disability insurance term insurance for physicians

Winning Tactics for Finding the Right Insurance Policy

In this week’s episode, I’m super excited to speak with Larry B. Keller, founder of Physician Financial Services, to explore the various facets of insurance for physicians currently or prospectively mitigating the market. As a Certified Financial Planner, Insurance Agent, Investment Consultant, and speaker with over twenty-seven years of experience providing insurance and investment products, Larry offers winning tactics to consider before purchasing an insurance policy.

This is a two-part series with Larry. Join us for a continuation of the conversation in our Curbside Consult here.

Click here for Larry’s full bio.

We discuss all you need to know about term insurance for physicians.

Insurance is a tricky subject affecting residents, fellows and attending physicians, and it’s most likely a topic you are challenged with today. With many options available, it can be hard to decipher which policy selection is the best fit for you and your family.

If you are in the market for insurance policies, you will get to learn about the various facets of term insurance and disability insurance. We also give you the scoop on the discounts available to you, but not necessarily offered by an agent discussing your insurance options.

Gain the knowledge you need to determine what kind of insurance product fits your budget, financial goals, and current situation by looking at the different factors affecting you in this two-part series called, “Winning Tactics for Finding the Right Insurance Policy.”

 What You Will Learn:

  • Term insurance is the purest form of insurance that provides a death benefit only but pays money to beneficiaries in the event of your death.
  • A good rule of thumb, when it comes to term life insurance, is ideally purchasing seven to ten times your gross income.
  • The concept of term insurance laddering for young attendings, residents, or medical students who have a high amount of debt, high earnings potential, and very little assets, is needed to protect your earnings power.
  • When it comes to life insurance, there are several underwriting categories to be aware of, such as preferred, preferred plus, standard plus non-tobacco, and standard non-tobacco.
  • Check the ranks of the cost of insurance from least to most expensive for the duration of the term you’re looking for on term4sale.com.
  • Maintain your purchasing power with a cost of living adjustment rider if you’re disabled.
  • Depending on the medical specialty and state of residency, certain policies have limitations built into their policies across the board.
  • As a female physician, you can look for gender-neutral or unisex rates at a discount, which insurance agents spending their time in the “medical marketplace” should know of; however, ninety-nine percent of agents won’t do anything about it.
  • Permanent is another form of insurance with a mix of a death benefit and some sort of cash value associated with it.
  • You will probably be paying more money in the form of premiums for crappier coverage if you don’t do your homework or really pay attention to what an agent offers you.

Don’t Forget to Add to Your Toolbox, Get Involved and Help. Here’s how:

If you enjoyed this episode, I’m sure you would enjoy reading this: The Hidden Insurance Fees You Didn’t Know About

Join the Financial Residency Community: Don’t forget to join the Financial Residency Facebook Community for exclusive access to taking the Wealth Potential, Investor Composure and Financial Planning assessments.

Help the Financial Residency podcast reach new listeners on iTunes by leaving a rating and review! It takes just 30 seconds. I really appreciate it, thanks!

Full Transcript: Winning Tactics for finding the Right Insurance Policy

Ryan

Larry, thank you so much for being on the show, greatly appreciated. We’re really excited to get into some of the specifics today.

Larry

The pleasure is all mine. It all comes down to educating the audience and I find a lot of people just lack the time and as a result of that they want to check something off their list, get it done, and move on. Unfortunately, all too often it leads to subpar results. So, hopefully this will give people an idea of what they should be looking for and more importantly, what they should be looking out for to help them make a well-informed, educated decision before they decide to proceed or move forward.

Ryan

That sounds great. Yeah, I’m excited and I think a lot of people are going to get a lot of benefit out of this. You know, as we go through and talk about, you know, what is term insurance and some of the pros and cons; and then looking at disability and kind of doing a deep-dive on what some of those things and their policies might mean. And, you know, if we have time at the end, talking a little bit about permanent insurance, if it’s appropriate for anyone and all that. So, if you don’t mind, let’s just jump right in and let’s talk about term insurance. So, physicians, they know kind of a little bit about term insurance, but let’s start from the basics and just let them know a little bit about what term insurance is and, kind of, what they’re looking for in that type of policy.

 

[easy-tweet tweet=”Term insurance is the purest form of insurance that provides a death benefit only but pays money to beneficiaries in the event of your death.”]

 

What is Term Insurance for Physicians?

Larry

So, term insurance is really fairly straightforward. Now, you’re paying a premium to the insurance company to cover the risks that they are taking, where they are going to pay money out to your beneficiary or beneficiaries in the event of your death. So, term insurance is the purest form of insurance. It provides a death benefit only. It allows the individual to buy the largest amount of coverage for the lowest cost. Generally, you really want to purchase a policy with a level or fixed premium rate for a duration of time and that can be anywhere from five years to, literally, as long as 35 years.

Larry

An old school product that I’m still being shown or I’m still being seen, is primarily being sold by one company, and it’s called annual renewable term or ART, or yearly renewable term or YRT. And, essentially, they give you two schedules. They say this is the current premium rate. It will never be lower, but this is what we expect that we’re going to be able to charge you based on today’s mortality, based on the expenses that we’re assuming and based on the rate of return that we are getting as an insurance company and our investments.

Larry

Then they have a guaranteed maximum, which is a multiple of the current rate. And each year when the policy renews, the insured will find out what the rate’s going to be. Is it going to be the current rate, which was projected? Or, if one or more of those factors were out of whack, it can literally be as high as the guaranteed maximum. So, knowing that this is the case, ideally, you really want to avoid that type of coverage unless you’re buying it with full intention of converting or switching over, regardless of your health, to some type of permanent insurance product. And for the majority of people, that is likely not going to be a consideration. So, we’ll lock into a policy with a guaranteed level premium, where the current as well as the guaranteed are identical. When the policy renews, it’s exactly what you expect it to be. And in the old world, you find a lot of physicians would say, you know, my magic number is x, three million dollars. I’m going to go out and I’m going to buy a three million dollar, thirty-year level term policy. Now, I know I’ve purchased a large amount of coverage for an extended duration.

Larry

Well, unfortunately, a lot of times that will lead to someone overpaying for coverage for long-term guarantees that they’re just not going to need. Especially a dual physician couple, where you’re going to create a substantial amount of wealth. So, a strategy that I use that’s somewhat common, is called laddering your coverage. You might say my magic number is three million dollars, but instead of going out and buying a three million dollar, thirty-year term, I’m going to buy two different policies. I’m going to buy one policy for two million dollars of twenty-year term, another policy for one million dollars of thirty-year term; if something happens in the first twenty years, we have the same three million dollar death benefit. After the twenty years are up, that first two million dollar piece drops off and one million dollars remains for the final ten years.

Larry

And with the exception of estate planning, what we find is the need for income replacement is likely to go down. We’re going to pay down our mortgage, we’re going to save for our own retirement, we’re going to save for our children’s college educations, we’re going to pay down our medical school debt; and remember, if it’s a federal debt, that would be discharged in the event of death anyway. So, this strategy allows you to really minimize your premium, maximize your coverage and really fit the death benefit and the duration of the term much more in line with your individual needs, goals and budget.

Larry

In fact, one company allows this strategy within a single policy. You buy one policy for the longest duration, in my example, thirty years, and then you would literally add a level premium term rider to that policy. Again, in my example, two million dollars in twenty-years. What this does, is it saves you the annual policy fee normally associated with separate policies. So, at that point, what I would do is I would look at what is my total cost if I was to use this one carrier with the term rider; or what would it be if I was to purchase two different policies, either from the same company or separate companies, and see what the difference is. And if it’s less expensive using one policy with the term riders, I would probably go that route; and if it was more expensive and the amount was substantially different, I would probably go to two different companies and purchase two different policies.

Larry

You’ll also find that premium rates are based upon a few different factors. The insured’s gender; their height and weight; their personal history; are they taking any prescription medications; family history, whether it’s cardiac disorders or cancer, and I’ll say that’s going to be an immediate family history. Some companies are more generous in terms of the height and weight guidelines. Some companies, when it comes to cardiac disorders or cancer, they are literally going to look at, was there a diagnosis in a parent or sibling prior to the age of sixty. And that in and of itself might knock someone out of the criteria for the best or preferred plus category. Other carriers use a death criteria and even though there might be a diagnosis in the immediate family, because the immediate family member is still alive, that diagnosis is not used against them; and as long as the proposed issuer, the person that is actually buying the coverage, meets all the other criteria, they can potentially qualify for that.

 

[easy-tweet tweet=”A good rule of thumb, when it comes to term life insurance is ideally purchasing seven to ten times your gross income.”]

 

Larry

And that could create a significant savings, knowing which company to go to based on your individual factors. A good rule of thumb when it comes to term life insurance is ideally you want to purchase seven to ten times your gross income. Now, by the same token, you can’t just arbitrarily pick a number, taking your future income potential into consideration and expect to get that. Now, most insurance companies are going to say we’re not willing to give you more than twenty to thirty times your current gross income. And in order to get more than that, I as the agent and the individual as the proposed insured, would have to justify to the insurance company why we need additional coverage. Do I have multiple children? Do I have a very large mortgage? Do I have a special needs child or some reason why more than that multiplier is actually required? That’s for the most part, term life insurance. Now, you will find that there are some riders or additional pieces that could be added to a policy.

Larry

So, one of them is called a waiver of premium rider; and what this does is it waives the policy’s premium so the insured does not have to pay this in the event of a disability. Now, this can equate to fifteen percent or more of the policy’s total premium. So, you have to say does this make sense and do I plan on converting this term life insurance policy to a cash value policy at some point in the future? If I do, and I’d like to have the premiums waived on this larger cash-value policy, I would need to have this rider on my term policy so when I convert, it’s applicable to my cash-value policy. If not, I would likely forego the waiver of premium rider, the definition is much more limited compare to an individual disability insurance policy, and I would use that savings to increase my individual disability policy where I will have better provisions, I will have a stronger definition of total disability, and it will quite honestly provide me with more flexibility than just having my premium waived.

What type of riders are involved in term life insurance?

Larry

There is something called an extended conversion rider. And Ryan, it’s funny, the insurance companies are always looking a way to try to undercut each other when it comes to term life insurance premiums, because it really is, for the most part, a commodity. And a lot of the companies that are career agent companies really understand that most people, if they’re going to convert, they’re going to do it in a short period of time. So, they looked at their book of business and they say okay, even though the policy is a twenty-year term or a thirty-year term, if they offer that, built into the policy is going to be a five-year conversion option. And if you want beyond the five-year conversion option, you can purchase an extended conversion rider to allow you to convert, switch from one type of policy to another without doing an exam, blood test, urine test, or answering medical questions.

Larry

But again, if your goal is to not ever purchase a permanent life insurance policy and you’re literally using this for a death benefit only, odds are very good you would not be looking to purchase that rider. A good general rule is residents and fellows should not entertain purchasing anything other than a term life insurance policy and if they’re inclination is that they might convert in the future, or they don’t know and they’re willing to pay a little bit of additional premium to have that flexibility should they desire to have that in the future, then they might look to purchase their coverage from a company that’s known for permanent insurance. And non-working spouses really should always be insured, even though they’re not working and they’re not bringing income into the household, you know, what they do, you know, is tremendous in terms of allowing, you know, their spouse that is a medical professional, to continue to do what they do. And God forbid something happens, we know that the physician would want to continue their training or continue to practice medicine, and the only thing that would allow them to do that is money.

Larry

And it could mean my non-working spouse is insured to allow me to continue to practice, or it could mean if I’m attending, my non-working spouse is really somewhat heavily insured to allow me to work less, not work at all, or spend time grieving so I can spend time with my family because they just lost, you know, their mother or their father.

 

[easy-tweet tweet=”The concept of term insurance laddering for young attendings, residents, or medical students who have a high amount of debt, high earnings potential, and very little assets, is needed to protect your earnings power.”]

 

Ryan

So, Larry, I’m going to stop real quick here, because you have said so many great points that I want to cover or highlight a few of them. One was the concept of laddering and most people don’t know what this is or why you would do it, but essentially, you know, for those listening, for the most part are young attendings or residents, we even have some medical students listening, you’re at your most vulnerable point right now. You have a high amount of debt potentially, you have a really high earnings potential, but you have very little assets. And so, term insurance is needed to basically protect your earnings power and what you have going. It’s not to protect necessarily your assets other than your earnings power. It’s not an investment.

Ryan

So, what we’re talking about with term insurance, like, it is an insurance product, this isn’t something you’re investing in, which as you had mentioned some of the permanent insurance stuff is sold as, and I’m doing it in quotes, no one can see me, but as an investment. Insurance is insurance and it’s that for a reason, for protection. So, laddering allows you to look at it and say hey, I’m going to buy a twenty and a thirty-year policy let’s just say at a million dollars each and the premium that you’re going to have, so for the first twenty years you’re going to have two million of coverage and it’s costing you x amount of dollars in premium.

Ryan

Well, you’ve had twenty years now of growth in your investments, savings, paying down debts, things like that and you don’t need two million of coverage in twenty years. If you’ve done a really good job, you might not even need any of the insurance, you might be able to even cancel the last million dollars and save that premium, but let’s just say that you’re on, you’re on track, you still need the last million, but you’ll still have that for ten more years, but you’ll be saving the premium on the first million dollars that you had in that strategy.

 

[easy-tweet tweet=”When it comes to life insurance, there are several underwriting categories to be aware of, such as preferred, preferred plus, standard plus non-tobacco, and standard non-tobacco.”]

 

Ryan

So, not only are you going to be saving money over time, but you’ve also saved money right at the beginning without having to have two policies extended out at thirty years. One of the items you mentioned was categories, you know. And I know like some of them were called, and all the companies have different ones, like preferred plus and preferred and standard and things like that. Could you just quickly chat on what those categories are and like how they determine those categories?

Larry

Sure. So, you could look at it as, unlike disability insurance, where you really don’t have tiers other than let’s say a non-smoker or a tobacco user. When it comes to life insurance, we have several categories. We might have preferred plus. That means you are in fantastic shape and the likelihood of you passing away is pretty low compared to the rest of the population. Then you might have preferred or the second underwriting category. Some companies have a third category that they call standard plus non-tobacco or super standard. And then you might have standard non-tobacco. And we as insurance agents, as well as consumers, we tend to do it the wrong way. We look at it and we say, we’re going to start from the best and then we’re going to move our way down.

 

[easy-tweet tweet=”Check the ranks of the cost of insurance from least to most expensive for the duration of the term you’re looking for on www.term4sale.com.”]

 

Larry

And if we don’t get the best, we’re very upset. Now, the reality is, standard non-tobacco is the average person. You’re no better, you’re no worse than anybody else in society. You are the average male or female. What we should do is say, here’s what I am as an average person. How much better can I be? If we did that as agents, and consumers did this, they would think that the cost of insurance is unreasonable. So, what we all tend to do is we start with the best. And, you know, one of the best tools of doing this, if you’re not using an agent or even if you want to double check your agent, is literally a website. It’s www.term4sale.com. And this literally ranks the cost of insurance from least expensive to the most expensive for the duration of the term that you’re looking for and for the death benefit amount that you’re looking for.

Larry

And we use that as a starting place. Now, I know as an agent which companies are going to be better than others in terms of family history or in terms of personal history for different medical conditions. But that’s certainly a good way to get a gage as to what insurance might cost. But, you know, you’re right one hundred percent, the laddering allows you to save money up front and then long-term it also allows you to save money. And I’ve seen, you know, people have insurance policies and they are overpaying, not because of something they’ve done, but they didn’t go to the company that was best for them based on their height and weight.

Larry

The agent that they dealt with did not do a significant amount of homework or maybe didn’t ask the right questions up front. So, the best thing that you can do is just know that the insurance companies are looking at these different factors. You know, it’s always going to be the same thing. It’s going to be height and weight; it’s going to be gender, males pay more for life insurance than females; personal history; and again, immediate family history of cardiac or cancer. And remember, certain companies are going to look at immediate family, was there a diagnosis prior to age sixty? Other companies are going to use that death criteria and the death criteria can certainly be more favorable if we have a family history of this, but the immediate family is alive.

Ryan

Yeah, that makes sense. And you brought up a couple of good points and I’ll definitely put the link that you just mentioned in the show notes for everyone. But, let’s be real, like, the reason why people get pitched, you know, this preferred plus, like, you know, you’re in the best category and everything is because it’s the cheapest. And they know that most agents, and I know that you don’t do this just cause we’ve worked together, but most agents will basically come out and say oh, preferred plus, this is what it’s going to cost, you know, nine hundred dollars for two million dollars of coverage and then maybe that’s not the best scenario, but then all of a sudden you go through underwriting. The underwriter comes back and says oh no, you’re not in tier one, you’re in tier three and that coverage just went from nine hundred dollars to twenty-one hundred dollars. And they know that you’ve already gone through a phone application and this giant written application and you’ve already gone through some of this process that you’re going to get this underwriting fatigue and you’re just going to say well, I need the coverage, screw it and we’re going to go with it. And it’s kind of almost like a sales technique for some of these guys. And you had mentioned some of the discounts and it’s not just that they might not know about it, it’s that they might not be compensated as well by a certain company that could potentially give you a better discount or, and I know you shared this startling statistic with me, is that, you know, eighty-nine percent of the guys out there that are selling insurance in their first four years have either moved to a different firm or are out of the industry. So, as you’re going through this, you know, you might just find someone if they’re younger that just doesn’t know what it is.

Ryan

It might not be that they get paid something differently by someone else, but they literally just might not know because they’re so green in the industry that they just don’t know that these savings exist for some of these companies. So, a lot of good points there. I want to switch over to disability here. And I want, because disability is super important for physicians, and I want you to kind of just chat, let’s start from a high end and just say, you know, what is disability coverage and then let’s start kind of, you know, funneling down a little cascade here of what are some of these things that are inside their policies, so if they’re reading their policy, they can understand it a lot better.

Larry

Yeah, well, you know, in its simplest form, disability insurance is really nothing more than paycheck insurance or income replacement insurance. And essentially it says that the lower incomes, sixty percent of your salary can be replaced. Benefits are generally income tax free, because with individual coverage, you’re going to be paying with your own after-tax dollars. Now there are special limits for residents, fellows and, you know, “new in-practice physicians,” which is anywhere from the last six months of training up to the first two years of practicing. And in this situation, we literally ignore your actual income, we ignore any employer-provided group long-term disability insurance; and we’re willing to over-insure you based on your future earning potential. So, residents, fellows, you know, that say I’m not earning that much, I really don’t have that much to protect, for them it’s really all about the future earning potential that they have and that they’re in good shape today.

Larry

And we know their income is likely not going to go down, their income is likely to go up tremendously, but health we just don’t know. It’s either going to stay the same if they’re lucky or it’s going to get worse, and we’ll talk about that. Now, if any one company on their own says we will issue between a base policy and an increase option somewhere between fifteen thousand and twenty thousand dollars per month; but for the high income earning specialists, I typically recommend that you combine at least two different policies from two different companies to allow you to potentially reach up to twenty-five thousand or even thirty thousand a month of individual coverage.

Larry

You know, and this could be something like your plastic surgeon, your neurosurgeon, and the like. Certain states are also terrible for disability insurance. California, specifically being the worst one. In that state, policy offerings are more limited compared to the rest of the country and premium rates are significantly higher. So, a good general rule of thumb is to try to avoid purchasing in California if you can. Of course, if you’re a PGY1, and you’re in California, and you’re doing a six-year residency program, you probably are going to purchase your policy in California to have some protection, not remain unprotected for the next six years. But should you leave California and relocate, you seriously have to consider should that policy be replaced and can you do better in terms of policy provisions and in terms of pricing. So, what do we look for in individual policy?

Larry

The first thing we want is a non-cancellable and a guaranteed renewable policy. This sounds really scary, it just means once you’re in, you’re in. The insurance company can never take it away, they can never change your premium rates as long as you pay your premiums in a timely fashion including the grace period. They have to continue to insure you. Now, the big thing that separates the men from the boys in terms of companies you want to look at is what’s known as an own occupation, some people will call this an own specialty policy. And what this says is we’re going to pay you benefits if you’re unable to perform generally the material and substantial duties of your occupation. And these are the main duties that you perform that cannot not be reasonably omitted and still allow you to practice within that medical specialty or occupation. It’s essentially telling you if you’re disabled from your own occupation and you choose to work in another occupation or medical specialty, you’ll still receive your full benefits, regardless of the income you earn in the new occupation.

Larry

The translation for this, to me, is there’s no penalty if you’re intelligent enough, resourceful enough, or motivated enough to transition into a new occupation or specialty, do well as a result of your efforts and be compensated financially as a result of your efforts. However, own occupation, as good as it is, it only protects you in your specialty. It does not adequately protect your income in the event you can still work within your specialty on a limited basis. So, if you are, let’s say an emergency medicine physician, and your doctor says Ryan, look, you can still work, you can still do emergency medicine, but I got to tell you you’ll have to reduce the number of days that you work, the number of hours you work per day, the number of shifts you work per month, this is likely going to cause a loss of income, potentially a substantial loss of income.

Larry

Now, how much would an own occupation policy pay you in that situation? Zero. Your doctor has told you, you can still perform the duties of your medical specialty. You’re still an emergency medicine physician, but because you’re working fewer hours, because you’re working fewer shifts, or some combination of all of these things, you are going to have a loss of income. So, we need to add what’s called a residual or partial benefit, which takes away the all or nothing typically associated with own occupation; and this becomes your income component within your policy. So, you really have two separate and distinct definitions. One is own occupation, in my example, I can’t work as an emergency medicine physician because of an accident or sickness, pay me; and if I can, I’m going to receive benefits generally proportionate to my loss of income, because I’m still performing my duties but a lesser extent.

Larry

An extension of that is called a recovery benefit. So, if I’ve been out of work full-time, I now go back to work completely recovered. I’m able to do everything I used to do for the same number of hours or more, but maybe I’m not as fast as I was. Maybe my patient base has left me. Maybe the referrals I was getting from other healthcare professionals have all but dropped off and I need to rebuild my practice, because I went down when I was at the top of my game. I’m not sick anymore, but my income is still sick. So, we want a provision that will continue to help us with our financial recovery, and that’s called a recovery benefit, and it’s typically built into the residual or partial benefit.

 

[easy-tweet tweet=”Maintain your purchasing power with a cost of living adjustment rider if you’re disabled.”]

 

Larry

We want a cost of living adjustment rider, which allows our benefit to increase after disability has lasted for twelve months. And as long as we continue to increase our coverage as our income is rising, if we’re disabled, the cost of living adjustment will make sure we maintain our purchasing power. Of course, there’s no guarantee and some COLA riders are tied to the consumer price index up to a maximum, others are fixed, but it really is designed to help you maintain your purchasing power.

Larry

And last, but not least, of what I call the required riders, is a future increase option that allows you to buy more coverage in the future. No more exams, no more blood tests, no more urine tests, no more medical questions. So, in the event that my income is rising, but my health has deteriorated and I’m not dead and I’m not disabled, but I’ve been diagnosed with a condition that the insurance company would no longer look at me as favorably as they once did, I’m protected. And a great example of this might be a surgeon that develops bilateral carpal tunnel syndrome and they have an EMG done, it’s clear that this is present, things get worse, ultimately the surgeon needs to have a bilateral carpal tunnel repair surgery, everything goes well, they’re now afraid, they decide oh my God, this could have been the end of my career, I need to buy more disability insurance, they reach out to their agent and the agent says look I’m happy to get you more disability insurance, but because of your newfound condition, any policy that you’re going to buy is not going to cover either or both of your hands, wrists, or forearm.

What options are available to you if you opt for more term insurance coverage?

Larry

And our surgeon is horrified to hear this, because they’re thinking the only reason I’m buying this, Ryan, is because I’m a surgeon and I use my hands, wrists and forearms all day. Well, the future increase option allows us to buy more coverage. We would never have to even disclose that we had bilateral carpal tunnel repair surgery. So, the key is not even so much to get as much coverage as you can today, but to lock in the ability to purchase as much coverage as you can in the future without going through medical underwriting and answering medical questions, doing an exam, doing a blood test, doing a urine test. That is one of the main reasons that you will buy coverage when you’re an intern, resident, or fellow.

Ryan

And with the future benefit increase and let’s say that you did want to increase it, that increases your premium, right? Is there a way to know, like, what this future benefit increase is actually going to do to your premiums?

Larry

Well, some companies, they’re not going to give you a new policy and they’re going to include same language as your original policy. They’re going to use the rate book that the original policy was purchased under, just using your new and current age for the additional coverage only; and any discounts that were part of the original policy will also be part of this increased coverage. Other companies, when you exercise the increase option, are going to give you a new policy. And as such, that might mean that the new policy has different provisions and language than your original policy. It could potentially also mean that discounts that were part of the original policy will not be part of the new coverage that you’re purchasing. So, it’s important to ask and understand what you’re purchasing, not only going in, but what it’s going to look like in the future.

Ryan

One of the things that I wanted you to touch on before we switched topics here, is, for the most part, this mental nervous disorder limitation that is on pretty much every policy, can you kind of just tell us a little bit about that and why it’s there.

 

[easy-tweet tweet=”Depending on the medical specialty and state of residency, certain policies have limitations built into their policies across the board.”]

 

Larry

Yeah, well you’ll find, depending upon medical specialty, depending upon state of residence, certain policies have this limitation built into their policy across the board for all medical specialties. Other policies might give you a choice, where there is no limitation. So, typically if a policy has a limitation, it’s going to say something like we’re going to limit benefits for twenty-four months, either over your lifetime or per period of disability, so you can have more than one period of disability and collect more than the twenty-four months, you know, if this disability is mainly caused by anxiety, depression, stress, chemical dependency, drug addiction. You know, of course, even if a policy has a limitation, there’s going to be some exceptions to that rule where full benefits would be payable regardless, potentially to the age of sixty-five or longer.

Larry

And that might be dementia as a result of a stroke, a trauma, head injury, viral infection, MS, Parkinson’s. I had a physical disability that is preventing me from performing my job duties and secondary to that I’m now depressed. The insurance company is not going to impose that limitation, because the depression is secondary or incidental to the physical diagnosis. And last, but certainly not least, it could be that the person is hospitalized under the care of a physician and remains that way. Now, there are certain specialties in general where they do not have a choice. And short of one company, where they’re using and old policy series that’s still available, they might not be able to purchase unlimited coverage for mental and nervous conditions anyway.

Larry

And that’s typically going to be emergency medicine. It’s typically going to be anesthesiology and it’s typically going to be pain management physicians. And of the companies that offer own occupation coverage, in its truest sense as I described, there are literally only six of them, and these might vary by state. So, we’ve got Berkshire Life, you can use that interchangeably with Guardian. We’ve got Standard Insurance Company. We’ve got Ameritas. We’ve got Ohio National. And we’ve got Principle. That’s it as far as companies offering true own occupation policies in today’s marketplace. A big piece, is for our female listeners. Females we said pay less for life insurance. Well, the reverse is the case for disability insurance. Females pay literally fifty to sixty percent more for their coverage than their male counterparts.

 

[easy-tweet tweet=”As a female physician, you can look for gender-neutral or unisex rates at a discount, which insurance agents spending their time in the “medical marketplace” should know of; however, ninety-nine percent of agents won’t do anything about it.”]

 

What discounts should you be aware of when you purchase term insurance?

Larry

So, ideally as a female physician, you want to look for a gender-neutral or a policy with a unisex rate at a discount. This can literally reduce the cost of the female’s coverage by forty to six percent off of the normal female rates. And typically, once you have this locked in, that discount is going to apply permanently. So, not only is the original policy discounted, but any additional coverage purchased subsequently is also going to be discounted. And there are discount programs that exist in many teaching hospitals, many of the larger practices. Otherwise, establishing one typically requires that three to five employees, working for the same employer, purchase coverage from the same insurance company, and then a discount plan can be established.

Larry

Now, ideally, insurance agents that spend their time in the “medical marketplace” should know of these discount plans, even if they don’t have access to them, they should know of them and they should be able to refer the potential clients to the agent that can make them available. And this is one of the things that I routinely do, because I honestly believe physicians are smart people and if they do their homework, they’re going to find out that these plans exist. And if I know of them, and I hold myself out to be an expert, and I don’t let them know that they’re available, if I know, what are they going to think? They’re going to immediately think I withheld the information from them so I could sell them a product that I had available to me. And it’s just not a great way to build a long-term relationship, you know, or continue to build your reputation in a relatively small marketplace.

Ryan

And for those listening, this is exactly how I found Larry and why we’ve been working together, is because I actually had a unique situation that I sent over to Larry and said hey, I’d like you to review this. I’d like you to see what’s going on and let’s have a discussion. And Larry came back and said look, I can sell this policy and it’s going to have, I forget Larry, if it was like twenty percent discount, for what you could have done with this specific company for this coverage, but if you go through their employer, this is the agent that can sell this specific policy, and instead of twenty percent they can get a thirty percent discount on that. Now, Larry wasn’t going to make any money by telling me this, but he was acting on the best behalf of my client and myself, and that was a huge thing for me. It went a long way and that’s why I started talking more with Larry and working more with Larry, was this specific thing. That he knew something that a small employer had a better discount and referred out the business.

Ryan

Most, and I want to say ninety-nine percent of the agents out there will not do this. And it’s sad, but it’s true. So, I think you’ve touched on so many great things inside of this. One last thing that I want to switch over to, and it literally pains me to even talk about it, but it’s permanent insurance. Can you just kind of chat a little bit on permanent insurance and I’ll let you take it from there. I won’t be biased anymore.

 

[easy-tweet tweet=”Permanent is another form of insurance with a mix of a death benefit and some sort of cash value associated with it.”]

 

In term insurance, what does “death benefit only”mean?

Larry

Yeah. So, permanent insurance, it’s another form of insurance. Like we said, term insurance is simply death benefit only. You pay a premium and if you were to pass away within that term, your beneficiaries would receive the death benefit. Well, permanent insurance is really a mix of death benefit with some type of cash value associated with it. And the way the cash value is invested or the way it might perform and what’s guaranteed and what’s not guaranteed, is going to be tied towards that type of permanent insurance product. So, there’s several of them and we won’t get into details.

Larry

Let’s not forget, life insurance is not for you. Life insurance is for our survivors. In my world, in order for permanent insurance to be right for somebody or something that they should consider, you should have maxed out all the other tax deductible, tax deferred, or tax free investment options that are available to you. And that might include a 401k, a 403b, a 457, an IRA, an HSA or health savings account that is coupled with a high deductible health insurance plan. You own your home, you’re not renting; you’re funding for your children’s college educations. You understand that generally, you’re not going to break even for at least ten years in terms of the cash value.

Larry

So, what you’ve put in cumulatively over ten years, you’re not going to see back generally until that time. You can afford the premiums and you commit to paying these on an on-going basis, because remember, permanent insurance is typically ten to twelve times the cost of term life insurance. And finally, you value the other aspects of the policy. So, this could be asset protection in states like New York or Texas or Florida. Maybe if you’re disabled, having the insurance company waive the premiums is important to you and it will allow you to build up cash value without putting additional monies into the policy. So, I will say permanent insurance will certainly not be on your list of initial things to take care of.

Larry

It really should be protection first. What happens if I die? What happens to my family and my kids? What happens if I become too sick or hurt to work? What happens if I become too sick and I need to go to the hospital? I have my medical insurance for that. So, there are a lot of other things that you’re doing, where you’re really building your dam around your financial castle before you start going into permanent life insurance. And if you cannot explain what it is you’re considering or what it is that you have purchased, it’s probably something that you should not be doing. And complexity will always favor the company or institution that created the product. And as a general rule, I have not seen a lot of bad insurance products, I have just seen bad use of insurance products or recommendations that might not necessarily meet someone’s individual needs, goals and budget.

Larry

And it’s important to understand, you know, what you’re doing. As a good rule of thumb, I mean, if you’re in the market for insurance agents, I would suggest that you ask the individual or individuals that you’re considering about any professional designations or certifications they might have. Not only does this show a commitment to the industry as certain experience requirements have to be met, but these individuals should have a good understanding of the financial planning process. I mean, especially if they’re a Certified Financial Planner. So, you might even ask them the same way you might ask financial planner. What’s you’re educational background? What’s your area of expertise? How long have you been in the industry? Which financial products do you recommend most often and why? Which companies? Which life insurance carriers do you recommend most often and why?

 

[easy-tweet tweet=”You will probably be paying more money in the form of premiums for crappier coverage if you don’t do your homework or really pay attention to what an agent offers you.”]

 

Larry

How much experience do you have working with clients in your specific medical specialty? And then, do you have any affiliation with any specific insurance company?  Because at least you’ll know where they’re coming from if they’re showing you policy A, B, C and their business card is from company A, B, C; and that’s all they’re showing you, that might be a key that you should do a little bit more homework and see what else is out there.

Ryan

If you’re going to a company, and I know we’re not mentioning firms, but if you’re going to a company, and this is their product that they push, you’re not getting quotes from everything else to see; you will probably be paying more money in the form of premiums for crappier coverage. And that’s just almost a fact. I know I can’t say facts and guarantees and things, but that is almost a fact. Like, if you’re only going to one place that they can only put their products in front of you, you are not getting enough, you’re not comparing enough apples.

Larry

Yeah, I would say you’re not getting necessarily objective advice. You also have to be, you also have to be aware of agents that are captive and they can only offer policies from one company or have a strong financial incentive to do so. And ideally you want to purchase your insurance from an insurance guy or insurance gal or agent that represents several insurance companies, provides you with illustrations of coverage from each, spends the time to review the differences between them with you in detail. This way, you can make a decision that really best meets your individual needs, goals and budget. And let’s not forget, I mean, the time to ask your questions is before you buy any insurance products. All too often, I see physicians in situations that could have easily been avoided if they took the time to really understand who they were working with and what they were purchasing before they signed on the dotted line.

Larry

And remember, you know, since contractual language and premium rates have to be approved by the insurance department in each state before a policy can be approved for sale by a particular insurance company, the industry is heavily regulated, but you’re not going to be paying anything more by purchasing your policy from someone that’s like “experienced” than you would be by purchasing a policy from a newly licensed or inexperienced agent or broker. So, I always look at it as if I’m a celebrity and I have, you know, significant amounts of money available to me, why would I choose a physician that’s not going to give me the best results.

Larry

You know, especially, let’s say a plastic surgeon. It’s either I didn’t take the time to do the homework, you know, or I just went with the first one that was on the list; neither of which is really great. There are plenty of people out there that are very good at what they do. They’re well educated, they have the experience, they have the training to give you as close to the expected results as possible. It’s just a matter of doing a little bit of homework in order to find these people. It really is that simple.

Ryan

Yep, I love it. So, normally we would transition right now into the curbside consult, where I’d ask a few questions, but we’re going to be doing something different. So, Larry and I are having an in-depth curbside consult where we’ve got close to a dozen questions and that is going to be next week’s episode. So, make sure you tune in next week to check out all of these questions that Larry and I are going to be talking about.

 

Disclaimer:

Lawrence B. Keller is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS), 355 Lexington Ave. 9th Floor, New York, NY 10017. 212-541-8800. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Physician Financial Services is not an affiliate or subsidiary of PAS or Guardian. Riders may incur and additional premium or cost. Rider benefits are not available in all states. All investments contain risk and may lose value. 2018-55096 Exp. 2/20.

Ryan Inman