insured at the end of each policy year. Let us know if we can be of service.

 

[MD Financial Services Scott]

Current R2. I bought a policy intern year with Northwesten Mutual.
I pay about $200 a month for $4k month policy.
This is on top of a smaller, garbage policy through my employer.

Disclaimer. my family works for NM.

You are paying a lot and if you bought it post 2002 then you don't have a true own occupation definition either. Northwestern is financially an absolutely great company but they have not been on the cutting edge of disability insurance in the physician space in over a decade. This of course is my opinion but it is my opinion because they lack the true own specialty definition that does not reduce the benefit you bought if you go into a secondary career regardless of your new income.

 

[reedsposer22]

The good stuff is expensive. You can just buy the bad stuff and hope for the best if you want. Lots of people don't have anything at all. I know of one doc living on his disability insurance. He only bought $2500 per month worth. He had a positive outlook on the experience, but I bet he regretted not buying more.

I bought a policy for $2500 a month as an intern and upgraded it to $3500 a month the year after that. It had another FPO for another $4K I later exercised. The total I pay is $3288 a year. (premiums are 3.7% of benefits) I was probably paying something like $1000 per year early in residency (remember this was about a decade ago) and $1500 a year by the end of residency. I now also have a group policy for $10K of benefit per month. It isn't as good a policy as my individual policy. However, it's a heckuva lot less expensive at something like $76 a month, or $912 a year. (premiums are 0.8% of benefits.) Another group policy I used to have was $150 a month for $5000, or 3% of benefits. In general, you get what you pay for. The more you pay, the more likely the policy is to pay out. I generally recommend everyone have at least part of their disability insurance need filled with a good solid, specialty-specific, individual policy. In your case, I'd buy the policy for $2K and then have the group policy on top of it. If you think $2K is expensive, keep in mind there are doctors paying up to $17K a year for disability insurance. That's about as much as my malpractice.

I am lucky. I pay $110 per quarter for a plan that is $2000 in benefits. I feel like it is a good deal. I got it through my school, caveat was I had to sign up before July 1 (when residency started).

 

[link2swim06]

I am lucky. I pay $110 per quarter for a plan that is $2500 in benefits. I feel like it is a good deal. I got it through my school, caveat was I had to sign up before July 1 (when residency started).

I think we have similar policies...as I have retained my from med school too.

There is no free lunch though....I am still trying to figure out what the 'catch' is of these policies.

Either it will go up dramatically after residency or they don't cover what we need them to.

 

[reedsposer22]

I think we have similar policies...as I have retained my from med school too.

There is no free lunch though....I am still trying to figure out what the 'catch' is of these policies.

Either it will go up dramatically after residency or they don't cover what we need them to.

UNUM? lol. seems decent right?

 

[link2swim06]

UNUM? lol. seems decent right?

It's through Guardian but I cannot find any details of the actual policy.

It gets more confusing because my residency gives me free disability too but it seems like we are suppose to get an individual policy too?

 

[reedsposer22]

It's through Guardian but I cannot find any details of the actual policy.

It gets more confusing because my residency gives me free disability too but it seems like we are suppose to get an individual policy too?

We don't need an individual policy, but even for our policy which would give $2000 per month, I priced it out via other companies different than who provides mine (UNUM), and it was at least $100/month. I pay $110 per quarter, or $37/month. Not bad.

 

[reedsposer22]

Current R2. I bought a policy intern year with Northwesten Mutual.
I pay about $200 a month for $4k month policy.
This is on top of a smaller, garbage policy through my employer.

Disclaimer. my family works for NM.

That is pricey. I pay $37/month for a $2k month policy. Wow, why so expensive?

 

[TooMuchResearch]

That is pricey. I pay $37/month for a $2k month policy. Wow, why so expensive?

Yours is cheaper than any policy with good terms that I've priced out. I'm seeing premiums around 3-4% of the income protected with policies from the major carriers. It would be significantly cheaper without riders for future policy increases, cost of living increases, residual disability, etc. Though those riders are worth purchasing. Check the terms and definitions in your policy...maybe even post them here for review.

 

[RPedigo]

Is it worth it to "date to save age"? For instance, if my birthday is in February and I applied before by birthday and am approved in April, is it worth it to be covered as one year younger for the plan but then to back-pay those months of insurance (e.g., February, March, April)?

 

[MD Financial Services Scott]

Just beware of All of the language in the policy. If you only look at the benefit amount it can be very deceiving. You need to look at the definition of disability, the waiting period, the language of the waiting period (total and or continuous in there is NOT good), is the contract Non-Cancelable, does it have residual, does it reduce for other insurance, Social Security, or workman's comp, the list goes on. Once you know exactly what you have then you can decide does it work for you. Its kind of like a car, it is transportation but if you have a family of 5 then a 2 seat sports car is not going to work well for your family transportation that is the reason you look at your situation prior to buying a car. The same holds true for a disability contract....know how it is going to work for you in all 4 sections of policy evaluation, sustainability, claim qualification, and net benefit payout. IF it does not work for you in those areas then you have the wrong contract.

 

[ChessMaster3000]

I am going to have $2750 in disability/month thru my residency for free. 750 of that is through an individual policy that I can keep after residency (if I pay the--presumably low--premiums after). I am currently looking at an offer of around $500/YEAR for a 2500/month, own occupation, FIO, COLA plan. Is it worth it to have this policy, or to save 1500 and buy it later at a higher rate?

 

[ChessMaster3000]

I am going to have $2750 in disability/month thru my residency for free. 750 of that is through an individual policy that I can keep after residency (if I pay the--presumably low--premiums after). I am currently looking at an offer of around $500/YEAR for a 2500/month, own occupation, FIO, COLA plan. Is it worth it to have this policy, or to save 1500 and buy it later at a higher rate?

 

[gutonc]

I am going to have $2750 in disability/month thru my residency for free. 750 of that is through an individual policy that I can keep after residency (if I pay the--presumably low--premiums after). I am currently looking at an offer of around $500/YEAR for a 2500/month, own occupation, FIO, COLA plan. Is it worth it to have this policy, or to save 1500 and buy it later at a higher rate?

Get it now.

 

[la gringa]

get it before you have 1 or more reasons to not be insured. i had 1 in med school and just keep having more ortho issues will have to suck it up and buy a $1000/mo secondary market plan.

 

[ChessMaster3000]

Thanks for your input. I will probably go ahead and get it

 

[MD Financial Services Scott]

Certainly go ahead and get it, then once acquired you can always go back and look to improve the terms of the policy. Just make sure you read the contract language since that will control the way it will behave at claim time.

 

[Mbekweni]

Absolutely get disability insurance. 5k a month is the limit for residents and this can be a good amount of money (post tax) that will likely meet a lot of your needs even as an attending if you are living frugally. I delayed for 2 years in residency, figuring that I could just buy the coverage as I was graduating and save some money. I did some reading here and on Whitecoatinvestor and decided to bite the bullet. 2 weeks after signing the contract I hurt my back really badly. I'm back at work and it was hopefully little more than a hiccup in my residency experience, but if I didn't have the contract in hand before this incident I bet I would have any and all back issues excluded from a future policy- and I've read elsewhere that back/spine issues account for >30% of disability claims. I've come across a number of other residents and attendings with various ortho issues, even cancer etc that can strike at any time. The further you get from those "invincible" teenager years the more likely something can happen- and it's best to have a contract in place before that pre-existing condition can get written out.

I went with a cheap, level cost policy at the time. 5k of coverage, increasing at 4% per year if I exercise the option with excellent residual/partial DI coverage. However, I decided to save money by going with a 10 year coverage limit, no 3% COL adjustment and no future purchase option. I pay $131 per month for that coverage for a 2.6% cost per benefit. By the statistics, the average disability period is about 3 years. I also figured that I have extensive family support and a partner also in healthcare, so if whatever disabled me didn't kill me after 10 years I would have had ample time to re-arrange career paths etc. The 5k+ for me would be so that I wouldn't feel like too much of a burden on those I love, and wouldn't be forced to sell a home in a down market etc. There are lots of options outside of clinical medicine for someone with an MD, and many will pay pretty well too, so while I think it's an excellent idea to have DI overall, I don't believe it's necessary to try and insure all of your potential income.

Now that I hurt my back I do wish that I had a future purchase option on my policy, but I guess I could ride the 4% annual increases for a while and stay well ahead of inflation.

 

[MD Financial Services Scott]

Good job on the purchase before you hurt your back. So you know most of the carriers probably would put a rider on your back going forward but typically within a couple of years if you have not had any further issues with it then they will remove that rider. In addition I would not think they would put a premium rate up on your contract, not typically what the carriers do. The issue I am curious about is why buy a 10 year benefit contract when it is only a few dollars less than an age 65 benefit period, I certainly understand few claims go past 5 years but for less than the price of a papa johns pizza you can have a potential claim payment which could pay out for 30 years.

 

[Mbekweni]

Good job on the purchase before you hurt your back. So you know most of the carriers probably would put a rider on your back going forward but typically within a couple of years if you have not had any further issues with it then they will remove that rider. In addition I would not think they would put a premium rate up on your contract, not typically what the carriers do. The issue I am curious about is why buy a 10 year benefit contract when it is only a few dollars less than an age 65 benefit period, I certainly understand few claims go past 5 years but for less than the price of a papa johns pizza you can have a potential claim payment which could pay out for 30 years.

Good question. I'm still not sure if there is an optimal answer. I was thinking more on a percentage basis. I got my 5k in coverage through the Standard Protector Platinum plan for $1574 per year for a 10 year benefit period. Going to age 65 for me (age 30) would be $2028 per year, for a 23% savings, $454, or $37.83 per month. That's not insubstantial as a resident, chump change for an attending and one VERY large pizza.

My initial strategy was to get this 10 year policy as my "base" policy that I would keep long term since I highly doubt I would need DI for more than a few years and could save money over the long term. I then planned that when I finished residency and qualified for more coverage to get a second policy ie with Guardian that has a graded premium for a net cost savings for about 12 years, breaking even at 20 years in terms of total payments. That way I would have coverage for a catastrophic early illness at a total major cost savings with the graded plan and double coverage with the 10 year plan for the second half. Kind of complicated, and then I got hurt. Retrospectively I wish I started with the Guardian graded plan now and then would have added a 10 year policy on afterwards, as I plan to be financially independent within about 10 years after residency (plus my partner's salary would likely be enough to cover all family expenses even without any income from my part). Hopefully I didn't overthink things too much.

It's nice to hear that there may still be a chance to get some high quality coverage in a few years if things continue to go well with my back. I'll certainly look into the options again and be able to re-evaluate.

 

[ucbsmd]

Any thoughts on policies that check income every 3 years and require an increase to at least 50% of income versus a fixed cap where they allow you (no forced increase if income goes up) to increase every year to you income or the policy's max? The first option is 141/mo for 5k/month in coverage and the second is 162/mo.

 

[happylunchbox]

.

 

[DrFamily7]

Any thoughts on Ameritas vs. Guardian. Ameritas is 100 less with similar benefits.

 

[MD Financial Services Scott]

Good question. I'm still not sure if there is an optimal answer. I was thinking more on a percentage basis. I got my 5k in coverage through the Standard Protector Platinum plan for $1574 per year for a 10 year benefit period. Going to age 65 for me (age 30) would be $2028 per year, for a 23% savings, $454, or $37.83 per month. That's not insubstantial as a resident, chump change for an attending and one VERY large pizza.

My initial strategy was to get this 10 year policy as my "base" policy that I would keep long term since I highly doubt I would need DI for more than a few years and could save money over the long term. I then planned that when I finished residency and qualified for more coverage to get a second policy ie with Guardian that has a graded premium for a net cost savings for about 12 years, breaking even at 20 years in terms of total payments. That way I would have coverage for a catastrophic early illness at a total major cost savings with the graded plan and double coverage with the 10 year plan for the second half. Kind of complicated, and then I got hurt. Retrospectively I wish I started with the Guardian graded plan now and then would have added a 10 year policy on afterwards, as I plan to be financially independent within about 10 years after residency (plus my partner's salary would likely be enough to cover all family expenses even without any income from my part). Hopefully I didn't overthink things too much.

You should check around, Standard is a great company and Doug Waters who is running the disability division is doing a bang up job but right now in the physician space they are one of the more expensive carriers for most physicians in most states right now. Check around, you might find it cheaper with a equally good design.

It's nice to hear that there may still be a chance to get some high quality coverage in a few years if things continue to go well with my back. I'll certainly look into the options again and be able to re-evaluate.

Good question. I'm still not sure if there is an optimal answer. I was thinking more on a percentage basis. I got my 5k in coverage through the Standard Protector Platinum plan for $1574 per year for a 10 year benefit period. Going to age 65 for me (age 30) would be $2028 per year, for a 23% savings, $454, or $37.83 per month. That's not insubstantial as a resident, chump change for an attending and one VERY large pizza.

My initial strategy was to get this 10 year policy as my "base" policy that I would keep long term since I highly doubt I would need DI for more than a few years and could save money over the long term. I then planned that when I finished residency and qualified for more coverage to get a second policy ie with Guardian that has a graded premium for a net cost savings for about 12 years, breaking even at 20 years in terms of total payments. That way I would have coverage for a catastrophic early illness at a total major cost savings with the graded plan and double coverage with the 10 year plan for the second half. Kind of complicated, and then I got hurt. Retrospectively I wish I started with the Guardian graded plan now and then would have added a 10 year policy on afterwards, as I plan to be financially independent within about 10 years after residency (plus my partner's salary would likely be enough to cover all family expenses even without any income from my part). Hopefully I didn't overthink things too much.

It's nice to hear that there may still be a chance to get some high quality coverage in a few years if things continue to go well with my back. I'll certainly look into the options again and be able to re-evaluate.

 

[MD Financial Services Scott]

Any thoughts on policies that check income every 3 years and require an increase to at least 50% of income versus a fixed cap where they allow you (no forced increase if income goes up) to increase every year to you income or the policy's max? The first option is 141/mo for 5k/month in coverage and the second is 162/mo.

I have no problem with that style of future purchase options. Think about it, if you pay for the feature you should be able to control it, if they provide it for free then they control it. In your situation which is probably the Guardian limited policy or Principal having a 3 year requirement of income disclosure to maintain 75% of Eligible benefit is not a big deal And you can utilize other triggers in a needed purchase if that comes around earlier. As a rule of thumb most resident / fellowship contracts (ages 28-34) typically cost about $20 per month per $1,000 of monthly benefit for an efficiently designed contract.

 

[MD Financial Services Scott]

Is MetLife essentials still the best option for somebody who may have a pre-existing condition? Any other suggestions? Thanks!

Just depends on what the pre-ex was, its not the policy series that dictates what is the best solution for someone with a pre-existing condition but rather which carrier has an appetite or is comfortable for that particular aliment.

 

[MD Financial Services Scott]

Any thoughts on Ameritas vs. Guardian. Ameritas is 100 less with similar benefits.

The contracts are pretty similar with Guardian having an advantage with their residual but Ameritas having the advantage with their reducing waiting period, non-disability benefit of $3,000 per incident, and their $1,000 Cobra benefit....if it were my checkbook to save a few bucks I would go with Ameritas. Just the same if Guardian were less expensive I would go with them. Both are great companies and you will be well served with either one.