Two Surgeon Family -- Why Disability Insurance?

[270ordie]

Clinical Scenario:

 

I'm a chief resident going into a surgical practice next year, making ~$350k/year. My wife is one year behind me, but then will be making $400-500k/year in a different surgical field.

 

My disability policy that I will be receiving for free (or included, however you prefer) through my new employer is this:

60% of my salary up to $10,000 / month after a 180 day waiting period. Additionally, "You can receive disability benefits from other sources, such as Social Security, workers’ compensation and third-party legal settlements ...your benefit, however, will be reduced by the amount of the other benefits you receive." It has a "own occupation" clause similar to what I've been told to seek out in third party insurers.

I'm currently of the mind that it is not "worth it" to buy myself disability insurance for several reasons:

1 - I married up. Kind of a joke, but seriously, both of us can live very comfortably on either's salary alone.

2 - The disability insurance that's included at my new employer will pay me a pretty significant amount (~120k/year), not a surgeon's salary, but more than enough to live on comfortably.

3 - The quotes we've gotten for disability insurance are much higher than I was expecting (in the range of $200/month). Not unaffordable on our current resident salaries, but not pocket change for us either. $200 / month * 2 people * 12 months * 30 years at 5% return on investment = ~ $330k ... A thousand here and a thousand there and soon it's real money!

4 - We are rock climbers (like sleep-in-a-portaledge-on-El-Cap-type-of-climbers). Not too excited about "bending the truth" to have the insurers over look this hobby. Fairly difficult to sweep it under the rug...

5 - I seems to me that if I buy additional insurance I'll be loosing some of the benefit that I'm getting included from my employer as they decrease my pay out amount if I collect disability from someone else! Wasteful?!

 

Additional info that may or may not factor into all this:

Risk does not bother me what-so-ever. I'm a 100% stocks type of guy.

We have no children, although plan to start a family soon! (We both have term life insurance--separate issue IMO)

We are both healthy.

 

I'd love to hear everyone's thoughts.  Thank you!

 

[jz]

1) Your AA risk tolerance  has never been tested by a 30+% pullback, so until then, you are untested.

2) I agree with self-insurance.  We are a retired double MD couple, were double disability insured, and I regard this as a mistake.

3) When children arrive, reassess your rock climbing.

 

[bean1970]

calculate the divorce scenario....picture this.....you get divorced, your assets are all split up and shortly after you become disabled.....are you adequately covered? (whatever that means to you?)  We are double MD and have none at this point, but splitting up of our assets still makes each of us financially independent.

[Peds]

jz wrote:

2) I agree with self-insurance.  We are a retired double MD couple, were double disability insured, and I regard this as a mistake.

 

Click to expand...

N=2. It's a mistake because you weren't disabled....

[Drop it into MD]

If you live off the lower salary like it was your only income and save the rest then I do not see why not.  That is a very big if.

[DMFA]

Disability insurance *is* expensive when you compare the dollar value per month to other insurances.

Consider simply not insuring the entirety of your incomes.  Maybe insure half of each as a hedge in case either becomes disabled, or if one of you plans to go part time (or quit), then don't insure that one of you.

[DCdoc]

You can always cancel a DI policy. It’s not a lifelong commitment. You’ll likely be making over 1 million within 2-3 years. You could get DI for 5 years and then cancel.

[Anne]

Do you never ride in the same car together?

[Zaphod]

You can always cancel when you're self-insured. Its dumb to go wholly without, but in your case you may not need to over insure and doing the half is not a terrible way to do it. If you climb and spend a lot of time together than of course while very unlikely, not impossible to be hurt together and in fact may be more likely.

I would seriously reconsider that kind of rock climbing, injury/death rate is alarmingly high and basically you just need to do it enough. Especially if you are going to have a family. I actually have had a colleague that died doing this. I used to race bikes, and barrel down mountains in spandex/helmet at 60 mph (Mt. Lemmon, pretty amazing), but I take it easier now as its just not worth the outsized consequence.

My best friend had a bilateral BBFA fx, 14 broken ribs (with pneumo ofc), and clavicle fx doing a MTB race (mainly road person). That will inhibit your operative career (he's also a surgeon). Our intern year one of his co-residents and his wife died in a car accident over christmas.

I have another friend that just suffered a C7 fracture and is currently in neuro rehab.

These things can and do happen, its expensive because the hit rate of disability insurance is high, aka, it happens. I get it you're young, fit, and adventurous and it seems unrealistic and low probability. You'll get older and less risk tolerant for things with out sized consequence (that is when failure occurs do you lose a little skin or die). I mean there arent a lot of geriatric free climbers or wing suit enthusiasts. I would love to wing suit, maybe for my 110th bday or if I get a terminal thing and go out like a boss.

Dont get paralyzed by fear, but its not wrong to weigh the pros/cons to things and then appropriately insure where needed.

[jhwkr542]

I try to imagine what would make my wife and/or I disabled. The most likely scenario always seems to be anxiety or depression or substance abuse. Next most likely is always car accident. And that'd likely involve both of us

[DK Unger]

1 – I married up. Kind of a joke, but seriously, both of us can live very comfortably on either’s salary alone.

Perhaps, but as others have said, there is the risk of separation/divorce. Also, would you be 100% okay with relying on your wife's income, and would she be 100% okay with that too? It's definitely a honest conversation to have.

2 – The disability insurance that’s included at my new employer will pay me a pretty significant amount (~120k/year), not a surgeon’s salary, but more than enough to live on comfortably.

Are you accounting for taxes on the benefit? Also be sure you are okay with potentially losing that coverage in the future should you ever change practice situations.

3 – The quotes we’ve gotten for disability insurance are much higher than I was expecting (in the range of $200/month). Not unaffordable on our current resident salaries, but not pocket change for us either. $200 / month * 2 people * 12 months * 30 years at 5% return on investment = ~ $330k … A thousand here and a thousand there and soon it’s real money!

Hopefully it is a waste of money, the alternative is not desirable. There are ways to structure the policies to limit the expense. To replace 50-60% of your income for 1-2% of your annual income, there really is no viable alternative.

4 – We are rock climbers (like sleep-in-a-portaledge-on-El-Cap-type-of-climbers). Not too excited about “bending the truth” to have the insurers over look this hobby. Fairly difficult to sweep it under the rug…

Well, you took out a life insurance policy with that hobby, so you are either paying extra for it to be covered or accepted a rock climbing exclusion.

5 – I seems to me that if I buy additional insurance I’ll be loosing some of the benefit that I’m getting included from my employer as they decrease my pay out amount if I collect disability from someone else! Wasteful?!

The "other income benefit" offset in group disability policies does not apply to benefits received from individually owned/private disability policies.

[jacoavlu]

DK Unger alluded to it. I'll ask directly. What is the tax treatment of your benefit? My understanding is if premiums are paid post tax, benefit is not taxable. There's quite a difference between $120k pretax vs post tax in your situation.

[AlexxT]

1.  You are planning to rely on the DI of your new job, but you haven't started that job yet.  You don't know if you will last a year, let alone your entire career.    You should both get your own policies now while you still are in good health and can get the resident discounts.  If 5 years from now you made partner and are sure you will be there for life, you can cancel the policy.

2.  You haven't read the fine print on the DI policy they have for you.  It may have limits on "own occupation" that are not immediately apparent.  It's probably a group policy and they are generally not that good.

3.  If you are severely disabled, your entire policy payments may not even cover your home health aides.  Lots can happen to you.  Trauma resulting in spinal injuries, traumatic brain injuries, chronic degenerative diseases, post-chemo fatigue and confusion, early dementia, etc.

4.  Your spouse may then leave you , as noted above.

5.  If one of you is disabled, the other may cut back on their work, especially if you have kids, so both incomes will suffer. Or the other spouse will need to hire a nanny.   Also why you both need full term life coverage.

6.  You will probably have become used to the double high incomes.  Losing one of those incomes may seem manageable now, while you are both on resident salaries, but when you have a big mortgage payment and lots of other expenses that you can't even imagine now, you may need that salary replaced.

7.  You might both be disabled, and so may need both DI policies.

8.  You can get policies that will exclude the rock climbing.

9.  This is insurance.  The events that you are insuring against are unlikely to happen, but if they do happen, the results are catastrophic.  So over-thinking it is a mistake.  The insurance company is always making money, so the odds are always slightly against you.  But if you take that logic to the extreme, you would go without life insurance, health insurance, and malpractice insurance.  You wouldn't dream of doing that, though.  This should be the same.  Yes, DI costs more.  That's because it pays out more.

 

[canadianoutlaw]

270ordie wrote:

I’m currently of the mind that it is not “worth it” to buy myself disability insurance for several reasons:

Click to expand...

I love this question and think it is important to ask. We are in a similar situation. AlexxT summarized the issues very nicely - I'd reassess in ~5 years once you have a better sense of your career, personal, and financial trajectories. Too many unknowns right now and DI for you both mitigates those uncertainties

[Dont_know_mind]

I tend to be underinsured for income and mildly overinsured for DI/death. I figure (but I could be wrong) that income is more prone to fake claims and is therefore overpriced but nowhere near as overpriced as motor vehicle.

Would you rather pay:

-$800 for 50k motor vehicle

-$2000 for 500k house

-$2000 for 100k income for 30 years (PV:1M+)

-$2000 for 3M death/disability

I have 180k for own occupation income on income of 500-700k. My spouse has 100k income for 150k.

You probably will need some income cover when you have children or debt. It might be cheaper to get earlier before you get any medical problems.

Hard to stomach 1-2M in debt when you are underinsured. Being adequately insured allows you to get debt and invest that in low yielding investments or real estate which may have a better long term appreciation rate. Long term capital  gains are taxed less currently.

Also the insurance allows you to more accurately value your human capital (but it will still have a large range).

What is your future human capital worth today  - maybe 7M ? But only if you live another 12+ years.