Ensure That You’re Properly InsuredJun 23, 2022
Insurance helps protect your assets and sometimes your income when the unthinkable happens. Various types of insurance are necessary, and others are highly recommended. As my husband says, “If we have the insurance, we won’t need it, but if we don’t have it, we would need it one day!” Therefore, we try to be wise with our insurance policies, and view them as a sometimes somewhat expensive necessity. However, keep in mind that you can and should try to compare your rates with other insurance companies (on the types of insurance that you can do so) usually about once per year.
Insurance should be considered on the big items that you wouldn’t be able to cover yourself such as malpractice (which can often be through your employer), illness or injuries or disabilities, death, medical problems, car accident, home disaster, etc. You likely don’t need insurance on items that you could cover yourself, such as insurance on a phone depending on how expensive it is, many warranties on electronics, or pet insurance (unless perhaps you have a very pricey race horse!).
The three obvious insurances that many have are medical insurance, homeowners insurance, and auto insurance. Let’s review some other types of insurance that you are highly encouraged to consider.
Consider Disability Insurance
Disability insurance covers you if you were to become disabled to the point of not being able to work as a PA and earn your income. It’s essentially insurance for your income. Here’s an eye-opening statistic: over 25% of today’s 20-year-olds (which likely includes you if you’re a new PA!) can expect to be disabled for at least one year of their working career. Can you believe that?! If you or anyone else depends on your income to make ends meet, disability insurance is a critical type of insurance to have.
There are two main types of disability insurance: long-term and short-term disability, which are often referred to LTD and (don’t laugh) STD respectively. STD is often used for 90 days, but some policies can be longer, such as up to 6 months or even longer. Then, after that time period, if you are still disabled, the LTD would kick in. Policies can vary, but often, STD is for up to 80% of your gross monthly income, and LTD is for 60%. I think it’s important to recognize that these types of disability insurances can drastically help with your expenses, but they typically do not cover 100% of your pay. This is why emergency funds are crucial as well. If you have a substantial emergency fund, you may elect to not purchase STD, as you could use your emergency fund to cover yourself for a few months until your LTD kicked in if needed.
Some examples of short-term disabilities may be the following: pregnancy, mental health issues, injuries, neck or back pain, etc. Some examples of long-term disabilities may be the following: severe mental health issues, severe injuries, chronic neck or back pain, cancer, other illnesses, etc.
There are many options out there, but ideally, you’d want to purchase a policy that uses true “own-occupation” to define total disability. This means that the insurance company would not only see that you had been practicing as a PA, but also take a look back to see what type of PA job you had been performing prior to being disabled, and if you cannot perform that job, then they would consider you to be disabled. For example, if you had been working in dermatology, and injured your hand enough that you could no longer perform the procedures required to do your job, they would not tell you that you could still work as a PA performing telemedicine in another type of speciality. Another ideal thing to look for in an insurance company would be to use an independent company who obtains and compares many quotes from companies for you.
Often, you can purchase STD and LTD through your employer, or some employers even provide one or both of these as part of their benefits package. However, as mentioned above, often, the true “own-occupation” LTD is worth taking a look at from an independent company as many employer LTD options do not offer those in particular. There are so many options / riders for disability insurance policies out there that really is beyond the scope of this post, but it’s important for you to highly consider obtaining disability insurance if you or anyone else relies on your income!
Additionally, if you decide to do so, try to lock in a policy as soon as you can, because rates are affected both by your age plus your health problems. For example, if you’re a young, 24-year-old newly graduated PA with zero health problems, you’re going to be able to get a much better rate than even a 35-year-old with a history of chronic back pain, migraines, and depression. Try to obtain this critical insurance as soon as you’re able to!
Consider Life Insurance
The next type of insurance to highly consider as soon as possible is life insurance. Life insurance is not really fun to think about, because it would be used in the event of your death. However, it’s an important type of insurance to consider.
First identify if you truly need life insurance. If you have someone in your life that would not be well off financially if you passed away, then you likely need life insurance. For example, if your spouse relies on your income to make ends meet, or if you have children that may need your income to grow up over the years and possibly help pay for their college, or if you have anyone who would inherit some of your debt when you pass, then you likely would need life insurance. However, if you only have a spouse and no kids, and your spouse makes a great income, then you may not need life insurance, as they could likely get by financially in the event of your passing. However, just like disability insurance, life insurance usually has more affordable rates if you are young and healthy. So if you and your spouse do not currently have kiddos, but plan to in the future, you may want to consider getting life insurance now, or at least getting a quote.
The process to becoming approved is a bit of a pain as the application can be pretty long, there can be phone calls to verify information, and even a “physical” where your blood pressure, height and weight, and some labs are checked. Some companies may even require an EKG or additional testing depending on how much life insurance you are applying for. Additionally, family history plays a role, so if there is premature heart disease or cancers or even diabetes in your family, then your rates could be affected. Again, it’s best to go with an independent insurance company that can provide quotes from various companies for you to help select which company would be a good option.
Likely Obtain Term Life Insurance vs. Whole Life Insurance
Obtaining whole life insurance was one of my biggest financial mistakes as a new PA. Here’s a little background: during one of my family med rotations, one of my preceptors who was a few years older than I was had been talking about meeting with her financial advisor. I thought, “Well, I think that I and my fiancé (soon to be husband) need a financial advisor to get our finances in order especially considering all of the student loans that I’ll have to pay back!” She gave him my number, and my husband and I met up with him to discuss what I thought was going to be a financial game plan to help pay off my loans quickly as well as invest for our future.
However, the conversation was essentially a sales pitch from the “financial advisor” (who is essentially a glorified life insurance salesman for a very popular insurance company out there). He did make us recognize that life insurance probably is a good type of insurance for us to have. However, with his promotion of whole life insurance which allowed us to invest some within the plan, he earned a commission on the sale of it, and the fees from the plan were horrendous. But here’s the thing: we really did not need whole life insurance, but rather, level term life insurance (which is actually much cheaper!). Additionally, he encouraged me not to be in a rush to try to pay off my student loans due to the fact that a portion of the interest on them could be deducted from our taxes. However, this actually is true only up until a certain MAGI threshold, so this only benefited us for a few years.
We FIREd our financial advisor (pun intended) after working with him for 6.5 years! That’s crazy to even think about. Even prior to making the decision to finally cut the ties with him (as he truly was a very nice, friendly guy), we tried to ask him about what all the fees were, as well as how much our funds / investments had been earning so we could compare that to index funds. We were never given a straightforward, easy-to-understand answer, which helped make our decision to let him go even easier.
For most PAs, having level term insurance for a longer term is usually the way to go. However, if you have a disabled child that would not be able to care for themselves as they age, then it is possible that whole life insurance may be more appropriate for you. For level term life insurance, “level” means that the premiums remain the same for the “term”, which is the length of the contract between you and the insurance company. If you were to get whole life insurance, the premiums usually remain the same as well, and usually these insurance plans are for life, meaning that even if you pass away into your 80s or 90s, your beneficiary would still get paid. To many hearing this information about whole life insurance policies for the first time, it may make them sound like a great deal! However, if you really consider the years during your life when others would need to benefit from life insurance in case of your death, it usually is not lifelong. Even if you do have children, once they grow up and start earning their own income, they no longer need your life insurance to be fine. Additionally, if you are reading this blog or listening to the PA the FI Way podcast, and are planning on achieving financial independence, then your wealth would eventually become built up enough that you would not need life insurance in your elderly years anyway!
My goal of this blog and the podcast is to educate, encourage, and motivate you to do a lot of this financial stuff yourself by researching options out there and learning basic financial literacy. However, if you really would like to work with a financial planner or a financial advisor, please ensure that they operate as a fiduciary, which means that they truly have your best interest in mind! Additionally, consider working with a fee-only financial advisor, which means that you pay them for the time they spend to help you out or a flat fee, and are not being paid on commissions or AUM fees (assets under management, meaning fees would be paid to them from your investment gains).
Consider Umbrella Insurance
Umbrella insurance policies cover many things, and are often a great type of insurance to consider as your assets increase with time. These policies can help cover damages for home or cars that are above the limits of your homeowners and auto insurance plans, depending on the issues. These can help cover you if someone becomes injured on your property and decides to sue you, or if you accidentally injure someone else, or if you’re a landlord and a tenant becomes injured on the property, etc. There are many things that an umbrella insurance can help cover, so please research this option, and likely obtain quotes from various companies, or use an independent insurance company that can help you compare rates from various insurance plans as well. One of the great facts about umbrella insurance policies is that they’re often surprisingly very affordable!
Disability insurance, term life insurance, and umbrella insurance are all important types of insurance policies to consider to help protect your income and wealth on your way to financial independence!
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