Informed Perspectives

Why residents should consider disability insurance

Forme's Chief Wealth Acceleration Officer shares how residents should think about disability income

Why residents should consider disability insurance

Forme's Chief Wealth Acceleration Officer shares how residents should think about disability income


Which of these three assets would you believe is the most important to protect – A, B, or C?  A is showing a negative value, B a small value, while C dwarfs them all.  What if we gave them labels?  “A” represents your estimated net worth after residency.  With the average medical student entering residency with sizeable debt amounts, having a negative net worth is not uncommon and puts you in good company with your cohort.  “B” perhaps represents your personal possessions.  Maybe that’s your vehicle, or furnishings, or even some accumulated savings.  So, what is “C” that makes it so much larger than the other two?  It’s what you’ve been betting on since before you entered medical school.  It’s your ability to earn a very attractive income throughout your practicing years.  It’s an enormous number and represents the single largest asset you own and it is very much worth protecting.

How exactly, other than looking both ways when you cross the street, eating a well-balanced, healthy diet, and making sure you get plenty of water, exercise and sleep, do you protect your ability to earn an income.  First, you don’t discount everything above – you should do all of those things since they are largely within your control.  You should also have a pragmatic view for many things that aren’t in your control and have contingency plans in case you need them.  In the event you become ill, get injured, or experience a disability that prevents you from practicing medicine, adequate disability insurance is a must for any physician.

Will you need it?

Premiums for disability insurance can be expensive and you should consider this as an indication of how often it may be needed.  Some statistics suggest that individuals between the ages of 25 and 65 have a 1 in 9 chance of experiencing an illness, injury or disability that interrupts their ability to earn an income.  For physicians, we have seen statistics that indicate that number may be closer to 1 in 7.  

When you experience an event such as this, it can be incredibly unnerving and fill you with tremendous anxiety.  Financial anxiety, wondering how your patients will be cared for, the impact to you and your family’s financial future, can overwhelm any physician.  Under those conditions, you are not at your decision-making best.  Protecting your ability to earn an income with sufficient disability income coverage allows you time to get your bearings and chart a new course with confidence.

How much will I need?

Insurance companies limit the amount of disability insurance an individual can have – usually, to around 60–70% of your gross income. The answer to how much you need will be heavily influenced by your standard of living. If you are living beyond your means, 60–70% will be insufficient to cover your expenses and obligations. So pro tip #1 is – live within your means. If you are already doing this, well done. In many cases, the taxes you pay can be 20–30 percent or more of your income, making the 60–70% limitation from insurance companies in line with your budget for expenses other than taxes. As a physician, you should look to maximize the amount of disability coverage available to you relative to your income and with your standard of living in mind.

Short- and long-term disability

Insurance companies, in order to classify and cover similar risks together, and in an effort to keep premium payments appropriate for the risks they are covering, have two types of policies – short- and long-term.  Short term disability coverage is just that – it is intended to cover you for a short period of time, typically 3-6 months, following an illness or injury that prevents you from working.  With long-term disability coverage, that period is longer, and usually stated in years: 5, 10, 20 or a certain age, like 65 or retirement.  Short-term coverage usually pays a higher percentage of your income, such as 60-70%, and long-term coverage usually replaces a lower percentage of your income, such as 40-70%. 

As you are probably already thinking, these two types of coverage are designed to work together.  Short-term disability covers you immediately, or soon after, a serious illness or injury, and then long-term coverage is intended to maintain adequate income replacement if your condition keeps you from working for a long period of time.  If you have both in place, your short-term policy will pay you during the waiting period for your long-term policy, at which point, you’ll transition from one policy to the other.  This is why it makes sense to have both policies in place.

Waiting or “elimination” periods

Short-term disability insurance payments typically begin within a couple of weeks, while long-term disability insurance requires a longer waiting, or “elimination” period before you would start receiving benefits.  The length can vary by policy, but is commonly 90 days.  Having an emergency fund is a staple of any solid financial plan, and having one that can cover an unexpected emergency of 3 to 6 months or more is ideal, especially as a means to weather any waiting period associated with a disability policy benefit.

I’m a resident and not making much money yet, why should I consider it?

The operative word here is “yet” – you won’t be a resident forever, and you’ll be making “real money” soon.  If you calculated the net present value of your career, which is just a fancy way of saying “the value today of all of your future years of earning a physician’s income”, the number would represent several million dollars and would be the largest value it will ever be, just as you enter residency and start your earning years.  That number is worth protecting.

Furthermore, in your residency, fellowship years, or even in your early practicing years, you will likely not have much wiggle room in your budget.  Meaning, your reliance on your paycheck is at a peak and any disruption to that flow can be very detrimental to your long-term goals and objectives.

One of the other benefits of getting disability income coverage early is that premiums are based on age and health.  Getting coverage while you are healthy and before you accumulate any medical conditions will be cheaper earlier than later.  Of course, if you have underlying medical conditions already, you should consult your Forme Financial Advisor before you apply so you understand your options.

Individual and group policies:

As the names imply, individual disability policies cover an individual while group policies cover many people, most often offered as a benefit from your employer.  Here are a few of the key differences.

Definition of “disability”

One of the most important and relevant aspects of a disability insurance policy is the definition of what constitutes a disability.  The two ends of the spectrum, with many additionally confusing ones in between, are “own-occupation” and “any occupation”.  Social Security Disability Income (SSDI) is an example of any occupation.  If you can work at any job, regardless of its income potential, it will not pay.  As a physician, you should avoid this definition like an F5 tornado, which would have the same destructive power to your finances.  Own occupation, on the other hand, would provide income replacement if you are disabled and cannot perform the majority of the duties you have been trained to perform.  Many group policies are not own occupation so carefully read your documents.  Individual policies more frequently have stronger definitions of disability than group policies.


If you have a group disability policy and your employer is footing the bill, or some portion of the bill, for that coverage, it is likely that any disability benefit would be taxable to you.  When you are paying the freight for the premiums, like in an individual policy, the benefit you receive is usually not taxable.


This answers the question of “can I take it with me anywhere I go?”  When any group coverage you have is provided through your employer, it will typically stop if you leave that employer.  Some group policies allow you the option of converting those benefits to individual coverage, but not always under favorable terms.  Individual policies, by definition, follow you wherever you go.

Cost of coverage

Group policies are often less expensive than individual policies.  Because the policy is covering a group of individuals, the risk to the insurer is spread out more and often results in a lower premium.  Additionally, because many group policies are provided as a benefit, a portion or all of the premium may be paid by your employer, but beware of the tax consequence of that as we’ve already mentioned.  With individual policies, the cost is usually level or may increase on a schedule you were shown when you purchased it.  With group policies, the cost can change more unexpectedly due to any number of reasons so don’t be surprised if that happens.


As with many strategies in wealth management, the best option is usually a combination of both individual and group policies.  The most important aspect of this strategy is careful coordination of the two and regular monitoring and adjustments as your situation and career as a physician evolves over time.

Options and riders

We’re nearing the end of our overview so hang tight as we highlight just a few more of the most relevant options – called “riders” that a physician should consider.

Future Purchase Option

This option, called a future purchase option (FPO) or sometimes, a future increase option (FIO), provides you with the opportunity to add more coverage as your income rises over time.  As a resident, this is almost always a solid choice since your earnings will likely rise rapidly over the next phase of your career.  This allows you to pay less while your income is growing and add – without another health exam if you added the option when you started the policy – coverage later, usually when you become an attending, and again later during your peak earning years.

Cost-of-Living Adjustment

If the last 18 months have been any indication, inflation is a constant nemesis that can disrupt the most solid financial plans.  A cost-of-living adjustment may be an attractive option to consider especially if you are under age 50 and could be impacted by higher inflation over long periods of time.


Again, as with individual and group policies, there are many other options and choices when picking the right coverage for you and your family.  It can, and is, overwhelming.  We’re here to help – contact your Forme team to explore your options.

What should you do now?

Overwhelmed with your options?  Consider talking to our team to help you – Contact Forme.  In the meantime, here are a few starting points.

Build your emergency fund first

One of the things you can expect with 100% certainty is the unexpected.  An illness, injury or disability that interrupts your ability to earn an income is one of those possibilities.  Think of your emergency fund as the first line of defense and the ultimate in short-term coverage allowing you valuable time to coordinate your options and other forms of coverage.  A rule of thumb for residents is to start with a simple $1,000 emergency fund in an online or bank account with ready access.  You aren’t aiming for high rates of return here – you’re aiming for flexibility and resilience.  For practicing physicians, we recommend aiming for a cash reserve or emergency fund equal to 3 to 6 months of committed expenses, the stuff you have to pay for each month, not the optional things.  Where you sit on that spectrum of 3 to 6 months is largely dependent on your feelings towards risk.  If the unknown spooks you, tend towards 6.  If it doesn’t, 3 may be just your speed.

Next, know what you have and how it all fits together

As we mentioned several times, coordination is key and the beginning of that process is taking an inventory:

  • Track your spending and set targets. 
  • Manage “lifestyle expense creep” The more you live within your means, the more options you’ll have available to you.
  • Understand your employee benefits - Definitions of disability, coverage terms, replacement percent, cost of coverage, portability, taxability, etc.
  • Identify your gaps – are essential expenses covered, what’s the impact to long-term plans, etc.
  • Identify your options – can you get more coverage through work, what individual policies are attractive, etc.
  • Gather your team – we’d love to help. 
  • Evaluate which options are best for you and get after it!  You’ve invested a lot of time, energy and wealth into being a physician – protect that future earning potential!

Well done!  You’re asking the right questions and taking solid steps to secure better outcomes custom designed for you – if we can help you navigate any of this, please reach out to us.

General Disclaimer

The information provided herein was prepared for educational purposes only and is not a solicitation to buy or sell any security or insurance product, nor an offer to provide investment advice. All examples are hypothetical and for illustrative purposes only. Nothing contained herein should be construed as legal or tax advice and is not intended to replace the advice of a qualified tax advisor or legal professional. The information contained herein may have been compiled from third-party sources we believe to be reliable but cannot guarantee its accuracy or completeness.

Forme Financial is an SEC-registered investment adviser. Additional information about Forme Financial, including its services and fees, is available online at

Past Specific Recommendations

This communication contains past specific securities recommendations for illustrative purpose only.  Forme Financial makes no assurances, nor should it be assumed, that recommendations made in the future will be profitable or will equal the performance of the securities included in this presentation. Due to various factors including changing market conditions, such recommendations may no longer be appropriate; nor should any past recommendation be taken as personalized investment advice. You may request from us free of charge a list of all securities recommendation made within the immediately preceding period of at least one year accompanied by the following disclosures: (1) the name of each security recommended; (2) the date and nature of each recommendation; (3) the market price of the security recommended at the time; (4) the price at which the recommendation was to be acted upon; (5) the market price of each such security as of the most recent practicable date. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Any presentation of the performance of such past specific securities recommendation does not reflect the deduction of an investment management fee, or any transaction costs or custodial charges, the incurrence of which would have the effect of decreasing indicated historical performance results.  It should not be assumed that your account performance of the volatility of securities held in your account will of will correspond directly to the referenced past securities recommendations.

Related Articles

We produce timely content and physician-centric educational resources through our online resource center

Informed Perspectives

What to Look for in a Medical Malpractice Insurance Policy

Informed Perspectives

What to Look for in a Medical Malpractice Insurance Policy

Here are the main things you should take into account when searching for the right medical malpractice insurance policy.

Read more

Informed Perspectives

Life Insurance for Physicians

Informed Perspectives

Life Insurance for Physicians

From student loans to owning a practice, and even lawsuits - physicians have specific needs for life insurance. Find out how to determine how much insurance you need and what type of policy is best for you.

Read more

Informed Perspectives

Key Dates for Planning Your Financial Health in 2023

Informed Perspectives

Key Dates for Planning Your Financial Health in 2023

As 2023 jumps into gear, you may be thinking about plans and goals for the coming year and beyond. Maybe your plans include financial planning, or maybe one of your goals is to take a look at your financial health and set yourself up for the future. Your financial health involves more than just yearly taxes and planning - the more you check up on it, the easier it is to follow your plan. Whether you're a self-employed physician or a physician employed at a healthcare organization, it’s important to follow a calendar to regularly check up on your financial health.

Read more

Ready to learn more?

Learn more about Forme Financial and how we can impact your financial future.

Forme was purpose-built to assist physicians with their wealth management needs regardless of career stage. We have a highly experienced team of experts - combined with the right technology to offer the most comprehensive coordinated and integrated financial services available.

Talk to us to get started

We're so confident you'll love us, we'll add $1,500 to your account when you join Forme!*

Prefer to talk now? Call 914-417-4556

* Offer is valid only when you open an account with at least $500,000 in cash or securities. Offer terms and conditions can be found here.

Thank you! Your submission has been received!

Thank you for your interest, we'll be in contact with you soon.

Schedule a time
Oops! Something went wrong while submitting the form.

Sign up for Forme's Newsletter

Looking for financial tips and insights curated specifically for physicians? You'll find it in our monthly newsletter, written by our Forme Financial wealth management experts

Thank you

Thank you for signing up for Forme Financial's Newsletter. If you would like to talk to an advisor, schedule a time below.
Schedule a time
Or give us a call
Our advisors are ready and willing to discuss your options now.
914 417 4556
Oops! Something went wrong while submitting the form.