The Doctor’s Guide to Necessary Insurance

As we move forward in our Doctor Money content series, I feel it imperative to place asset protection adjacent to our previous chapter on emergency funds.  I see an emergency fund as a form of asset protection; however, when it comes to insurance coverage, that is a different beast entirely.  The world of insurance coverage can feel wildly overwhelming and complicated. 

Here is the spoiler: it does not need to be.  After you take the time to review this chapter’s contents, you will understand why there are a number of insurance requirements.  The necessities you absolutely must have to guard against disaster.  However, everything else is just icing on the cake.  This week, we tackle Chapter 6 in our book, with this part titled The Doctor’s Guide to Necessary Insurance. 

Doctor Money: A Personal Finance Guide for Physicians

Previous Chapter:

Chapter 5: The Emergency Fund

Chapter 6: Protecting Your Ass(ets)

Insurance is an interesting concept; it is essentially a wager (legal contract) between an individual (or business) and an insurance company.  Each is betting against the other.  Life insurance, for example, is a wager the individual takes that they will potentially meet an untimely demise.  The insurance company wagers (with statistics on their side) that you will live a near-normal life expectancy. 

As a result, customers pay a small fee (insurance premium) monthly or annually that they will meet an untimely demise and thus not reach their full earning potential or build their nest egg.  The insurance company accepts this wager with you and tens of thousands of other individuals.  Insurance aims to distribute the risk of loss (payout) from the individual to the larger group of customers. 

Statistically, the insurance company comes out on top as it consistently receives payments from individuals who will inevitably reach a near normal life expectancy. As such, it receives millions and millions annually in premium payments and only must payout large insurance sums for the small minority of individuals who do indeed reach an untimely death. 

Now, that was a morbid example to drive the concept home.  But this same idea applies to all forms of insurance included here.  A customer and an insurance company make a bet against one another regarding the statistical risk of debilitating disability, the threat of malpractice, civil litigation, vehicular damage, housing catastrophe… you get it.  Often, this means the customer pays a regular small fee, in the expectation that should a need arise, contractually, the insurance company is obligated to pay a large sum to assist.  That is the agreement that is being made. 

Overwhelmed By Insurance

For physicians, often, the term insurance causes PTSD.  Residents and early career physicians are bombarded with insurance recommendations and expectations.  Do I get whole life insurance or term life insurance?  Do I need short-term disability alongside my long-term disability policy?  Do I need more malpractice coverage than my employer offers?  It can get very overwhelming very quickly. 

This chapter aims to help you navigate your insurance needs and break down what is important and what is not.  Here are what I consider to be the absolute necessitates every physician should have, ideally during residency. 

The Doctor’s Guide to Necessary Insurance

Health Insurance

The first insurance must-have is health insurance.  There is no better way to protect your assets than to protect your health.  If you are married or have children, it is even more imperative.  Now, in the United States, most physicians will receive their health insurance through their employer.  However, self-employed physicians will likely have to shop around. 

First off, you must always keep and maintain your healthcare insurance coverage.  Remember that as you wed or have children, you must immediately contact your employer and/or insurance provider to add them to your policy.  These are often deemed ‘significant life events’ and can be added to your policy anytime during the year.  Other changes often occur during an ‘open season’ or ‘open enrollment’ period that happens during a window of time annually. 

Secondly, if your employer or insurance carrier offers a High Deductible Healthcare Plan (HDHP) this often gives you the option of a Health Savings Account (HSA).   Though this subjects you to higher expenses to meet your deductible, there are benefits to an HSA including use for healthcare expenses and utilization as a stealth IRA. 

Automobile Insurance

According to a AAA Foundation for Traffic Safety (FTS) survey performed in 2022, Americans spend nearly one hour (60.2 minutes to be exact) in their cars daily.  That means that for an hour a day you are exposing yourself to one of the most dangerous modes of transportation that we routinely participate in as humans.  It is a statistical inevitability that something will happen, eventually.  Hopefully, it’s nothing more than a fender bender, but who knows? 

Further, following your home, a car is commonly the second largest purchase an individual will make in their lifetime. Protect it. As a reminder, in the U.S., except for Virginia and New Hampshire (at the time this post was published), drivers are required to carry some form of auto insurance or suffer large fines. 

Homeowners & Renters Insurance

The next requirement is insurance protecting your shelter. For individuals who own a home, this would be homeowner’s insurance. For physicians renting their dwellings, this would be renter’s insurance. 

As I alluded to above, for most individuals, a home will be the largest purchase they make in their lifetimes.  Homeowners insurance policies are property insurance that covers damages and losses that occur in your residence.  This can be in the form of furniture damage, architectural damage, foundation, roofing, etc.  It also provides liability coverage against accidents that occur in the home or on the property itself. 

According to Investopedia, these policies generally cover four kinds of incidents: interior damage, exterior damage, loss or damage of personal assets/belongings, and any injury that occurs on the property. When a claim is filed, the policy holder is often required to pay a predetermined amount of money first (deductible) to satisfy the policy’s criteria before the remainder of the claim can be fulfilled. 

Homeowners insurance policies, it should be noted, have a liability limit.  This determines the amount of coverage that you have.  You can increase your liability limit based on your need.  Acts of war and acts of God, such as floods, earthquakes, and wildfires, are typically excluded from homeowners insurance policies.  Thus, if you live in areas prone to these natural disasters, you may need extra coverage to insure your property against these climate-related events. 

Renters insurance, though similar to homeowners insurance, has a few differences.  According to Investopedia, renters insurance is also a form of property insurance. Still, because the renter is not the owner of the dwelling, coverage for renters includes personal property and liability claims but does not include structural damage.  Renters’ insurance can also help cover living expenses that need to be paid when someone files an insurance claim after the unit is damaged.  Though renters insurance is not a legal requirement, some landlords prefer that their tenants have some type of coverage. 

Term Life Insurance

As physicians, our high-income professions offer the potential for large amounts of wealth generation throughout the course of a long career.  However, in the event of your untimely demise, you can no longer provide this form of financial security to your family.  For many with significant others or children dependent on your income, this could mean the loss of a certain quality of life.  Life insurance offers some form of protection against this tragic scenario. 

I commonly advocate for at least $2,000,000 of liability coverage as this can often cover mortgage costs and can further leave enough to facilitate adequate child education expenses.  For physicians with higher standards of living, making sure you have enough liability coverage is important, especially if you are the primary or sole earner in your household. 

Lastly, I always advocate and recommend a term life insurance policy over other forms of life insurance (i.e. whole life insurance).  There are many reasons for this, largely because it couples your life insurance policy with investments, creating a conflict of interest.  However, physicians who make intelligent financial choices and are lucky enough to live into retirement age have commonly generated enough of a nest egg that should they still reach an earlier-than-anticipated death, their nest egg can cover the remaining expenses and the need for policy continuation becomes somewhat unnecessary. 

If you need to understand more about why term life insurance is a better investment, check out Why Whole Life Insurance Is a Bad Investment – Debunking the Myths from The White Coat Investor.

Long-term Own Occupation Disability Insurance

Disability insurance is another cornerstone to sound asset protection practices.  Here are a few statistics regarding national disability for you.  According to data published by the CDC regarding disability in 2023:

• Up to 1 in 4 (27%) adults in the US have some type of disability
• The most common forms of disability are cognitive and mobility-related conditions

Regarding disability amongst physicians, JAMA published a survey in 2021 looking at 6000 practicing physicians and found only 3.1% of physicians self-identified as having a disability.  Though physicians seem to have less of a prevalence of disability when compared to non-physicians, nearly a quarter of Americans identify as having some form of disability.  Do not be so naïve to assume injury or illness cannot happen to you. 

Own Occupation

For physicians, long-term disability policies must be unique to your profession.  What qualifies as a career-ending disability for an orthopedic surgeon may be different than what would be deemed ‘career-ending’ for a diagnostic radiologist.  As such, your insurance policy should have nuances and riders (addendums) that are reflective of your specialty or subspecialty, hence the descriptor’ own occupation.’ 

Further, your policy should include riders that allow you to increase your liability coverage and payout as your income increases. If you wish to learn more on this topic, check out our prior article, Individual Disability Insurance for Doctors. Here, you can continue your education on the importance of own occupation disability insurance policies. 

Malpractice Insurance

Though the thought of litigation sends chills down my spine, the unfortunate truth is that it happens.  According to data from 2016-2022 published by the American Medical Association (AMA), 31% of physicians have been sued at some point in their careers.  Their data also found that specialty, gender, and age factored highly in claim frequency.  Men are at a higher risk than women physicians, and general surgeons and OB/GYN are the physicians who are most likely to be sued. 

Though most employers offer and pay for malpractice insurance for the duration of your contract (with tail coverage hopefully), some physicians may feel the need to have more malpractice liability coverage beyond what their employer’s policy offers.  Maintaining malpractice insurance is an absolute must for physicians who are self-employed or join a private practice. 

Umbrella Insurance

In 2023, I published an article titled Why Every Physician Needs Umbrella Insurance Now.  My reasoning spawned from a concern that so few of my colleagues had umbrella insurance policies, and I feel it is another insurance necessity. 

As stated in that article, Umbrella insurance is a type of liability insurance that provides additional coverage beyond the limits of your other primary insurance policies (i.e., auto, homeowners, disability, malpractice, etc.).  Umbrella insurance acts as an ‘umbrella’ by extending your liability protection to shield you from large claims that exceed your standard policy liability limits.  For physicians who may face high-risk situations due to the nature of their professions, umbrella insurance offers an extra blanket of protection. 

In simpler terms, umbrella insurance is ‘extra’ insurance.  For the cracks in your other insurance policies, or if a claim is more than what your other insurance policies can handle, umbrella insurance is there to help.  In terms of what umbrella insurance covers, here are the most common examples:

• Personal liability
• Automobile liability
• Professional liability
• Libel or slander
• Coverage gaps

Fortunately, these policies are relatively affordable.  Personally, I pay somewhere around $1100 annually for a $2,000,000 policy.  Most insurance carriers also offer umbrella insurance options.  If you wish to learn more, check out our comprehensive article on Umbrella Insurance.  As an added layer of protection for high-income earners, I see it as a necessary tool in our asset protection arsenal. 

Living Will

Though the last form of asset protection on this list is, in fact, not insurance, I do deem it to be an absolute necessity.  In Chapter 4, we discussed how to write a financial plan.  The asset protection part of our financial plan concluded with the prioritization of a living will.  The truth is that everyone needs one, not just physicians.  It can be challenging to sit down and think about how you would like your assets handled in the event of your untimely demise. Still, I promise you will save your family time and emotion if your wishes are well documented beforehand. 

Many attorneys can assist in forming an ironclad living will and help you navigate the nuances of state and federal laws regarding your assets.  Just because you have purchased all the insurance coverage listed above does not mean you are finished.  Make sure you cover all of your bases by creating a living will. 

Insurance Considerations

Now that we have delineated what is considered an insurance necessity, I have included a couple of insurance policies that I do not see as requirements but may be worth your time and consideration as you continue to get your financial house in order. 

Short Term Disability Insurance

First up is short term disability coverage.  This generally represents short term disability needs, commonly defined as a disability lasting less than 3 months (90 days).  Often, most healthcare employers will provide short-term disability coverage.  I hesitate to list this as a necessary form of insurance, as this can also be what an emergency fund is for.  In Chapter 5, we discussed the importance of an emergency fund.  If you genuinely house three to six months’ worth of living expenses, then it makes a disability insurance policy somewhat redundant.  However, I can absolutely see the utility in it.  Thus, I have included it here, worthy of your consideration. 

Business Insurance

Lastly, we have business insurance.  Business insurance may protect individuals who own a private practice or run a formal side gig.  Business insurance (commercial insurance) protects businesses from losses due to unexpected events such as lawsuits, natural disasters, or accidents.  Companies evaluate their commercial insurance needs based on potential risks.  Though many physicians will likely not fall into this category, the minority who do own a business, either related to their clinical practice or not, may benefit from this type of insurance. 

There you have it!  Following the creation of a sizable emergency fund, protecting your future income, housing, transportation, and future earnings is essential to preventing unforeseen barriers on your path toward financial freedom.  Purchase and maintain the necessary insurance recommendations above and you will be largely covered for most financial mishaps the future holds.  As always…

Stay motivated!

The Motivated M.D. 

Additional Resources

Recommended Insurance Agents for Physicians– The Motivated M.D.

Why Every Physician Needs Umbrella Insurance Now – The Motivated M.D.

6 Important Riders on a Physician Disability Insurance Policy – LeverageRx

Insurance: Definition, How It Works, and Main Types of Policies – Investopedia

Next Chapter:

Chapter 7: Addressing Student Loans

Disclaimer and Limit of Liability

This post (and hopefully its eventual publication) is designed strictly to inform and entertain. I am in no way, shape, or form a financial professional, nor does this site provide formalized financial advice. I do not provide nor engage in rendering legal, accounting, or other professional services. If legal advice or other professional/expert assistance is required, then the services of an accredited professional should be sought. I am not liable for any loss of profit or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

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