When I started writing for ACEP Now a couple of years ago, I was encouraged to write about controversial and inflammatory topics as much as possible. So as you might imagine I wrote about whole life insurance, annuities, financial advisors and other topics. However, in my most recent column, I decided to address a topic that I thought perhaps might generate a little more heat and I was a little nervous it wouldn't even be published. But I never heard back from the editorial staff and eventually it was published…accompanied by a statement from ACEP defending itself against my column.
The column was about the life and disability insurance that gets pitched to us every month in the mail from the AMA, ACEP, and other specialty societies. I've been seeing these things for years and once looked into the disability policy to compare it to what I already owned. But what triggered the column was comparing the life insurance being offered to what you can buy on the sites of some of my advertisers, like term4sale.com and insuringincome.com, and seeing that it was basically going for twice the price. At any rate, here's an excerpt:
Q.
Every month, I get mail from the American Medical Association, ACEP, and other organizations trying to get me to buy life or disability insurance through them. Why do I get these, and are these the best policies for me?
A.
Professional associations, such as ACEP, offer benefits such as insurance policies to their members for various reasons. First, they understand that these are important financial products for their members to purchase. When physicians become disabled without disability insurance, especially early in their careers, a financial catastrophe often occurs. Life insurance is similar. If you die prior to reaching financial independence, those who depend on you financially will very much appreciate your making up the difference between your portfolio size and what it would take to be financially independent with a solid life insurance policy or two. Your association wants to make it easy for you to do the right thing.
Second, some doctors have a difficult time obtaining disability or life insurance on the open market due to health problems or dangerous habits. Association policies often ask fewer health questions; do not generally require a physical; and rarely ask about dangerous hobbies, such as rock climbing, scuba diving, flying, or skydiving. For these doctors, the association policy may be their only opportunity to get the coverage they need or want at a reasonable price. People in these situations see these offerings as important benefits of the association and are more likely to join if these benefits are offered.
However, what cynics would point out is that the insurance agent or company selling these policies is generally sharing revenue with the association. Unfortunately, that conflict of interest ensures the association may not give you unbiased advice on these topics. While it is possible an association group policy is your best option, you need to shop carefully prior to actually purchasing it. You will often find an association policy is neither the best nor the least expensive option.
Association group disability insurance policies generally have three significant flaws. The first is that their definition of disability is usually weaker than that available through a good individual policy. This means it is less likely to pay you in the event that you actually become disabled. The second flaw is that the payout is also often decreased by factors you might not expect, such as Social Security disability payments. The third flaw is that the policy can be changed by the association at any time and usually can’t be taken with you if you decide to leave the association. Emergency physicians should also be aware of other limitations, such as a requirement in the ACEP-sponsored disability insurance plan that you be working at least 30 hours per week. Consider that 15 eight-hour shifts per month, generally considered full-time among emergency physicians, when divided over 31 days is only 28 hours per week. If you are working any less than that, you may not qualify at all for such a policy. In return for accepting these weaknesses, association disability policies are generally less expensive, sometimes much less expensive, than a good individual disability policy.
Read the rest of the article here (as well as the response from ACEP) and then come back and let me know what you thought.
Have you bought an association insurance policy? Why or why not? Have you regretted it? Would you consider buying one? Comment below!
Good article. I ended up coming to pretty much the same conclusions when buying insurance myself back in the day; association disability coverage was pretty good and quite cheap while life insurance was pretty much a commodity and was significantly cheaper purchased on a level-term basis directly from an insurance company rather than through an organization.
One consideration that probably should be mentioned is that if you pay for the disability premium out-of-pocket the benefit is tax-free, while if you get the coverage through your group the benefit is taxable, which is a strong argument to have a disability policy that you pay for on your own (which also makes a less expensive association policy attractive).
Also, take consideration of the need to belong to the organization to get the insurance; there might be unforeseen reasons that you might end up wanting to leave an organization but you could be trapped for insurance reasons. I started out with a disability policy from the AMA, but switched to one from my specialty society a few years later because it was slightly less expensive and I figured I wanted to support the society. That worked to my advantage when I dropped the AMA membership over the Obamacare debacle.
To clarify on the above comment- the determination of whether the benefits are tax-free or not is not whether it is through your group or individual, but whether the premiums paid are pre- or post-tax. Specifically, many groups offer disability policies and allow you to pay tax on the premiums, so that in the case of a claim, the benefit would be tax-free. A family member has become disabled with brain cancer and is receiving tax-free payments from group disability provided by her employer. Just thought I would throw that out there.
In a partnership like mine, it isn’t an option to pay premiums with pre-tax dollars. Too bad, I’d take it. Everyone thinks it’s such a bad idea, but when you think about it, it really isn’t. You get a guaranteed deduction on the premiums, but you might never actually get any benefits (only something like 1 in 7 ever use their long term disability benefit.) Plus, if you do get benefits, you’ll be in a much, much lower bracket than you are now, and even though they are taxable, you won’t be paying much in tax on them. If I were given the option, I’d just get a slightly bigger benefit to cover potential future tax payments and take the tax deduction on the premiums. But I’m not given the option.
If I were disabled today and my policy through my work were fully taxable, my individual policy would still not be taxable, so I’d get $210K to live on and pay taxes on only $120K. Minus exemptions and deductions, I figure I’d be in the 15% bracket and owe $8K on that money. I’d rather have a $4K deduction every year of my career than get an extra $8K if I were to get disabled. The deduction is worth more than the extra $8K in disability insurance would cost.
The problem with using pre-tax dollars is that you don’t have the option of getting insured for more than 50 or 60% of your income. So that number is locked in. In order to then get the full amount of disability coverage, your only option is to use after tax dollars.
You wrote “I’d rather have a $4K deduction every year of my career than get an extra $8K if I were to get disabled.” Sure, that works out fine if you’re disabled at 55, but not if you’re disabled at 35. That, along with the argument that only 1 in 7 uses their insurance, is ultimately just an argument against getting any disability insurance. Just like the COLA rider, which is valuable only if you’re disabled early in your career. All of these features cost money, but all have potential benefits. By paying with pre-tax dollars, what you’re doing in effect is spending less money to get less coverage. Yes, there’s some potential tax arbitrage there, but if you want full coverage it will cost more money. So, you’re making a valid point, but I would still recommend using after tax dollars.
Why would you need to be insured for more than 50-60% of your income? 25% or more of your income is taxes, and then another chunk of it is expenses for work, and then another chunk of it is retirement savings. Personally if I was disabled today, I would only need 30% of my current income. On top of which Social security will provide me with a little over $2K a month.
If you are also saving and planning for an early retirement remember if you have some money in savings, that will continue to compound right up until you get Social Security.
Many physician I talk to have overbought insurance. After all the guy talking them into these policies makes more money the more you buy.
Same thing with life insurance. Many physicians buy policies so that their death is like winning the lottery for the rest of the family. I have a serious problem with that. You should be worth more alive than dead.
Keep in mind that disability payments stop at 65 or 67. So you still need to save for retirement with the disability payments.
Keep in mind that in addition to inferior contractual provisions, most association policies ARE medically underwritten so an exam, blood test, urine tests and health questions are asked (unless there is a special offering where no evidence of insurability is required.
Additional examples of some of the limitations can be found here https://www.whitecoatinvestor.com/association-disability-plans-all-that-glitters-is-not-gold/ and here https://www.whitecoatinvestor.com/association-disability-plans-all-that-glitters-is-not-gold-part-2/
I can’t wait to reach my “number” to stop those disability insurance payments that automatically drain out of my bank account!
When you finally cancel the policy you do feel pretty good.
on the life insurance subject, is it best to buy a long term level plan be it 20-25yrs
I tend to favor 20 and 30-Year Level Premium Term Life but it all depends upon your individual needs, goals and budget. I would certainly avoid Annual Renewable Term as it gets extremely expensive over time.
I’m not as dogmatic on the subject as Larry. In the end, it’s all ART. With level premiums, you overpay in the beginning and underpay in the end. Thus, if you cancel at any point prior to the end, you’re better off with ART. But there are behavioral aspects to consider too. Will you cancel your policy before you should because the premiums are rising so fast?
While that is true, with ART, the premiums are not guaranteed when they increase.
There is a current premium schedule and a maximum premium schedule (which is a multiple of the current). Depending upon mortality, expenses and investment experience, those rates can be much higher than expected.
I would rather “overpay” in the beginning than be forced out because my budget no longer allows me to want (or want to afford) those premium payments.
Before Level Term was guaranteed, I sold ART. Most of my clients that have become uninsurable or can no longer qualify for the best underwriting class based on their current health are now stuck as they expected not to need their coverage. Unfortunately, things happen and what we planned for may not turn out the way we expected.
To me, ART is like lighting the fuse and hoping you can run away before you legs blow off.
The likelihood of rates going up significantly (more than expected) seems low to me. But obviously you can insure against that risk by buying level premium.
A 30 year level term is also like lighting the fuse and hoping you can run away by 30 years. You either make it or you don’t and have to buy more insurance.
Risks that you can afford to self-insure you should self-insure. Risks that you cannot, you should transfer that risk to an insurance company, knowing there is a price for doing so. There is a price for getting a level 30 year term.
All that said, I have two policies- a 20 year level term and a 30 year level term, so obviously I don’t think that’s nuts. But if I had to do it all over again, I’d look more closely at ART.
I agree that the likelihood of the rates increasing substantially is low and what you have (a “laddered” strategy for 20 and 30-Years) makes all the sense in the world to me but
let’s look at the numbers using Guardian’s YRT compared to their 20-Year and 30-Year Term policies using a male, Age 35, best class in New York as an example.
I used Guardian as not many companies offer ART, 20-Year Term and 30-Year Term so it was easy to run the numbers for all of the products using the same carrier. Keep in mind there are not many carriers that still sell ART compared to the number that sell level term.
ART
Year 1 – The current annual premium is $580 (the maximum is the same).
Year 5 – The current annual premium is $700 (the maximum is $1,770).
Year 10 – The current annual premium is $1,010 (the maximum is $2,690).
Year 15 – The current annual premium is $1,410 (the maximum is $3,920).
Year 20 – The current annual premium is $2,080 (the maximum is $6,150).
Year 25 – The current annual premium is $3,640 (the maximum is $10,190).
Year 30 – The current annual premium is $6,230 (the maximum is $17,500).
20-Year Level Premium Term $710 (current and maximum are guaranteed to be the same)
30-Year Level Premium Term $1,180 (current and maximum are guaranteed to be the same)
Still wish you did ART?
Not necessarily but I’m really glad I didn’t buy a Guardian policy! The cheapest 30 year level policy I see on Term4sale.com is $785. Obviously I’d rather have that than Guardian’s ART product or their level premium policies! In fact I think I see 50+ companies with a cheaper rate than Guardian’s.
I mean, the concept of ART is great but it obviously has to be priced competitively to the available level premium policies. Didn’t I write a post about this a while back? Oh, yes I did but it doesn’t run for a few more weeks. I’m looking back at it now- ART compared much more favorably in my examples than in yours.
You are correct. Guardian’s term polices are not competitive. I just used them as a example since it was easy. It for more for the concept than anything else.
I didn’t search for the “best” of anything.
I’m a Compulife subscriber for as long as I can remember and use my software on a daily basis.
I tell Bob Barney every time I speak with him that he has a client for life!
With regard to Associations The ADA(dental) uses AXA EQUITABLE for their retirement plans; annuitized crap
Ken,
That comment made me laugh out loud.
Thank you for your contributions to the WCI “Comments Section Community”
Ben
Wow. I have had AMA for 13 years, and assume it was solid. Going to need to seriously reassess. Where to start finding a good alternative? What about USAA? Thanks for anyone’s help here.
Be sure to include the policy you already have in your comparison. For both life and disability, a less than ideal policy bought years ago is a better value than a better policy bought now.
USAA doesn’t do disability. You’ll want to compare to policies from the Big Six like Standard, Guardian, Metlife etc.
Should say I only have disability with AMA. I already have term life with USAA I am happy with.
You also had this entry back in 2011
https://www.whitecoatinvestor.com/your-professional-society-and-your-finances/
…and this one back in 2013 with some detailed answers and reviews for a couple of associations’ plans by Larry.
https://www.whitecoatinvestor.com/association-disability-plans-all-that-glitters-is-not-gold/
Not all associations (and their plans) are created equal. Research is a must.