How much life insurance physicians need can be a difficult question to answer. It’s not always an easy conversation to have.
Picturing what would become of your family if you were to die is not exactly a simple dinner chat, but it’s a necessary one to ensure that your loved ones are protected.
Let’s take a closer look at life insurance and tips to selecting the right coverage for you and your family.
Physician Life Insurance 101
Life insurance is one of the only types of insurance that isn’t designed to protect you; instead, it’s to safeguard your family and loved ones in the event of your passing. Your loved ones can use the funds to supplement income, pay off debts, cover end-of-life costs, and invest for their future.
Having the right life insurance policy is a critical component of a well-rounded financial strategy. The amount of coverage you decide on impacts your family’s future financial needs, wants, and decisions.
If cost weren’t a factor, how much of your income would you like to protect?
Many doctors would likely answer, “all of it,” or at least as much as possible.
Life insurance policies aren’t always cheap, especially the more income you look to protect. But here’s the thing with life insurance: if you had a crystal ball that clearly laid out the next 20+ years, you likely wouldn’t need it.
The reason you buy life insurance policies is because every day is unknown. If you were to pass away tomorrow, how much coverage would you want your family to have? More than likely, you’d choose to purchase the maximum amount of coverage that you’re eligible for.
But if you insure the maximum amount, is that too much?
Here’s a different perspective to consider. Life insurance companies won’t over-insure you because there is no economic incentive for them to do so. By design, companies won’t provide more coverage than what they deem you’re “worth” based on income, health, habits, family health history, underlying conditions, and more.
We encourage you to view life insurance through an informed lens and make an intentional decision based on your values. Take an educated look at your cash flow plan and make a choice based on what’s best for you and your family.
Calculating Adequate Life Insurance Coverage
How much life insurance do you need?
Start by thinking through the present and future role your income plays in your family’s cash flow plan.
- What percentage of your income covers your household expenses?
- Do you have debts like a mortgage, student loans, or cars?
- How much does your spouse/partner have invested for retirement?
- Do you have children, and are you saving for their education?
In general, your life insurance policy payout (known as the death benefit) should hover around 20x your income. For a newly graduated resident making $300,000 per year, the maximum coverage they could get is likely between $6 to $8 million, for example.
While $6 million may seem like way more than you need, consider all that the money should accomplish: help get your loved ones out of debt and set them up for a brighter financial future.
When deciding on maximum life insurance coverage, consider using this rule of thumb: for approximately $40,000 of income, you need about a million dollars of coverage. It’s also essential to account for inflation over time.
Base Coverage off Your Budget
It’s also critical to purchase a policy that fits into your budget. Do you have a debt to pay off? Are you saving your children’s college funds? Do you need to focus on saving for retirement?
Once you know the answer to these questions, your advisor can put together a more effective strategy.
Take Advantage of More Flexibility with Riders
There are two general types of life insurance policies: term and permanent. Term insurance tends to be more popular as it’s the more affordable option.
A term policy covers you for a specific period; most are about 20-30 years. There are several types of permanent insurance policies, like whole or universal. These plans come with a death benefit and a cash value option that you can use for additional investments.
Term insurance is generally quite affordable, but since it’s only for a limited time, it needs to protect you when you need it most. Term insurance should have the flexibility to make adjustments if required because of a health situation. This is where a conversion rider can come into play. A conversion rider allows you to convert a temporary policy to a permanent policy.
Term life insurance is essentially temporary coverage for a set amount of years, while a permanent policy is in place until the day you die. Conversion riders allow for more flexibility within your coverage. For example, if you discovered that you had stage 4 cancer, you’re allowed to convert your policy from temporary coverage to permanent coverage with no health questions asked.
Ask Your Advisor About Stacking Life Insurance Policies
As you mature through life and your career, the amount of life insurance protection you need will likely increase, making stacking a helpful strategy. Stacking life insurance policies, also known as the ladder strategy, is when you buy multiple term life insurance policies that expire at different times.
When you stack life insurance policies, you only pay for the coverage you need while protecting your long-term financial health. Stacking policies means that you would be paying less expensive premiums than if you bought a new policy when you’re older, with presumably more health conditions.
This strategy is most suitable for those who clearly understand their current finances and what their finances will look like in the long term, including a mortgage and possible education expenses. Your financial advisor can help you determine if this strategy could fit your goals and lifestyle.
Find Confidence With Life Insurance
Is there ever a time when you can ditch life insurance? In general, once you’ve built up enough assets to cover all of what your family needs, you can consider forgoing your life insurance policy. Until that point, you need a policy that can protect your family if an unforeseeable accident occurs.
Life insurance can be tricky and challenging to navigate on your own, which is why our team of experts at Vestia are ready to help. Get in touch with our team to take the next step to a more secure financial future.
Investment advisory services offered through Vestia Personal Wealth Advisors, Vestia Retirement Plan Consultants, and Vestia Advisors, LLC. Securities offered through Ausdal Financial Partners, Inc., 5187 Utica Ridge Rd, Davenport, IA. 52807 (563)326-2064. Member FINRA/SIPC. Vestia Personal Wealth Advisors, Vestia Retirement Plan Consultants, Vestia Advisors, LLC, and Ausdal Financial Partners, Inc. are independently owned and operated.
This material is intended for informational purposes only. It should not be construed as legal or tax advice and is not intended to replace the advice of a qualified attorney or tax advisor. This information is not an offer or a solicitation to buy or sell securities. The information contained may have been compiled from third-party sources and is believed to be reliable.