Key takeaways
Forming a plan
Term life insurance
Disability insurance
Personal liability umbrella policy
Key takeaways
Forming a plan
Term life insurance
Disability insurance
Personal liability umbrella policy
Healthcare professionals (HCPs) can reduce many of life’s worries by selecting appropriate life, disability, and personal liability umbrella insurance.
Many clinicians think their most valuable asset is their nest egg, but it’s often their ability to work that provides more financial security for themselves and their dependents.
Physicians and other HCPs should explore term life insurance policies, own-occupation disability insurance policies, and personal liability umbrella policies.
Healthcare professionals (HCPs) confront sickness and mortality daily. For many, the last thing they want to do is contemplate their own.
While macabre, it’s worth planning for what is unfortunately inevitable. Selecting the right insurance policies can make a vast difference for you and your loved ones.
HCPs are indeed mortal. Among physicians, for example, a 2021 Lifestyle Medicine study found that general practitioners live an average of 80.3 years, and surgeons, 79.9 years.[]
Emergency physicians lived an average of 58.7 years and anesthesiologists lived 75.5 years.
Cancer was the leading cause of death among all doctors.
With this in mind, MDLinx spoke to Larry Keller, CFP, founder of Physician Financial Services. According to Keller, physicians and other HCPs can eliminate some of the fear, uncertainty, and doubt surrounding death, injury, and lawsuits by selecting the appropriate insurance policies.
He emphasized three types of coverage that all HCPs should consider.
Term life insurance is a type of policy that pays beneficiaries selected by the policyholder for a specific length of time.[]
Buyers typically purchase policies ranging from 5- to 30-year terms.[]
Term life is essential for HCPs with spouses or children who rely on their income, or who have a family history of a disease or medical conditions.
HCPs likely should select level term or level premium policies. These policies have fixed premiums and fixed death benefits for the duration, regardless of changes to your health status.
According to Keller, term life insurance is a bridge that connects your early career to the later years of your career, when you’ve hopefully amassed more wealth.
“You're only really trying to get from point A to point B,” Keller said. “Point A is, ‘I'm a young professional. My income is starting to grow. I have medical school debt. I have a mortgage. I have young kids. I want to fund their college. I need to fund my retirement.’”
“‘But, if I don't pass away or I don't become disabled and I'm still earning a good income, my debt is going down,’” he continued. “‘My assets are increasing. I've now saved for retirement. I've paid down my kids' college. I've gotten to the point that I can can really self-insure.’”
In other words, when the term ends, you can pay for the unexpected if you’ve done your financial due diligence.
HCPs can also use a ladder coverage strategy.[]
With this approach, a clinician takes out multiple policies with different payouts and term lengths, staging these policies to offer precise financial protection as they amass more wealth.
For example, instead of purchasing a 30-year term life insurance policy with a $3 million death benefit, you could ladder a 20-year term for $2 million and a 10-year term for $1 million, saving on the premium throughout both terms.
Some HCPs may be attracted to universal life insurance, which pays a death benefit for the policyholder’s lifetime.[]
Keller said that for doctors and other HCPs, this is only a good option in some situations, such as:
You want to leave money to charity. You could select a universal life insurance policy and make the charity the owner and beneficiary of the policy. It receives a payout when you die and your premium payments are tax-deductible.
You have a child with a disability who will need financial support for life.
Your earnings are in excess of $20 million, and you’re looking for a strategic way to save on taxes and support future generations.
For many clinicians, their most valuable asset is their ability to work and earn—not their money in the bank. While it’s tempting to believe that the insurance offered by your employer is sufficient, it likely has gaps, Keller said.
Group policies usually only cover a percentage of your salary with a maximum monthly benefit of around $10,000.
So if you earn more than that, you may be out of luck in the event of a disabling injury.
Also, most group policies are not own-occupation policies, which pay out if you become disabled and can’t perform the bulk of your job as a clinician. They also pay you even if you can still work in some other capacity.
Most employer-paid policies stipulate that you be unable to perform the “material and substantial duties of your occupation” for the first 2 years of benefits. After that, they may switch the terms to any occupation, based on your education, training, and experience.
The problem is, the insurance company makes that determination—not you. They might say that while you can no longer perform surgery, you can still see patients, and then terminate your benefits. An own-occupation policy prevents this.
“You could have a situation where the group policy says you're not disabled and the individual policy says you are, and you receive benefits.”
As an added bonus, payouts from own-occupation policies are income tax-free because you pay the premium with post-tax dollars. In addition, own-occupation policies don’t reduce the payout if you receive other benefits, such as social security or disability. This is not so with group policies.
When purchasing an individual disability policy, it's critical to review your group policy with the insurance agent, Keller said. For example, you may be compensated with a base salary, along with relative value units, bonuses, or other incentive-based pay. You’ll want to know whether your group policy accounts for this and select an own-occupation policy accordingly.
A personal liability umbrella policy (PLUP) can ease many of life’s other worries, such as automobile accidents or injuries at your home.
Let’s say you have an auto insurance policy with a $500,000 benefit cap. One day, you hit someone with your car and they sue you for $3 million. They receive a judgment for $2 million, and you have to come up with the balance.
Or, let’s say you have a homeowner’s insurance policy with the same benefit. A worker is injured at your house and sues for $1 million, winning the case. You’d be on the hook for the balance here as well.
A PLUP policy would cover both of the deltas. Many PLUP policies would also cover your legal defense.
“A good rule of thumb is to try to match up the amount of umbrella policy with your assets.”
“If you're a practicing physician, you probably want to have $3 million to $5 million," Keller added. "If you're a resident or a fellow, probably a million or $2 million is fine. If you're renting and you don't drive a car, you probably don't really need it.”
Insurance companies often offer bundling discounts, so consider purchasing a PLUP policy from your home and auto insurance provider. The savings—and the peace of mind—are worth it.
“You can almost think of an umbrella policy as malpractice insurance for everyday living.”
What this means for you
Term life insurance, own-occupation disability insurance, and personal liability umbrella insurance can provide HCPs with the peace of mind that they and their loved ones are provided for in the event of their death, a disabling injury, or a catastrophic event like a car accident or an injury in their home.
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