It is always best to prepare for a “rainy day” before the rain starts falling. For a physician with a doctor-level income, expenses and debts, rainy days can be particularly devastating.
The daily work of a physician involves significant liability, and their specialized skill set, particularly for surgeons, is particularly vulnerable to disability. Physicians are no more immortal than their patients, and the death of a physician at a young age can leave family members used to a "doctor lifestyle" facing significant financial hardship. Due to licensing and credentialing issues, it can also take much longer for a physician to find a new job after job loss.
Physicians tend to be financially conservative, but a solid risk protection plan can protect them from rainy days like lawsuits, disability, death, and job loss and allow them to take profitable career and investment risks.
Liability is best protected with two types of insurance policies. Professional liability risks can be covered with malpractice insurance, which pays for the defense against a lawsuit and any necessary settlements or judgments. Physicians should carry the same amount of insurance as their colleagues, usually $1 million per patient and $3 million per year.
Personal liability insurance is also critical - and much less expensive. An umbrella policy provides excess liability coverage on top of auto and homeowner’s policies.
Disability insurance should be purchased early in a physician’s career. Own-occupation, specialty-specific coverage can be purchased from an independent agent that pays much more and with much less hassle than Social Security disability.
Group policies, often provided by an employer, are cheaper but generally have weaker definitions of disability and less benefit. Individual policies cost more, but have stronger definitions and can be carried from one job to the next.
If a partner or children also depend on the physician’s income, term life insurance should be purchased. The amount of coverage should be personalized, but for most physicians, it will range from $1 million to $5 million for a term of 20 to 30 years.
Physicians should also build emergency funds. Traditionally this consists of a source of safe, liquid funds such as a savings account equivalent to three to six months of household expenses, but there can be significant variation among physicians. Some carry as little as $5,000, while others carry an entire year’s worth of expenses. This money can cover unexpected house or car repairs, emergency travel for funerals, living expenses during the 90-day long-term disability insurance waiting period, or living expenses while licensing and credentialing for a new job.
Preparation for a rainy day should begin before it starts raining and, at least in financial terms, can turn a catastrophe into a mere annoyance.
James M. Dahle, M.D., is the founder of The White Coat Investor (whitecoatinvestor.com).
James M. Dahle, M.D.