2018 Guide to Life Insurance for Doctors
Physicians with families that depend on them for financial support should, in most cases, own life insurance to provide for their family’s needs in the event of their untimely death. Owning the right type and amount of life insurance can make sure that a family can achieve financial goals like sending kids to college, retiring in comfort and providing for extended family or a disabled child. A even if the main breadwinner dies prematurely. Avoiding the mistakes doctors make when buying life insurance will save money that can be used for other purposes like saving for college or investing for retirement.
How much life insurance do doctors need?
There are at least two ways to arrive at the amount of life insurance a physician should carry:
Human Life Value or Multiple of Income Method considers the net present value of a physician’s after-tax earnings over the course of their work life. Often, an arbitrary multiple of gross income is used, such as “10 or 20 times gross wages.” Insurance agents use this method because it’s quick and results in higher insurance sales (and higher commissions) than other methods.
Needs-Based Analysis calculates the gap between financial resources available today (such as retirement funds and college savings) and the present cost of future goals. For example, if a physician’s family needs $3 million in today’s dollars to fund retirement and that family has $500,000, then the need or “coverage gap” would be $2.5 million. This method requires financial planning to calculate the coverage gap and it offers a more accurate and often lower overall amount of recommended life insurance, saving premium dollars.
Questions Doctors Should Answer in the Life Insurance Planning Process
How will my family pay the bills after I die? If you are married to another physician or someone earning a high income, they may be able to support your family, so life insurance may not be necessary. However, if your spouse’s earned income would be insufficient, then life insurance can fill the gap.
How will my spouse pay for retirement? If you are retired, it’s unlikely that you need life insurance at all. However, if you have not had a chance to build your retirement fund and your spouse will not be able to save adequately, you will need some insurance that can provide a chunk of money that is dedicated to retirement.
How will my kids pay for college? The cost of college is so high these days that it is practically impossible for students to pay their own way, so it is prudent to consider this need in your life insurance planning and set aside a sum to help them reach this goal.
What will happen to my debts? Student loans, a mortgage, credit card debt and auto loans are typical debts carried by young physicians. While federal direct student loans may be forgiven at your death, private loans probably will not be forgiven and the mortgage is certain to continue. Make sure to earmark some life insurance proceeds to pay off debts that will continue.
How long will my family actually need life insurance? Life insurance agents and life insurance companies make more money when you keep your life insurance coverage in force for longer time periods, which means physician will have less money to build financial security. To avoid paying more than you should, try to match the term of your risk with the term of your insurance. For example, if your child is three years old and going to college at age 18, you could buy 15-year term insurance to cover the risk that you may die before saving all the money they need for college.
Words of Caution About Life Insurance Agents
Life insurance agents are not fiduciaries, which means they have no duty to act or recommend in a physician’s best interest. Some agents may try to sell policies that are unnecessary while others will push expensive products life variable universal life insurance. Physicians would be wise to view product recommendations other than term life insurance with a high degree of skepticism no matter how good the offer looks.
Physicians also need to know that the price of insurance is regulated at the state level, such that any given policy from an insurer will have the same price regardless of which agent sells that product. Since two agents may offer the same product at the same price, physicians should select an agent based on the quality of service they expect to receive.
Life Insurance Agents Who Serve Doctors
Physician Family does not sell financial products but we can recommend an agent who has demonstrated experience serving physicians.
Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF — Dozens of our clients have worked with Larry to get disability insurance. He's an honest person who believes in term insurance and will not try to sell you variable universal life insurance or other junky cash value life insurance you don't need. You can reach Larry at firstname.lastname@example.org, call him at (516) 677-6211 or visit his website at PhysicianFinancialServices.com.
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