2 Best Types of Life Insurance for Physicians
2 Best Types of Life Insurance for Physicians
If you’re an M.D. and are considering buying life insurance but you’re not sure where to begin, you’re not alone.
While most physicians know they need some type of coverage, choosing the right type and amount of life insurance can be daunting, especially if you are not familiar with insurance jargon.
Of course, you also want to avoid a high-pressure sales pitch from an insurance agent who may not always be looking out for your best interests.
Why Physicians Need Life Insurance?
What I’ve learned during many years of planning with families, however, is that what people really want to know is, “How could this work for me?” At the end of the day, when they’re considering whether or not to incorporate life insurance into their financial plan, what clients want to understand is, “What value can this tool provide for me and my family?”
In the context of protecting future income, perhaps the first type of insurance you might think of is life insurance. For a high-income earner who passes away prematurely, his or her surviving family not only has to cope with the emotional loss of a loved one, but also the loss of their high income.
2 Best Types of Life Insurance for Physicians
There are two types of Life Insurance Term Life Insurance and whole life insurance.
What is term life insurance?
Term life insurance is a policy that provides a death benefit only if you die within the applicable term.
This term varies in length depending on the policy that you buy, but it’s not uncommon to find term durations of 10, 20, 30 years.
The longer the term, the higher the premium payments. Also, term life insurance does not accumulate a cash value.
Because the majority of people who by term insurance won’t actually die during the time that coverage is in force, the insurance company can charge much less.
What is Permanent Life Insurance?
Permanent life insurance is just that: designed to be permanent and last forever. Whether someone passes away at 55 or 100, the death benefit proceeds will pay out.
If you think your need for life insurance will extend beyond 10, 20 or 30 years, the most cost effective way to own life insurance may be with a permanent, cash value policy.
Permanent life insurance, also referred to as cash value life insurance, is designed to provide protection for your whole life. As long as the premium payments are made, it will continue to provide protection and it can never be cancelled.
We find permanent life insurance a fit for high net worth individuals when…
- They have a taxable estate and prefer liquidity rather than having to sell assets
- Want to diversify their assets
- Want to provide a legacy for their loved ones or charity
Reasons Physicians Need Life Insurance
Here are some of the core reasons clients give us for why they value whole life insurance, the simplest form of permanent life insurance:
- Permanent death benefit and guaranteed premiums
Whole life insurance can never be cancelled as long as premiums are paid; your death benefit is guaranteed; and premiums can never increase.
For many people, it is important to have some life insurance coverage for their family that will outlast their term life insurance and never expire.
Guaranteed premiums also allow people to create stability in their financial plan without having to worry about changes in the future.
- Tax advantages for long-term safer dollars:
Many of our clients use whole life as a segment of their overall financial plan.
Many top mutual insurance companies have general account portfolios in excess of $100 billion, which allows policyholders to “tag along for the ride” and participate through their policy performance over time.
For this reason, it is particularly important to choose a high-quality mutual life insurance company when starting a plan.
- Whole life insurance provides is its tax advantages.
High Income earners become Uncle Sam’s best friend, by losing a significant portion of their compensation and investment earnings to taxes.
With whole life insurance, death benefits are generally not subject to income tax.
- Cash values grow completely tax deferred.
And, you can withdraw your basis from the life insurance contract and take policy loans, also tax-free as long as there is sufficient cash value.
Withdrawing cash value through surrenders or policy loans will decrease the death benefit.
Policy loans will also accrue interest that will need to be repaid.
It is important to remember that financial planning should be a holistic and comprehensive process.
There is no silver bullet, and whole life will never be a cure-all.
That being said, there are unique benefits that whole life can provide, and it is often worth considering as one piece of an overall financial plan.
Over time, when clients see how their whole life insurance matures, they often wish they had committed earlier, and committed to purchasing more.
- Cash value life insurance can be strategically used to maximize the cash value and tax savings while recapturing debts for financing other necessary items, such as vehicles, real estate investing, or business expenditures.
- Even if your high income prevents you from participating in the benefits of a Roth IRA account, you don’t have to miss out on the benefits of tax-advantaged investing. With an Indexed Universal Life Insurance policy, you can still obtain many of the advantages that you get with a Roth IRA—and then some.
- If you want the retirement you want to have, please do not dismiss the power of a properly designed whole life insurance contract to get you there. There is a reason a very well-known Silicon Valley businessman is pumping $1.2 Million dollars per MONTH into this “bad investment.” And it is not that he needs the death benefit. It is because of what this contract will return to him as a result of the uninterrupted compounding of interest without a tax burden attached to it. Ultimately, he is doing it so that for at least part of his life, he will enjoy true financial freedom: A tax free cash flow that will last as long as he lives without any fear of ever running out of money in retirement. Can your 401(k) or IRA do that? Not likely (I do not mean to imply that you shouldn’t invest in a qualified plan. And if your employer offers a match, at the very least invest up to the match).
Term life insurance or whole life insurance for Physicians? 2 Best Types of Life Insurance for Physicians
If you’re wondering which is a better choice a conclusion can only be drawn after factoring in elements like age and the intention behind getting an insurance plan.
An individual who is in his/her 20s should consider going for a term insurance plan and later converting it into a whole life insurance cover.
Doing so can help save on the premiums.
If this is the route you plan to choose, make sure to only do so after being thorough with what is term insurance plan.
Those in their 40s or above can think about opting for a whole life insurance plan.
Not only will it provide coverage throughout the life of the insured, it might also be cheaper than term plans at this stage of life.
Which is best option for physicians: Term Life Insurance or Whole Life Insurance? 2 Best Types of Life Insurance for Physicians
The answer entirely depends on an individual’s need and choices.
A person may choose a term life insurance, if he wants to keep his premium commitments low and invest the extra money saved in other investment vehicles.
He might be focused on building a good retirement corpus before his term plan ends, so not having life insurance protection does not matter anymore.
Plus, the primary goal of providing for family members during his working years is accomplished.
On the other hand, if someone is looking for a life insurance plan that doesn’t expire and also wants to keep on building up wealth which can be utilized when the need arises, whole life is good option.
Or if he wants to make withdrawals or surrender the policy or if he lives up to maturity wants payout, again whole life could be the best option for him.
In short, the best way to summarize the two variants is that a Term Insurance Plan offers protection for a defined period of time at cheapest rates, Whole Life Insurance Plan comes with a cash value, which helps build funds within the tenure of the policy.
It is like choosing between renting a house versus owning a house.
The point being, term insurance is more like renting a house, while whole life cover is like owning a home.
Life insurance is a very flexible and powerful financial vehicle to meet multiple life stage objectives, from providing financial security to building financial assets and leaving a legacy.
Best Life insurance for Physicians Quote Financial Advisor
You’ve invested years of hard work, time and effort into building the life and career you have today.
Putting the appropriate coverage in place now will help you rest easy knowing that your loved ones and hard-earned assets are protected against the unexpected.
As your needs become more specialized and as your financial situation evolves, it will become even more important for you to involve a professional or team of professionals, who can help you address the available options and make sure your coverage continues to protect you and your family.
Contact us today to review your life insurance options.
If you want to schedule a meeting to get a free quote contact us: email@example.com