Medical Resident Disability Income Insurance - Protecting Your Cash Flow

As a medical resident, how long can you afford to be without a paycheck because you can’t work due to illness or injury? Can you afford to literally burn through the majority of your savings over a period of months?

Disability insurance is often the last thing on a medical resident’s mind. Long, arduous shifts tending to the needs of countless patients can leave little room for anything else.

Unfortunately, this lack of foresight can lead to real problems in a short period of time.

As with other Americans, medical residents have a 1 in 3 risk of being out of work for at least 90 days due to an illness or injury and a 1 in 5 risk of being out for a year or more. Because of the daily proximity to disease, the odds may even be higher.

Because medical residency is a crucial period in a doctor’s career, lost time during this phase of professional development can set a resident back months, if not longer. In addition, the loss of income realized during such an event can have ramifications that are felt far into the future. Loss of income during residency can lead to foreclosure and even bankruptcy in a matter of months, especially for the resident with a family. The inability to work plus the amount of time needed to focus on personal affairs can even lead to loss of position within a residency program.

Fortunately, medical residents have proactive options to protect their income. Disability income insurance provides coverage for a portion of lost wages in the event you cannot work due to illness or injury. Several different types of income insurance are available depending on need.

Short Term versus Long Term Disability Insurance

Short term coverage generally provides benefits for up to 6 months. Keep in mind that benefits do not generally start until after the policy’s elimination period, usually 30-90 days after the disability occurred.

Benefits from a long term disability insurance policy kick in after the short term benefits period has expired. Long term benefits can last from as short as 2-5 years or until age 65. Some policies even last a lifetime.

Supplemental Disability Insurance

Residents may work for an employer that offers group disability insurance coverage. This type of policy generally advertises to cover up to 60% of regular salary if you’re unable to work. Benefits from such policies, however, are taxed as regular income, dropping actual take-home cash flow to closer to 45%. Group policies are also commonly riddled with exceptions and limitations that constrain when benefits will be paid and for how long.

Employer group coverage is a good start, but relying on it alone can lead to a not-so-happy surprise later.

Supplemental disability coverage exists to very affordably plug the holes in group coverage. A supplemental policy can extend income coverage up to 100% and benefits from a supplemental policy are not taxable. This extension of coverage can also be crafted to cover conditions specifically limited in the group policy, such as nervous or mental-type disabilities.

Catastrophic Disability Insurance

While other types of disability coverage protect a medical resident’s income stream, catastrophic disability insurance covers the cost of at-home or facility care during an extended recuperation period. Oftentimes, such care is left up to the spouse or other family members, which can put further financial and emotional strain on an already difficult situation.

While this type of coverage is generally thought of as being for those over 60, more than 40% of beneficiaries of catastrophic coverage are between 18 and 65.

Benefits from a catastrophic coverage policy are usually paid on a per day basis (i.e., $125/day). Common options include inflation protection (where the daily benefit increases annually with inflation) and reducing the elimination period to start benefits sooner.

When is a Medical Resident Disabled?

A critical component of any medical resident’s disability income policy is the Definition of Total Disability. It is important that medical resident income coverage be defined as “Own Occupation”. With this definition, disability is recognized when, due to illness or injury, the insured is unable to perform the duties of his/her regular occupation. Other definitions may only pay benefits when the insured is unable to perform any duties in any occupation.

The Own Occupation definition ensures a medical resident receives benefits until able to practice medicine again.

Take the Time to Protect Your Income

Medical residents deal with grueling hours and high expectations that often distract from the minute details of life. But protecting your income is one necessary diversion from the day to day grind. Without it, a sudden inability to work, even for a short time, can lead to life-changing consequences.