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5 Essential Financial Moves for Residents | Number 1 of 5: Protect Your Human Capital
Residents typically see a negative balance sheet when they think about their financial situation and may feel there isn’t much to protect now, but it’s important to consider your most important asset–your ability to earn an income.
You’ve invested years in training and possibly hundreds of thousands of dollars on your education. And even with a simple calculation about your potential income stream, we’re talking about millions of dollars over your career. Protecting your human capital should be your top priority.
What you need to do: Secure the most important kinds of insurance
There are a lot of different kinds of insurance, and you have a limited budget. Which are the most important for you right now? It can depend on your situation, but these are the ones you need to consider:
- Disability insurance: This is the most critical kind of insurance you need as a resident, regardless of your current financial obligations or family status.
Many residents receive a base of disability insurance coverage through their residency programs, but since an employer plan typically covers only about 60 percent of your current salary, if you become disabled and unable to practice medicine with only that policy in place, your benefits would be frozen at that level.
That’s why it’s important to consider layering your employer’s coverage with your own individual portable policy—typically purchased through a group or association or to secure an individual disability (IDI) policy. Make sure your coverage is specific to your specialty, not just your occupation as a physician. Learn more so you can make the most informed decision about the coverage you need to protect your cash flow.
- Life insurance: If you have a family, life insurance should be an equal priority to ensure they are taken care of if anything happens to you. Consider securing a 20- or 30-year block for term life insurance. Rates are the lowest when you’re young and healthy, so lock in those affordable rates now.
If you’re single and renting your home, you really don’t need life insurance. It’s far more important for you to invest in a really good individual disability insurance plan.
- Umbrella liability insurance: This insurance is great to safeguard your current and future income stream. It’s unfortunate, but in this litigious environment, doctors can have a target on them—and that includes residents who aren’t earning much yet or don’t have much in the bank.
Umbrella liability insurance is inexpensive and can protect you in the event of an accident in which you, a member of your family or your property may be involved.
Allan Phillips is a Certified Financial Planner™ with Taylor Wealth Solutions, author of The Guide to Income Protection for Medical Residents, Fellows and New Practicing Physicians and a member of the AMAI Physicians Financial Partners program.
Taylor Wealth Solutions is not affiliated with the AMA. Taylor Wealth Solutions offers insurance products through Taylor Financial Corp. Securities offered through Taylor Securities, Inc. (member FINRA/SIPC)
Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, Certified Financial Planner™ and CFP® in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
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