Three Financial Products Every Young Physician Needs

There are three aspects of financial planning that are important for every young adult beginning their career: having the protection of disability and umbrella liability insurance along with appropriate estate planning.

Having a serious accident or illness that results in disability is a catastrophic occurrence that can happen to anyone.  Not having sufficient disability insurance ensures a potential life of poverty. If you have dependents, it is so much worse. Disability insurance should be in place in an amount to replace at least 60 percent of income. It is best (if possible) to pay the premiums with after-tax funds so that any benefits paid will be untaxed. There are many riders and options that can literally double the cost of this insurance, so having a trusted agent or other advisor to guide you is important.

Umbrella liability (UL) insurance picks up and covers you for accidents and other general risks (not business- or practice-related) after your current homeowners and auto policies hit their maximum payouts. This insurance is sold in million-dollar increments and is inexpensive (usually around $300 per million per year). The underlying liability coverage on your auto and home policies needs to be coordinated with the UL policy, and sometimes you can actually save money with lower underlying limits than you already have. This insurance is usually available from the same companies that sell your current homeowners and/or auto insurance coverage.

Having some estate planning documents is usually important. If you have any dependents, it becomes very important to decide on the future of your family. Who will take care of your children? Who takes care of the money you have left for your children? Do you want a judge to decide?  All you may need is a simple will, but consider having backup trusts in place if you have minor children. The only person who really does not need estate planning is a young, single individual without any substantial assets or dependents.

Note that I did not suggest that you need life insurance. Indeed, if you are single and/or have no one financially dependent on you, life insurance may not be a priority at all.

The need for disability insurance, umbrella liability insurance, and estate planning documents are the bedrock of a financial plan. Many of the other things to consider can be worked on after your "big three" are in place.