Life Insurance isn’t nearly as complicated as many insurance agents make it out to be. It's a fact of life that we’re all going to die, the question is do you have adequate life insurance to support your family if you’re gone?
When it comes to life insurance, we encourage early-career physicians to focus more on the amount of coverage than the type, though both are important. Insurance can help replace your current and future income in the event of you no longer being here to provide for your loved ones.
“I have delivered many death claims during my 30 years of working with physicians. Never once did the family ever ask what type of life insurance my client had, just thankful that they had it.” - Shaun McDuffee, Founder and CEO
Determining the type of life insurance policy that is right for you can be thought about in terms of whether you'd like to rent or buy the insurance. You can read more on the types of life insurance below.
So, how much life insurance do you need?
The answer is going to depend on your unique situation and what stage you're at in your career.
For early-career physicians, the majority of your earning years are still in front of you. An easy rule of thumb is that for every $1 million of life insurance coverage you have, it will replace about $50,000/yr. of income to your family.
As a resident or fellow, you automatically qualify for $3 million of coverage based purely on the fact that you are a physician in training. We know this is already more than our example above based on how much you make as a resident, but it's important to remember that your income won’t be at that level for long. Ideally, we are looking to protect as much of your income (current and future) as we can at the lowest cost. With a majority of your earning years in front of you and others likely dependent on your income, having a solid risk management strategy in place early is the foundation for a stable financial future.
For physicians further along in their careers, we spend more time considering the type of insurance in conjunction with the amount of coverage. There are a variety of different life insurance products that can allow us to help maximize retirement income and provide cash during a long-term care event. Many people just think of life insurance as benefitting your loved ones when you pass, when in reality there are several different living benefits.
One of our specialists would love to connect with you to help you secure adequate life insurance and answer questions about your situation.
Types of Life Insurance
There are two main types of life insurance: term and permanent.
Term Life insurance
An easy way to understand term life insurance is to think of it like renting. With a term policy, you pay your monthly premium for the duration of a set length of time (10, 15, 20, 30 years). If you were to unexpectedly pass away during this time, your family would receive the death benefit. Once the term is up, like a lease, you would need to renew or find another policy. This is the simplest form of life insurance.
Permanent Life insurance
Using the same analogy, a permanent policy would be like buying a house instead of renting. Since you own the policy, it stays with you your entire life (or as long as you pay for it). Instead of your premium acting like rent, you will build “equity” within the permanent life insurance policy in the form of cash value, similar to owning a home.
Term Life Insurance
Term insurance is temporary and is generally the most cost-effective way to insure large amounts of shorter-term risk.
When most of of your earning years are ahead of you, your kids are young, and more of your life is dependent on your income - your life insurance need is largest. At this stage of your career, we recommend getting sufficient coverage to make sure that your family is taken care of in the event of you not being around anymore.
We typically include a convertible option on a term life insurance policy - meaning you have the ability to convert your coverage to permanent life insurance at any point during the term. This becomes especially important if you have a change in health status during that period because once the initial term ends, you may not qualify (health-wise) for more coverage. With a convertible option, there are no medical questions asked when a policy is converted. This essentially locks coverage based on your current health status.
Permanent Life Insurance
A permanent policy is something you own and will protect you until you pass away as long as premiums continue to be paid. Permanent policies are more expensive because of the longer-term protection, but there are several aspects of the policy that provide “living benefits”, which as the name implies are benefits you can use before death.
For example, permanent life insurance can be a powerful tool to help maximize your retirement income. One of our risk management specialists would be happy to explain more about this.
We also typically set up our permanent policies with a chronic illness benefit*. This means once you experience a long-term care event, you can access a portion of the death benefit to help pay for those expenses (sometimes up to $20,000/month). And as traditional long-term care insurance gets more expensive, this is a cost-effective way to cover both risks.
*Based on current federal tax law, there is uncertainty as to whether some or all benefit payments from life insurance Chronic Illness Agreements are taxed when received. We cannot assure you that Chronic Illness Agreement benefit payments will be treated as tax-free death benefits. Please consult a tax advisor before purchasing a Chronic Illness Agreement.
Our Life Specialists
Shaun McDuffee, AEP, CLU, CHFC, CEPA
Founder, CEO, and President of Twin Oak Advisors
Life Insurance Specialist
One of the main drivers of cost for Life Insurance is your health rating. Depending on which carrier you choose, we would then apply with that carrier to get a health rating.
As part of the application process, you will have to complete a telephone interview (20-30 min.) and labs. For the labs, we can schedule someone to come to your house or work at a time convenient for you. There is no cost to you for these tests and there is still no obligation for you at this stage.
Once we have a health rating, we can look at a variety of different options. This allows us to show you exact pricing and select coverage specifically tailored to your needs!
Request a Life Insurance Comparison
Connect with a Twin Oak specialist for any questions or to start the application process. If you are also interested in disability insurance we can include a disability comparison summary.