For most people, the need for disability income insurance is a pretty straightforward calculation: Nearly anyone with a whole career in front of them and relatively little in savings – the usual situation with workers in their 20s, 30s and early 40s – needs as much as the insurance company will sell them. This is usually about 60 to 65 percent of their current income.
If you’re a doctor, a resident or a current medical school student, the calculation is a little more complicated: If you are really trying to hedge your bets against the possibility that an illness or injury will prevent you from pursuing your career as a physician, you also have to account for the effect of future pay increases – a huge factor for medical students and those in residency. You also have to account for student loan debt in the equation as well.
How Much Disability Insurance Do I Need?
However, here are the factors to consider while determining how much disability coverage is right for you.
- What is your rent or mortgage payment?
- What is your renters or homeowner’s insurance premium?
- What are your utilities (monthly, averaged over the full year?)
- What is your cost of transportation (car payments and insurance)?
- What does it cost per month to feed yourself and your family? Keep in mind you may not need to eat out much if you’re not working.
- What will you need to spend for yourself and your family each year on clothing?
- What is your life insurance premium?
- What is your long-term care insurance premium?
- What are your monthly student loan payments?
- What are your current bank loan or credit card payments?
- What ongoing out-of-pocket medical expenses do you have?
- What are your expected medical insurance premiums?
- What does it cost to maintain your home each year (including saving for an eventual new roof, etc.)
- What do you want to contribute to your children’s college savings each month?
- What is your private school tuition/fees?
- What do you want to contribute to your retirement?
Add all those up, and that is your rock-bottom monthly income need. Anything less than that and things are going to hurt.
Notice we’re not budgeting anything in for vacations or luxuries. We are just listing things any working person should be doing for his or her family (though we do recommend going easy on the car payments!)
Accounting for Future Pay Increases
According to a recent survey from Medscape, the average newly-minted physician in residency earns a salary in the mid-$50k range. But nationwide, physicians earn two to three times that, on average. The vast majority of residents can expect a substantial pay increase once their residency is complete.
But without proper planning, physicians who become disabled during med school, or during residency, don’t get to benefit from future pay increases. Unless they plan ahead, their incomes on disability insurance could get capped at around 65 percent of a $50,000 income.
More commonly, a young doctor may start his or her career, then incur a medical event that makes it impossible to buy disability insurance in the future.
That’s where a guaranteed insurability rider comes in: You can purchase the right to purchase more insurance protection in the future, no matter what your medical condition is.
This is a crucial consideration for early career physicians and for those with expectations of future salary increases ahead of them.
To discuss securing your financial future against the threat of disability, give me a call at 866-899-7318, to schedule a free, no-obligation consultation.
Or visit our online quote engine at www.doctordisability.com. Either way, you’ll be taking an important step in protecting yourself and your family.