I like the term “Risk Management” much better than the term “Insurance” don’t you? The word insurance comes with some serious baggage… and for good reason. The reason is two fold:
- People generally don’t like paying for something that doesn’t benefit them “in the now”.
- Insurance is a product. Products get pushed to people because the sellers get paid, and because of this people wonder if the recommendation is actually in their best interest or in the interest of the salesman!
Does this mean insurance is bad? Yes and no. As with any tool, it depends on how it’s used. Does an orthopedist recommend a knee replacement when in reality simply setting a fracture and casting will do? You see where I’m going with this? It’s not the tool, it’s how you use it!
When used correctly, insurance is an extremely cost effective way to manage your risks. The natural question then is: “Okay, Bobby. what are my risks?”. In a nut-shell, your risks are likely:
- Someone sues you: Liability insurance is the tool here.
- You die (or your partner dies): Life insurance is the tool here.
- You become disabled: Disability insurance is the tool here.
So, do you need it? Answer the following question: “If any of the above happens to me, am I okay financially?”
LIABILITY INSURANCE: As a physician family, the likelihood of getting sued is higher. Why? Because your household makes a lot of money (or will someday)! Yes, you may not have much now, but if they think they have a case, they can garnish your future wages! The fix is fairly simple. Go get umbrella coverage on your home and auto policies.
LIFE INSURANCE: As a physician family, you very likely have a negative net worth and you might be in a heap of trouble if something happens to your spouse! Some student loans are often forgiven, but not all. Additionally, you’ve put quite a few years of your life “on hold” in hopes of a potentially higher household income. If this income disappears, you’ve got a lot of catching up to do. Saving for retirement, paying off your mortgage, paying for childcare should the primary caregiver pass away….All of these things are expensive and add up quickly. Term life insurance from a financially strong insurer can be a VERY cost effective way to mitigate the risk of death. The younger and healthier you are, the cheaper these policy premiums are.
DISABILITY INSURANCE: In the same way that the death of a spouse would be financially devastating, so too would the disability of the primary breadwinner. Whether it’s repaying student loans, saving for retirement, paying off mortgage, or putting kids through college...all of these things require income. But not just any income, they require a PHYSICIANS INCOME! This is where “own occupation” long term disability insurance (LTDI) comes into play.
Without going too deep into the weeds, the vast majority of LTDI policies do NOT protect your specific specialty. Only a handful of carriers will pay you a disability benefit EVEN if you re-train specialties or end up flipping burgers at McDonald's. Imagine this scenario: You train to be an Orthopedic Surgeon and lose function in one of your extremities and can no longer perform surgery. You take a much lower paying faculty position teaching surgery at the university. Would you still want the income that should go with surgery? Of course you would! The disability you incurred forced lower income and reduced your debt repayment, retirement savings, and a host of other things.
In closing, paying for insurance is likely the last thing a low paid resident or fellow wants to do. However, take advantage of your young age, good health and resident discounts! A few thousand dollars over the next few years is a small price to pay to protect the massive investment you and your family have made in pursuing the life of a physician family.
While I don’t sell insurance, please reach out to me (info@partnerwealth.com) and I’ll connect you to a local independent agent who will put your interests ahead of their own!
Special thanks to our sponsor Bobby Scott, CFP® for writing this post!
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