do we have too much disability insurance?

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Zeppcoustic
Posts: 288
Joined: Sun Aug 21, 2011 9:17 am
Location: South Texas

do we have too much disability insurance?

Post by Zeppcoustic »

Me 34
DW 32

Both physicians. No children. Current income $490k, will be $660k in 2018.

Current coverage: individual own-occ policies with Guardian.
>>>Me $5,000 monthly benefit, posttax
>>>DW $13,000 saa
Also policies through our jobs (employers pay premiums)
>>Me $10,000 benefit via Metlife. Unclear as to particulars. 90 day elimination period
>>DW not sure, something basic I believe. She works for a university health system.

I have option to purchase another $12,000 of coverage with own-occ policy to cap at $17,000 monthly benefit. Thoughts on doing this?

Let me know if clarifications needed.
pintail07
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Joined: Fri Nov 04, 2016 5:07 pm

Re: do we have too much disability insurance?

Post by pintail07 »

If disabled would 5000, after tax and 10,000 before tax sustain your standard of living and cover retirement benefits? If yes I wouldn't.
afan
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Re: do we have too much disability insurance?

Post by afan »

I don't know what "saa" means.

You should look at your total amount of coverage for each of you, not clear what that is now.
Then look at your planned lifestyles and spending. No kids now, are you planning a family? If so, that will be a huge long term expense. Are you supporting parents or others?

Look at how your two incomes break down. If both earn about the same then you should be able to support the two of you well on one income- you could afford to take the financial hit of one out of work completely with only a small fraction of their income replaced. If one of you earns much more than the other then the higher income person probably should be covered close to the 50-60% maximum insurance companies will allow.

If you will have a couple of kids then you have to consider college costs. Two doctors probably expect to be able to send their kids to private college and private grad schools. Lots of medical students come from medical families. If you would plan to pay for your kids college and grad school, price those out and compare those costs to your current assets.

Based on what you have said so far, I think you might well want as much coverage as you can get for both of you now. If you have unusually large savings already, you are not planning a family and you both earn about the same amount then you could be ok with the lesser amount.

At your ages, if in good health, disability insurance will be relatively cheap. I would get it now and then reconsider in 10 years whether you have amassed enough savings to drop it. If you keep it at that point, do periodic check ups. The price does not go up over time, but the duration of coverage decreases, so the cost of the benefit increases.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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Zeppcoustic
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Joined: Sun Aug 21, 2011 9:17 am
Location: South Texas

Re: do we have too much disability insurance?

Post by Zeppcoustic »

Appreciate replies.

We are still on the fence about having kids. Incomes are about 15% apart. This is our first year out of training. We managed to invest $250k for retirement thus far.

DI is not cheap. My wife pays about $5000 annually for her individual policy. I haven't seen the quote yet but expect my annual premiums would be in the $3000-4000 range if I max coverage.
pintail07
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Re: do we have too much disability insurance?

Post by pintail07 »

Might consider applying for private coverage in lieu of increased group coverage.
LeeMKE
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Re: do we have too much disability insurance?

Post by LeeMKE »

I had private coverage at lower monthly payments than just quoted, and annual premium of $2700 over 15 years ago. You won't find less expensive coverage than what you are mentioning here as group coverage, IMHO.

The good news is that you don't need this coverage forever. You should be watching your portfolio, and as soon as it is sufficient to replace that insurance coverage payment, drop the insurance.

The bad news is that 7% of workers suffer a long term disability before retirement. If you are single or have children depending on you for care, you need disability coverage. If you are married without children and don't plan on having children, it is an option you can probably pass on, so long as your partner will take on the sole-earner role.
The mightiest Oak is just a nut who stayed the course.
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celia
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Re: do we have too much disability insurance?

Post by celia »

The question with employer-provided insurance, is if you can continue it on your own when you leave the employer and pay the premiums yourself after that. That would be an excellent question to ask.
smackboy1
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Re: do we have too much disability insurance?

Post by smackboy1 »

Zeppcoustic wrote:Me 34
DW 32

Both physicians. No children. Current income $490k, will be $660k in 2018.
Ultimately, it's a personal decision. It might be useful to play out some hypothetical scenarios together - especially the unlikely ones that carry catastrophic consequences.

How vulnerable are each of your specialties? Are either of you a neuro surgeon, like Dr. Strange, where a loss of hand function would destroy your chosen career? Is there a plan B non-clinical path available like becoming a magician superhero, or a corporate career, say in pharma or administration? Do either of you enjoy risky activities like texting while driving a Lamborghini, or SCUBA, private pilot, skydiving etc.. We've known physicians who have been permanently sidelined by pretty mundane things: carpal tunnel (radiologist); retina injury (ophthalmologist). You haven't made a decision on children yet, but as you know, pregnancy/childbirth risk to the mother is small, but not zero.

Have you played out a worst case scenario? What does your balance sheet look like? Debt? Assets? What happens in an accident if both of you suffer traumatic brain injury and require ongoing medical care for the future? Who could also potentially be financially devastated by such an event? Parents, siblings, grandparents etc.?

Of course this is all very dark and low probability, but I think it's important to think about the left and right tails, as well as the most likely outcomes when analyzing risk.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.
ModifiedDuration
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Joined: Sat Dec 05, 2015 3:33 pm

Re: do we have too much disability insurance?

Post by ModifiedDuration »

It might be worth taking a look at group disability plans through some of the medical societies the two of you belong to.

For example, here is the AMA's disability plan:

https://www.amainsure.com/insurance-pro ... rance.html
TheGipper
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Joined: Fri Jun 26, 2015 9:52 am

Re: do we have too much disability insurance?

Post by TheGipper »

One helpful tip. I presume you are class 4M with guardian. Once you've been an attending for 5+ years, you can apply for 5M status, which I think will give you a 20% premium discount without new medical exam. Also check if your employer/heakthcare network qualifies for a discount with Berkshire/Guarduan.
mt
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Joined: Sun Dec 26, 2010 10:25 am

Re: do we have too much disability insurance?

Post by mt »

A physician colleague of mine who was dying of breast cancer told me she was really glad she had adequate disability coverage. So add up what you currently would receive if disabled and ask yourself is that is adequate.
afan
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Re: do we have too much disability insurance?

Post by afan »

I consider those premiums to be cheap for the coverage you get.

Two problems with using your spouse as your disability insurance:

1. Both of you become disabled. Unlikely, but a disaster under this circumstance.
2. Much more likely- divorce. Now your spousal disability insurance goes away. If you are already disabled at that point, then maybe some support is part of the settlement. If you are still working at that point but older or in poor health then insurance may be expensive or impossible to get.
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama
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