Insure Only Against Financial Catastrophes

Oct 12, 2020 · White Coat Investor

This series is developed in partnership with Dr. Jim Dahle’s The White Coat Investor, the leading source of financial tools and information for doctors, and Doximity Careers and Curative (a Doximity company), where doctors can find their next long-term or locum tenens position.

Locum tenens doctors are often on their own for their benefit packages. Unlike some employees, who may be offered several kinds of insurance as part of their benefits, locums docs are likely to only be offered malpractice insurance if anything. However, insurance is a critical aspect of any financial plan. Just because you do not have an employer offering it, does not mean you do not need it.

Insurance can be purchased to protect you against all kinds of events. However, as a general rule, you should only insure against financial catastrophes. Financial catastrophes are those very expensive possible outcomes that you cannot afford to pay for yourself. Being hit by a truck and having to spend 2 weeks in an ICU is a financial catastrophe. Dropping your phone in the toilet or having to replace your leaf blower should not be.

On average, insurance is a losing proposition. It must be for an insurance company to stay in business. An insurance company only has two sources of income—the premiums it receives from its policyholders and the investment return on its portfolio of money that has not been paid out as insurance benefits. With this income it must pay all of the insurance benefits, cover all of its expenses, and if it is a for-profit company, leave something extra for the shareholders of the company. Thus, it cannot pay out in benefits every dollar it receives in premiums. On average, it must pay out less. Since insurance is a losing proposition, you should not buy insurance that you do not absolutely need.

A traditional emergency fund consists of three to six month’s worth of cash in a savings account. By having an emergency fund, you can afford to self-insure against many small losses and save yourself the cost of insuring those items. With an emergency fund, you can afford to use insurance policies with higher deductibles and thus lower premiums, spending less on insurance in the long run.

There are five financial catastrophes that most doctors will need to insure against, at least for part of their lives. These include:

  1. liability
  2. illness/injury
  3. disability
  4. death
  5. and loss of expensive property

We will examine each in turn and consider the implications for a locum tenens doc in particular.

Liability Insurance

Liability insurance is traditionally divided into two categories, professional and personal.

Malpractice Insurance

Professional liability primarily refers to malpractice insurance. This will often be covered by the locum tenens agency. Make sure you understand what kind of policy they are providing. Make sure the limits are typical for your specialty in the area you will be practicing. If the policy is not an occurrence policy, make sure the locums agency or the client facility will be covering the cost of the tail insurance. If they will not, check with your current insurance policy to see whether they can cover that risk for you for a reasonable additional premium.

Personal Liability Protection

In addition to professional liability, you could also have personal liability for events that occur outside of work. Auto insurance requires a small amount of liability coverage to be carried by all drivers. However, the amount required by law would not even replace many of the cars driven on the road today. It is wise to carry a high multiple of the minimum required amount. Homeowners or renters insurance also includes a personal liability benefit. In addition to these two policies, most doctors should purchase a $1-5 Million umbrella policy, which sits on top of their auto and homeowners/renters policies and provides additional personal liability coverage. Luckily, umbrella policies are much less expensive than malpractice insurance.

Health Insurance

Health insurance is used to protect against injury and illness. Neither the locums agency nor the client facility is likely to provide you health insurance, so expect to need to purchase this on your own. Since doctors don’t usually qualify for any tax subsidy on their health insurance, they can simply go to a health insurance broker in their state to purchase a policy. As a self-employed person, those premiums are at least tax-deductible. If your chosen plan is a designated High Deductible Health Plan, you will also have access to a Health Savings Account, a triple tax-free investing account designed to be used for health care expenses throughout your life. If your locums job is just a side gig, you may be covered by the health insurance from your main employer.

Disability Insurance

Individual disability insurance with a true own-occupation, specialty-specific definition of disability can easily be purchased from an independent insurance agent. This critical coverage protects your most valuable asset (your ability to earn money as a doctor) against disability from illness or accident. Individual policies are portable and can be taken from job to job. Locums doctors cannot rely on an employer or locums agency to provide this important coverage.

Life Insurance

Premature death of a breadwinner is a risk best covered by term life insurance rather than the more expensive whole life insurance pushed by many commission-hungry agents. If purchased when you are young and healthy, millions of dollars of term coverage can be purchased for just a few dollars a day. If you have dependents, you need to get this coverage in place as soon as possible. You can be certain it will not be provided to you as an independent contractor. It is most easily purchased from the same agent who sold you your disability policy.

Insuring Personal Property

Expensive personal property that you cannot afford to easily replace should also be insured. Expensive automobiles, boats, airplanes, and recreational vehicles should be covered. Most importantly, your house and personal possessions should be covered using a homeowner’s policy. If you are a full-time locums doc without a permanent dwelling, be sure to get a renters insurance policy. Remember that computers, jewelry, and firearms are typically excluded from these policies and must have separate coverage.

If you cannot afford to pay for it yourself in the event of tragedy, you need to insure it. This includes your health, life, ability to work, expensive property, and liability. Insuring only against catastrophe will provide smart protection while freeing up your income to build wealth and provide the lifestyle you desire.

Explore your next locum opportunity today at Doximity Careers!

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