Disability Insurance

Question 1: SHOULD I BUY LONG TERM DISABILITY INSURANCE IN RESIDENCY?

This question boils down to two factors: budget and risk tolerance. Physical or mental disabilities have the potential to be financially devastating, particularly early in one’s career. Estimates of the probability of becoming disabled are widely varied, but approximately 15% of working adults will have a period of disability before age 65 and the average length of an LTD claim before recovery is approximately three years. For this reason, at least some form of LTD insurance is highly recommended for those who can afford it.

Budget

Residents have highly variable financial circumstances, so this coverage may fit into some budgets but not others. For residents who are well-off financially, it might make sense to purchase a strong—but, accordingly, expensive—individual policy. Other residents may decide that they can only afford a less-robust individual policy or their group policy while in training. Residents who are struggling financially (e.g., those with a significant amount of high-interest debt) may choose to defer the purchase of LTD insurance until their circumstances improve.

Risk Tolerance

The prior section assumes that residents want to fit LTD insurance into their budget; however, this isn’t always the case. While some residents may highly value the sense of security that comes with a high-end, air-tight LTD insurance policy and be willing to cut other costs to make room in their budgets for it, others who could easily afford it may still not find this type of policy to be worth the expense. It only makes sense to buy the amount of coverage that you feel you need to be comfortable given your overall financial plan, budget, and capacity for risk.
 

In addition to the risk of becoming disabled, there is also a risk of losing the ability to be covered for certain conditions due to events that have occurred before you purchase insurance. For example, if during residency you see a psychiatrist about an episode of depression or a primary care doctor about low back pain after a car accident, you may find insurance companies unwilling to cover you for mental health or musculoskeletal complaints in the future. If you entered residency in good health and purchased a policy before these events, however, these conditions would likely still be covered under that policy. In short, the longer you wait to purchase a policy, the greater the risk that something will happen to you that will limit your future insurability.

Example A

Given the expense of high-end individual policies, Alex chooses to purchase a basic individual policy during residency with a plan to purchase more comprehensive individual coverage at the very end of residency, when close to making an attending salary.

Example B

Financially well-off with a high-income spouse, Jesse decides to purchase a high-end individual policy during residency including a future purchase option to increase the amount of coverage under this policy once making an attending salary.

Example C

More concerned about day-to-day expenses than the possibility of becoming disabled during residency, Pat chooses to purchase LTD insurance through the hospital’s group policy since this was the most affordable option available. Pat plans to purchase an individual policy just prior to graduation from residency.

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Disability Insurance

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