If you are a doctor, you likely need some professional insurance. To get this insurance, you will have to buy it through a company (bad idea) or broker (better idea). But, you need to make sure you are getting the right insurance at the right price. That’s why it’s important for doctors to understand how insurance brokers get paid.
A life and disability insurance refresher
I like to keep things simple.
If you are a practicing doctor, you need:
- Life insurance (term only!) if someone depends on your income to live (i.e. spouse, kids)
- More info on life insurance here
- Disability insurance (own occupation!) if you depend on your income from work to live
- Don’t believe me?! Just imagine how the world would be different if Dr. Strange had disability insurance
- Malpractice insurance (preferably occurrence based!) if you actively practice medicine
- Umbrella insurance if you have assets above your car/home policy limits
If you meet the criteria next to any of these 4 types of professional insurance, then you need to have it. Stop. End point.
Employers usually cover malpractice insurance. Meanwhile, it’s best to bundle your umbrella insurance with your home/auto insurance provider.
But, you will need to get life and disability insurance on the open market in the majority of cases
It’s true that some employers will offer life and/or disability insurance.
It just happens that these usually do not have great terms. The life insurance is rarely enough to cover your needs for loved one if you pass away. Sometimes it may not even be a term life insurance.
The disability insurance is usually not own occupation which is an absolute must. The only time an employer disability insurance may be a good idea is if it is a group rate and you have medical issues that have made it near. impossible to get a good policy on the open market.
On the open market, you have two choices: buying from a company or from a broker
The clear better option is to buy your life and/or disability insurance from an insurance broker.
Let me explain why
Let’s say that you decide to buy an insurance policy from an insurance company, like Northwestern Mutual.
Well, Northwestern Mutual agents only have access to their own company’s policies. They can’t shop your unique situation around to each of the 5 other major disability companies. They can’t guarantee that you are getting the best product for the best price.
It’s like going to an Apple store looking for a computer. They can only sell you their own products.
Meanwhile, a broker can take your information and shop it around to different companies. Good brokers will have ties at all the major companies to get accurate information and all discounts possible.
They can look at all policies and compare them.
This is a huge advantage and the reason I strongly recommend that you use an independent broker agent to get your life and/or disability insurance policies.
But you need to find a good insurance broker
And like anything else, this is the caveat.
You need to find a good insurance broker who is going to help you get the right policy for your unique situation.
You want to make sure that they are working with your best interests in mind. Obviously you don’t want someone who is going to try to convince you that an expensive whole life insurance policy is right for you when 99.9999999% of the time it is not.
How to find a good life and disability insurance broker
Well, Step 1 is educating yourself.
You should understand what term life insurance and own-occupation disability insurance is and why that is what you want.
It also helps to understand what whole life insurance is and why you do not want it. This helps if/when someone gives you the pitch so you can shut it down ASAP.
This self-education will help you spot the good guys and gals from the bad ones in the industry.
Step 2 is understanding how insurance brokers get paid
How insurance brokers get paid underscore a huge source of potential bias. So it’s important for you to be aware of.
At first glance, it may seem tough to tell how their make their money. When you buy a policy through a broker, you end up just paying the insurance company. You never send any money to your broker.
But rest assured, they are making it.
The most common arrangement is for the insurance broker to be paid based on a percentage of the annual premium of your policy. Usually, they receive 50% of the premium as a payment in the first year. The percentage tails off after that.
This 50% average commission fee is typical for selling the own occupation and term life insurance policies that you should be buying.
To me, this seems a fair arrangement in general.
But this is not always the case…
The problem with insurance based commissions
If someone told you you could make 50% commission fees on one product and 90% commission fees on a second product, which would you sell harder?
If the products are equal, the decision is easy.
But what if product #2 was worse and you knew it? I hope we would all still go with product #1, but there is a big temptation there.
This is the situation with term life versus whole life insurance policies
Whole life policies carry HUGE commission fees to be paid to insurance brokers who sell these policies. So there is a HUGE conflict of interest there!
This is pretty convincing proof that whole life insurance policies are products made to be sold, not bought. Good products don’t require huge sales incentives to be sold. Bad ones do!
This problem is compounded by the fact that many insurance salespeople early in their career may be duped by insurance companies into actually thinking the whole life products are better.
Then they go around convincing selling unknowing docs.
Making sure you get a good deal
Obviously you want to make sure you don’t get caught being sold something inappropriate.
Which goes back to Steps #1 and #2:
- Educate yourself
- Understand how the insurance broker is paid
What’s the easiest way to understand this? Just ask them. Anyone who is elusive or unwilling to share likely has a big conflict of interest. They may not be giving you the best advice.
The bottom line
If you are a practicing doctor, you need:
- Life insurance (term only!) if someone depends on your income to live (i.e. spouse, kids)
- Disability insurance (own occupation!) if you depend on your income from work to live
Again, this is just a fact that you need this. If you still aren’t sure, listen to this story of an OB-GYN who sustained a career ending injury early in your medical life!
Then, make sure you buy this insurance from an independent insurance broker.
Then make sure you are getting good advice and the best possible policy for you. A big part of this is understanding the biases and conflicts of interest at play.
If you need some recommendations, check out my recommended list. I can promise from personal experience that these are the “good guys” in the business.
Once you get your insurance in line, you can start on the other sure FIRE steps to jump start your financial journey!
What do you think? Do you have disability or life insurance? What was the process of buying it like for you? Does it matter how insurance brokers are paid? Let me know in the comments below!
