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Physicians have been long time targets for big life insurance premiums. They have been solicited and coerced into buying Whole Life or Universal Life products that build cash value. Don’t get roped into this. While there are certain circumstances that it makes sense to buy a Universal or Whole Life insurance policy, in most cases it doesn’t. Buy Level Term Insurance and you’ll get the largest payout for the lowest price.
Term life insurance for physicians is affordable
Make sure you buy enough to protect yourself from the beginning instead of trying to add more later. A $2 million 30 year term policy for a 28 year old female who qualifies for the Preferred Best rates is as low as $80 per month. The younger you are the cheaper it is…not to mention your health is usually better when you’re younger. When you apply for life insurance, the underwriters look at other factors than just your age and health. They also look at the health history of your parents and siblings, your financial health (bankruptcies)your driving record and participation in dangerous activities play a part too.
Consider “Laddering” your life insurance. This is a unique way for physicians to protect themselves from being under insured, but not overpaying for the coverage. You would have varying amounts for different time periods of time base on your needs. As a quick example, you need $1 Million for 25 years because you have young children, another $1 Million to cover your mortgage for the next 15 years and just $500,000 to hold you over until your retirement income kicks in.
How much Term Life Insurance do Physicians need?
Don’t short change yourself. Most of you who are reading this are probably residents, new attending or fellows, so your income will likely grow significantly over the next 10 years. Not to worry. If you are in your 20’s through your late 30’s, you can purchase up to an average of 25 times your annual income.
Residents and interns can purchase about 1 million based on a $50,000 per year salary. If you already have a job lined up, and can prove it with a copy of your contract, most life insurers will issue the coverage based on your future earnings. Fellows or attending physicians shouldn’t have any problem purchasing more than enough coverage in their first year. If a new Attending earns $150,000 in their first year they will easily qualify to purchase $3 M to $4 M.
1 Million isn’t enough!
An example of how little $1 Million is today…
A friend of mine was fortunate to have have triplets just over 18 years ago. They didn’t attend private school. Instead, they went to the public school which had just as good or better programs than the private schools. They live in an upscale city where their property taxes were about $40,000 per year that largely goes toward the school system. Now the kids are off to college. One to a private university just below ivy league status, and the other two in large state schools. Just bachelors degrees, not even masters will cost them about $800,000.
Purchase a minimum of $2 Million. If you are fortunate enough to be reading this while you’re still a resident or intern, then purchase what you can and add to it as soon as you have a contract. You’ll already be buying the lowest cost life insurance dollar for dollar by buying term and buying it younger, so make the most of the opportunity and maximize your protection. You may be surprised to know that most $2 Million policies can cost less than your car insurance.
If you can afford to, buy either 25 or 30 year policy. If you get to a point that you don’t need the coverage anymore, you can cancel the policy or simply stop paying the premiums. Play it safe if there is a minimal difference in the rates.
If you are in a specialty that you know your income will soar in the next five to ten years, then purchase more than consider purchasing more that the average physician. It is usually a very small difference to purchase an extra million when you’re 30 years old compared to adding another policy at age 40.
Choosing the company right company
If you’re in absolutely perfect health, your immediate family is living, and you have no other risk factors like being a private pilot or military, then go with the lowest priced A.M. Best “A” rated company. Don’t use one of the mail order companies that you can’t get advise from a licensed independent agent. It may be that the insurance company chooses you. In other words, if there are medical issues to get around or you travel to dangerous countries, or you have had too many moving violations, we would investigate which companies would offer you the best rate.
Paying your premiums
Unless you are still earning around $50,000 per year, then pay your premiums on an annual basis. The majority of insurance companies charge you more if you pay monthly, quarterly or on a semiannual basis. We’ll be able to tell you how much more it costs to break it up into payments.
One more reason to pay one time a year are credit card points. Ask the agent if your company will take a credit card. If they do, you won’t be able to pay monthly, but you can pay a single premium with a card and earn your points.
Occasionally you’ll find a company the charges you the same premium no matter how often you pay. We’ll be able to compare your total cost at the end of each year to see if makes a difference.
Saving $20 a month or $240 a year may not sound like much, but if you figure the savings over thirty years, it can be two to three thousand. For those of you who need to pay it more times than once a year, just call your agent once your income increases and change it to annual when you can afford to.
Keep your life insurance separate from your investments. Chances are you’ll do much better investing your money in a true investment product rather than packaging it with life insurance.