In everyday life, you never know what can happen. But when the negative things occur, consequences are much greater if you don't have insurance. For example, you can't control another driver from going through a stop sign and rear-ending your car. A tree falling during a storm and severely damaging the roof of your house is also out of your control. And for physicians, an injury or illness that befalls a valued partner in your practice can be devastating. You can't prevent the incidents, but insurance can prevent any further negative fallout.
"Insurance is simply a tool used to protect risk, grow wealth, and manage tax liability," explains Don Atherton, CEBS, CFP®, CLU, president of Integrated Business Solutions. "Many physicians do not fully understand that their decision involving insurance products may have implications on their lives and their family members' lives for decades to come." That's why it's imperative to sit down with an insurance professional and determine which insurance tools will provide the most effective outcomes.
There are several key trends taking place in the insurance market today with regard to both professional and personal coverage. Atherton points out that physicians continue to focus on their need to protect their income and the wealth they have created by purchasing long-term disability (LTD) and life insurance.
"The availability of LTD coverage has increased in the past year," Atherton says. "Maximum coverage limits issued by many standard domestic insurance carriers will now allow physicians to purchase a policy that will provide $15,000 of monthly disability benefit. Likewise, physicians have access to domestic insurance policies that provide a month disability as high as $40,000 to reimburse disabled physicians for business overhead expenses incurred during their period of disability. The same policies may also include payments to replacement physicians who are hired to maintain the practice of a disabled physician."
However, purchasing disability insurance can be tricky and expensive, according to Frank Darras, a leading disability and long-term care insurance attorney. Darras points out that the array of insurance policies available can vary greatly. "While some policies are iron-clad and pay benefits when you need them, others have more holes than a pasta strainer," Darras says. "Given the hefty price tag, you want to make sure you buy the right type of policy." Darras offers the following tips for making informed decisions:
•Decide how much coverage you need. Do you spring for the maximum benefit, or can you afford to live on a bit less?
•Determine how long you can go without benefits. To save money on premiums, opt for a longer waiting period. Expect to pay a substantial premium for benefits that kick in within 30 or 60 days.
•Obtain the longest benefit period possible, at least until you reach age 65. While you might consider a 5-year benefit cap to cut premiums, this is a risky gamble as your disability might last much longer.
•Always look for own-occupation coverage. This type of coverage pays benefits if a disability leaves you unable to perform your job, even if you can still work in another occupation.
•Take a close look at the fine print on exclusions and restrictions, particularly if the premium seems too good to be true.
•Look for noncancellable, guaranteed renewable coverage. This means your insurance company can't cancel your policy, increase your premiums, or change the contract language, as long as you pay premiums on time.
Stay in Touch
Unfortunately, many physicians are not in touch with their need for disability insurance. According to Atherton, the protection need is directly proportional to the physician's income, and many physicians do not fully appreciate how much they earn and have at risk. However, he says that insurance professionals are seeing an increased use of nondomestic or nonstandard carrier-issued policies by physicians to protect against catastrophic loss caused by a prolonged disability.
"These policies pay a single sum when a physician is disabled for 1 year or longer," Atherton explains. "It is common for these policies to protect several million dollars of future income for physicians who are cut down in their prime earning years. This income can act as capital infusion to recapture lost business value, pay off large mortgages or student loans, and allow the physician to protect their hard-earned lifestyle."
But that's not the only area of insurance where there is a knowledge gap. "Other forms of insurance that physicians are commonly out of touch with are premises protection and long-term care insurance," explains Robert Liss, an insurance specialist with Liss & Shapero. "As the population ages and the baby boom demographic reaches retirement, long-term care coverage is rapidly becoming more important than ever due to the high cost of health care."
However, physicians, on average, have not embraced this product. According to Atherton, even though it is similar to disability income protection and provides greater tax advantages, long-term care insurance has not been as warmly received by physicians. Scott Simmonds, CPCU, ARM, of Insurance Consultants of Maine, Inc, points out that long-term care insurance is not a panacea, although for some people it's the right tool. "Long-term care is an important part of an insurance plan for a segment of the population," Simmonds maintains. "It is a funding tool, and a way to limit uncertainty."
Still, Liss believes that long-term care insurance is becoming more popular as the population continues to age. He stresses that physicians should be aware that the tax law allows them to write off this insurance through their professional corporation or limited liability company for both themselves and their spouses.
Critical Illness Insurance
A relatively new product is critical illness insurance. This product helps cover the indirect costs of suffering a serious illness, such as life-threatening cancer, stroke, heart attack, or major organ transplant, by supplying a lump-sum benefit that can be used for anything the insured needs. And most importantly, the benefit is paid upon diagnosis.
Writing in the Agent's Sales Journal, Darras explains that the product was first developed in 1983 in South Africa by Dr. Marius Barnard. It was initially marketed in that country and has since spread to Great Britain, Australia, Ireland, Japan, Canada, and the United States. While sales of the product are booming abroad, that hasn't been the case in the United States. Perhaps that's because many individuals believe that the odds of suffering a critical illness are low. But according to the Mutual of Omaha Web site (www.mutualofomaha.com), the opposite is true.
The site points out that men have a slightly less than 50% lifetime risk of developing cancer; for women, the chance is greater than 33%. The 5-year survival rate for all cancers combined is only 62%. In addition, someone suffers a heart attack every 29 seconds in the United States and a stroke every 45 seconds. But Darras cautions that critical illness insurance is not meant to supplant health, life, or disability insurance. He writes that "it is designed to fill gaps in existing coverage when diagnosed with a serious illness by providing a lump-sum benefit that can be used for anything, including items and services not ordinarily covered by traditional insurance."
But be aware, he adds, that there are numerous limitations and restrictions, and benefits can sometimes be difficult to collect. It's important to know upfront what an insurance company considers a life-threatening cancer, or if the policy excludes a particular illness if there is a family history involved. There could also be preexisting condition limitations or stipulations about premium increases. Fortunately, changes are gradually taking place. "Many carriers have expanded these policies to include several diseases or conditions," Darras notes. "Not surprisingly, the critical illness market is slowly gaining momentum as health care costs continue to skyrocket, and policyholders face a corresponding increase in out-of-pocket expenses."
Monitor the Staples
Some basic insurance staples (ie, home, auto, and life insurance) are often taken for granted. But Liss points out that there are definitely elements to these policies that physicians need to be aware of more so than the average individual. "Because physicians are typically much higher earners, they have gathered more personal and real property," Liss points out. "As a result, they should have larger limits of coverage on their homeowner's policy and large limits of liability on their auto policies."
Liss adds that physicians should also have uninsured and underinsured motorists coverage, in the event that they are injured in an accident by someone with limited or no insurance. "This is very important because they will have to rely on that insurance to cover their possible losses. They should also have an umbrella policy on all of their possible liabilities, including their malpractice."
For physicians in a group physician practice, key employee insurance should be a staple. According to Atherton, it's all about practice continuity that starts in the form of a buy-sell agreement that he calls "an absolute must" for any physician business owners— whether in sole proprietorships or group practices. "The agreement must define what will happen in the event of death, disability, divorce, disagreement, or retirement of the physician-partners," Atherton says. "These agreements are most often funded by the purchase of life and disability insurance for all the partners."
Liss echoes those thoughts, noting that each partner in a practice should have long-term care and disability insurance, which is paid by the group. This coverage, he says, would be beneficial to not only a disabled physician but also the physician's group. The disabled physician's entitlement to salary from the group could be reduced by the amount received from disability insurance while the physician remained disabled. Most importantly, all insurance professionals suggest that physicians review their insurance coverage, both business and personal, at least once a year with their insurance agent or advisor. That's a time when changes in the exposure to loss can be addressed, and solutions sought.
Liss suggests going one step further. "It is imperative that physicians consult a lawyer or an insurance counselor as opposed to an insurance agent to advise them as to what coverage is necessary and appropriate to their needs," Liss stresses. "The reason to avoid relying on the advice of an insurance agent is that the agent is an employee of the insurance company and has no duty to the physician and therefore, under most circumstances, is not responsible for any negligence in rendering advice. The insurance agent would only be responsible if a special fiduciary relationship could be established between the agent and the physician."