Insurance

Discussion in 'Finance and Investment' started by agammaglobulin, Oct 20, 2015.

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  1. agammaglobulin

    agammaglobulin 5+ Year Member

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    Aug 22, 2011
    I have been looking into getting insurance and was wondering what you pay total each month in insurance. From what I've gathered, it seems most people recommend term-life insurance, disability insurance, an umbrella policy and malpractice insurance. I am started to look into this and it seems like a couple thousand each month all together...
     
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  3. bc65

    bc65 2+ Year Member

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    1,398
    Oct 16, 2013
    Term life should cost a 30 yo male about $2000 a year for a 30 year 3 million dollar policy. ( you only need this if you have dependents)
    Disability about $10,600 a year for me. You should pay about $200 to 400 a month for $10,000 a month of coverage depending on your age ( will cover a salary of $240k) . Get more if you have a higher salary. lots of riders on that. You need to read up on it. Good articles at whitecoat investor.com
    Umbrella policy: you need to max out your car insurance to qualify, then a 5 million dollar policy costs me $802 a year.
    Don't forget health insurance.
    My health and malpractice were paid for by work so I don't know what they cost.

    Also home or renters insurance.

    You can get disability and term quotes here: ( no affiliation, but I used them myself for term. Recommended by whitecoatinvestor. )


    http://www.insuringincome.com/instant-life-insurance-quotes/
    http://www.insuringincome.com/request-quote-disability-insurance/


    You are correct, term life only. Never buy any kind of whole life insurance; whole life, variable life, universal life, indexed universal life, guaranteed universal life, variable universal life, single premium life, etc. All are rip-offs, disastrous for doctors. Also avoid all annuities. ( maybe for some people single premium immediate annuities are ok at retirement in you 60s, but I think those are a bad deal for everyone also. definitely no variable annuities. before that )
     
    agammaglobulin likes this.
  4. MR Insurance

    MR Insurance 5+ Year Member

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    Apr 20, 2010
    MD
    Should you decide to move forward with Term Life and Disability insurance, you'll eventually need to work with an agent. In shopping for life insurance, you can start by visiting Term4Sale.com. This website is owned by a software company that sells term quote comparison software to insurance agents all over the country. Being in the financial services profession and selling these two coverage types myself, I can assure you that this website will quote an extensive number of insurers for you. While the websites provided in the comment above could also be great, I would recommend visiting Term4Sale.com before contacting an agent. If the agent you contact doesn't show you similar options to those found on Term4Sale, it'll be your first hint that you should find a new agent :) Consumers should go into this knowing that personal and family medical history, tobacco history, and other things like driving record could quickly increase the cost of Term life insurance. While BC65 wasn't wrong in stating that $3 million of 30-year Term should cost around $2,000/year for a 30 yo male, this would only be true for those qualifying at super-preferred health rates. This same policy could cost as much as $4,000 for a 30 yo male that's in average health. You can save yourself some time by having a conversation with your agent before applying for a particular policy and be sure that you apply with the insurer that is most likely to offer you the best health rating.

    Unlike Term Life, Disability insurance has several moving parts and optional riders that can be added to your policy. For this reason, the purchasing process is significantly different. Additionally, there are no accurate and reliable quoting systems yet available on the web. The only way you can get quotes is by contacting an agent and requesting them. There are several great policies currently available to physicians, so you'll have plenty of options. Ideally, you should be reviewing several quotes from the leading insurers, which in my opinion include: MetLife, Guardian, Standard, Principal, Ameritas and MassMutual. If you aren't being provided with proposals from at least 4 of these carriers, it might again be a hint that you should find a new agent or at least get a second opinion. The White Coat Investor has several great articles on this topic - one particularly applicable one can be found at http://whitecoatinvestor.com/how-to-buy-disability-insurance/. Pricing on this can vary significantly by medical specialty, gender, state and age so don't necessarily assume you'll be paying the same price as your colleagues. In very simple terms, these are some of the most critical features you want to look for: Noncancelable and Guaranteed Renewable, True Own-Occupation Definition of Total Disability, Residual or Partial Disability Benefits, Cost of Living Adjustment rider (particularly for younger physicians), Future Purchase Option (particularly for residents/fellows or new attendings who expect a significant increase in earnings). Finally, be sure that the agent you work with is presenting you with discount opportunities. There are several discounts available to physicians through hospital systems, GME programs, and professional associations. You may not qualify for a discount with every insurer, but should definitely be presented several discounted options.
     
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  5. InsureIncome

    InsureIncome

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    Oct 25, 2015
    Insurance may be perceived as a commodity that can be compared as easily as two bars of soap, but if you don’t like the soap, you can buy another and you’re only out a buck or two.

    Not so with insurance. Your insurability (your health and acceptability to insurers) may be fleeting and will determine whether you can change insurers down the road, a career-long road that could span 30 thirty years or more.

    So the financial strength of the insurer, the culture of its management, and its commitment to disability insurance, is a real consideration. Price is easy to spreadsheet and compare. Assessing the efficacy an insurer’s management today, tomorrow and decades hence requires a little more insight.

    For example, 22 years ago, or a little over half of a career ago for newly minted MDs in 1993, the top 10 DI insurers were, in order:

    Paul Revere
    Provident
    Northwestern Mutual
    UNUM
    Equitable Life
    MassMutual Life
    Connecticut Mutual Life
    Lincoln National
    New York Life
    Guardian Life

    Given today’s commodity shopping methodology, a resident physician in 1993 would have been well served by comparing the top three or four insurers, of which only two remain in business today (NML earns a financial strength rating of 100/100 and UNUM earns 77/100).

    Only three of the DI insurers on the list above are still actively selling disability insurance to physicians.

    The latest crop of must see DI insurers were distant bit players in the 1993 market share rankings: Principal #17, Union Central (now Ameritas) #19, Berkshire Life (now owned by Guardian) #22, MetLife #46, Standard #51.

    The insurers’ financial strength (claims paying ability), their financial capabilities to back the promises set forth in their policies is another often overlooked but vitally important consideration.

    Substituting the new entrants to the list and comparing their financial strength ratings (claims paying ability) as summarized by their Comdex rating, a numeric translation of rating agencies’ letter grades based on 100, is as follows:

    Northwestern Mutual 100
    Berkshire (wholly owned subsidiary of Guardian) 99
    Guardian 98
    MassMutual 98
    MetLife 94
    Principal 89
    Ameritas (formerly Union Central) 81
    Standard 78

    Instead of comparing price, you should ask yourself how will these insurers fare over the next 22 years, hopefully over the duration of your career or even your lifetime, if longer.

    Given your choice of insurer today, and your uncertain insurability throughout your career, this may be the insurer that you and your dependents will be relying on to maintain your lifestyle, if you become sick or hurt, and can no longer practice in your chosen specialty of medicine.

    Similarly with term life insurance, your choice of insurer may seem inconsequential (lowest price wins) but should you become uninsurable and possibly terminally ill, suddenly you may wish you made a different decision.

    My intention is to broaden the parameters of your comparison so you don’t find yourself wishing you knew what you didn’t know.
     
  6. bc65

    bc65 2+ Year Member

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    Oct 16, 2013
    Very interesting. I am currently helping a relative buy disability insurance ( not a physician). We have quotes from Mass Mutual for $571 a month, Standard is $365 or $233 (depending on policy class) and Principal is $482. So, what's the significance of the lower ratings in practice? What is the relative risk of a company going out of business and also not turning their policies over to another company? I had my own policy from Chubb, which was turned over to Jefferson Pilot, and then to Lincoln. So, wouldn't a company turn its business over to another company rather than just disappear?
     
  7. InsureIncome

    InsureIncome

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    Oct 25, 2015
    Disability insurance is as much a commodity as physicians are commodities, interchangeable with little consideration to education, training, experience, reputation, or most importantly, the probability of a favorable outcome, call it success rate.

    For example, presume that you need a very specialized, life-saving procedure; you research the marketplace and find that a distant hospital with a renowned physician represents your best probability for survival.

    But on the day of your treatment, you are advised that a different physician will be treating you.

    Your expectation of performance may be abruptly drastically altered because the reality of performance is in question. Everything may work out just fine, but in the moment, your peace of mind is undermined by uncertainty.

    Disability insurance is no different. Despite perceived and presumed similarities in policy language, one insurer’s claims’ department’s interpretations of policy language by may be very different from another. No two policies are alike; there are similarities but they are not identical. To presume that they are same, denies the written language, deliberately crafted by the insurer.

    An insurer’s managerial continuity over generations informs and guides the current culture of the claims people that interpret policy language and pay claims. It is the insurer’s reputation. Policyholders come to rely on that reputation as we do with other businesses and professions.

    When an insurer acquires a block of business, much like in every business, the acquiring insurer's philosophy and practices dictate how claims will be paid moving forward which may be very different from the former insurer. Open claims are often reconsidered given new mandates and methodologies. Welcome the new sheriff in town.

    I have witnessed several claims, where claimants owned two or more policies from different insurers and despite similar contract language (and the expectation of similar treatment), differing claims-paying philosophies and practices, interpretations and determinations resulted in very difference outcomes; for example, one insurer pays total disability and the other denies the claim entirely. Hello.

    For the benefit of consumers, rating agencies expertly assess and report on insurer financial strength but the dominant prevailing commodity product shopping orientation (exacerbated by internet marketers) discounts (often ignores) the importance of financial strength and the insurer’s incumbent management’s responsibility for it.

    Policy nuances (most disability insurance specimen policies are over 50 pages long) are de-emphasized, in some cases misrepresented, in favor of brief, oversimplified, single page yes/no spreadsheets that focus on price, reinforcing the universally understandable mantra: Cheaper is better; drowning out the other mantra: You get what you pay for.

    Presuming that financial strength is important to you, and you agree that the culture of insurer’s management is what actually determines how a disability contract language is interpreted and paid, let’s consider your choices using the same methodology you may use to buy a mutual fund: Style box (fixed income), Star rating, and historical performance.

    For brevity (but I encourage you to compare in detail, given what’s a stake), I will compare only three holdings: Bonds, Stock, Mortgages.

    MassMutual: Bonds: 56%/ Stock: 7%/ Mortgages: 15% Comdex rating: 98/100
    Principal: 71%/2%/18% Rating: 89/100
    Standard: 72%/6%/41% Rating: 78/100

    If these were mutual funds, the style box objective would inform you about expected risks and returns and you would likely have more questions/concerns regarding management’s long-term strategy when you identify significant deviations from the norm. For example, glaringly, double the exposure to mortgages and a 78/100 Comdex rating.

    Incongruously, many investors reassess their holdings periodically and critically, and become increasingly intolerant of substandard performance and managerial ineptitude; but despite being quick to sell marginally rated or poor performing mutual funds, they are ignorant of, or forgiving of, insurers in steady decline, despite owning policies that represent potentially millions in income if/when a claim is payable. Whatever interests you is what holds your attention.

    But to your question about financial strength's significance in practice?

    Disability insurance is a capital intensive business with comparatively narrow margins, and intensive regulatory scrutiny and reporting, justifiably so, given what’s at stake.

    As margins become constrained due to increasing capital demands of a toxic block (increasing claims losses not offset by new business and the flight of insurable policyholders, increasing the concentration of uninsurable policyholders with a higher probability of claim, known as a "death spiral"), an insurer’s incentive to remain in the disability business, possibly adversely affecting other more predictable and profitable lines of business, can result in the wayward path your policy has staggered. Where it stops no one knows. Presumably that was not your expectation when you selected Chubb to protect your income and your lifestyle. That is not my definition of peace of mind.

    Insurers do fail outright and their obligations are usually assumed by other insurers and reinsurers, and as a steward of last resort, state guaranty funds. Generally there is enough incentive (margin) for some insurer to acquire a wayward, even toxic, block. But as an insurer's risk tolerance wanes and margins predictably narrow, the likelihood of the block going back on the block increases, as was the case repeatedly with your policy.

    But as a policyholder, with an expectation of performance set years ago, and in your case, several insurer ago, you don’t want just any insurer acquiring the block.

    Going back to my opening remarks, your expectation of what the policy language means to you, and how the current insurer interprets that language, may be substantially different, based on the insurer’s claims department’s experience, culture and corporate mandate.

    Consider this analogy: You frequent a nearby family-owned restaurant with reliably excellent food and service; abruptly, the restaurant goes out of business despite being very popular with the patrons, but reopens shortly thereafter under new management, using the same name and purporting the same theme but with a new chef. The new owners are more focused on profit margin than customer satisfaction. They have already implied their intention to sell if the right price is offered. What is the likelihood that food/experience will be identical to the former?

    But we’re not talking about a meal. We’re talking about a disability insurance policy that could be worth millions in potential benefits, which may be the only thing maintaining your lifestyle and your dependents’ lifestyles, during a period of disability.

    What you expect and what you ultimately receive may be very different.

    Your choice of insurer deserves at least as much scrutiny as your investment portfolio, and on an on-going periodic basis. If you willfully choose a less certain path with greater risks, you can’t be surprised when things become less predictable.

    Lastly, what is your relative’s occupation? The premium spread seems unusually wide for a non-physician.
     
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  8. bc65

    bc65 2+ Year Member

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    Oct 16, 2013
    Thanks for the detailed and informative reply. My relative is a manager/consultant, so basically office work.

    For me, it was fortunately moot, as I never used mine and dropped all my policies as I no longer need them, and I supplemented my original policy with one from Mass Mutual plus a group policy for the excess that Mass Mutual wouldn't cover. It's interesting how accurate your lists are, as I have older policies from two of those companies, and a friend has one from a third.

    By the way, there's a typo in the percentages for Standard: Standard: 72%/6%/41% I'm guessing the Bond percentage is wrong?
     
  9. QofQuimica

    QofQuimica Seriously, dude, I think you're overreacting.... Lifetime Donor SDN Administrator 10+ Year Member

    It depends on your situation, both personal/health and financial/family. It also depends on your age in some cases.

    Life insurance: necessary if someone else's financial well-being depends on your income. If you don't have kids or a dependent spouse, you probably don't need it. As a single person without dependents, I have a group life policy through my employer, but only because they don't give me the option to drop it (I asked). As others have said, go with term insurance. If you are young and healthy, it should be cheap. Once your dependents are grown up, you can drop it.

    Disability: a must until and unless you are financially independent (FI) where you can afford not to work as a physician ever again. Considering that most people finish their training six figures in the red because of loans, you must protect your ability to work and earn income. I have both group and individual DI. Group is through my employer; since they pay the premiums, any benefits will be taxed (and therefore I would not get the whole payout). I pay for my individual DI with post-tax dollars, and that benefit would not be taxed if I needed it. As the other posters said, you really need to do some research on this, especially if you are in a procedural specialty where your ability to earn a full income depends on your ability to work own-occupation. DI is incredibly expensive but again, necessary for most people until you reach FI. I pay ~$3300/year for mine (individual), but I am only protecting $60,000/year of income since that is double my yearly expenses. If I covered my full salary, the cost would be much higher, similar to the other poster. Keep in mind too that if you are female buying an individual policy, you will be charged more because women have a higher risk of going out on disability. The cost also depends on your age (important for those who, like me, are nontrads).

    Umbrella policy: cheap and worth having if you have any assets that are targetable by creditors or lawsuits. If you are a physician, you likely will have such assets. Mine costs a few hundred dollars per year for a $2 million policy.

    Malpractice: I work for the state, so I don't pay malpractice. But obviously that is something you should research and purchase if your employer doesn't provide it for you. Cost will depend on where you live, prior suit history, and what specialty you are in. But in general, it's expensive, so be prepared for that.

    Property: don't forget that you will need to insure your car and your home/apt as well, both for property and liability. If you rent, you should get renter's insurance. That is cheap. I pay a couple hundred dollars per year for mine. You should also insure any other valuable property you have, such as boats, second houses, etc. If you live in certain places, you may need additional insurance for sinkholes, floods, hurricanes, etc.

    Depending on your age, you may also want to consider long term care insurance in case you have to go into an ALF or nursing home in later life. Most sources I've read suggest considering purchasing LTC insurance in your early 50s, so it won't apply to most recent grads, but it may for some of you who are older nontrads. I decided to self-insure and forgo buying a policy. Meaning, I am saving extra money rather than buying LTC insurance. If I need an extended ALF or NH stay, I would then pay out of pocket.
     
    bc65 likes this.
  10. InsureIncome

    InsureIncome

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    Oct 25, 2015
    Well that was embarrassing. I was just making sure you were paying attention. ;) Thank you for pointing out the discrepancy.

    Standard: Comdex 78/100: Bonds 56%, Stocks 0%, Mortgages 41%
    Ameritas (formerly Union Central) was next to Standard on my spreadsheet, with the second lowest Comdex rating 81/100: Bonds 72%, Stocks 6%, Mortgages 14%

    I survived the implosion of the disability insurance industry (due to a perfect storm of industry arrogance/ignorance) during the early 1990's and witnessed the aftermath, hence the reason financial strength and management continuity is so important. It's noteworthy that the insurers that endured and thrived are all mutual insurance companies. Stock insurers fared the worst.
     
  11. InsureIncome

    InsureIncome

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    Oct 25, 2015
    Agammaglobulin,

    As others have posted, life insurance is necessary (morally required, in my opinion) when you have dependents that rely on your income for their lifestyle.

    The traditional “dependent” is a spouse and/or minor children but you should broaden your awareness to include any person or entity that relies, or could soon rely, on your income including: Elderly, or soon to be dependent parents, life partners, siblings and their children (assistance with college expenses is common), current or future business partners, charities and religious organizations.

    Insurance agents and physicians share a common experience with the people we serve: generally they think they are healthier than they really are, and they expect to live longer than they reasonable should, given their actual health.

    When it comes to insurance, most shoppers presume themselves to “Preferred” risk, even though generally, only about 10-20% of applicants, qualify for the lowest rate.

    With that said, many would-be buyers of life and disability insurance deliberately wait until they have a reason to buy insurance, which the insurance industry calls “insurable interest.”

    But during the interim, while you are waiting, your insurability could be compromised, which may result in higher premiums, reduced coverage, or preclude you from buying coverage entirely. So it is to your advantage from a pricing standpoint (buying at younger ages is less expensive) and you are generally less likely to have insurability complications.

    In short, you may not have a reason to buy now but you likely will, sooner than later, predictable life events will sneak up on, but the longer you wait, the higher cost and the higher the probability of an adverse underwriting outcome.

    Lastly, term life is inexpensive but as its name implies, it insures you for a term of years, your circumstances and priorities may change over the course of the term, be sure to buy a conversion feature, for added flexibility down the road.
     
  12. bc65

    bc65 2+ Year Member

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    Oct 16, 2013
    I assume that most if not all failed insurance companies were taken over by other solvent companies. So, did any disbility policyholders actually lose their coverage?
     
  13. bc65

    bc65 2+ Year Member

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    Long Term Care Insurance: A very controversial subject. I have a policy, which is not terribly expensive. I got it because I had a window of opportunity to get a policy through work. However, I will probably drop it in the next few years, as I can afford to pay the expenses myself ( ie "self-insure") You definitely don't want to buy a policy before you are 50 or 60, probably even later. The main reason I considered having a policy is because in the event that I need nursing home care, I don't want my dependents to have to face a moral dilemma about how I should be cared for. This way, the insurance will mitigate some of the expense. Also, care is so expensive, that a policy will likely only partially cover expenses, so in that sense I'm splitting the difference between insurance and self insurance. However, LTC has lots of issues. For most readers of this website, it won't concern you for 30 -35 years of so. For now, priority should be Life, only if you have financial dependents, then disability, but you will only qualify at the end of residency or beyond, and then auto+home/renters, with a supplemental umbrella. Umbrella should be the biggest policy they will sell you that you can afford. When they find out you're a doctor, they will sue.

    @QofQuimica makes a good point about getting disability insurance to cover expenses rather than salary. Similarly, term life should cover anticipated expenses rather than salary. In some cases, for very high earners, insurance should be less than 20 years of salary. However, if you are currently spending more than you earn, you need more than your salary. Obviously, while a student, there's no salary to use as a benchmark. A non-working spouse needs to be covered as well if there are children, because the death of a caregiving parent will necessitate less work and less income for the surviving spouse and probably require hiring a nanny as well. However, for both life and disability you need to consider inflation as well. So, what might be sufficient now may not be later. If disabled, while some expenses might go down ( less on clothing, sports, travel, gas ) you might need special equipment or help at home, so expenses could just as easily go up, so I would be cautious about covering less than the maximum 50% or 60% of salary, unless your income far exceeds expenses. Also, keep in mind that you will still need to save for retirement on your disability income, because the checks will stop coming at age 65 or 67, depending on the policy you choose, so you will have to have enough extra each month to fund your retirement. So, monthly expenses need to include savings for retirement.
     
  14. InsureIncome

    InsureIncome

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    Oct 25, 2015
    The individual disability insurance (IDI) business is a boutique business catering to predominantly medical and dental professionals (MDs/DDSs), the aggregate premium earned from IDI by all insurers is a tiny blip compared with the overall insurance industry.

    So to be clear, failing in the IDI business and failing, shuttering due to insolvency, are different things.

    Three insurers dominated the IDI marketplace in the early ‘90s. The BIG 3 were: Paul Revere ($600M in earned premium in 1993), Provident Life & Accident ($550M), UNUM ($300M), those three were the IDI business.

    For perspective, your insurers earned the following: Chubb ($16.3M), Jefferson Pilot ($4.3M), Lincoln ($96M).

    UNUM (Comdex 77/100) is the brand that now holds the remnants of Paul Revere and Provident.

    The current market share leaders in 2014 are, in order: UNUM (the only BIG3 remaining from ‘93), Guardian (#10 in ’93), Principal (#17 in ’93), Northwestern Mutual (#3 in ’93), MassMutual (#6 in ’93), and relative newcomers: MetLife, Standard and Ameritas, whose combined sales in 2014 were less than MassMutual.

    As you can see, the mutual insurers have been consistent players in good times and bad.

    Many insurers, predominantly household brand name life insurers, dipped their pinkie toes in the IDI pool to test the temperature, (if it’s good for the BIG 3, it must be good for me), but when the marketplace proved volatile an expensive (narrow margins on large and increasing reserves), they were quick to bail out, usually after their first ratings warning for dabbling in a business outside their expertise. Ironically, these departing insurers negotiated brokerage deals with the BIG3, due to their market share and perceived expertise, further concentrating the market.

    Two tier two IDI insurers (in the second ten by market share) actually failed; one was purchased by another insurer intent on getting in the game without building its own infrastructure; the acquiring insurer simple added their logo, even the main underwriting address and phone remained the same. The other suffered from toxic block and is being administered by its reinsurer.

    I am not aware of any formerly prominent IDI insurers whose policyholders lost coverage. However, as I mentioned in prior posts, financial strength and managerial consistency should translate into peace of mind instead of following your policy bounce from insurer to insurer; where it stops nobody knows.
     
  15. QofQuimica

    QofQuimica Seriously, dude, I think you're overreacting.... Lifetime Donor SDN Administrator 10+ Year Member

    Most people's spending tends to nearly equal (or in some cases even exceed) their incomes. Since most DI policies only cover at most around 60% to 2/3 of income to begin with, it follows that most people will want to max out their policy amounts. But you make a good point regarding the time value of money; most DI policy payments are not indexed for inflation the way, say, SS is. So even if you target your policy amount by expenses rather than by income, if you're going to be working over a period of decades, you will likely need to continue to increase your DI policy amount over time to take your increased expenses over time into account. In my case, I have less than three years left to reach FI, and I'm already insuring well over the amount that my anticipated expenses will be in 2018. I also will obviously not be saving for retirement any more at that point.
     
  16. bc65

    bc65 2+ Year Member

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    Are you going to drop you DI once you have reached financial independence ? That's pretty impressive, to be financially independent within 3 years of passing your boards. That means you are an amazing saver and investor ! ( or else someone who failed their boards many times...;) )
     
  17. QofQuimica

    QofQuimica Seriously, dude, I think you're overreacting.... Lifetime Donor SDN Administrator 10+ Year Member

    Yes, assuming all goes according to plan, I will drop my individual DI in July 2018 when my contract for that year expires. I expect to reach FI in early 2018. Not sure yet if I passed the boards (should find out next month), but it was my first (hopefully only!) take.

    I've been out of residency now for 16 months, so it's actually going to be a total of ~3.5 years post-residency graduation for me to reach FI. I do have a high savings rate, but there's more to the story than just my savings as an attending. I'm a nontrad who had already been working and saving for ten years prior to starting medical school. I'm also an MD/PhD with no med school loans. Both of these things are obviously large advantages. First, while I didn't earn a lot of money or have access to a tax-deferred retirement account as a chemist (my first career), I've been able to take advantage of compounding on my Roth IRA for many more years compared to a trad who doesn't start saving until their 30s. I was 22 when I made my first Roth contribution, and I have continued to contribute to it every year for 18 years now. So even with no official work retirement plan, I came out of residency already having a decent head start on my savings. Second, since I didn't have loans, I had the option to start saving the bulk of my attending jump in income right away rather than using that money to pay back loans and interest. I didn't change my standard of living at all after residency, so most of my attending income goes into savings except for what I'm contributing to my niece's and nephew's college funds, which is the one new major expense I have now that I was not paying as a resident.

    On the other hand, I was also ten years older when I started residency than those who go straight through their training, so timing-wise, it is likely a wash. Meaning, I will be age 43 when I reach FI, which I think is realistic for many trads to do as well if they're aggressive about saving and paying off their med school loans in their 30s. Yes, it's still early FI, but reaching FI in one's mid 40s is not amazingly early for a motivated physician or other professional earning a six figure salary.
     
    bc65 likes this.
  18. bc65

    bc65 2+ Year Member

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    Either way, as an MD or non-md, very impressive! Ordinarily, I would think that the MD-PhD route is a poor financial choice, as the tuition gain is more than offset by the later income loss, but your early savings and Roth made those extra years in school work for you. That's a great and somewhat unusual story. Very rare for physicians to do so well so soon.

    I'm doing very well, but my situation was complicated by a very long training period, with some research years added in, so I didn't start working until my late 30's. Plus, my job has great retirement benefits that require me to work until 60. So, no early retirement, with or without financial independence, since my benefits are so good. Plus, I live in a very expensive area. I calculated that my effective tax rate is 40+ %, and the remaining 60% is evenly divided between savings, housing expenses (principle + mortgage + taxes ) , and living expenses . I also get an employer contribution. I also calculated that my house has continued to return exactly the same as the S&P 500 since I bought it ( and that's including the costs of down payment, renovations, taxes, all interest, and rent during renovations, vs equivalent contributions on an S & P return calculator ), so those expenses have contributed directly to net worth, although I can't spend it. I will have more than enough, and at this point I'm worrying more about my estate tax "problem".
     
  19. QofQuimica

    QofQuimica Seriously, dude, I think you're overreacting.... Lifetime Donor SDN Administrator 10+ Year Member

    Good point; I didn't even mention the fact that I live in a low COL state (Florida) with no state or local income taxes, which is another significant factor contributing to my ability to reach early FI. If you live in the Northeast or Cali, your mileage will obviously vary.

    I should also point out that just because a person reaches early FI doesn't mean that they are obligated to actually retire. I feel like age 43 is a bit young to be playing shuffleboard all day, and I don't intend to quit working altogether. I will either cut back to part time (easy to do as a university employee), go back and do a fellowship, or perhaps take on some other type of nontraditional employment. I also would like to live abroad for a while, likely in Latin America, which will help cut my early retirement living expenses further.

    Even if you don't plan to retire early, I would argue that reaching FI as quickly as reasonably possible is still a good thing to do, for at least three reasons: 1) People's needs and wants change as they age. The career I envisioned at age 20 or 30 is not what I find myself wanting in my 40s, and being FI gives you flexibility to change or alter your career. 2) Jobs can be lost, or a job that you currently enjoy may become problematic due to change in management, a new boss, etc. Being FI gives you the ability to weather such issues with minimal stress. 3) Psychologically, there is a huge difference between working because you want to and working because you have to. Paradoxically, knowing you have the ability to leave your job at any time may actually help you appreciate and enjoy your job more.

    Regarding estate taxes, I expect to end up well below the maximum deduction limit since I am stopping saving so early and the amount I need to save is relatively low due to my expenses being low. I intend to donate most or all of my estate to charity regardless. Hence why I am helping my niece and nephew with their educations now, even though both are currently too young to know or appreciate it. (Niece is a toddler, and nephew is actually still in utero. ;))
     
    bc65 likes this.
  20. MarkFinancialAdvisor

    MarkFinancialAdvisor Exhibitor

    16
    0
    Mar 3, 2015
    SDN Exhibitor
    The cost for the disability insurance, term life and an umbrella policy should cost less than $500/monthly. For younger ages, the disability insurance and term life are very inexpensive.
     
  21. PistolPete

    PistolPete 10+ Year Member

    1,802
    337
    Jul 16, 2006
    Physician
    Sorry to piggyback, but does anyone know how a history of white coat hypertension may impact my ability to get term life insurance? I get anxious when my BP is taken in the medical setting (ironic, I know) but is normal otherwise, and I have no other medical history. Wondering how I should go about this when applying for term life insurance, I don't want to be denied coverage just because of one/two high values on the day of the physical.
     
    Last edited: Nov 13, 2015
  22. QofQuimica

    QofQuimica Seriously, dude, I think you're overreacting.... Lifetime Donor SDN Administrator 10+ Year Member

    Umbrella and term life insurances are inexpensive, especially for young people. But I wouldn't say a good individual DI policy is inexpensive, especially if you are protecting a six figure attending salary and you have all the desirable riders to guarantee own-occupation, guaranteed renewable, pay until age 67, covers illness as well as accident, mental illness coverage, etc. Your quote is a reasonable amount for a resident to expect to pay, but I doubt most attendings would get away with paying that little for DI.

    Anything that the insurance company deems a pre-existing condition likely to kill you early will raise your rates. Not sure how they consider situational HTN, but if this is a problem, see if you can get a policy where you won't need to provide a medical history. Your residency program may provide access to life insurance, or your job once you get out of residency. You can also try your specialty organization and any other organization you're a member of.
     
  23. PistolPete

    PistolPete 10+ Year Member

    1,802
    337
    Jul 16, 2006
    Physician
    Thanks. I wonder how much of a rate increase it would be. Problem is that my residency only provides peanuts in life insurance and I'm looking to work for myself when I'm done with residency, so I either buy multiple polices that don't require a medical exam (which will be limited in amount of life insurance for each and more costly) or just bite the bullet and buy one policy for a large amount that requires a physical exam.
     
  24. MD Financial Services Scott

    MD Financial Services Scott Disability and Term Life Insurance Representitive 2+ Year Member

    203
    60
    Feb 27, 2014
    Denver, CO
    Depending upon where you fall on the rate scale it might be 20-40% more which sounds like a lot but if the premium is $20 for a preferred rate and yours is 40% more then that means $28....not bad
     
  25. InsureIncome

    InsureIncome

    6
    1
    Oct 25, 2015
    How high is high? What is your "normal" BP and what is your lab-coat BP?
     
  26. Doctor4Life1769

    Doctor4Life1769 **tr0llin, ridin dirty** 7+ Year Member

    I aim for financial independence in 3 years as well. I'll be 33. I will still keep up with my DI, just in case. While I don't plan on NEEDING to work, I'll still work.
     
  27. QofQuimica

    QofQuimica Seriously, dude, I think you're overreacting.... Lifetime Donor SDN Administrator 10+ Year Member

    Likewise. Actually, I have decided to go ahead and apply for fellowship this summer. I won't be completely FI at that point, but I will essentially be done saving for retirement and funding the kids' college by then, and I will only need to cover my own living expenses. That is definitely doable on a fellow's stipend, even if I don't moonlight some. :)
     
  28. Doctor4Life1769

    Doctor4Life1769 **tr0llin, ridin dirty** 7+ Year Member

    What fellowship?
     
  29. roundtown98

    roundtown98

    6
    2
    Jun 18, 2017
    Yes
     
  30. cpants

    cpants Member 7+ Year Member

    2,502
    126
    Sep 28, 2007
    $2000/year is about right for a 30 year term 3 million dollar policy. However, most people would be better off with a laddered term set up.

    Let's say you are married and have 2 small children. Great idea to get term coverage to protect those you love. However, during the next 30 years your coverage needs and your finances are going to change a lot. For example, in 20 years you no longer need to cover for your children's educations -- because you will already have paid for it. In 25 years, you will be near retirement and have lots of savings (hopefully) -- so you need a lot less coverage for retirement savings and lost salary for your spouse.

    I have a 10, a 20, and a 30 year policy with stepped down coverage every 10 years. Maximizes coverage at less cost early in your career, and steps it down as you no longer need it.
     
    PistolPete likes this.
  31. Fatihful Steward

    Fatihful Steward Helping Medical Professionals Build True Wealth

    7
    2
    Jun 10, 2017
    Chambersburg, PA
    Using this strategy may cost you more in the long run. With 3 different policies, you are paying 3 different policy constants. Plus, you may miss out on reduced costs for larger face amounts. Most insurance agents won't tell you this, but you could simply buy one large 30-year term policy and simply reduce the face amount every so many years. In the long run, it accomplishes the same thing, possibly less expensively, and definitely with a lot less paperwork and hassle.
     
  32. cpants

    cpants Member 7+ Year Member

    2,502
    126
    Sep 28, 2007
    In my case I don't think so but my agent definitely did not mention possible discount for large face value. What kind of discount are we talking and at what face values?
     
  33. PistolPete

    PistolPete 10+ Year Member

    1,802
    337
    Jul 16, 2006
    Physician
    I thought that once you locked in a 30 year policy at a particular amount, you couldn't change that amount? Unless of course you go through the medical exam again...
     
  34. cpants

    cpants Member 7+ Year Member

    2,502
    126
    Sep 28, 2007
    You can always decrease coverage. You often can't increase coverage without redoing the underwriting process.
     
  35. PistolPete

    PistolPete 10+ Year Member

    1,802
    337
    Jul 16, 2006
    Physician
    Oh, that's good to know! I'll have to double check this, but if this is in fact true, I may just get a big 30 year policy and decrease amounts every 5-10 years instead of laddering multiple policies.
     
  36. MD Financial Services Scott

    MD Financial Services Scott Disability and Term Life Insurance Representitive 2+ Year Member

    203
    60
    Feb 27, 2014
    Denver, CO
    It does not save any net money when you look at the premium outlay. The reason why it does not is you are paying for a 30 year lock price and then dropping it at 10 years and 20 years respectively so you just grossly overpaid for those periods of time.
     
  37. cpants

    cpants Member 7+ Year Member

    2,502
    126
    Sep 28, 2007
    I would compare your options. Shorter terms are much cheaper. In my case, $1M in coverage costs about $300/year for a 10 year term compared to about $800/year for a 30 year term. So, if I know I don't need that portion of the coverage after 10 years, I am saving about $5,000 in premium by going with the 10 year term for that portion of the coverage.

    I disagree that there is a lot of additional paperwork and hassle getting multiple policies. It was minimal extra effort. I got my 3 policies through 2 different companies. Same labs and medical exam good for all 3 policies. I had to fill out a second application for the second company (took 10 minutes max) and sign 3 policies instead of 1 (extra 30 seconds). It was well worth it, as I am saving over $1400/year in premiums right now at my level of coverage as opposed to if I had my full coverage in 30-year term.
     
  38. MD Financial Services Scott

    MD Financial Services Scott Disability and Term Life Insurance Representitive 2+ Year Member

    203
    60
    Feb 27, 2014
    Denver, CO
    Pistol,
    Here are hard examples and so you know the parameters I worked by, 35 year old male, best health class, using the carrier that shows up as the least expensive for each of 10, 20, and 30 year rate lock blocks.

    $1 million
    10 year rate lock $20
    20 year rate lock $36
    30 year rate lock $66
    Total $122
    Now if we were to buy the 3 policies from the same carrier when we laddered them then we would get what is called a 'same payer discount' which then waives the policy fees on additional policies and could make this even less expensive, I did not calculate that as it did not fit my parameters above.

    $3 million
    30 year rate lock $187 (you can see the savings vs. if you bought 3 30 year policies at $66 would be $198)

    To be fair the con to doing the laddering is if you get to the end of 10 years or 20 year respectively, still have a need or want for those coverages to continue but now you have developed health issues that would preclude you from being approved then you would have 1 of two choices. 1: You can convert to some form of permanent policy or 2, you can just go into the annual renewal rate post lock, now that gets expensive quick and you can count on 5-12X on the premium increase.
     
  39. cpants

    cpants Member 7+ Year Member

    2,502
    126
    Sep 28, 2007
    So with these quotes -- $3M with a 10/20/30 year term ladder is $1464/year. $3M 30 year term policy is $2244/year.

    You will save over $10,000 over 30 years by using the laddered strategy. The savings will be at least double that if you invest the difference.

    If you are nervous about needing more coverage later, you can shift the ratio to give you more 20-year or 30-year coverage. You should make a financial plan and then plan your insurance needs accordingly. As you save and pay off obligations (debts, education, etc.) you need less coverage. This is easily predictable with a few minutes of planning.

    Mathematically, having a single 30 year policy is probably the wrong way to go for almost everyone.
     
  40. MD Financial Services Scott

    MD Financial Services Scott Disability and Term Life Insurance Representitive 2+ Year Member

    203
    60
    Feb 27, 2014
    Denver, CO
    Cpants,
    That is correct, the most efficient way in this example is 3 $1 million dollar policies set to expire on dates that correspond to your financial goals being hit. Assuming one is healthy at those goals the need/want for those policies are not over at that point then just simply buy more coverage. If you physically can't pass the exam then you will be making a decision of increased YRT cost, Conversion to some cash value policy, or going without the coverage.
     

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