Insurance Planning for Graduating Medical Residents Pursuing Locum Tenens Work

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March 23, 2010

Congratulations!  Graduation is around the corner and the next phase of your life is beginning. You spent years training, and invested substantial resources to acquire your profession.  You now stand to reap the personal and financial benefits of your chosen field of medical practice.  As part of your transition planning, it is important to ensure you have prepared your insurance benefits to account for your new circumstances.

As a medical resident, or fellow, your disability, life, and health insurance benefits are typically chosen, and paid for, by your residency program. However, most of these benefits terminate on your last day or residency. As a locum physician, your employer may not provide these essential benefits, and you will need to take responsibility for your own insurance coverage.  A failure to review your insurance plan could cause a catastrophic financial loss to you, or your dependents, in the event of a serious injury or illness. 

As a graduating medical resident or fellow pursuing locum tenens work, what should I consider at this stage when it comes to planning?

Health Insurance

When you finish your medical residency, your health insurance benefits will probably terminate the last day of the month.  Most residency programs will allow you to continue your health insurance. However, this can be very expensive.  

If you, or your dependents, have pre-existing conditions, you will need to consider continuing your residency health insurance as you may not be able to qualify for individual coverage. It is important to sign up for this coverage prior to your departure. 

 If you are healthy and can qualify for individual benefits, you ought to consider applying for coverage prior to your graduation date. It may save you a significant amount on your premiums. Depending on the length of your locum work, you can apply for a short term, major medical policy (up to 6-12 months), or an individual policy where the rates are guaranteed for up to a year and the coverage is more comprehensive.

Health insurance rates, policies and provisions vary from state to state.

Life Insurance

If you have dependents, then you need to consider what would happen to them financially if you die prematurely.  Life insurance is strongly recommended for you.  No one likes to dwell on the worst, but avoiding responsibility for those you love, and who depend on you for their economic well being is unimaginable.  Don’t procrastinate about this issue!

 However, if you are single, and have no dependents (husband, wife, significant other, children, parents, siblings) that rely on you for financial support then life insurance may be unnecessary at this stage of your life. 

As a physician, you are more aware than most people in the general public of the tragedies that can unfortunately occur since you deal with the sickness, and injuries, of your patients daily.  Few of your patients ever expected their medical condition to occur to them, don’t be naïve and assume that it couldn’t possibly happen to you.   

New physicians spend a long period of time training and, most likely, a large amount on educational expenses.   Further, you deferred significant earnings until this point in time in the expectation that your future earnings in medicine would recoup your significant investment.  If you suffer a premature death, then that expectation will never be realized.   You will be gone, but your family will lose the economic value that you, through your earnings in medical practice, would have brought to them.  No one can replace you, but life insurance can shift the risk of economic loss from your loved ones to an insurance company.

The good news is that life insurance rates have actually come down over the last decade as life expectancy has improved.  The decreased rate of mortality experience is translated to you in the form of lower premiums for life insurance.

There are two general types of life insurance; permanent and term, but a discussion of all the varieties is beyond the scope of this article.  Permanent life insurance (such as whole life, and universal life) covers you for the duration of your life, and if properly implemented, will be there to pay your beneficiaries a death benefit whether you die in the near future, or decades from now.  Permanent life insurance, depending on the type, may also develop cash value at guaranteed rates which can be used on a tax favored basis to supplement income in retirement, pay state and federal estate taxes upon your death, or provide cash for your liquidity needs in the future.  Permanent insurance is also generally the most expensive since it will definitely pay a claim.   Term insurance provides a set death benefit for a specific term of coverage, generally, 10, 15, 20, or 30 years.  Term insurance does not accumulate cash value, but it has significantly less expensive premiums.  If you have a large near term insurance need (typically with young children), and are just starting out, then term can be an effective form of coverage.

The first step, regardless of the type of life insurance you are considering, is to determine the appropriate death benefit.  This is absolutely vital, and also the most difficult and individualized part of life insurance planning.  If you have inadequate life insurance coverage, then you insurance plans will not be realized.  You should always plan as if your death was going to occur now.  Why? Because you don’t know when your death will occur (barring the prescience of a Cassandra) and the failure to plan for the worst contingency will leave your plan underfunded, and thus unable to achieve your goals.  An individualized insurance plan should analyze your human life value, accounting for your liabilities (such as a home mortgage and other debt that remains after you’ve died- most public student loans die with you, but private ones may not!), capitalize your future earnings through your anticipated age of retirement, estimate the probable growth of your future earnings, account for the effects of inflation, and finally it should arrive at a present value using discount rates.  Other factors may also be appropriate to include in the analysis, such as receipt of pension, or government benefits.

Obviously, no person or computer simulation will be able to precisely calculate all of these future unknown variables, but a plan should provide adequate flexibility to allow for variances.  General rules of thumb, such as having a life insurance death benefit equal to a certain multiple of your earnings, such as 10-20 times earnings, are imprecise.  But, in the absence of individualized planning are better than nothing at all!

Finally, it pays to shop around for life insurance!  It can be difficult to compare between the type of products, and companies, in permanent life insurance since there are many variables to consider.  However term life insurance is easier to comparison shop.  Therefore, be aware of the premiums and what you are getting in return.  Don’t overextend yourself on premium commitments on permanent policies, since you don’t know what your future holds.  Also, especially in light of recent developments in the financial world, investigate the financial ratings of the life insurers you are considering.  And remember, life insurance should primarily be about the death benefit.  Don’t buy a life insurance product that inadequately insures your family with death benefit.       

Disability Insurance

Right now, your biggest asset is your ability to work and produce an income. Statistically speaking, you have approximately a 1 in 3 chance of becoming sick or injured and not being able to work at some time between ages 30 and 65. Therefore it is important to protect your current and future income to be able to sustain your lifestyle and pay back your student loans.

Most residency programs offer a group disability policy that covers you during residency if you become totally disabled. Some of these programs allow you to convert the policy to an individual policy. However, it is important to shop around and make sure this convertible policy is the most suitable for your situation compared to purchasing a policy on your own. 

Reasons to purchase a policy before graduation:

  • No financial underwriting necessary. As a resident, income verification is not necessary. As a locum physician, it may be difficult to qualify financially without a guaranteed salary.
  • Discounts. Many resident programs have discount available. These may be set up if 3 or more residents purchase a policy while in residency. Discounts can save you from 10-40%.
  • Benefits available. As a resident, you are eligible to purchase up to $6000/monthy benefit without verification of income. If you apply as a locum, you will need to verify consistent income and may not be eligible for the same level of benefit.

What to look for when shopping for disability insurance.

  • Work with a broker instead of an agent.  An agent works for one insurance company and will only show you one company which may or may not be the best fit for your situation. A broker represents multiple companies and will work on your behalf and find the best policy for your needs.
  • Specialty specific definition of disability. Make sure the policy covers you if you are too sick or injured to work in your medical specialty.
  • Increase options. These allow you to purchase benefit in the future without further medical underwriting.
  • Non cancelable, guaranteed renewable. This clause means your policy can never be changed, modified and the premiums are guaranteed typically to age 65.

Individual policies are portable. You can take them with you throughout your career even when you settle down with a full time position.

Taking care of your health, life and disability insurance needs prior to graduation will provide you with the protection and peace of mind needed to pursue the next, most exciting phase of your career.  Best of luck!

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