By Dr. Ali Chaudhry
July is around the corner and for many physicians in training it marks the start of a new stage in your life. There will be a sense of excitement, anxiety, fear and anticipation as you are now (finally) an attending physician. At long last, a sense of independence and freedom, with all the responsibility that comes with it. In some ways you have been prepared for this, but in other ways – among them, the financial aspects of your next phase of life – you may not have much preparation.
When I graduated residency in 2013, I was faced with the same dilemma. My internal medicine residency had trained me to be a physician equipped to care for others but there was no guidance on how to care for myself, my financial well-being. I am going to write up a series of lessons that I either had to learn on my own or was fortunate to have guidance in, that I wish to now impart to you, the newly-minted attending. Let’s start with what I wish I knew in residency about protecting myself and my career:
You are your most significant financial asset.
Think about that statement and what it means. As physicians, we have invested a great amount of time and money to achieve our dream. For many of use, we have dedicated our 20s and early 30s to the pursuit of becoming a physician. And we know from our clinical experience, unforeseen illnesses occur on a daily basis. At this point in your life, your most significant asset is your ability to earn a living. The question I didn’t even know to ask is, how can you protect the asset that is yourself?
Disability Insurance: Guaranteeing a Paycheck
Disability insurance provides a level of protection by providing income if you become disabled for an extended period of time. All Physicians must have it; that’s a given. However, choosing the right type of disability insurance is crucial. Remember, not all disability insurance policies are created equal. Consider your youth and health as an asset, something that can be insured to protect against unforeseen illness (or injury). The ability to purchase disability insurance is unfortunately not guaranteed. However, a general rule of thumb is that the younger and healthier you are, the better your likelihood of obtaining a favorable insurance policy. We meet and treat patients every day that did not expect to need us; we can’t ignore the possibility that we could also face an unforeseen occurrence that could compromise our ability to work.
You may be granted some coverage automatically by the health system you work in; this is often just a ‘starter pack’, and is very likely part of a general employee benefits package that has not been specifically tailored to your specialized needs as a physician. What I found to be of value is to custom build a coverage to me that takes into account my earning potential, longer term goals and other pursuits outside of my current position; and something I could take with me when I worked elsewhere, which was a priority for me. Think about your priorities – that needs to drive the discussion about the right type of coverage for you – the only right kind is the type you design yourself.
Essentially, life insurance protects your family in the event you were to have an unexpected death. It also creates an estate for you; not the easiest conversation to have, but difficult conversations with patients are commonplace for us, and they must be done. Term life will provide protection for a specified period of time, for example 20 years. As mentioned above, term life insurance is also based on a few factors including your age and medical history. Again, your youth and health is an asset worth insuring. The younger and healthier you are, the more favorable the terms of the policy. However, also keep in mind that increased age and poor health could also prevent you from purchasing insurance.
Term life is a great option while in residency training as a means to ensure yourself while you have your youth and health. A wealth creation tool not often explored is to convert this term life insurance to a permanent life insurance. Permanent life insurance is a long term asset in your portfolio which allows you to build guaranteed cash value. Remember with term life, when your policy expires you do not receive any cash payments but with permanent life you can provide solid protection for your family while also building a unique type of asset class that can compliment other assets you will have (whether already or later on) in your long term portfolio.
How much Protection Do I Need?
That is a good question that many young physicians have asked me. There is no one size fits all answer. There are many factors that come into play when making this decision including your annual income (and the sources), family considerations, personal needs and what your other portfolio assets look like. Any good plan is based on strategy, so carefully consider your medium and longer term goals and then have a comprehensive discussion with your advisors to build the right customized solution for you and your family. Working with advisors who understand our world will help replace some of the mentorship we were accustomed to in our residency, and make this transition period less stressful. Our lives as residents were planned for us; now, we must make our own plans! Be proactive and you will feel more secure in your new career and in the future.