Finances in Medicine - Insurance

Having money, or the potential to make money, comes with the unfortunate flip-side of having the potential to lose money. A lot of money. That's where insurance comes in. There are a plethora of insurance types and options within those types, which become tricky to sort out. They can also be very expensive. In the last couple months, this is where I've been spending a lot of mental energy, trying to sort out the optimal insurance balance.

Disability Insurance
Disability insurance is required for 99% of people. The only people who shouldn't buy disability insurance are those who could afford to retire right this second and be completely financially secure. At this stage, this pretty much just means people who are independently wealthy. For those near the end of their careers, who are continuing to work out of interest more than financial need, and have their retirement amply well-financed, disability insurance might also be worthwhile to stop purchasing, since those individuals can simply retire in the event of a disability.

Physicians have high current or future incomes, but those incomes require us to be able to work. If we can't work, we lose that income and, in many cases, are stuck with a lot of debt or an unaffordable lifestyle. Disability insurance means that if you can't work, you can still live comfortably while you recover or transition out of the workforce entirely. You should have as much of it as possible, as soon as possible, so that your income stays as close to your working income if you become disabled. Insurers are smart though, and realize that if workers can get paid as much or more than they currently do if they become disabled, it provides a strong incentive to become disabled, so no insurer will give you disability insurance that covers your full income. The immediate thought then is to get multiple lines of disability insurance, but insurers are one step ahead there too - they'll only pay out a maximum amount collectively, meaning that if you have $X amount of coverage with one insurer and $Y amount of coverage with another insurer, you won't get $X+Y in payouts, you'll get whichever of $X or $Y is higher. That usually means it makes sense to have only a single disability insurance provider.

The first disability insurance most of us will be offered is through our provincial medical associations. In Ontario, the OMA offers rather cheap disability insurance to medical students without a medical, which is worthwhile to take. There are some private options, but they're unlikely to be advantageous in terms of cost, so sticking with the association insurance through medical school is fine for most people. Once in residency, the landscape changes slightly. Association insurance continues to be quite cheap and is generally worth maintaining through residency. However, in most provinces, residency comes with an automatic, employer-provided disability insurance that lasts through residency. It's not terribly great insurance, relatively speaking, and it goes away as soon as residency is done, but it's mandatory. One big advantage with these mandatory, employer-provided disability insurance plans is that in Ontario at least, their benefits are not mutually exclusive with the association coverage. Residency basically breaks the rule that says disability should not be profitable above current salary, though the benefits are still far less than what a fully-qualified physician should make.

Once residency finishes, association plans become expensive, opening up the door for privately provided disability insurance. These private plans aren't cheaper per se, but they come with one major advantage - guarantees. Association plans are owned by the association. Their fees could change, their benefits could change, and you as a client cannot stop it individually. Associations do work on behalf of their members and therefore do not have much cause to agree to a worse deal. If anything, provincial medical associations tend to improve the terms of their deals over time, so this problem is more theoretical than real.  Yet, private plans are owned by you, individually, and cannot change for any reason whatsoever. Fees won't change, benefits won't change, nothing can change. The downside of private plans is that they typically require a medical, which could result in higher rates, and will require a year or two of payments before any pre-existing conditions are covered. This simply means that a period of crossover with the association plans is necessary to ensure continuous disability coverage. At this point association vs private insurance is a matter of preference and comfort, mostly between the guaranteed association coverage that does not necessarily require a medical, or private insurance that does not require faith in the provincial medical association to behave appropriately.

Life Insurance
At some point, you will die. That'll suck. If you die before you retire, you may leave behind some people who were relying on you to earn money. This can be a spouse, stuck with your student debt or a mortgage, children who were counting on you to provide for their future, or other dependents like elderly parents who need some financial help in their day-to-day lives. If you have any of these people in your life, you need life insurance. If you don't, you probably don't need life insurance.

Once again, in Ontario, the OMA provides life insurance for students, this time for free, and it's perfectly adequate for medical school for pretty much anyone who does not have children or other dependents. Life insurance is otherwise pretty independent of stage of training. You need some, it doesn't particularly matter who provides it, as long as it covers whatever costs you'd need to cover in the event of your death. It should be term life insurance, which is generally cheap and expires after a set period of time, at which point you can buy insurance for another term (if you need it). It'll generally be more expensive when you renew because you're older and more likely to die at that point, but that's pretty much unavoidable.

There are other forms of life insurance which can technically last forever, meaning they'll pay out eventually, but they're expensive and generally not worthwhile. They cost you more when you're alive than they'll pay to your estate when you die - you might as well just save that money and invest it. Insurance is meant to lose you money, on average, to guard against an unlikely-but-disastrous outcome. Dying young, which is unlikely, is exactly what insurance is meant for. Dying ever, which is 100% going to happen, is not what insurance is meant for.

Home and Auto Insurance
Do you have a home? A car? Buy insurance for them. They're expensive and you need them.

Other Insurance
There's insurance for just about anything. It comes in all shapes, sizes, costs, and terms. You don't need most of it. You might need some of it, depending on circumstances. In general, you should have insurance for anything expensive you own that you couldn't afford to replace if it got destroyed. That includes yourself. Disability and life insurance cover the "you" part pretty well, but supplementary health insurance might be worthwhile too. Home and auto insurance cover your major personal assets, but you may have other personal property to protect, as well as professional assets such as office space. These individual needs should be discussed with a professional and considered with the following question in mind - can I easily afford to lose the thing I am insuring? If you can, insurance probably isn't necessary. If you can't, it probably is.

One important "other" insurance to mention is insurance on debt. This can be insurance on a line of credit, on a credit card, or on a mortgage. Avoid this insurance like the plague. This type of insurance protects the bank in the event you default on your loan. It's for the bank's benefit, not your's. The guard for yourself against defaulting on these loans is the disability and life insurance you should already have. That's there for you, it goes to you, and it should cover your debts.

Yikes this post got long. Insurance is important, but my apologies for rambling! I will follow-up with some hopefully-shorter thoughts on planning major life expenses to wrap up this impromptu series on finances.

Finances in Medicine

Reaching the end of my final year of medical school, suddenly money has become very important. My student debt levels are reaching their maximum, but I'm about to start earning a real salary for the first time since I left my previous career to start medical school four years ago. With that comes a chance to move on to the next stages in life, as well as an obligation to start contributing financially to society at large, after having largely been a sponge for my life up until now.

Education on medical trainee finances, despite being rather unique and complex, is still largely lacking, and mostly coming from people who have a financial stake it your decisions. Most advisers are reasonably honest and up-front about the rationale behind their recommendations - true shysters get driven out of the industry fairly quickly - but sorting out what's best for you isn't always easy. Here's what I've found out so far.

Debt Management

Naturally, this starts in or even before the first year of medical school, when debt starts to build. Just a quick reminder of the basics, the ideal approach is to maximize scholarships/bursaries/grants first (free money!), then maximize government loans (usually come with no interest while studying, many have grants attached), then rely on private loans in the form of a line of credit (LOC) specific to medical students. Once residency comes and government loans start generating interest, usually at a higher rate than LOCs, it's best to roll the entire sum of the government loans into the LOC, unless you qualify for certain governmental debt-relief programs that require you to leave a balance in those government loans to take advantage of them. There are some individuals who, through bursaries or other outside funding, can get through medical school with just government loans.

Some money can be earned by working in medical school by working. Since government loans and grants get reduced by personal income, however, there are significant diminishing returns on getting a job. Some jobs - such as research positions - can be worthwhile even if they were paid nothing, and so earning money from them is just a small extra benefit. Jobs that are taken just for the money may not be worthwhile, however, as it's not hard to be in a position where a student is working for far less than minimum wage once lost governmental grants are taken into account.

Once in residency and earning a real salary, debt can start to be paid down, though it does not have to be. Depending on personal circumstances, some people will build on their debt, some will keep it stable by paying off any generated interest, others will reduce their debt significantly. For the most part, however, now is when debt-paying habits can start in earnest, even if it is just covering the interest. Automatic transfers are ideal, since it's very easy to upgrade lifestyle to match income if that money is perceived to be available. Developing these habits now is mostly important to carry on into post-residency life, as debt-repayment strategies are pretty much identical to the basic savings strategies which define whether a physician is financially secure or has constant money troubles.

Throughout medical school and into residency, the best thing a trainee can do for their debt is to keep it low by controlling spending. Living a modest lifestyle, even when you can technically afford more, makes future financial decisions significantly easier. Living in a smaller place, eating out less, forgoing nice but unnecessary luxuries, and ultimately, budgeting to keep costs low is how to succeed financially. As with debt repayment, forming the habit that spending is to be deliberate and well below one's means is the most critical aspect. Many physicians have financial troubles and for 99% of them, it's a problem of uncontrolled spending. Learning how to avoid those problems early on, in medical school and residency when it still has a large impact on overall debt load, is an important skill.

There's a lot more financial stuff on my mind these days, but this post started getting a little out of hand, so I'll split it into parts. Best advice I can give to those looking to revamp their finances is to get informed and tailor their approach to their own situation. There's some good advice there, but rarely a one-size-fits-all approach. Money management is not something that can be outsourced, medical students, residents, and physicians need to take an active and informed role in their own finances.