Physicians generally think insurance—life, disability and professional liability—is too expensive or will never be needed. But it’s critical to understand what insurance policies do and don’t cover, the potential benefits and the actual cost of each kind.
Life insurance
Your employment setting typically dictates whether life insurance is part of your benefits package. For physicians who are employed by a hospital, hospital affiliate or a larger group (more than 20 employees), it is likely that group life insurance will be part of the benefits package. With respect to a group life insurance policy, a physician should focus on these items:
Eligibility. How long do you have to work for that employer to become eligible for this benefit?
Coverage amounts. Often times, the amount of insurance is a multiple of your annual salary and includes a maximum cap on the amount payable. For example, a policy could state “3x the physician’s salary with a maximum benefit of $500,000.” These caps are typically far less than one’s actual insurance needs.
Additional “buy ups.” You may be able to purchase additional life insurance coverage than what is offered in the original group policy. It is important for you to know, in advance, if the buy up policy can follow you to another job, or if it makes more sense to purchase an individual policy from the outset.
Cost. Do you, your employer or some combination pay for life insurance?
Portability. If you leave the job, is it possible to continue the policy? (Generally, there is a low probability that you can transfer a substantial group life insurance policy into an individual policy even if you agree to continue to pay the annual premiums.)
Conversion. Are you able to extend your coverage amount at a later date without having to answer any medical questions?
Medical underwriting. Does the life insurance policy require, as a precondition, that you answer questions with respect to your health history?
Depending on your individual circumstances, you may elect to receive the employer’s group life insurance policy “free of charge” and then purchase an individual policy catered to your specific needs.
Professional liability insurance
Most states and hospitals require a minimum amount of professional liability insurance. One of the key issues is making sure you know what type of coverage is provided, and confirm your responsibilities when you’re no longer employed by that organization.
There are two main types of professional liability insurance: claims-made and occurrence. A claims-made policy generally covers you for any negligent activity that occurs while you’re employed by that organization. Upon the end of your employment, in most circumstances, a “tail” policy will need to be purchased.
Assuming a tail policy is required, confirm before signing a new employment agreement whether you, your employer or some combination of both is responsible for paying for the tail policy.
An occurrence policy generally covers you for any liability action regardless of whether the action is brought during or after (but within the state’s statute of limitations) your employment. A tail is not required for an occurrence policy—and for that reason, an occurrence policy is typically more expensive than a claims-made policy.
Physicians who are moonlighting or working second jobs should confirm whether their primary employer’s professional liability coverage extends to the secondary employment setting. (In most circumstances, it will not.)
Disability insurance
There is no “one size fits all” disability insurance policy.
Unlike life insurance, where a physician can essentially purchase as much as is desired, there are strict limits on the amount of disability insurance a physician can maintain. Disability insurance companies do not want physicians to be “over-insured” because there would be no incentive to return to work if you were on disability with a very generous policy.
With disability coverage, there is a direct relationship between income and allowable coverage amounts. These items are important to understand when it comes to group disability insurance policies:
Definition of total disability. This determines if the physician is eligible to collect on a policy should there be an adverse change in health.
Elimination period. This is the number of days a physician must be out of work in order to qualify for a claim.
Mental/nervous/substance/psychiatric claims. In most group insurance policies, claims that fall into this arena are limited to 24 months.
Partial/residual claims. The vast majority of disability claims either start or end as a partial claim.
Pre-existing conditions. The vast majority of group disability policies have a provision that states the insurer will not pay benefits due to “pre-existing” medical conditions.
Taxation. Benefits received from the majority of employer-paid group disability policies are taxable.
Portability. Most group policies end when employment ends.
Who pays. Often times, the costs associated with group long-term disability insurance are covered by the employer.
The benefits and exclusions in each life, professional liability and disability policy are critical to understand. A benefit offered by an employer may not be as generous as it initially seems, and you may elect or need to supplement a policy individually to ensure you have adequate coverage in place if the unforeseen or unexpected occurs.
Bruce Armon, Esquire, is chair of the health care group at Saul Ewing Arnstein & Lehr, LLP. Jay Weinbergis an independent financial planner with 18 years of experience.
December 1, 2016
Colin Nabity
