Guest Post – by Shawn M Johnson, ChFC®, CLU®, CLTC – Vice President of Business Development at Treloar & Heisel, our insurance partner

Becoming a doctor comes with many academic and financial challenges, but once you complete your school and training, the rewards of your hard work and investment can be substantial. Not only do you have the opportunity to make a meaningful impact on individuals’ health and wellbeing, but you also enjoy a positive financial outlook.

With a stable income, the question arises: how should you spend now and save for the future? If you’re already earning a good income or are on the path to achieving one, having a financial plan is essential for reaching your goals. In this article, we will consider what this financial plan looks like and how whole life insurance can fit into that plan.

Making a financial plan after residency

Before diving into advanced financial strategies, let’s start from the beginning—right after completing your training. Residency and fellowship can be a time of financial strain for many without the means to save for the future, but once you begin earning a practicing doctor’s salary, you are more equipped to start building your financial foundation.

This foundation starts with securing essential insurance coverages, creating a student loan repayment plan, building an emergency fund, and saving for home or practice ownership.

Once the basics are in order, you may be wondering how much and where you should save. As income grows, so does the ability to save. After fully funding qualified plans (such as a SEP or 401(k)), you may find there’s still a gap in achieving financial independence.

This is where additional financial tools come into play. Whole life insurance is one option, offering both life insurance protection and the opportunity to save money in a non-correlated asset class.

What is a non-correlated asset class?
A non-correlated asset class performs independently of the stock and bond markets, providing investors with a way to balance and stabilize their portfolios, especially during market volatility.

What is whole life insurance?

Whole life insurance, as the name implies, is a type of permanent life insurance. Permanent life insurance remains active as long as the policyholder continues to pay the premiums, unlike term insurance, which provides coverage for a limited time.

Saving with whole life insurance

In addition to offering lifelong coverage, whole life insurance can act as a savings vehicle by accumulating a cash value over time. This cash value typically grows with contractual guarantees and may also increase further through dividends from the issuing company.

While the savings aspect of whole life insurance can offer stability to your overall financial plan, it won’t yield returns as high as other asset classes, like stocks, bonds, and real estate. You’ll experience less volatility but also lower returns.

Whole life insurance acts as a diversification tool within a larger financial plan. Few financial advisors would recommend allocating 100% of investments to stocks. Most would suggest diversifying by placing a portion of your investments in safer, historically lower-performing asset classes to reduce overall portfolio risk.

Whole life insurance returns are more appropriately compared to “safer” assets such as municipal bonds, CDs, money markets, and savings accounts. Although whole life insurance has historically offered similar returns to these vehicles, it provides additional advantages, such as:

• Contractual guarantees
• Tax-advantaged growth on the underlying cash value
• Options to include riders for disability and long-term care protection
• Death benefits for legacy planning

Because of these features, whole life insurance can provide tax-advantaged growth, support income planning, and facilitate wealth transfer to future generations.

See also: Doctor’s Guide to Life Insurance

Whole life insurance isn’t for everyone

Whole life insurance can be quite complex, leading to misunderstandings among both financial advisors and the general public. Some people view it as expensive, inappropriate, or underperforming. However, while whole life insurance is a valuable and versatile tool, it isn’t suitable for everyone.

When should I consider whole life insurance?

If whole life insurance isn’t for everyone, who should consider it? Whole life insurance is a tool to add to your financial plan once several other pieces of your financial strategy are in place.

We recommend meeting these criteria before deciding to get whole life insurance:

1. You need life insurance. (You care for someone or something that will need to be provided for when you are no longer able to do so.)
2. You have a student loan repayment strategy in place.
3. You have an emergency fund (3-6 months of living expenses saved).
4. If you plan to purchase a home, you have done so.
5. If you plan to purchase a practice, you have done so, or your employment and income are stable.
6. You are fully funding qualified retirement plans and tax-advantaged accounts.
7. You have a cash surplus and a retirement savings shortage.

If these conditions apply, you might consider whether whole life insurance is a good fit for you. You may have heard the phrase “buy term and invest the rest.” While catchy, this slogan doesn’t provide enough information for an informed decision. For those interested in leaving a legacy and taking advantage of at least one of whole life’s other powerful features, whole life insurance could be the right choice.

Buying term life insurance

If you choose to use term life insurance rather than whole, choose a reputable company that offers conversion privileges to top-tier whole life policies. Don’t assume all term policies are the same.

If you are a young doctor or doctor-in-training, you have the opportunity to purchase convertible term insurance, which allows you to convert your term insurance into permanent insurance regardless of any future health changes. Buying convertible term insurance is a smart way to lock in your good health ratings today, so any potential health issues won’t prevent you from purchasing whole life insurance in the future.

Using whole life strategically

By now, you might have realized that whole life insurance is much more than just insurance. While this is not an exhaustive list of how whole life can be creatively used to support your financial plan and savings strategy, here are a few strategic uses of whole life insurance:

1. Pass it on. Whole life insurance is an excellent tool for transferring wealth to heirs because life insurance proceeds are tax-free.
2. Use it for retirement income. You can take advantage of opportunities to withdraw income tax-free through policy loans at retirement.
3. Use it for deferred compensation. Whole life insurance is often used for deferred compensation plans for corporate executives.
4. Borrow from it in down markets. When equity markets decline, consider borrowing against the cash value of your life insurance. Since the cash value in whole life insurance is not exposed to market volatility, it’s a smart way to avoid selling equities during a downturn.
5. In some states, it’s a protected asset from lawsuits. In the event of a malpractice suit against you, whole life insurance can offer creditor protection, unlike most assets outside of your retirement plan.

If whole life is right for you, work with a specialist

Many people have purchased whole life insurance at the wrong time or in unsuitable circumstances, leading to dissatisfaction for those who were poorly advised. Even if the timing and situation were right, they might have ended up with the wrong policy.

Not all permanent life insurance policies are created equal, so it’s crucial to work with an advisor who understands and can explain these differences. If you need life insurance, have the cash flow to support it, and have exhausted other tax-advantaged savings options, consider taking a fresh look at whole life insurance.

Whatever you do, work with someone who understands the financial needs of doctors and knows how whole life fits into the bigger picture of your financial plan. When used properly, this could be the missing piece in your financial toolkit.

Speak with an insurance professional at Treloar & Heisel to see if whole life insurance could support your financial plan.

For financial assistance, connect with our team.