Life Insurance Not the Only Protection Physicians Need to Consider

In an online forum, a doctor’s wife shared with me her story that should serve as a cautionary tale for all doctors.

Her husband had a solo medical practice. They had a “financial advisor” who advised them to put their savings into a $5 million cash value life insurance policy. They believed the product not only provided protection in the event of the doctor’s death but also was a great savings vehicle.

Last July, her husband was struck by an uninsured drunk driver. He suffered brain damage and though he recovered from the coma, he was unable to continue practicing medicine.

In one night, the family’s livelihood was turned upside down. He was not killed, so she could not claim the $5 million death benefit. They had not saved much outside of the life insurance policy. The cash value of the life insurance was only a fraction of what they had put into it in premium payments.

On top of that, the practice took a few months to close down, during which, rents and overhead expenses had to be paid.

Now the family lives on a meager social security disability income, and the wife is struggling to get back into the job market.

There are three lessons all doctors and their families can learn from this:

1. You must have disability insurance. I have found that most doctors have more than sufficient life insurance, thanks to all the salesmen out there, yet few have sufficient disability insurance. In reality, after an accident, disability occurs four times more frequently than death, and its financial impact on the family is often more severe than death.

2. If you own your own practice, you must have business overhead and expense (BOE) insurance. This insurance pays for business overhead expenses for up to two years in the event the owner is disabled.

3. Most importantly, you should hire a fiduciary financial advisor; in other words, a financial advisor whose advice is not slanted by the commissions he or she receives. Generally speaking, there are three types of financial advisors: 1) those who are licensed to sell products (they are compensated by commissions paid by the financial firms); 2) those who are licensed to give advice (they are compensated by fees paid directly by clients); and 3) those who are licensed to do both (they are compensated by both commissions and fees). You should always opt for type 2, since they have the least conflict of interest.

“Type 2” advisors are called fee-only financial advisors. I am one, but not the only one. You can find other fee-only financial advisors online through the National Association of Personal Financial Advisors (NAPFA).

Find out more about Michal Zhuang and our other Practice Notes bloggers.