Physicians are super busy people, but the key is educating them to make the right decisions. What should every physician know about incorporating long-term disability insurance into their financial picture to help them live better lives?
In this episode of the Finance for Physicians Podcast, Daniel Wrenne talks to Larry Keller, founder of Physician Financial Services. Larry is a Certified Financial Planner (CFP®) and insurance agent who helps physicians secure and maintain life and disability insurance.
- Basics of Long-term Disability Insurance:
- Best rates and discounts
- Finding an agent
- Being an educated buyer
- Understanding key contract provisions
- Comparing insurance companies
- What is long term disability insurance?
- Types of Disability Coverage: Group, individual, and association
- Special coverage amounts for residents, fellows and new in-practice physicians
- Right Time to Buy: Sooner than later and when you don’t think you need it
- COVID: Practices shut down, so what happens without income?
- Guaranteed standard issue plans and pre-existing medical conditions
- Cost range for long term disability insurance for residents and fellows
- Unisex/Gender Neutral: Coverage provides blended rates for males and females
- Physician and Agent Discounts: Same structure, same policy, but different prices
- Own Occupation: Ensures ability/inability to do job duties for medical specialty
- Lease w/Option to Buy: Graded premiums or fixed costs where coverage is same
- Put in Time Now: Understand what and why you’re getting, paying, and doing
Larry Keller’s Phone: 516-677-6211
Full Episode Transcript:
[00:00:00] Daniel: What’s up, everyone? Welcome to the Finance for Physicians Podcast. I’m your host, Daniel Wrenne. Join me as we dig into what it looks like for physicians to begin using their finances as a tool to live better lives. You can learn more about our resources at financeforphysicians.co. Let’s jump into today’s episode.
Today, I’m talking with Larry Keller. Larry is the founder of Physician Financial Services, and he’s been helping physicians for 30 years secure and maintain life and disability insurance. He’s also one of the most prolific and well-versed speakers and writers on physicians’ long-term and disability insurance. When it comes to this specific niche, it’s safe to say he knows his stuff.
We will be discussing topics such as the basics of long-term disability insurance, how to get the best rates and accounts, and how to find a good agent to help you along the way. We’ll also get into some of the key contract provisions you must understand [00:01:00] to be an educated buyer.
We’ll wrap up by talking about how you might begin to compare insurance companies. Make sure to listen until the end where Larry talks about big change coming down the pipe for New York residents and others that might be moving into and out of the state. If you haven’t purchased disability insurance for yourself or maybe you just want a refresher on how it works, you definitely are going to enjoy today’s show.
What’s up, Larry? Thanks for joining us on the podcast.
Larry: No problem. I’m very happy to be here.
Daniel: Awesome. We’re talking about disability insurance which is definitely always a fun topic. Before we get into that, Larry, can you give us a little background on you?
Larry: Sure. I’m a Certified Financial Planner professional. I’m an insurance agent specializing in working with physicians. I’ve been doing this since 1990. Thankfully, there’s not all that much that I haven’t seen, I’ve got a pretty good amount of experience, and I’m a huge believer in education. Physicians are super busy people. It doesn’t necessarily mean that they don’t want to be educated. I find educating them is really the key [00:02:00] to them making the decisions that’s best for themselves and their families.
Daniel: Awesome. If you’re educating someone just on the absolute basics of disability insurance, even maybe from a foundational level, how would you describe it as a vehicle?
Larry: We would say, if you’re working and you’re working for the income, that income’s going to be used as the basis of your financial plan by putting money away for college, establishing your budget, paying downs to student loans, you need disability insurance which is your way of mitigating the risk of what happens if I become to sick or hurt to work. I need a third party to cover these expenses and provide me income because I’m not yet at that point where I’m financially independent. That third party happens to be the insurance company. You basically pay a premium for the ability to have the insurance company cover the risk of the many. For those few, the lesser number that are actually going to use it.
Daniel: I’ve heard it [00:03:00] described as income insurance as well. I think it’s a good explanation of it. I want to get into the differences of the types of disabilities. At least, the way I think of it is you got the group coverages, you got individual coverages, and you got another kind of group, we would say just association coverages, maybe. That kind of a good overview, so if you’ll give us just kind of a rundown on what each is.
Larry: Sure. What we find is that the very basics—residents and fellows aside—for individual disability insurance purposes, we literally ignore their employer-provided and even employee paid-for group long-term disability insurance. Group long-term disability insurance is good. It certainly has some positive attributes associated with it.
What you might find that might fall short is if you’re an attending physician and you’re getting paid based on productivity, incentives, or bonuses. [00:04:00] That might not be covered under that plan. You might find that if you’ve got shift differentials, if you’re an emergency medicine physician, that might not be covered.
As a result of that, you say, if I’ve got an income of X but some of my income is not going to be covered, I’d like to go out and get an individual policy to make up for that income that’s not going to be covered. The other thing we might find is group insurance is always going to insure you for a percentage of your income up to a certain maximum monthly benefit. A very common one might be 60% of your income with a $10,000 a month maximum benefit.
Let’s say you’re a physician and you’re earning $200,000 a year. Sixty percent of that is going to give you $120,000 annually. That’s going to give you $10,000 a month. You are now at the maximum monthly benefit. A lot of people might not realize that any earnings that you have in excess of this $200,000 have no [00:05:00] disability insurance covered associated with it.
Typically, if this coverage is being provided to you by your hospital or practice—most of the time you’re going to have this in larger practices or larger employers—you don’t have the ability to potentially waive it. It’s part of your benefit’s package. Whether you like the terms of it or you don’t like the terms of it, it doesn’t matter. You’re going to have that 60% of your salary up to a $10,000 maximum in my example.
You’re getting this insurance typically at no cost. What you will find is not a very common practice. You might find your employer gives you what’s called a tax choice. They might say, hey, Daniel. Look. As part of your benefits package, you’re going to get this $10,000 a month of the disability insurance. It costs us $3000 a year as your employer. If you earn $200,000 and you like, we can add the $3000 that we’re paying in premium on your behalf and we’ll tax you on an income of $203,000. [00:06:00]
Now, because you’re paying tax on the premium, in the event of the claim, your benefit would be income tax-free. Most of the time you’re not going to be offered the tax choice. It’s going to be provided to you automatically. In the event of a disability because the institution or your employer took an income tax deduction for the benefit that they’re providing to you as an employer, in the event of the claim, that benefit becomes taxable.
Another area to be cognizant of is you might be at 60% of your salary but now, you’re at 60% of your salary and that benefit is also going to be taxable. In the ideal world, what we would like to do with an individual policy is make up for the assumed taxes that you’re going to lose on your group benefit. As well as make up for any earnings that you have in excess of the group insurance cap.
I have found a lot of my clients or potential clients or even people that I’m reviewing [00:07:00] their policies for, they explain to me, “Larry, my group insurance plan in my eyes is not ideal. I’d like to ignore my group insurance plan and I want to buy as much individual coverage as I can.” There are rules to this. The insurance companies are not going to knowingly over-insure someone to the point that they’re really incentivized to go out and make more money being disabled than if they continue to practice medicine.
So, short of what’s known as the new and practice limits. This is usually anywhere from the last six months of training up to the first year or two of practicing where we will ignore your group insurance coverage, we will ignore your income, and based on your medical specialty we will allow you to purchase amounts of individual coverage without looking at your income, without taking your group insurance into consideration. If you qualify for more than that, sure, you can buy that amount [00:08:00] of coverage if you desire. If you qualify for less than that under normal circumstances, you can either buy that amount or you can purchase the new and practice limit you desire.
Daniel: You got, like in training, residency, and fellowship, typically standard amounts not based on the percentages you’re describing. Then, early in practice, there are similar standard amounts that are independent of the percentages you’re describing. Once you get beyond that period, it’s all going to be percentage of income-based, correct?
Larry: Yes. It’s all going to be the percentage of income, looking at your employer-provided group long-term disability insurance. If it’s a taxable benefit, you will typically discount that for taxes. It’s going to be an assumed rate of 30%. If you had a $10,000 benefit, in our calculations, we’re going to view it as $7000. Let’s just say, you were eligible for $12,000 a month. We’re going to subtract out [00:09:00] the $7000 and we’re going to say that you can buy $5000 a month of individual coverage, should you desire.
Daniel: You can get pretty close to insuring your full income.
Larry: Pretty much you can get close to insuring your income after taxes.
Daniel: That’s what I mean.
Larry: Yeah. What you’ll find is at the lower income levels—say $100,000—you’re eligible for somewhere between $5000 and maybe $5200 a month. When you’re earning $200,000, it’s not going to be $5000 or $5200 times two. At $300,000, that’s not going to be a 3X multiple. The more income you earn, the insurance company will believe that you have more disposable income. As a result of that, your income replacement ratio—the amount of coverage that you can buy individually—actually does decline.
Daniel: That makes sense. Is there ever a place for association covering your money?
Larry: There are certainly places for it. If you’re a part of an association that has an offering that is available on either a guaranteed [00:10:00] standard issue plan where there are no medical questions and there’s no medical underwriting, and you can get this regardless of your health, that can really work well. If your budget is super tight, I still wouldn’t make it as a recommendation.
The biggest problem that we see with the association plans—if they’re true group association plans—is they’re not going to be owner occupation, which we’ll talk about in its true sense. The premium rates typically go up every time your age ends in a zero or a five. The plan can be cancelled either by the sponsoring association or by the insurance company. Typically, you have to be totally disabled first before you ever can receive residual (which we’ll talk about) or partial disability benefits, and they may or may not have an increased option associated with it.
Probably the biggest potential risk that you won is you do not own a policy. You literally get a certificate that evidences that you’re a part of this larger group. [00:11:00] As such, you’re living by the association and dying by the association.
Daniel: It’s kind of like group insurance and individual hybrid. You’re getting a group contract kind of style where it’s tied to the association, but you’re going to be paying it as an individual. Is that correct on association coverage?
Larry: Yes, that’s 100% correct. In a lot of cases, like group insurance, association insurance, we really can’t carve out against specific risks. Let’s just say you were a rock climber and you’ve been doing it for a long time. You disclose this on your application (as you should), and you answer these specific rock climbing questions. You’re climbing outside and you’re not solely climbing in a gym. I can tell you that an individual policy—short of a guaranteed standard issue plan—is going to have an exclusion rider that says, Daniel, we’re going to cover you for everything except for disability related to rock climbing, mountaineering, or something [00:12:00] along those lines.
A group insurance plan and an association plan do not have the ability (in most cases) to do this. Rather than providing you coverage for everything else and excluding the things they’re most concerned about, they’ll flat out going to decline your application.
That being said, if you’re part of an employer that’s providing you with group insurance, you know that your health is less than ideal, and you might be offered policy with an exclusion rider for health for either certain body parts, certain medical conditions, or certain types of activities, the best might actually be a combination of a group insurance plan as well as an individual plan.
Maybe the individual plan won’t cover some things you were concerned about but you have a greater degree of security associated with that. You could change jobs. You might find that the employer changes the group long-term disability insurance that they offer. Because you don’t own it and it’s really through your employer [00:13:00] or through the association, you just have less control.
Daniel: Yeah. If I’m listening to this, maybe I’m thinking that all makes sense, but it’s not going to happen to me. I don’t need to bother with this stuff because I’m in a low risk specialty or I’m a pretty cautious person. What would you say to that?
Larry: I would say we all have certain risks in life that we’re willing to take. Then, there’s certain risks in life that we’re not willing to take. The majority of disabilities are actually sickness and not accidents. We can be careful as we want. There are certain sicknesses where there’s just no way you can protect against.
I view this akin to you’ve been training for a marathon for how many months, and you’re ready to go out and run the race. Now, you’re at mile 24 out of 26.2, and you […] across the finish line. Disability insurance is really, in its very sense, income replacement in the event you’re too sick [00:14:00] or hurt to work.
The most important aspect of the disability policy for a physician—sometimes they lose sight of this intellectually—is an own-occupation or own speciality definition. Own speciality is really more slang term, and this is where if I’m disabled and I cannot perform the duties I was performing immediately prior to my disability due to an accident or a sickness, even if I have the ability to work in another occupation or another medical speciality, I’m still going to receive my full disability insurance benefits. And should I have the desire to transition to another occupation or another medical specialty, my full benefit is still going to be paid.
That really is like a second license to practice your specialty. It takes all of the hard work, education, training, experience, and money these individuals have invested in their career, to really make sure that if they can’t cross the finish line, [00:15:00] they’re going to be okay. The one thing they’re not going to be worrying about is going to be where is my income going to come from to meet my financial goals and continue to pay off my debt.
Daniel: Right. It’s, we will pay you if you can’t do your job. As simple as that.
Larry: Correct. Some policies are not quite as liberal. Some policies might say, we will pay you if you can’t do your job and you were not gainfully employed. That policy’s not bad. It’s your choice as to whether you’re going to be gainfully employed or not. Some group insurance might not be very liberal at all. They might say, Daniel, we’ll pay you for the first two years it’s going to be in your occupation. After two years, can you do something reasonable based on your education, training, and experience level? If you can, now, you’re potentially looking to have your benefits potentially reduced or maybe even eliminated.
As far as group insurance goes, there’s definitely value to it. [00:16:00] What I want to make that to be my only coverage or a foundation of my coverage, ideally, no. I’d like to have a combination of the two policies, individual as well as group insurance.
Daniel: If you’re a physician, when’s the right time to buy?
Larry: I would say sooner rather than later. Typically, at the time you don’t think you need it is a great time to buy it. When you realized that you need it, it’s typically because you either developed some type of a medical condition or you have some type of concern. If you get lucky, you witnessed the disability from a friend or a family member, maybe they’re a physician, maybe they’re not. You’ve now become keenly aware of, my God, if something happens to me, I might not be able to meet my financial planning goals.
In the era in which we’ve been living for the last several months (COVID) where a lot of practices shutdown, especially those that are doing elective surgery, I think we’ve got a really good, long, hard look [00:17:00] as to what happens if we don’t have an income. This is hopefully going to be short-lived.
But imagine if you close your eyes, you’re a surgeon, you can no longer perform your duties as a surgeon, and you can never go back to doing that again. If you think it’s been hard for the last couple of months meeting your expenses, meeting your financial planning goals, what happens if this continues on an on-going basis? That’s really where disability insurance is the life saver until you have the ability to self-insure and you no longer need that third party we call the insurance company.
Daniel: What if I already have a pre-existing medical condition? Am I out of luck totally or what?
Larry: It really depends upon what the pre-existing condition is. I’ll give you a pretty common one. A lot of physicians these days, training is tough. They might be on an antidepressant or SSRI. They might be taking medication for ADD or ADHD. I have heard people tell me, oh, I’m going to be [00:18:00] declined because I’m taking this medication. The odds are very good you’re not going to be declined. If it’s a very recent diagnosis, I would say minimal under six months. The medication is really new and you’re not at a stable dosage. If you would apply for it that moment in time, yes, you are likely to be declined just because the insurance company doesn’t know your full situation.
If you’ve been on medication for 12 months or longer, the medication is stable, you’re doing well, and it’s not impacting your ability to do your job duties, you’re likely just going to get an exclusion rider writer that says, Daniel, we’ll cover you for everything except for anything in the DSM-IV or its subsequent replacement. Now, you know if you’re going out on a disability for anxiety, depression, stress, chemical dependency, drug addiction, burnout, they are not going to pay that claim. It falls under this [00:19:00] exclusion rider.
Short of that, in the best case scenario you’re going to have all the policy provisions that you would have, have you not been taking medication or have this diagnosis. You’re still going to potentially have the ability to increase your coverage regardless of your health as your income rises. There’s really no reason to be overly concerned.
That being said, in some hospitals—clearly not all of them—if you have a medical condition where you are for the most part (I’m going to say) uninsurable, let’s just say a Type I diabetic, and you happened to be in a hospital that has a guarantee standard issue plan where the hospital is now negotiating with an individual insurance carrier, they’re providing disability insurance typically to residence and fellows, there’s no exam, there’s no blood test, there’s no urine test, there’s very minimal medical questions.
Typically, maybe it’s two questions. Have you been in work for the last six months prior to applying for this insurance? And, have you used tobacco or nicotine products in the last 12 months? [00:20:00] If your answer is yes to the first one, you’re okay and you qualify. If the answer is yes even yes to the second one, the worst case scenario is you’re going to pay tobacco user rates. But these policies are typically discounted. Most people think it’s a guaranteed standard issue. It’s going to cost me more than a traditional insurance policy. The answer to that is no.
In some cases, if you’re a female, you might find that they offer gender-neutral or unisex pricing which can reduce the price for female by literally 40%–50%. Now, you’ve got, I can get coverage as a Type I diabetic where no one else traditionally insure me, I’m going to get it at a discount, and I’m likely even going to have the ability to increase my coverage in the future regardless of my health as my income rises.
Now, there is one potential drawback. This is not for all guaranteed standard issue plans with all companies. Typically, one of the companies, if you apply for insurance and you are declined for an individual [00:21:00] disability insurance policy with this one company, the guaranteed standard issue plan is now off the table. If you have medical conditions, it will really behoove you to either lock into the guaranteed standard issue plan first, get that in place, and then see if you can do better elsewhere for policy provisions or pricing, whatever it might be.
Or, have your agent do an informal inquiry with the underwriters and say, hey, I’ve got an individual. This is what their situation is. What do you think you’re going to be offering in terms of coverage, if any? Short of lab results which really are not even looked at that much today for residents and fellows at certain levels for attendings, you’ll have a pretty good idea of what’s going to happen before it ever happens.
Daniel: Is there any way to figure out if my hospital has a guaranteed standard issue?
Larry: It’s much tougher. Agents that specialize in the medical marketplace, we’re going to typically know if the hospital has it, and if the hospital does [00:22:00] have it which insurance company is it with. Most of these plans are exclusive. There is an endorsed agent or agents that have the ability to provide that. I would say, insurance agents that are pretty well-informed, know. If we can’t do it, we’re going to refer that potential client to that agent so they can buy what it is that they should.
A lot of it just comes down to the one thing that really cannot be replicated—whether it’s surgery, whether it’s insurance or anything else—is experience. The more experienced someone is, the more likely you’re going to have, maybe, a better result but certainly a better education.
Daniel: Can you give us an idea of the general cost range for someone looking at disability insurance in training, will say?
Larry: Let’s say if they’re looking at $5000 a month, which is typically the maximum unless you’re in the last six months of training, it could be anywhere from [00:23:00] $125 a month to $250 a month. That’ll vary a little bit.
Females that don’t have the ability to get the unisex rate, they’re going to be even higher than that. For a female, again, first and foremost, we look to find these gender-neutral or unisex rates, which is really just the blended rate between males and females. Daniel, you probably know this, the rates for females are much higher because of pregnancy and complications in pregnancy, higher rate of autoimmune disorders among females than males, and a higher rate of claims as far as mental/nervous conditions.
For life insurance, females pay a lot less than males—assuming that they have the same age and same health—but disability insurance, they pay a lot more. This gender-neutral or blended rate, literally can save a female somewhere between 40% and 50% on average. The way you get this in an [00:24:00] employer-employee relationship typically with your hospital. That would include a guaranteed standard issue plan. Or, you actually happen to live in a state—most recent one happens to be Massachusetts—where all policies (in theory) are unisex.
We won’t get into great details about what a compact state is and what it is not, but let’s just say as of January this year, certain insurance companies until they change their product, they have to offer unisex rates. If you’re buying it as a male, you’re getting a unisex rate. If you’re buying it as a female, you’re getting unisex rates.
Some insurance companies have not yet needed to comply because they’re grandfathered into the way it was when they file for this compact. Once they change their product, they will have to go to a gender-neutral or unisex rate to offer coverage in that state.
The other one happens to be Montana. [00:25:00] All policies in Montana have to have a unisex rate structure.
Daniel: There’s a little bit of a state-by-state variance there in structure and pricing that can happen.
Larry: Yeah. Probably the most notorious state happens to be California. California is the highest claim state, bar none. We have fewer choices as far as disability insurance companies that are providing own-occupation coverage in that state. Premium rates are higher in that state.
Should you plan to move to one of those states and you’re not there yet, it would behoove you to potentially purchase your policy before you get there. Conversely, if you’re finishing up your training and you know you’re going to be leaving California, even if it’s to do a one-year fellowship and then return to California, you might actually want to buy your coverage outside of California and then take it back with you.
You do need to be careful because if you have an increase option on your policy, some companies when you exercise [00:26:00] the increase option, that additional coverage is going to be based on where you are then residing at the time of the increase. If you went back to California and you’re like, hey, I got my coverage when I was in New York, I did really well for myself, yes, you did but maybe not so much in the increase.
Other companies say, Daniel, when we exercise your increase option, we’re either not going to give you another policy. As such, things are going to say the same or we might give you another policy with a different number but the premium rates and the contractual provisions will remain as your original contract domicile state where you bought it originally. You really do have to be careful. It makes sense to do your homework in terms of what your career plans are.
Daniel: Can you talk about discounts? Just as an example of what I have seen from my end, I have on multiple occasions, been working with families where the physician gets pricing from, say, three or four different agents. [00:27:00] From what I can see, it’s the exact same structure and they get three different prices for the exact same literal policy. What is up with that?
Larry: I would say if you’re dealing with a physician—let’s just say that there are six companies that offer their own-occupation coverage—I can tell you 100% of the time, any physician will be able to get a discount from at least one of those companies. Now, insurance is like banking. We’re a heavily-regulated industry. The pricing is actually set by each state’s insurance department. If you’re working with a client and their policy is going to be structured exactly the same way from one agent to another, and both agents have access to or know of a discount, the pricing is going to be identical.
Other times, you might find one agent does not know about a discount at a specific hospital. Or you might find one agent is that endorsed agent [00:28:00] where there is a discount that is exclusive to them, and only they can provide it. But for the most part, there are two rules of thumb. The first rule of thumb is if you’re buying a policy from a very experienced agent or you’re buying a policy from (let’s just call) the newly-minted agent, the pricing is going to be exactly the same. If the policy is exactly the same and the availability of the discounts is the same, the pricing is going to be the same.
However, there are certain agents that are more experienced and there are certain agents that have access to discounts that other ones (quite honestly) just might not have access to. That’s when you’re going to find that variability.
Daniel: Yeah, or they weren’t aware of them.
Larry: Yeah. A lot of times, if you are an agent and you do a lot of disability insurance business with a particular carrier, you just might be more well-versed in their rules, and the ability to offer discounts.
Daniel: Yeah. When I used to work at a big insurance firm (that we’ll leave unnamed), [00:29:00] we sold outside companies for disability. We just didn’t know about all the discounts because we weren’t doing it every day; it wasn’t our bread and butter. I didn’t realize it at the time, but looking back that was definitely something that was happening.
Is it worthwhile for people to try to shop agents or talk to three or four agents when they’re looking at disability insurance? Is it worthwhile for people to look around? What are your thoughts?
Larry: I don’t think it can hurt. Just like everybody else in life, you might connect with one individual more than you do another individual. The level of experience and the way someone might explain something can vary from individual to individual. Again, pricing (like we said) in the ideal world is going to be a level playing field. If you see that you have a discount on your policy, the odds are very good if you’re getting the same quote from someone else and the discount is there. It’s really not going to differ.
I’m going to say what’s really most important [00:30:00] is that the individual that you’re dealing with has the ability to convey things in a clear and concise manner, you have a very good understanding of the contractual provisions and what to look for (which we’ll talk about next), and then based on your individual needs, goals, and philosophy you can determine what is best for you and your family. It’s like anything else that you would purchase.
We know own-occupation is the best definition of disability. It’s the one that’s going to protect you in your specialty or in your occupation. One thing to keep in mind is to always base it on what you were doing immediately prior to your disability. A question I get a lot is, hey, you know, Larry, I’m a PGY-I, I’m a surgical intern, but I’m going to be going into plastic surgery. I’d like to be covered as a plastic surgeon. Can I do that? The answer is you do not need to notify the insurance company when this is changing. It’s always based on what were your duties immediately prior to the […].
So, if you bought your policy as a [00:31:00] PGY-I general surgeon, you finished your general surgery training, and now you’re starting your plastic surgery fellowship, you’re actually going to be covered as a plastic surgeon if that’s what you were doing immediately prior to your disability.
We also want to make sure our policy is non-cancelable and guaranteed renewable. This means they can’t take it away, they can’t change the premium rates, you can always get rid of them, they could never get rid of you. So again, from a security standpoint you’ve got the highest degree of guarantees and safety associated with that.
Daniel: And that […] into the group stuff you’re talking about earlier.
Larry: Absolutely, and you will find that the group insurance stuff we said can be changed, the association might change, the plan, the insurance company might decide they don’t want to insure the association as a whole anymore, so that can become problematic. As good as own-occupation is, in it’s very essence (like we said), own-occupation protects someone in their medical specialty. It insures their ability (or in this case, inability) to do the [00:32:00] job duties of their medical specialty.
What happens if something happens to you and your doctor says, Daniel, you could still work. You definitely have some medical conditions going on. I need you to work fewer hours per day, I need you to work fewer days per week, I need you to do fewer procedures, and as a result of that you have a loss of income but you’re still working in your specialty.
Own-occupation in and of itself would pay you nothing. To take away the all-or-nothing. we’re going to introduce a rider or an extra piece that has a loss of income component. Now, this will pay you benefits proportionate to your loss in the event you are partially disabled.
Now, one big difference, as I mentioned earlier, is if you have an association plan. A large number of them will stipulate that you must be totally disabled first prior to receiving any partial benefits.
So, imagine you’ve got this condition you don’t really know what it is. You have your good days, [00:33:00] you have your bad days. You see a lot of physicians, you’re in search of a differential diagnosis, and you’ve got a pretty substantial loss of income. You file a claim for benefits under an association plan that does require that you’d be totally disabled first. Well, in my example, you have not met that. Your claim is going to be declined.
Daniel: And most conditions are progressive.
Larry: Yeah. I would say, the overwhelming majority of them are progressive and they might become total afterwards. But if it doesn’t work the opposite way and you want to make sure that your policy does not require that you’re totally disabled first before receiving partial benefits. The individual plans do not require that. The association plans may or may not require that. You just have to look into the contract, ideally get a specimen certificate which is the equivalent of looking under the hood before you actually buy the car.
Another piece of this is if you’re very income-dependent relative to the number of patients that you see, [00:34:00] and you’re getting paid based on are they used, or relative value units, or there’s incentive to your pay. Let’s say you were totally disabled. You’ve now recovered, your doctor says you can go back, you can do everything you used to do, same number of hours or more, but you’re just not as fast as you used to be. Or your patient base has left you and you need to rebuild that. Or your referral base is no longer referring to you anymore. You’re not sick physically, but financially you still have a loss of income.
Ideally, you want a recovery benefit in your policy which aids in your financial recovery as long as that current loss of income is directly related to your prior disability. If you’re a salaried employee, this is not going to mean much to you at all, if anything. But if you are a private practitioner, you’re doing locums, or you’re heavily paid based on incentive, this literally could be a game-changer in terms of the policy that stops paying after a short period of time, [00:35:00] typically 12 months, 24 months, or 36 months, versus one that’s going to continue to pay you as long as that loss of income is present.
Daniel: Are there any other big contract provisions that come to mind? You mentioned own-occupation, partial coverages, and return to work. Are there other big provisions we should be looking out for?
Larry: You want to look for a cost of living adjustment rider or a COLA rider. This will increase your benefit after disability has lasted typically a year. One company does have a four-year delayed cost of living adjustment rider, which is I’m willing to self-insure for the small claim, but I really don’t want to self-insure for the larger claim or the longer claim. That will save you a little bit—maybe 25% on average—for the cost of the cost of living adjustment rider.
Ideally, if you’re early in your career and your peak earning years have not yet reached you, you want to have the ability to increase your coverage in the future. [00:36:00] No more exams, no more blood tests, no more urine tests, no more medical questions. All you have to say is this is what my income is, this is the other disability insurance coverage that I have. How much additional coverage do I qualify for? I can tell you the amount, I can tell you the cost, and any subsequent medical conditions that might have developed. You do not need to disclose to the insurance company.
Let’s use a popular one among surgeons. You’ve got a discarniation at L4-L5, and you didn’t have an increase option. You’re now buying another policy. Or you’re trying to increase the coverage that you have going through medical underwriting. You disclose this to the insurance company as you would, and they determine we can insure you, Daniel, but we’re not going to be able to cover your lumbosacral spine, its disks, its ligaments, its nerve roots, with the exception of (let’s say) laceration or fracture.
It’s still great. If you look at the [00:37:00] medical dictionary and you whipped out everything that had to do with the lumbosacral spine, it’s still a pretty big book. But ideally, if you can have the ability to increase your coverage and have your lumbosacral spine covered because you bought it before you had these conditions, that’s the ideal.
I will tell you another strategy I use a lot for your high-income earner neurosurgeon, plastic surgeon, orthopedic surgeon, is you might want to buy two different policies from two different companies with increase options on each one, to allow you to potentially reach a higher level of coverage that any one of them would allow on their own.
Even though you’re not earning a lot of money as a resident or a fellow, you’re still buying the same initial amount of coverage, let’s just say it’s $5000. You’re just splitting it between two companies. Maybe it’s $4000 with company A, $1000 with company B, you’ve got your increase options on both. Your overall cost is about the same, but you’re upside potential to protect [00:38:00] your rising income is so much greater. At the end of the day, that’s really what insurance is. It’s about protecting risk in the most efficient manner that you can.
Another area that you’re going to find that these policies differ in—not necessarily a rider—is some policies have a built-in limitation for claims related to mental and nervous conditions, so anxiety, depression, stress, chemical dependency, drug addiction. The first thing that we need to know is this is not going to apply to something like dementia as a result of a stroke, a trauma, a head injury, a viral infection, MS, Parkinson’s, or even a condition that you have where physically, first and foremost you’re compromised, and secondary or incidental to that fact you’re depressed.
We’re not going to institute that limitation for that. So, if you are concerned about this and you said I’m not an SSRI, I’m not in therapy, I don’t have a personal history, I don’t have a family history, you might be okay buying a policy [00:39:00] with a limitation and getting this cost savings associated with that. If you look at and say, to me the best coverage is the one that covers the most things with the fewest amount of restrictions, and I’m willing to pay a little bit more to not have that limitation, then you would likely end up in that area.
One other one that I see—again, it’s not going to be a rider, it’s a contractual provision—is what happens if I’m disabled and I want to leave the United States. This will vary a little bit from state to state, it’ll certainly vary from policy to policy, but some policies will not have a limitation. If you’re disabled and you are a US citizen or a permanent resident, and you desire to move to Germany, you will continue to receive benefits overseas without a problem.
Other policies are going to say no. You can receive benefits overseas for a period of time. Beyond that period of time you have to return to the United States. That might be a certain number of consecutive months in a given year [00:40:00] or it might be after a period of time you have to return to the United States and remain in the United States, short of what I’m going to call incidental travel.
Daniel: What about graded or increasing premiums versus level cost?
Larry: Certain companies do offer that. The best way to think about it is the coverage is exactly the same; nothing is changing. You might view this as your interest-only on your loans versus the standard repayment option. A graded premium, where you’re paying less initially, each year gets a little bit more expensive, and typically you have the ability to switch from this annually increasing rate to a fixed rate. We’re not asking you about your health when you do that.
The biggest drawback to it is you’re going to be at least a year older when you make the switch and that level premium rate is going to be based on your age at the time of that conversion or of that switch. My general rule is if cash flow is really tight and you don’t want to compromise your coverage, a graded premium can work really well. [00:41:00] Ideally, you want to convert from a graded to a level premium structure within a short period of time, let’s just say 2–3 years. You’re not going to find a large degree of cost difference.
Newly on the rise are those that are trying to reach financial independence early. We’ll call this the FIRE Movement, Financial Independence, Retire Early. These individuals do a different analysis. They might say, on a year-to-year basis I know the graded premium that’s going to go up each year is not going to surpass the level premium for 13 years. On a year-to-year basis, it’s going to be 20 years. If I take the time value of money into consideration where I could have invested that difference, likely that break-even point is going to be pushed out.
If you’re the philosophy of, I’m 35, I’m done with my training, I’m just going to look to do as much as I can, make my savings rate as high as I can, [00:42:00] and I’m done at age 55 to the point where I need disability insurance, and that crossover is going to be at that point or later, I might go with the graded premium, never convert it, I decide to cancel my coverage and I kind of won the game.
But I will say the overwhelming majority of physicians are not going to be in that situation, and long-term your lowest cost is going to be locking into a level premium as early as you can, as young as you can.
One other thing that I mention—this is really more of a strategy than it is a rider or anything like that—is a lot of physicians that we deal with, that earlier in their career, it’s all about cost. Intellectually, they know that they need this coverage. They may not believe in it, but they know that they need it. They might say, I don’t really worry that much about being insured now. I worry about any medical conditions that I might develop in the future, [00:43:00] prior to me finishing my training or early in my career.
There’s a strategy that I have dubbed, ‘the lease with the option to buy strategy.’ Believe it or not, you can actually buy policies for as little as $1000 a month and increase that to as much as $20,000 a month.
Daniel: A monthly benefit.
Larry: A monthly benefit, never doing an exam, blood test, urine test, or answering any additional medical questions. Let’s just say if you’re a male (or female), this strategy to buy $1000 is probably going to rein somewhere between $30 and $50 a month. Let’s just say you are an orthopedic surgery resident that has three kids and a wife that doesn’t work, and you’re making $55,000 a year.
I don’t care how much money you’re able to save. It’s not going to be a lot. But can you carve out $30–$50 a month to protect your insurability (you’re right to be able to buy more in the future)? You probably can do that, so you’re jamming your foot in the door. [00:44:00] It’s kind of like you’re getting a t-shirt that fits now, and then when you start working out you become super muscular. You can have that t-shirt tailored to better fit your new build.
I view this, again, is you’re just leasing with the option to buy. This works very, very well for those that either really cannot afford coverage or those that say, I’m just not a believer. At some point I might be; it’s not now. Intellectually, I think it makes more sense to lock into something sooner rather than later. I would like to do that.
Another area that you see—this is going to apply to a small segment of listeners and we might even get none of these—is active duty physicians. These could be residents or fellows, or they could be active duty physicians that are not deployed, they’re not living overseas. Military benefits are very good, but they are only applicable to one’s base pay. It does not apply to their specialty pay. [00:45:00] It does not apply to any moonlighting they might be doing.
There is one company that offers coverage from the traditional carriers—we’ll call this “the big six”—to active duty military. This very same company recently announced a discount for active duty military physicians, so now they’re very much in that situation of their civilian counterparts, where they can usually find a discount from at least one of those carriers.
I’ve created a strategy using two different policies within the same company to allow these military residents, fellows, or even attendants to reach up to $20,000 a month. This cannot be done in California or Florida, but in most cases it’s available and it just protects against any adverse changes in health. When they separate from service and they’re being discharged, and they know their income is going to go up substantially, like their civilian counterparts they are well-protected against that.
Daniel: There’s quite a few people that we’ve come across that are doing [00:46:00] temporary military. Maybe they got funded medical school through the military and they’re doing their four years buy-back time, they’re in the military fellowship, or something along those lines. It sounds like for those people this could be a potential good option. Is that correct?
Larry: Yeah, that would probably be if they’re first buying their policy. It will literally be a traditional carrier is their only option. If they purchase coverage when they were in training and now they’re active duty, you have to be careful. Some policies will actually require the suspension of your policy because they are not going to pay you while you’re on active duty.
What you do here is you’re given a copy of your letter that states that you are active duty. The insurance company now suspends your policy, so they freeze your policy. You’re no longer paying premiums. In the event of a disability, clearly you are no longer going to be insured. When you separate from service, if it’s within the certain time frame that’s allowed, you put your policy back into effect, [00:47:00] you start paying premiums from that point forward so you’re not paying retroactively, any conditions that you developed in the military is not going to be taking into consideration, and really pick up where you left off.
Daniel: It’s like a pause on it.
Larry: Yeah. We just call that like a military suspension or military freeze. That’s definitely important. Just look at your policy. There will be a section there that talks to the military in active duty. We always want to look for discounts, whether you’re a resident fellow or an attending. If you can purchase high-quality coverage that is lower than full retail cost, ideally that’s what you want to do.
Daniel. I want to talk about insurance companies a little bit more. You mentioned six. How many insurance companies are doing individual disability that you are aware of now?
Larry: As of today, there are six companies, so it’s going to be Berkshire which is a Guardian company, Standard Insurance Company, Principal, Emeritus, [00:48:00] Mass Mutual, and Ohio National. Those are the six that currently offer own-occupation coverage.
Now, this can vary a little bit by state. For example, Ohio National is not licensed to do business in the State of California or of New York. Of course, if you bought that policy and you moved subsequently to California or New York, no problem, you can take it with you. Certain policies, the provisions are going to vary from one state to another.
The way you look at these companies is you look at their financial ratings. There is something that’s called a Comdex, which is not really an index or rating itself. It’s really a combined index, taking into consideration the other independent rating agencies. They use a number. A Comdex of 100 means every company is rated lesser than you. You’re the best company from a financial rating standpoint.
Just because a company has a great Comdex rating doesn’t necessarily mean that your policy [00:49:00] is going to pay you benefits. Remember, at the end of the day an insurance policy is a legal contract. In that legal contract it stipulates the rules of the game. What needs to happen in order for you to be able to receive benefits and if you qualify to receive benefits, the rules of the game are going to determine how much they actually pay you.
I would certainly look at the high quality companies, but more importantly I would look at the policy provisions. Based on my individual risk tolerance, based on my own education. based on my cost, I would determine what’s going to work best for me. I will tell you, every once in a while I’ll have someone that’s, Larry did my friend’s insurance. Just do me a favor and sign me up for the same thing that they did.
Now, think about that. It’s like you taking a prescription medication that was prescribed for me. Maybe it works, maybe it doesn’t work. I will tell you, invariably what happens is you run into another insurance agent—we’re all over the place, [00:50:00] especially in residency and fellowship programs—and I might say, “Daniel, do you have disability insurance?” “Yes, I have company XYZ.” I might say, “Daniel, I’m sure you have a reason for having bought from that company. Do you mind if I ask what it is?” If you sound like Jackie Gleason from The Honeymooners, like “Homina, homina, homina,” I know that you didn’t do your homework.
You might have a great policy or you might have one that really does not meet your individual needs, goals, or budget. Ideally, we’ll go through your contract. You’ll determine if what you have makes sense. If there’s a better offering that might better meet your individual needs, goals, and budget, maybe you’ll switch, maybe you won’t. There’s a lot of factors that go into that, but at the end of the day, it always comes back to education.
I will tell you whether it’s financial planning, reading some basic financial planning books, maybe listening to podcasts like this one, just to get a basic understanding of the financial world, so when you’re interacting with someone, [00:51:00] you have an idea of how they’re compensated, what they do, what they don’t do, what their skill set is, and more importantly, what is not.
Ideally, one person is not going to be all things to all people. If you do your education up front to maintain that financial education really doesn’t take that much because at the end of the day, the products really don’t change that much. The vehicles that we use don’t really change that much. Ideally, the numbers get a little bigger but that’s really about it.
My closing words is put the time in now. You want to do it once, you want to do it right, you want to understand what you’re getting, you want to understand what you’re paying, and why you’re doing what you’re doing. This will allow you to feel really good about your decision, the same way you might about anything else that you might actually decide to purchase, or someone who you might engage for services. [00:52:00]
Daniel: You mentioned the financial strength of a company. You mentioned the contract. I think the last part is claims paying. I don’t know how to describe it, but contractor gray. I think there are a few good movies out from people getting stiffed by insurance companies, so how do you get a feel for an insurance company’s approach to claims paying? Or is there a way?
Larry: Probably the way that I would do about and go about doing this is I would talk to your agent or agents. I would ask them what kind of experience they have in terms of clients filing claims, how the insurance companies have been in terms of handling the claims. I will say this. No two claims are the same. Every claim situation is different. Every fact pattern is different. Every company in the event of a claim is going to really have a very similar process. They’re going to say, Daniel, what were you doing immediately prior to your disability? [00:53:00]
They’re going to ask you about your job duties. You’re going to tell them about your job duties. They’re going to ask you what were you lifting. Did you lift more than 10–15 pounds, 15–30 pounds, over 50 pounds? They’re going to really try to get a very good idea of what you were doing immediately prior to your disability. Then, they’re going to ask you how have you been compromised? Duty, accident, or sickness? What can you do? What can you not do? You’re going to furnish this information. You’re going to furnish this along with income documentation.
The other portion of the claim form is going to go to your attending physician. That’s the person who knows you best, that’s the person who is treating you for this particular condition, and, if nothing else, maybe it’s the person that you initially met if you went to the emergency department and then you follow it up with your PCP.
The form is going to ask your PCP. In your medical opinion, is this person totally disabled? They really can’t do the majority and substantial duties of their occupation, or they can still do it [00:54:00] on a limited basis? If it is this, when do you think they might be able to go back on a full-time basis?
That’s really the crux of it. The time of putting in a claim is the time where you get to provide information to the insurance company. You really want to be as clear as you can in terms of what your condition is, how you’ve been impacted by that both physically and financially, and I will tell you I’ve paid enough claims with all of these insurance companies. They literally give you all of the opportunity to tell them your story. They give you the ability to let them get a better understanding of what has transpired and how your situation has changed.
I likely would not necessarily go to the Internet. Some of the stuff on the Internet is going to be accurate, some of it’s not going to be so accurate. You might find that people are posting stuff on the Internet about specific companies and their experience, [00:55:00] and it’s just not true. Maybe the person is talking about a group insurance plan and they were unaware that the definition of total disability changed after two years. They believe that their policy was own-occupation the whole way through. In fact, it wasn’t. The insurance company’s decision was spot on, but it’s their mistake.
I would just ask around if people have filed claims. Maybe it’s out there in the hospital that this person had some kind of a condition. Maybe you would ask them, who did you have? How did things go? If I was going to file a claim, is there anything that would be important for me to know as far as what I should do or what I shouldn’t do? I think there’s a huge amount of trust in terms of your agent and their level of experience.
I’ll tell you, when you first come into the industry it’s all about sales. You’re literally trying to build your client base. I would say, for the most part, you’re a hand surgeon. It’s anything you can get your hands on. [00:56:00] Then, you kind of come into your own, you’ve done a good amount of business, you’ve worked with a bunch of clients, and in comes that first claim. That’s really your real-world education.
That’s when you say to yourself, it’s great that I understand these contractual provisions. It’s great that I can educate doctors academically, but at the end of the day you really see the value and the power as to what we deliver in the products that we offer, whether it’s financial planning, native to retirement and with your guidance, or its disability insurance.
We see how this person is able to continue their life and concentrate on their other priorities because they know financially they’re going to be okay. It could be someone has passed away and they had life insurance, and now their family’s going to be able to continue the custom way of life in which they had really become accustomed to. That’s really the power of it.
I agree with you. I think you ask around, [00:57:00] physicians do have a herd mentality. In this herd mentality, sometimes it’s good, sometimes it’s not so good. but do your own homework. Educate yourself, listen to podcasts, read about this, find someone that you trust, find someone that you identify with, find someone that has familiarity with your industry if not your medical specialty, put it behind you after you buy it, and literally, the next time you look at it again is when your situation changes.
If you know you’ve done a good job and you know you’ve done a thorough analysis, really you’re going to be marking it off your list, you’re going to be moving on to your next financial planning goal or your next career goal, and you’re going to really feel very good about what it is that you have done for yourself and your family.
Daniel: As we wrap up, any big changes coming down the pipe within the industry? It’s been interesting to see some of these companies just stop selling disability insurance totally and changes like that, but anything on the horizon in that regard? [00:58:00]
Larry: Yeah. Probably the biggest change that’s coming up, as we record this end of August and depending upon when this show airs, is one of the insurance companies which currently offers unisex rates in the State of New York, aside from guaranteed standard issue plans that might be available, they are getting out of unisex rates come September 19th. As long as you have an illustration of coverage that’s dated September 18th or before, with the unisex rates. you actually have the ability to purchase your policy with unisex rates as long as your application is in this company’s home office by November 18th of 2020.
If you’re a female resident or fellow, you’re working or living in New York, and you have not yet purchased disability insurance coverage, it would really behoove you to (at the very least) get an illustration of coverage with unisex rates. As long as you apply or decide by [00:59:00] November 18th, you’ll have the ability to purchase your policy this way.
Daniel: Awesome. Larry, I appreciate just […] me. Before we jump off here, where can people find you?
Larry: I’m pretty easy to find. You can certainly send me an email. It’s firstname.lastname@example.org, or 516-677-6211. I review policies daily for people, whether it’s employer-provided group insurance, it’s an association plan, or it’s an individual policy. I just want to make sure that what you have is appropriate for your current income level and your individual needs and goals. There is certainly no charge for me doing this. It literally takes me all of two or three minutes.
Daniel: You can even do it in your sleep.
Larry: Yeah, no problem. I can do it blindfolded as long as I have an idea of what’s in there. But like I said, it all comes down to education. I love to serve the [01:00:00] physician community. I love what you guys are doing. Thank you very much for what you do every day. You guys are the real heroes and I appreciate all that you do.
Daniel: I appreciate it, man. Take care.
Larry: Awesome. Thank you, sir.
Daniel: As always, thank you so much for joining us today. If you found this valuable, please give us a review on iTunes and share with a friend. Also, check out our website at financeforphysicians.co for all sorts of additional content. See you next time.
The Finance for Physicians podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by PAS, Guardian, or Physician Financial Services, and opinions stated are their own. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.
Hypothetical examples are not intended to suggest a particular course of action, or represent performance of any particular financial product or security. All scenarios [01:01:00] mentioned herein are purely fictional and have been created solely for training purposes. Any resemblance to existing situations, persons, or fictional characters is coincidental. The information presented should not be used as the basis for any specific investment advice. All contract guarantees mentioned are based on the payment of required premiums and the claims paying ability of the issuer.
Lawrence Keller is a registered representative and financial advisor of Park Avenue Securities LLC (PAS), OSJ: 355 Lexington Avenue, 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, New York, NY. PAS is a wholly-owned subsidiary of Guardian. Physician Financial Services is not an affiliate or subsidiary of PAS or Guardian. [01:02:00] AR Insurance License No. 1057229. CA License Insurance No. 0C37340 2020-107892, expiration 9/22.
Regarding the New York unisex rates discussion, while the carrier discussed will no longer offer unisex rates for nonemployer-sponsored multilife cases, they will still allow unisex rates if it is an employer-sponsored case or home-office–approved employer-endorsed case.