Four Insurance Coverage Tips for Doctors

I find it interesting when physicians I work with balk at paying the cost of certain types of insurance but not others.  In particular, I encounter the most resistance to purchases of disability and long-term care policies. 

The reasoning I hear is often, "That is too much money, and it will all be wasted if I stay healthy."  But in fact, all insurance (except some annuities, discussed below) is a form of risk sharing, in which you likely are "wasting" dollars as long as things go well. 

I don't encounter nearly the same hesitations when it comes to buying life insurance, which is indeed a waste if you live a long time (those dying early win the life insurance lottery so to speak).  Similarly, we also usually don't hesitate to spend thousands of dollars a year to insure our homes against the very unlikely losses from fire and natural disasters.

I'm not sure that I can explain why some types of insurance elicit this different response.  What I do emphasize is that the great basic tenet of insurance is to plan for the small possibility of a large loss.

Here are some of my other insurance tips:

1. Self-insure for small losses by using high deductibles.  Also, consider total self-insurance in some cases. Would you really care about or replace some of the jewelry on a personal floater policy? 

2. If you have some savings, perhaps your disability insurance can have a longer elimination period.  Optimally, a family should seek to accumulate enough assets such that disability and life insurance may not be necessary at all (one of the great strategies for avoiding whole life insurance).

3. One type of insurance that “pays off” by living a long life is longevity insurance.  This is a relatively new concept in which you pay a premium now for a policy that will pay you a stream of income way into the future (for example, beginning at age 80).  These policies allow you to plan for retirement distributions up until that age, after which the policy would cover your lifestyle expenses should you live longer than expected.

4. Other types of insurance that you "win" with by staying healthy and living a long time are certain annuity products.  Although they are only appropriate in some circumstance, both immediate annuities and delayed annuities with a lifetime income guarantee pay you more as you live longer.  Yet, I often encounter resistance to consideration of these products due to the concept, "What if I don't live a long time?" 

Go figure.