How diversified is your insurance portfolio? I presume that you have never been asked this question before. It is also quite possible that you do not have any insurance coverage at all, or if you do, it is most likely exclusively group insurance coverage.
After all, the provincial medical association spends a significant amount of time trying to convince medical students and residents that they should only purchase group insurance. Despite mounting evidence that group association insurance plans are not adequate in covering the financial needs of medical professionals.
Instead, it is much more beneficial for graduating medical students to take a balanced approach to their insurance portfolio.
Act Outside the Group
Convenience plays a big role in a medical student’s decision regarding which insurance plan to enroll into. So provincial medical associations with easy access to medical students aggressively promote their insurance products. It’s right here, why not get it?
That convenience can be very costly.
Don’t Get Caught in the Dragnet
The dragnet system is used by provincial medical associations to enroll the maximum number of medical students and residents into their insurance program.
How does this work?
- They offer massive discounts on insurance premiums. As much as 75% while in residency and during the first two years of practice.
- As well, insurance coverage for medical students going into residency automatically increases without the student’s knowledge or consent.
The dragnet approach, while being very lucrative for the provincial medical associations, is very costly for the insured. Because once the discounts drop off the premiums escalate; and the insured may now need to medically qualify for better coverage under an individual plan.
The Right Balance
Simply put, a typical balanced insurance portfolio would include 50% individual insurance and 50% group insurance. So, does this mean that this is the right insurance allocation for graduating medical students? Surprisingly, the answer is no.
Instead, graduating medical students should aim for an insurance portfolio that includes 75% individual insurance and 25% group insurance throughout the completion of their residency and fellowship programs.
Why The 75/25 Strategy?
Manage Premium Costs Early On
Cost is the primary factor driving this insurance allocation strategy.
Graduating medical students will begin their residency training with an average debt load of approximately $180,000. With this level of debt, it is critical to minimize the cost of building and maintaining your insurance portfolio.
This means having a higher proportion of group insurance in your insurance portfolio; but only during residency and fellowship training.
Additionally, cost savings can also be achieved early on as the first 12 months of premiums on an individual plan may be waived.
Avoid Having All Your Eggs in One Basket
At a recent presentation to a group of graduating medical students at McMaster University, I was asked this question, “If it costs less, why not put all my eggs in one basket and do all group insurance?”
There are two of the main problems with adopting this insurance portfolio approach:
- You will end up paying significantly more money for insurance, over the course of your medical career.
- You will receive less benefits and less protection.
Having a balanced insurance portfolio allows you to spend less AND increase your coverage.
Save on Premium Costs Over Time
The provincial medical associations spend a tremendous amount of time steering medical students away from individual insurance plans by narrowing the scope of the argument down to cheap rates and high discounts during medical school.
This is not a suitable long term or cost-efficient strategy for medical professionals.
Let’s look at an example.
If you are insured under a group disability insurance plan from when you are a medical student until you finish practicing at age 65, you could end up paying 43% more in group insurance premiums compared to what you would pay under an individual plan.
That means you could pay up to $37,000 more for the group disability insurance premiums over the span of your career if you are male, and up to a whopping $46,000 if you are female; and that is on disability insurance alone.
Group Insurance Has Limitations
You are less protected under a group insurance plan.
- The coverage is not guaranteed.
- The policy coverage can be cancelled any time.
- The contract is owned by the group insurance company and not the insured.
- The terms of a group insurance policy are usually inferior to individual policies.
The list goes on and on. Leaving you exposed to the risk of uncertainty.
Staying Balanced
Ultimately a balanced insurance portfolio approach, which advocates a mixture of individual and group association coverage during medical school and residency, provides medical professionals with the flexibility to choose what insurance program is right for them as they become established in their careers.
With options to decide whether to phase out the group medical association coverage, go exclusively with individual insurance coverage, or transition to a balanced 50/50 insurance portfolio; adequate coverage and cost savings should be your goal.
Working with an Advisor
Whenever I am working with medical students and residents, I encourage them to work with an insurance advisor who will provide unbiased, objective advice.
Advice given by a provincial medical association, whose main goal is to enroll as many medical students as possible, is not likely to be in the best interest of the insured. Furthermore, association insurance programs do not provide the opportunity to enroll into an individual plan. Working with an advisor who provides these comprehensive services is critically important.
When it comes to choosing an insurance portfolio that is right for you, speak with an insurance advisor who is truly independent, inquire about non-group plans, and most importantly, make sure that you have disability insurance.
