I probably don't need disability insurance.

[Dr_JB]

Here's my situation and I'm interested to hear some of the agents' opinion on deferring disability insurance considering it fails to support a large advertising source for WCI:

36 years old male in 3rd year of 5 year residency with wife who stays at home with four kids who are healthy and 3 of 4 attend local public school.

Monthly income is around $8000

Paycheck: $4500

Rental Income: $500

VA Disability: $1000  (All for conditions I consider minor as a physician, but VA has its own definitions)

VA GI Bill: $2,000

Expenses are around $4,000

Home (Mortgage, Utilities, Taxes, Interest, Home Insurance, Furnishings and Yard Maintenance): $1500

Food: $1000

Transportation: $200

Student Loans: $300 (total balance of around $8k)

Gifts and Donations: $400

Shopping: $300

Misc: $300

 

Savings/Equity equals about $500K and growing.

My BMI is in the low 20s, am a non-smoker, and I exercise daily.  I don't have any adverse family medical history.  In essence, I find disability insurance (and anything more than 500K-1M life insurance) a poor bet against myself for the price of hundred(s) of dollars per month, especially since I would have to sustain some sort of permanent and total disability in order to not want to retrain in some sort of worthy endeavor, if I were to sustain a medical career ending injury.

Is this a reasonable scenario not to give in to the frequent urging of this website to purchase a fancy insurance product like own occupation disability?

Thanks for your respectful responses,

Dr. JB

[DK Unger]

Purchasing disability insurance is a big financial decision, so I applaud you for taking stock of your unique personal situation before purchasing it.

First, I would note that your wife does not work and you have several children. This means that there are quite a number of dependents relying on your ability to practice medicine to earn an income.

What is your medical specialty? If you were to become permanently and totally disabled, have you considered the costs that come along with that? For instance, how will your family continue to fulfill short-term and long-term financial obligations while you are rehabbing into another field? Would you take on debt to do so?

In fact, the quality disability policies will pay the reasonable expenses of rehabbing into another field and still pay you a disability benefit. If your income continues to suffer after recovery, they may continue paying you what's called a "recovery benefit" as long as your income remains below 80-85% of it's pre-disability level.

I think the best course of action would be to determine the monthly premium you would feel comfortable with dedicating to a policy and have an independent agent with access to discounts design the plans accordingly.

If you do not plan on maintaining ownership of a policy for more than 10 years or so, you can also consider utilizing a graded premium structure to lower the initial premium outlay.

[conniebird]

You def need it. Your family will be f*d if you are unable to work. Doesn't matter if your healthy - you may get into an accident, being healthy now doesn't predict future health. Recently super healthy friend got cancer at a young age and has a family to support. You went through years of training you def need to protect income. You don't need a super high policy- can always increase it later. Just do it.

[AlexxT]

You can be hit by a car and end up quadriplegic.  You can slip in the shower or fall down the stairs, hit your head, and end up in a vegetative state.  You can blow out a cerebral berry aneurysm.  You can get a severe rheumatoid disease and be unable to work, as happened to two surgeons I know.  Or get severe MS, as happened to two other doctors I know.  If you're a physician, you should have figured this out by now.

Plus, your BMI may be low now, along with your cholesterol and BP.  Guess what?  Despite the fact that you keep exercising,  all those numbers may rise at any time.

When you see a sick or old person, your first thought may be that they were always this way, or that they somehow brought it on themselves.  That's not how life works.   Almost everyone who is sick was healthy once.  Everyone who is old was young once.  You need disability insurance, and for the same reasons, you need term life insurance on yourself and your wife.  If she dies, you will need to hire a nanny or two and cut back on work.

[PhysicianOnFIRE]

It's a little soon to go bare in my opinion, and this is coming from someone who has dropped disability and term life.

You currently have expenses of $4,000 a month. I'm going to guess that you'll upgrade your home or lifestyle at least a little bit after residency, but let's just say you keep expenses at about $48,000 a year. To be financially independent by the usual definition that WCI and I use, you need 25x expenses, or $1.2 million.

You don't need the maximum disability coverage offered, but I would suggest at least enough to cover your monthly expenses, and perhaps a ten-year $1 million term life policy.

Best,

-PoF

 

 

[LBKCLU]

I agree that you need coverage based upon your family situation but what has not been mentioned is that any conditions from which you are currently receiving VA disability benefits will cause those conditions/body parts to be excluded and benefits will not be payable on an individual policy. Additionally, the $1,000 monthly benefit that you are receiving will also be reduced on a dollar for dollar basis in terms of what you can purchase individually.

As agents and your peers, we shouldn't have to tell you this but bad things happen to good people and you, as a physician, see this everyday. Your most valuable asset is your ability to earn an income and it should be protected.

https://www.whitecoatinvestor.com/your-most-valuable-financial-asset/

 

 

[G]

I'm thinking of cutting back on disability when my net assets are $3.5m (and no debt), again at 4m, and likely naked at 4.5-5m. I have 3 policies, so that will be easy. You have a lot of mouths to feed...buy the policy and consider it the cost of being a dad.

[Hatton]

I bought disability insurance as a single resident to protect just myself.  I dropped it in my 40s when I was sure of my financial independence. It lets you sleep at night.  I have known numerous docs who have used this type of policy.  The bottom line is you never know.  Seemingly healthy people get hurt or develop incurable illness all the time.  It is rather amazing to scrimp on this expense when you have a non-working spouse and kids.

[Dr_JB]

I would contend that my wife and children are not entirely dependent on my $54k/yr paycheck.

 

#1) My wife would be able to find work, as she keeps up to date with her certifications, in a moderately high demand field that pays $50-90k/yr

#2) Don't my savings, non-physician rental income, social security disability, and VA disability offer a floor?

#3) In the event of a physical disability, I could train as an actuary and play the other side of this wager for hundreds of others .  I could transition to academic medicine where mobility and motor function are of lower requisite.

#4) In the event of a cognitive disability, I could work a manual labor job.  Maybe cheaper non-true own occupation is a better fit for me.

This being said, I will probably move towards purchasing some disability insurance closer to when I begin inflating my lifestyle expenses.  What are my chances of using disability insurance during my lifetime?  Probably close to 5%, based on some of the online calculators and data.

POF, et al, is there a multiple of monthly expenses or savings when you recommend dropping disability and life insurance?  For example, if I continue living like a resident for my first few years after completing residency, as suggested in other parts of this site's content, I expect to have close to $2M in savings by age 45.  When should I consider "self-insurance" in terms of life and disability (not liability)?

 

As for life insurance,

Sure, a lot of terrible things could happen, but here is some data:

All Cause Death rate for 35-39 All Race, All Gender: 147/100,000: 0.147%

35-39, Male, All-Race: 186/100,000: 0.186%

35-39, White Male: 155/100,000: 0.155%

All of these include a suicide rate that constitute about 20% of the numerator.

In other words, life insurance is 99.8-99.9% likely to be a waste of money for the next five years.

 

[G]

Life insurance is cheap. Especially when you are young. I'm probably going to keep it til it runs out. Really...the $30/Mo isn't even on the radar.

Basically as others have said, insurance protects you in a disaster. You are right, most people won't need it; this is how insurance companies make money. It's an individual decision.

I don't know if you're a rock climber, but I will use a rope for 5.0 even though there is almost no chance that I will fall (imagine climbing a ladder)...others will climb 5.12 without a rope (imagine climbing up the side of your hospital).

You sound confident that you don't need any insurance. If your wife agrees with your plan above, skip it and put the premiums in the kids' 529. If you plan on helping them with school, you've a lot of savings ahead. (Yes, they will likely qualify for robust financial aid if you are dead or in a SNF on medicaid.)

[PhysicianOnFIRE]

Dr_JB wrote:

I would contend that my wife and children are not entirely dependent on my $54k/yr paycheck.

 

#1) My wife would be able to find work, as she keeps up to date with her certifications, in a moderately high demand field that pays $50-90k/yr

#2) Don’t my savings, non-physician rental income, social security disability, and VA disability offer a floor?

#3) In the event of a physical disability, I could train as an actuary and play the other side of this wager for hundreds of others .  I could transition to academic medicine where mobility and motor function are of lower requisite.

#4) In the event of a cognitive disability, I could work a manual labor job.  Maybe cheaper non-true own occupation is a better fit for me.

This being said, I will probably move towards purchasing some disability insurance closer to when I begin inflating my lifestyle expenses.  What are my chances of using disability insurance during my lifetime?  Probably close to 5%, based on some of the online calculators and data.

POF, et al, is there a multiple of monthly expenses or savings when you recommend dropping disability and life insurance?  For example, if I continue living like a resident for my first few years after completing residency, as suggested in other parts of this site’s content, I expect to have close to $2M in savings by age 45.  When should I consider “self-insurance” in terms of life and disability (not liability)?

 

Click to expand...

There was a well-written guest post from Jamie Fleischner on the topic of dropping or decreasing your insurance just a few months ago.

When your portfolio can support you and your family indefinitely, including education costs, etc... (i.e. financial indendence achieved), then you can be self-insured. That's a minimum of 25x your expected annual expenses. If you feel more comfortable with a 3% safe withdrawal rate, it's 33.33x. When you're halfway to FI, you could consider cutting back.

Or you can play the odds if your wife is OK with that. I had the same mentaility as you. What are the odds of using either of these insurances? Slim. But if I drop them and then die or become incapacitated, that would be dreadfully bad for my family in many ways. It was worthwhile to carry them while working towards my goals.

 

 

[The White Coat Investor]

If you've evaluated the consequences of disability and decided they are acceptable to you and your loved ones without disability insurance, then sure, skip it. But I wouldn't skip disability or life insurance based on the relatively low risk of it happening to you. That's the whole point. The risk is low but the consequences are awful.

Personally, I only see $1500 a month of long-term guaranteed income there which seems pretty lousy to me, especially when that is all you'll have in retirement. Now if your spouse wants to be the disability policy fine, but if I were you, I'd buy something like a $5K a month benefit with a future purchase option despite the expense. And life insurance? You can get a 5 year million dollar policy for pennies. Why not at least do that?

I wouldn't worry too much about my bias towards disability insurance. I could easily sell those ads to another industry for a similar price. I've been recommending disability insurance since long before I had any insurance agents advertising here. It was the one good thing that was done for me by financial professionals I hired before my self-education process.

[LevophedStud]

I don't have disability insurance for one simple reason: I cannot imagine a situation where I am so disabled that I can't practice medicine, but don't want to commit suicide. I'm just not willing to live with such a severe disability. I'd be open to changing my mind, but Ido have to conceive of a situation where I would actually be able to collect on the policy.

[AlexxT]

Dr_JB wrote:

What are my chances of using disability insurance during my lifetime?  Probably close to 5%, based on some of the online calculators and data.

Click to expand...

This is pretty accurate, in fact.  If you look at what good specialty specific policies cost, you will see that they run about 3.5% of your salary per year, if I remember correctly.   So on average, you break even on the policy, assuming that 1/33 people will collect on their policy.

That's the point.  It's insurance, which involves pooled risk.  Everyone is chipping in to support the one person who becomes disabled, or in the case of home insurance, if their house burns down.

If you're willing to take a chance, you don't need health insurance or home insurance either. The same odds apply.

 

[AlexxT]

LevophedStud wrote:

I cannot imagine a situation where I am so disabled that I can’t practice medicine, but don’t want to commit suicide.

Click to expand...

I can think of plenty, even for a physically easy specialty like psychiatry.  You could have mild cognitive impairment, maybe some sort of pain that makes it hard for you to get around but perfectly comfortable at home, etc.

I can tell you from experience with friends and patients, that when confronted with severe illness or disability, almost everyone wants to live, even though you anticipated otherwise when you were well and intact.

Also consider that you might have a spouse and children who will want you around and who might be severely traumatized by your suicide.