Overall blurb on financial planning
The foundation of a good financial plan is your spending and debt. If these are not in control, the rest of your plan is in danger – much like a good foundation is required for a house.
We don’t believe that you need to micromanage or never enjoy yourself. It is about making sure that you are consciously making choices and spending your money where it will bring the greatest joy.
Having a plan on how to spend on the big things and automate the rest, including debt repayment means you can take these items off your mind. Taking these things out of the active part of your brain means you can focus more on your career, patients and living the life you want!
Language of Insurance
In medicine, there is a specific language. A way of talking that is different than any other profession. And other areas have their own language as well. Here are some of the words you might here when you start talking insurance:
Underwriting – This is the process by which the people giving you the insurance are using to determine if they think you are a risky applicant. Depending on the type of insurance you are getting, they use different factors. For example, for car insurance they want to see if you have had speeding tickets, any accidents and other things that may indicate to them that there is a high probability for claim so they will charge you more. The same thing happens with life, critical illness and disability insurance. The factors that they look at are different with each.
Face Amount – this is the amount of insurance you buy.
Illustration – this is the quote that you get to show the price and how the insurance works and what it covers amount other things.
Exclusion – this is when the insurance company has decided that certain things may be too risky for them to cover but they are okay with the rest. An example is for my critical illness insurance, I have an exemption for breast cancer due to family history. So it will cover me for all other kinds of cancer.
Premium – is the amount you pay for the insurance – it could be charged monthly or annually.\\
Rating – If the company decided that a certain thing is risky about you, but not enough to exclude it they may ask for extra premium to cover that risk.
Property and Casualty – you may hear this referred to as P&C insurance – this is coverage for your home or apartment (contents) and your vehicle. I always recommend that if you rent that you have tenant’s insurance so that if you lose everything in a fire/flood etc. you can replace everything.
What is it? Just like it sounds, this is insurance that pays on your death. You can buy permanent or term insurance. Term insurance means that you can get your price guaranteed for a period of time – typically 10-20 years although there are others. All term insurance is not equal – some people are offered this from their bank when they get some debt there – but it is a good idea to talk to a professional to get the right kind, the right amount at the right price!
Do I need it? Depends. If you are married, have debts, have children, and/or have a charity you like to support. you may need some.
How much to get? This gets a bit tricky. We do an insurance needs analysis to see how much makes sense and then factor in price. The younger you are the cheaper it is so we sometimes get it early while your are insurable to lock in the coverage.
I use life insurance both as a way to cover costs and obligations upon death, but also as a way to save for the future. This isn’t for everyone so a complete understanding of your situation and goals is very important!
How do I get it?
What is it? It is insurance for if you get cancer, have a heart attack or stroke, get MS and up to 20 other diseases/illnesses. The payment is tax free and lump sum for you to spend as you see fit. Some people use it to get drugs that aren’t covered by the government, cover unexpected costs, take more time off work. There are options to get this coverage with return of premium – which means that you would get your money back if you don’t make a claim. The younger you are the less expensive this option is.
Do I need it? I am biased here and think everyone should have it. Chances you know someone who has had cancer or heart attack. In fact, there is a 1 in 3 chance you will get/have a critical illness by the age of 65. You work in health care, you have seen it and see it happening everyday.
How much to get? There is no hard and fast rule for this. I tend to go with 1x salary – and with Residents, up to 1x future potential annual earnings.
How do I get it? Call me! This is a bit harder to get than life insurance because they look at family history more closely.
How do I get it?
What is it? – I think of this as the income replacement product. The most valuable asset you have is your earning potential. So if you walk out the door and get hit by the bus, and can’t work again – where is the money coming from to pay off your debt and cover your life expenses. This is where disability insurance comes in!
Do I need it ? I think everyone should have it! The statistics of probability are not as high as critical illness, but still pretty intense. Unless you are independently wealthy it should be at the top of your list!
How much to get? This one is income tested – the company typically does not want to give you more than you would get at work – then you might not go back! However, the insurance companies really like working with doctors so they will give you more coverage than you qualify for based on your occupation!
How do I get it? While you are in your residency, you have some basic coverage through your association, but this will go away when you are done! So I recommend getting some in place right away for when you go into practice. We put a high future insurability amount on and put that in place when you are in practice or fellowship!