Expert advice for fellows on choosing the right insurance coverage

During training and afterwards, fellows regularly confront sickness and mortality. 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 during your fellowship can make a vast difference for you and your loved ones.

Forming a plan

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.

With this in mind, MDLinx spoke to Larry Keller, CFP, founder of Physician Financial Services. According to Keller, fellows 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 fellows should consider.

Term life insurance

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.^[]

Fellows 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 status as a fellow 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.

Fellows can also use a ladder coverage strategy.^[] With this approach, an individual 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 fellows may be attracted to universal life insurance, which pays a death benefit for the policyholder’s lifetime.^[] Keller said that for fellows 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.

Disability insurance

For many practicing 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 an employer is sufficient, it likely has gaps, Keller said.

So if someone is earning more than that, they 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 an individual becomes disabled and can’t perform the bulk of their job as a clinician. They also pay the policyholder even if they can still work in some other capacity.

Most employer-paid policies stipulate that an individual be unable to perform the “material and substantial duties of their occupation” for the first 2 years of benefits. After that, they may switch the terms to any occupation, based on the employee's education, training, and experience.

The problem is, the insurance company makes that determination—not the employee. They might say that while a physician can no longer perform surgery, they can still see patients, and then terminate their benefits. An own-occupation policy prevents this.

As an added bonus, payouts from own-occupation policies are income tax-free because the premium is paid with post-tax dollars. In addition, own-occupation policies don’t reduce the payout if an individual receives 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.

Personal liability umbrella policy

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.

“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.