Insurance is an important part of an individual’s financial plan. Life insurance can help protect your assets, loved ones, and other individuals, such as business partners, upon your passing.
But do physicians need life insurance? This article will explore the different types of life insurance policies, how they work, and provide the framework on how to determine if it is right for you.
What is Life Insurance?
Life insurance is a contract between the policyholder and an insurance company, where the policyholder pays regular premiums in exchange for a death benefit to be paid out to their beneficiaries upon their passing. Life insurance is often considered by doctors as high-income earners that want to provide for their families should they pass away.
There are several different types of life insurance policies, each designed to suit different needs. Here are the two main options:
- Term life insurance: Term life insurance is typically a more affordable option that provides coverage within a set period of time (often between 10 and 30 years or to a specified age). This policy does not build in cash value.
- Whole life insurance: This policy is the most common, providing coverage for the entire duration of the policyholder’s life while building cash value over time. Premiums remain the same for the life of the policy.
Understanding Policy Ownership
The policy owner is responsible for keeping the policy active by paying the premiums, making decisions about changes to the policy, and determining who claim payments are made out to. The person who is covered by a policy is not necessarily the policy owner.
There are few different types of policy ownership:
- Owning your own policy: In the event that you pass away, you are the sole owner and only person covered meaning any money left would go to your estate unless otherwise specified in an established will. Typically this policy is meant to minimize taxes in order to reduce the financial burden when the estate passes to another individual.
- Ownership of a policy on another person’s life: The most common cases where you would see this type of policy is when a spouse owns a life policy where their significant other is assured or when business partners own life policies on one another. The benefit to this policy is that once the person covered passes away, proceeds are paid directly to the policy owner.
- Joint ownership: Each owner has equal ownership rights and all decisions relating to the policy must be agreed upon by all of the owners. This policy is often used by life partners, business partners, or with parents and their children.
- Company-owned policy: Companies can hold policies on individuals as well. You can see this occur often when the person covered plays a key role in the business. The proceeds from this are typically used by the business to keep things running smoothly.
How Life Insurance Works
Upon your death, your beneficiary or beneficiaries must file a claim with the life insurance company that holds your policy. In most cases, the claim review process can take between 30 and 60 days.
Once approved, your designated recipient may choose how they prefer to receive the payout (death benefit) if not already predetermined. The payout can act as an income replacement so your family is able to retain their home and pay bills should you pass away.
Benefits of Life Insurance for Physicians
There are many benefits to life insurance, but you may be wondering how to determine if life insurance is worth the premiums you’d pay. Life insurance can provide peace of mind knowing your loved ones and your assets are financially protected.
Financial Security for Beneficiaries
If you have loved ones relying on you, life insurance can be used to secure the financial future of your dependents. During the planning process, you will be asked to designate beneficiaries; you can have multiple. Beneficiaries are simply the individuals the claims money gets paid to upon your passing.
Coverage of Debts
Many physicians take on a considerable amount of debt through all phases of their career. In fact, the average medical school debt load was over $200,000 for students in 2021. While school-related debts alone can feel daunting, that does not include standard living expenses such as mortgages or other remaining variables such as business considerations for physicians who own practices or are partners in a practice.
When selecting a life insurance policy, ensure that it is large enough to cover any remaining student loan and other debts that you would be leaving behind in addition to financial security for your family, if applicable.
Final Expenses
Life insurance can also help alleviate the burden of end of life care and funeral expenses for your loved ones.
Do All Physicians Need Life Insurance?
While all physicians have unique financial circumstances, each person’s situation should be assessed individually. It is important to determine who would be financially affected both professionally and personally in the event of your passing.
There are a couple of factors to give thought to during the consideration process:
- Do you have anyone depending on your income?
- Do you have anyone that could be left to take on your joint debt?
- Do you own or are you a partner in a practice?
If you answered yes to any of these questions, you should consider life insurance. We recommend speaking with an insurance expert to gain more clarity.
Do I Need a Policy in Addition to My Employer’s Life Insurance?
Life insurance should be customizable to your situation. While employee life insurance is a valuable benefit for employers to offer, it is important to remember that group life insurance is often a one-size-fits-all policy and may not be adequate in relation to your unique coverage needs.
Oftentimes, group life insurance coverage is a set base amount or equal to your annual salary. This coverage does not take children, student debt, or standard living expenses such as mortgages into consideration. Employee life insurance is also contingent that you remain at your job and coverage ends when you leave.
Choosing the Right Life Insurance Policy
If you decide life insurance is right for you, where do you start and how do you determine what policy suits your needs? We’ve got you covered, here are a couple of things to note:
- Policy Types & Ownership: Based on your unique needs, it is important to first determine whether you need term life insurance or whole life insurance when shopping for policies as the premiums and coverage vary. You will also want to consider the different types of policy ownership during this stage.
- Assessing Coverage Needs: As previously stated, calculating your coverage is based on your needs; whether it be income replacement for your loved ones or covering end of life expenses. Check out our calculator to estimate your coverage.
- Taxes: The death benefit from a life insurance policy is not considered taxable income by the IRS. However, any interest earned by the payout is considered taxable. Therefore, if you choose a policy that builds in cash value as your payout option, your beneficiaries may be subject to a tax bill.
- Timeframe: While many may think being young and healthy means you can wait to invest in life insurance, premiums are typically lower at this stage in your life.
Does Physician Life Insurance Make Sense For You?
Determining whether you need life insurance is unique to your individual circumstances. If you want to learn more about how life insurance could support your needs and goals, speak with an insurance expert today.
Learn more about other types of insurance:
Panacea Financial Holdings partners with Treloar and Heisel to deliver insurance services. Insurance products offered separately through Treloar & Heisel and Treloar & Heisel Property and Casualty. Insurance products are: not a deposit, not FDIC-insured, not insured by any federal government agency, not guaranteed by the institution, and may go down in value.
