In some respects, advising physicians on their finances is easy – akin to a simple recipe. The planning objectives are usually consistent: mitigate the risk of lawsuits, minimize the impact of getting hurt or sick, and eliminate debt strategically and efficiently. While those ingredients simmer in the background, help the physician to save as much as he or she can in a diverse series of asset classes and develop strategies to minimize the impact of taxes both today and in the future. Bake that over the course of a career, sprinkle in a reasonable rate of return and, presto, you have yourself a retirement. Or put another way, you have the ability to walk away from the workforce on your own terms.
While the recipe itself is usually consistent, some steps are uniquely challenging and require thoughtful, even counter-instinctual, planning. We all know bad things will happen, physicians in particular see it every day. Despite knowing this, we’re all less inclined to imagine those things happening to ourselves. Murphy’s Law postulates that if something can go wrong, it will go wrong. While many believe that to be accurate, it’s human nature to assume we are the exception to the rule. This means that, without proper financial advice, physicians are not likely to incorporate fundamental and critical risk shifting into a holistic financial plan.
The greatest risk for a young physician is the impact an accident, injury or illness would have on his or her ability to practice and consequently earn income. Statistics point to the importance of planning for such an eventuality: more than one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition, and illness or injury are leading causes of bankruptcy in the U.S. Despite these numbers, proactive risk shifting as part of a financial plan is often avoided or overlooked until it is too late. This lack of vision extends to many of the purported major financial planning firms across the country, many of which fail to educate their clientele on the exposure these risks represent and often simply do not provide services to help mitigate the financial impact. The fix, however, is simple: individual disability plans are the means by which this risk can be managed.
An individual disability plan can help a physician replace a portion of their income in the event he or she is no longer able to practice or is limited in his or her ability to practice. These plans can provide comprehensive protection of income from both physical and mental maladies. These plans are best procured early and if structured correctly can protect earnings throughout the entirety of a physician’s career. That said, there are challenges to acquiring coverage and protecting yourself early is especially important.
The available pool of insurance companies who offer a quality, specialty specific disability contract has become exceedingly thin over the past few years. Were we discussing this 20 years ago a much larger pool of insurance companies would be available to offer coverage. Today, very few companies offer a true own-occupation policy designed for physicians. Own Occupation is insurance jargon that means the insurance policy will protect a physician’s income for their exact job and specific talents, were they unable to practice, they’d be eligible to collect full benefits even if they chose to work in another field*. With the pool of providers dwindling, it’s no longer a buyers’ market and these remaining carriers are highly selective in who they chose to insure.
Age, Health & History
A common misconception in insurance is that these plans are readily available to anyone. This is woefully inaccurate. The insurance companies offering these contracts extensively vet any applicant for coverage. A person’s medical history, legal history, driving history and prescription history may all be evaluated prior to an offer being made. Blemishes in any of these areas can lead to no-offer or an offer for limited protection.
The other variable impacting pricing is age. A healthy 30 year old will lock in lower rates for their policy than a similarly healthy 35 year old. These pricing disparities can become significant over time especially over the course of a career. When someone applies and is approved for a plan their current health and age become the snapshot in time by which the carrier determines the pricing for their policy so the earlier the better is always advisable.
Of the variables that go into the pricing of disability policies, gender remains the most effecting. Typically speaking, females will pay more for coverage than males and at times, considerably more. While this can be frustrating, the effect can be mitigated by looking for discounted plans early on in training. Presently, unisex discounts exist within some residency programs and schools. These programs can be very impactful for helping reduce down the long-term costs of protecting your income. Residents & Fellows can also elect to use step-rate pricing designs which can further reduce the cost of coverage while they train.
Things to Look For
The best bet is to obtain disability coverage while in residency. Typically speaking, residents have access to discounted plans that will not be available after they’ve finished their training. Also, the approval process is often streamlined for residents, making it easier to qualify without having to devote too much time to the process. The most important thing is to consider all of the options and to do so early. In choosing a disability plan a physician is making a decision about how their life would look on one of their worst days so it’s important to give the decision its due. The good news is that once coverage is locked in, the insured is in control. A Guaranteed Renewable/Non-Cancellable disability plan means the insurance company can never change their rates or cancel coverage as long as premiums are paid. A physician can also build contractual rights into your policy that allow them to increase coverage amounts in the future without having to qualify again.
A physician will spend a large portion of their life planning to practice their specialty. If it all goes accordingly, they’ll do just that, and the result will be an income commensurate with that highly specialized skill set, that income will in turn provide them with the sum total of the life they choose and a legacy for their family, potentially for generations. If however life does not go according to plan, make sure you’ve taken the steps to insure that you’ve protected your most important asset.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice.
Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 120 Broadway 37th Floor, New York, NY, 10271, 212-701-7900. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Strategies for Wealth is not an affiliate or subsidiary of PAS or Guardian. CA Insurance License # 0H68329 2018-66326 Exp. 9/20
*An individual’s eligibility for benefits is determined on a case-by- case basis, taking into consideration the factual circumstances presented as well as the terms and conditions of his/her policy(ies).
- Social Security Administration, Disability and Death Probability Tables for Insured Workers Born in 1997, Table A.
- Austin, Daniel A., Medical Debt as a Cause of Consumer Bankruptcy (2014). Maine Law Review, Volume 67, No. 1, pp. 1 – 23 (2014); Northeastern University School of Law Research Paper No. 204-2014. Available at SSRN. See especially Table 1.