The Pros and Cons of Group vs. Individual Physician Insurance
There are many different types of insurance that physicians need in order to protect their finances and career. Unfortunately, all of those premiums can add up to hundreds or even thousands of dollars per month.
Many physician employers offer different types of insurance as part of their benefits package, often costing less than the general marketplace cost.
But is employer-sponsored insurance (aka group insurance) the best choice?
Or, is it better to purchase an individual policy of your own?
Here are the pros and cons of group vs. individual insurance for physicians.
Group vs. Individual Insurance: What’s the Difference?
Group insurance is any policy that protects a specific group of people. Usually, it’s a group of employees that work for the same employer, though some physicians choose to enroll in group plans offered by a professional medical association or medical society.
As part of an employee benefits package, employers typically offer group policies for:
- Life insurance
- Disability insurance
- Malpractice insurance
These group policies will already be in place when you begin employment, and your employer will offer you the option to join the group if you choose. Sometimes the employer will share the cost of the premium payments with you, and sometimes the employer may pay for them entirely.
Individual insurance refers to any type of policy that you seek out on your own. Employers do not offer individual policies, so you’ll need to do your own research, apply for a policy by yourself, and make the monthly premiums out of your own pocket.
The Pros and Cons of Group Insurance
Employers sometimes offer excellent group plans to increase employee retention and attract top talent. But despite the many benefits that group plans offer, there are drawbacks as well.
Before signing up for a group policy, here are the pros and cons.
Pro: There Are No Individual Medical Examinations or Health Evaluations
Group life and group disability policies rarely require policyholders to undergo a medical screening or health exam when applying. Individual policies do.
This is an excellent benefit for higher-risk candidates who might not qualify for an individual policy. It is also quite helpful for people with pre-existing conditions, as they often result in high monthly premium payments.
Pro: Your Employer Pays a Portion of the Cost
The biggest benefit to enrolling in a group plan is that your employer will (most likely) pay for a portion of the costs, resulting in lower premiums. Those premiums are usually taken as payroll deductions, so you never have to worry about directly paying the carrier.
Because employers typically share the cost, group policies are usually less expensive than individual plans.
Pro and Con: Everyone in the Group Pays the Same Rate
Everyone in the group pays the same rate, which is a pro for some and a con for others.
With disability and life insurance, where your health status affects your rates, this is good news for higher-risk candidates.
Lower-risk candidates, however, may pay slightly more if the group has a greater percentage of high-risk members.
Con: You Have No Control Over the Policy Terms
The terms of a group policy are the same for every group member. You have no control over the terms, and there is no flexibility or room to negotiate for more coverage or better rates.
Con: You Can’t Take it With You
Group policies typically end when you leave the group. If you quit your job, end your contract, or get terminated, you will no longer be a part of the group, which means you’ll lose your insurance coverage.
The Pros and Cons of Individual Insurance
Individual policies are the preferred option for most high income earning physicians, and there are a few reasons why.
Here are the pros and cons of individual insurance policies.
Pro: Individual Insurance Plans are Fully Customizable
Individual policies are customizable, so you can:
- Select your own terms and coverage amounts.
- Add riders to enhance your policy.
- Opt out of benefits to lower your monthly premium.
This allows you to construct a policy that meets your specific needs and budget.
Pro: You Can Take it With You
It doesn’t matter where you work or if you leave your current job; an individual policy is yours to keep because it has nothing to do with your employer.
Whether you switch companies or careers altogether, you keep your coverage as long as you continue to pay monthly premiums.
Con: Individual Plans are More Expensive
Individual plans are more expensive, but their advantages are well worth the cost. This is especially the case for physicians, as high income earners have more to lose and more to risk.
Con: You Have to Decide Which Provider to Choose
With a group policy, your employer will generally offer you one group plan option per type of insurance policy. With individual policies, you’ll have your pick of any and all insurers that operate in your state.
This is an advantage, in the sense that you have more options, but it also means you’ll have to do your homework researching different companies.
Should You Have Individual or Group Life Insurance?
It’s pretty common for people to have more than one life insurance policy, so it can make sense to have both group and individual life insurance policies.
Unlike employer-sponsored health insurance and disability insurance, you can sometimes keep a group life policy even if you change employers or leave the group. This is called portability.
Portability does not mean that your ex-employer will continue to supplement the cost of your plan. It just means that you’ll have the option to buy the policy yourself if you choose to keep it.
When deciding which type of life insurance policy to choose, it’s a good idea to accept your employer’s group term coverage and get an individual plan of your own.
Insurance companies are in the business of risk management, which means they assess your risk level when determining how much your coverage will cost. Age and health status both factor into your level of risk and the cost of premiums, so the younger and healthier you are when you buy your own policy, the less you’ll pay.
If you intend to purchase an individual life policy, do it as soon as possible.
Understanding the Differences Between Term and Permanent Policies
Group life policies are typically term policies. When buying individual insurance, you’ll have the option to purchase a term policy or a permanent one. Here’s how they differ:
Term life policies last for a specific number of years, typically a term of 10 or 20 years. Permanent life policies last the policyholder’s entire lifetime and offer different benefits than term policies, such as the option to cash it out.
There are three main versions of permanent life insurance:
- Whole life: The most common type of permanent life, where policies last until the policyholder’s death.
- Variable life: An investment account with a cash value that gets invested, usually in mutual funds
- Universal life: The most flexible type of policy, allowing you to raise or lower your premiums throughout its duration
Which is Better: Group or Individual Disability Insurance?
There is no debate about disability insurance:
Every physician should protect their income with an individual disability insurance policy.
Disability insurance is an income protection plan covering the income lost when an injury or medical condition makes working impossible.
When it’s offered as a group plan, the coverage amounts and benefits are limited. When purchased as an individual policy, it’s fully customizable and can provide incredible benefits for decades.
Customizable policies allow you to choose your own:
- Coverage amount: Most providers allow you to protect up to 60% of your current salary.
- Benefit period: Ranging from two years all the way up until your reach retirement age, this is the time frame in which you can collect benefits.
- Elimination period: This is the waiting period between the date of your injury and the date you can start collecting benefits.
- Riders: These are added benefits you can attach to your policy to enjoy better terms and greater financial rewards.
Customize Your Policy With the True Own-Occupation Definition of Disability
Every policy has a definition of disability, which is the standard you have to meet to qualify to receive benefits. Physicians have the highest likelihood of collecting benefits if they choose the true own-occupation definition.
Under this definition, you can collect monthly benefits for an injury that prevents you from doing your current job, as opposed to other definitions which require you to be unable to perform in any position.
Read Do Doctors Need Own-Occupation Disability Insurance to learn more.
Do Physicians Need Individual Malpractice Insurance?
Whether you serve Medicare patients in a community healthcare facility or provide concierge medical services to select clients, every physician needs malpractice insurance.
Some hospital networks and medical practices offer medical professional liability insurance to all their healthcare professionals who provide patient care. When they do, they use a group plan.
The problem with group malpractice policies is that they often have limitations.
Most are claims-made policies that only protect you against claims made while the policy is in place. Claims-made policies do not protect you against claims made outside the policy period. (You would need tail coverage for that, which can be expensive.)
Physicians are better off choosing an individual occurrence-based malpractice insurance policy. Occurrence-based malpractice protects you against any claim that occurred while the policy was in place, regardless of when the claim is made.
These plans offer better protection and higher coverage amounts. While they do cost more, they save you the expense of purchasing tail coverage when the policy ends.
Beware of the Downsides of Group Malpractice Insurance
Because most group malpractice insurance policies are claims-made, tail coverage is actually required. Despite that added cost, tail coverage doesn’t offer all the protections that an occurrence-based policy does.
All policies have limitations as to how much they’ll pay out. In addition to damages and settlements, occurrence-based policies also cover:
- Arbitration cost
- Court costs
- Attorney fees
Tail policies do not.
Should you find yourself facing a malpractice lawsuit when you’re relying on a tail policy, you could have to pay legal fees out of your own pocket.
Physicians need multiple types of insurance, including life, disability, and malpractice. You can save money on monthly premiums by enrolling in a group plan whenever possible.
Yet individual plans, even though they cost more, are always the preferred option.
You can take an individual policy with you, wherever you work. Customize it and agree to the terms and coverage amount that makes the most sense for you. Add options and opt out of benefits you don’t need or don’t want to pay for.