Physician Life Insurance
Physician life insurance is a common topic that comes up with our clients. Whether you are a young doctor getting ready to start a family, or in the final stages of your career, life insurance can play an important role. We will often get asked, “What is the best life insurance for doctors?” This is an impossible question to answer, because the best life insurance for doctors depends on the circumstances. When exploring life insurance for doctors, it is imperative to find the right policy to satisfy the need.
Physician life insurance isn’t any different from life insurance for the average American. Yes, the necessary amount may be larger due to above average income and lifestyles. Different types of policies may be appropriate depending on the goals. Other than that, the same principals apply to a physician life insurance policy that apply to anyone else.
The first step is to identify a reason for life insurance. Below are the main reasons people may need or want to secure a life insurance policy.
Whether we are looking at life insurance for doctors or another demographic, this is the most common reason for anyone to get life insurance. People want to provide financial protection for their loved ones. If you have a spouse, children, or anyone else who depends on you financially (parents maybe), then you need life insurance. If you die, we would assume you want your surviving family members to be on stable financial footing.
Some of you own or are a partner in your practice. If you are a physician seeking life insurance for business purposes, you have come to the right place. Whether it collateral for a business loan, be key-man life insurance, buy-sell policies, or possibly funding a deferred compensation plan, there are many scenarios where it is appropriate to have a life insurance policy for business purposes.
When discussing life insurance for doctors, this one isn’t always on the forefront of one’s mind. However, it falls into a similar category as the protection component. Many physicians want to eventually pass their assets onto their family members. Depending on federal and state tax laws at the time of death, a large portion of your estate could be subject to taxes. A life insurance policy could help mitigate that estate tax liability. Also, if you own illiquid assets, such as a business or real estate properties, those can be more difficult to transfer unless they are owned outright. If you have outstanding loans on those assets, the bank will demand those loans be repaid before handing over the title. Life insurance proceeds can make it easier for your heirs to come up with the money needed for those liabilities.
“Physician life insurance” and “investment” get paired together far too frequently, in our opinion. While life insurance can be designed to accumulate cash value within the policy in a tax-favorable manner, it is important to do it correctly and under the right circumstances. If structured correctly and used for the right purposes, life insurance can be a nice compliment to your other investments. If considering using life insurance as an investment, please reach out to us so we can educate you on the pros and cons and help you determine if it is appropriate for your situation.
You might be a single doctor with no children or dependents. Why would you even consider getting life insurance? The ability to qualify for life insurance is contingent on health and the cost is based on age and health. It is easier to qualify for life insurance when you are young and healthy. It is less expensive when you are young and healthy. Rarely do people get younger and healthier over time. Therefore, if you think you may have a spouse, children, or other dependents one day, it could behoove you to secure life insurance now as a future planning tool.
Types of Life Insurance
There is no best type of life insurance for doctors. There are many types that all have their time and place. Asking, “What is the best type of life insurance for doctors,” is like asking, “What is the best treatment for cancer?” First, we need to figure out the type and stage of the cancer. Then we need to factor in other variables, such as age, gender, other health conditions, allergies, desired lifestyle, etc. Only after a complete assessment is made can a physician determine the best treatment plan for the cancer. Same with life insurance (or any financial planning matter). Only after assessing the situation can an appropriate type of life insurance be identified.
There are many different types of life insurance. All of them fall into two categories, summarized below. Please reach out to us if you would like to discuss any of these more in depth.
Temporary Life Insurance
This is called term life insurance. It expires after a defined number of years. 10, 15, 20, and 30 years are common term lengths. Term is the most commonly purchased type of physician life insurance and also the least expensive. People purchase term life insurance if they need a policy for a limited amount of time. You may get a policy that lasts until the kids are out of college, or until you reach retirement age, when the need has diminished.
Permanent Life Insurance
All other types of policies fall into this category. Some of the common ones include whole, variable, universal, adjustable, and indexed. There are hybrids and combinations of these as well. All of them serve different purposes and are applicable for certain sets of goals and objectives. All of them can be designed to last indefinitely and can accumulate cash value. Because they can last indefinitely, these policies are typically considerably more expensive than term policies that expire.
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We are not licensed to give legal or tax advice. Consult with an attorney and a tax accountant for legal and tax advice.