Insurance

[live101]

I am completing medical school, and will be starting residency in July. I am pretty naive in terms of financial planning, and we have started getting lots of talks from insurance groups. I was wondering if people with experience in getting insurance from these different groups could shed some light on what they think is the best approach. Thanks!

[cheech10]

Short list:

 

Life insurance - pays out if/when you die to your estate or a beneficiary. Only needed if you have dependants (spouse, kids). For most physicians, term insurance is probably the best bet. If you are married and/or have kids, buy a 20 year term (quite inexpensive for a healthy 30ish year old). After 20 years, let it lapse, as you should have enough assets built up that even your death should not cause tremendous hardship for your dependants, and the premiums go up dramatically.

 

Whole life/universal life - are combined investments and life insurance. Probably not a good deal overall, but have some interesting tax advantages that may be worthwhile when you are in your 40s/50s. Would not recommend it when starting out, and would only consider it after a long discussion with your planner/accountant.

 

Disability insurance - probably the most important. Pays you if you are sick/injured and unable to work for at least x days (depends on the plan). Buy the highest amount that is offered to you. This is a critical income replacement tool if you get sick/injured.

 

Critical illness - probably not all that important in Canada. Pays you a lump sum if you get diagnosed with one of a number of illnesses. Meant to help pay for some of the uninsured medical services if you get sick, but these are generally not huge expenses. I wouldn't recommend it, but it's not the worst insurance product you can buy.

 

Mortgage/LOC/loan insurance - avoid if at all possible. Pays off the balance of your debt if you die. Debts do not pass on to your heirs (they are deducted from the value of your estate, but your net worth is likely negative at the start of residency anyway). Even if you have dependants that you need to protect, term is a cheaper and better product.

 

When you start practice, you may want to look into umbrella coverage, but that is a few years away.