Tips for How Physicians Can Make Smart Insurance Decisions

Steven Podnos, MD, CFP

Insurance is often a physician's most expensive annual purchase, yet many pay too much and have inadequate coverage.

Other than a home and perhaps children's educational costs, insurance often represents a major annual expense for physicians and their families.

Buying the wrong disability, life insurance, or property and casualty coverage can be not only expensive, but catastrophic in the event of disaster, disability, or untimely death.

Here are my tips for making smart selections when considering these three important types of coverage:

Property and casualty insurance. This is more of a commodity product in that it is offered by many companies through many agents in any community. Think of it like buying your insurance coverage in a store but with certain caveats. Some companies are more solid than others in their ability to pay your claims (especially in a major event such as a hurricane or earthquake).

Knowing a good agent can be valuable in sorting out your options and the best and most cost efficient way to obtain the proper coverage. Seek a referral from your financial planner or from trusted peers for a good name of a property casualty agent.

Be aware that some agents are captive to only one insurance company and may not be able to offer you a better competing product. I'd suggest using agencies that offer products from various companies. I’d also ask your agent to “rebid” your policies every couple of years to different companies. The savings can be impressive.

Disability insurance. This is somewhat of a commodity in that only a few companies offer very similar products. Unfortunately, many agents are conflicted in advising on this because they are compensated by the insurance companies in ways that may not be in your interest. I find that agents often try to sell physicians an inadequate amount of catastrophic disability coverage in order to get lots of 'bells and whistles" that are in the form of expensive (commissioned!) riders to the policies.

Seek out a fee only (or low cost) adviser that works with fee-only planners to help you pick out disability insurance. Your planner should offer a significant amount of advice during the process. Be aware that there are "captive" agents also representing single companies for life and disability. It sure is nice to have some choice.

Life insurance. I see a tremendous amount of abuse and greed in the life insurance industry. Most life insurance is sold to individuals by agents that are paid extremely well to “choose” a whole life product with high commissions. Despite the fact that most people will do quite well with term insurance, agents almost never recommended it. Guess why. I have seen many policies in which physicians have paid premiums in the tens of thousands of dollars a year and find they have no "cash value" for up to two years in the policy they were sold.

Only a couple groups of people need "permanent" whole life insurance. These are people who need liquidity at death (they own a family business that comprises most of their wealth and need funds to pay estate taxes), and those with a children or dependent with special needs. Almost everyone else usually needs term coverage to cover the potential of lost income until they have built up enough assets to cover their retirement/lifestyle needs.

On a regular basis I see young physicians who have been sold an inadequate amount of death benefit in order to maximize an agent's commission. In addition, life insurance is pushed as "an investment," but almost never turns out to be a good one.

As with disability insurance, you need fiduciary guidance on buying life insurance. Get advice from your planner. Then use a fiduciary insurance agent/firm that is committed to getting you the coverage you need, and not the policy that pays them the maximal fees.

Note that insurance companies (especially life and disability) often have ratings by various companies as to the company's financial strength and ability to pay claims.

Insurance is often one of your most expensive annual purchases. You can easily pay too much and yet have inadequate coverage without impartial advice. Lean on your planner for this.