Disability and Life...Another Option!
Issue: July/August 2020
Author: Mark Borden, MD FAAEM
Young doctors are the ripest of "low hanging fruit" for insurance sales agents. You will have, early in your training, friendly, affectionate, insurance sales people tracking you like a pack of slobbering hounds. They will play upon your insecurities, and be willing to sell you as much insurance as you are willing to buy. Should you buy it? Everyone will say "yes" if you ask them, but is that the right answer, or just the easy one?
I terminated my life and disability policies after 22/25 years and am offering the "counter point." I am likely the only one whose opinion you will read that has "nothing to gain" in this big money insurance world. I hunted around online for an argument against disability insurance and could not find one. The arguments for disability insurance sounded good to me 25 years ago, but they are not convincing now.
Life Insurance: It is generally agreed upon that a Term Life Insurance Policy is a good idea if you have people that depend upon you and that will be in a hard position if you are suddenly gone. While you are young, a term policy is not too expensive, and is certainly a good idea until the amount to be paid doesn't seem important to you anymore. I dropped my life insurance a few years before I dropped my disability. I should have dropped it sooner. At that point, the benefit was no longer "a make or break" amount of money to me and my family. I suppose it is fairly easy to collect life insurance money when someone dies...though I can't speak from experience! For the sake of the bereaved survivors, I hope it is easier than collecting disability benefits!
As you know, insurance is a "gamble." The house (insurance company) always wins. How big a "spread" is there between what we get and what we pay? The spread (insurance company profit) pays for billions of dollars in annual insurance advertising, billions of dollars in real estate for insurance company offices, and the wages of over two million insurance industry employees! Gambling at a casino results in a better return on investment (ROI) on average than buying insurance.
Will buying disability insurance buy "peace of mind?" Peace of mind is important. As long as I had insurance, and never needed it, I had "peace of mind." This peace lasted until I needed to file for disability. At that point, I came to realize that my Northwest Mutual Occupation Specific Policy for which I had paid hundreds of dollars each month for over 20 years, was very difficult to redeem, essentially impossible without legal help, and in fact, in the end, not worth the effort.
In the ideal scenario, you buy a great (expensive) policy. A great policy is "Occupation Specific," which means if you cannot practice emergency medicine, you are disabled and eligible for payment. Most "great" policies pay after an initial three-month period. You suffer an injury to your body or mind that prevents you from practicing, the payments start, you have time to heal and hopefully return to function. Your family is saved a financial crisis. Sounds great, but...
In actuality, here's how it will probably go. You buy a "great" policy, paying monthly premiums of at least several hundred dollars for many years. As the years go by it gets more expensive, and becomes more restrictive, with small changes that you try to watch carefully. You are injured or very ill and not up to much of anything. The paperwork to file is long, complex, and very challenging. You won't be speaking to the helpful salesperson, but rather to a claims person that specializes in NOT paying out money if at all possible. The person assigned to me could barely speak English, and had no medical knowledge whatsoever. She did understand, though, that every single form needed to be filled out completely before the claim could be considered. You will need to submit the last five years of your taxes, to prove you have been making a normal income as a physician, and to prove a substantial decrease in your income. You will need to submit the medical records of physicians, both primary and specialists, certifying your disability. This may be harder if you have been "toughing it out" while asking your fellow doctors for advice. The diagnoses will be closely scrutinized and you will be considered, over a period of time, for percentages of disability. Remember, you may not be in the best condition to fight for justice at this point, and it will fall on your loved ones, and the attorneys they will almost certainly be required to hire. The attorney will scrutinize your "great" policy very closely, and will find every weakness.
As an emergency physician that commuted by motorcycle, and broke/trained horses for a hobby during 20+ years of my practice, I had suffered numerous painful injuries. With two MCAs, and being thrown more than a dozen times, I never came close to three months of down time. Knowing I would receive no payment without continued work, I went to my shifts with complex, recently repaired lacerations (my residents at UCD will remember!), fresh fractures (including a very painful pelvis), broken ribs (x2) and other painful things we won't mention, but which would never last the three month minimum.
It will need to be a rather unusual injury. Losing a leg won't do it. Losing both legs won't do it. In those cases you will adapt to practicing with a prosthesis or from a wheelchair, and do so within three months (no payment). Losing one arm or most of your vision will make intubation and suturing difficult, but you can still work in a multiple cover ED where your fellow doc can handle the procedures. Losing the ability to work well at night won't do it, (we all will to variable extent after we hit 50) as you can still get day shifts, somewhere, if you try hard enough. A head injury could qualify, but if it is at all subtle, proving disability will be a long tough road, which will require your brain to be working 100%...see the problem?
Hard Reality: Now picture this...Do you really want to be disabled? If you lose both legs, an arm and an eye you can still earn more by consulting online than your best disability policy will pay! Not only that, but you will feel useful and productive.
So what are the other options? First, what to do with the ~$300 a month you will save by not paying for disability insurance. You will want security with this money, so a good basic route to take is an investment account with dividends automatically re-invested. This will be an account you will not touch unless absolutely needed.
My investment broker did the calculations below. If you were to deposit a few hundred per month extra into this account initially, the numbers will be MUCH larger. Also, note that these numbers are very conservative. My own number, (what I would have now if I had chosen to invest in myself rather than in disability insurance) calculated in retrospect after paying the monthly fee for 25 years, was just over $400,000!! My own monthly fee ranged from $170 in the beginning, to $600 in the end. Note that at 54 years of age my own policy had been trimmed to "maximum of three years benefit," and was still a bit over $600 a month! Had I become disabled my maximum total payout of the gradually trimmed and shrunken, but still expensive, policy would actually have been less than $300,000 dollars spread over three years!
|
Annual Contribution |
Years |
Annual % Rate |
Inflation |
Future Value |
|
$2,400.00 |
10 |
7% |
0% |
$35,480.64 |
|
$2,400.00 |
20 |
7% |
0% |
$105,276.42 |
|
$2,400.00 |
30 |
7% |
0% |
$242,575.30 |
|
|
|
|
|
|
|
Annual Contribution |
Years |
Annual % Rate |
Inflation |
Future Value |
|
$2,400.00 |
10 |
7% |
3% |
$29,772.45 |
|
$2,400.00 |
20 |
7% |
4% |
$73,351.74 |
|
$2,400.00 |
30 |
7% |
3% |
$137,140.72 |
This (your savings in lieu of having disability insurance) is real money, that will be yours, and not open to dispute, limitations, or other interesting calculations. That is very different from your "potential disability benefits," trust me.
Other investments...unbiased advice from a fellow EP: First, evaluate your debt and consolidate it at the lowest possible interest rate. Then, figure out how to pay it off fast. The only time it is worth assuming debt after your training is to “leverage” your purchasing power on an asset that will appreciate. I am talking real estate. Check the tax laws...but as of now you can still deduct the mortgage (remove from your gross income to lower your tax amount and tax bracket) on your home, and you will NEED deductions.
As an emergency physician, you will want to invest in a diverse manner. Real estate is a required investment, and real estate ownership has done well for most people. Buying the smallest/lowest priced house in an expensive neighborhood is a good place to start. As a physician, you will have the monthly income to make it bigger and nicer, and you will have good returns at sales time. If you live in an area where there is a good rental market (the rents you charge are higher than the mortgage you pay) having a few rentals is a good idea. You may enjoy being a landlord, or you may not. Either way it is an adventure, and in the end you have a stream of income. Passive (a relative concept) income is very nice.
Additional Investment accounts are important, and having an advisor is a good plan, but watch the percentages and fees, as they can seriously add up over time. An accountant has also been very important over the years, but is a bit less important now with the decrease in ability to itemize deduction under the 2018 tax law.
Most emergency physicians are a bit ADD (in a good way) and like to have a productive activity outside of work. Investing some of your time in creating a lifelong rewarding enterprise is fun and worthwhile. Mine was/is horses and farming. I enjoyed pruning and caring for plants between shifts, and have hundreds of productive fruit trees, now mature. These outside enterprises can act as a shelter for some of your ER money, but realize that this "shelter" is just another investment.
You have the choice. You can bet on the insurance company, or you can bet on yourself. As a rational person you should clearly know that the odds are massively in your favor if you bet on yourself.
You can see this topic, and others that you may find interesting, on my medical website www.medicalnetworkus.com.