Life insurance: The basics

As a physician with high earning potential, you’re undoubtedly familiar with life insurance and its primary role – to protect your dependents if you pass away and can no longer provide them financial support. A life insurance policy will pay your survivors an income tax-free death benefit, which can help ensure that debts and living expenses are covered in the absence of your salary, pension, or social security. You may not be aware that life insurance can play another important role – as a tax-advantaged way to supplement other savings plans, investments, and retirement accounts. Simply put, life insurance can be a useful financial tool not only in the event of a policyholder's death but also during a policyholder's life. The question is, what type or types of coverage can best help you to meet your needs and those of your dependents?

Key considerations for doctors

While most of the information to be considered before making a life insurance decision applies to most individuals - regardless of career or profession - there are also a few specific issues that doctors should consider:

Student debt.

Due to the high cost of medical school, most doctors carry a significantly higher amount of student debt than the general public. So your student debt is something to consider when deciding how much life insurance coverage you need. You won't need extra coverage if your debt is mostly from federal loans – which are forgiven upon death.1However, if your loans originated with a private sector lender, be sure to find out whether they will be forgiven should you pass away. If not, you may need a higher death benefit to protect your survivors from financial liability.

Employer insurance.

If you are employed by a health system, health plan, or large practice – as opposed to being a private practitioner – chances are your employer will offer some sort of life insurance plan. These can help provide needed protection but may not meet all your dependents’ needs. So be sure to get all the costs, terms, and death benefit details. If you believe the coverage offered may not be adequate, consider getting an additional policy to supplement it. Remember: High earners tend to have high expenses, and usually more life insurance protection than less.

When to begin coverage.

If you are still a resident – and living on a limited income - life insurance may seem like an unaffordable luxury. However, if you have a non-working spouse or partner, a mortgage, a family, or are planning to start one in the future, you should probably think about getting coverage. Life insurance is much more affordable for younger people in good health with a minimal medical history, so there may be no better time to purchase a policy. Even if you can only afford a limited amount of coverage – and will need a higher level later in life – it typically makes sense to purchase what you can afford now and then increase your life insurance coverage as your income and expenses increase.

How to choose: Term life insurance vs. permanent life lnsurance

The two basic types of life insurance coverage are term life insurance and permanent life insurance. Term life insurance is generally more affordable but only provides coverage for a set period, such as 10, 20, or 30 years. After the term ends, you're no longer covered. Permanent life insurance – whole life insurance or universal life insurance – has higher premiums but provides coverage that lasts your entire life, ensuring that your dependents will get a death benefit regardless of how long you live.2Permanent life insurance policies also feature tax-advantaged cash value, which allows you to grow your assets on a tax-deferred basis.3

Which is right for you? That depends on several factors, including, but not limited to, your age, number of dependents, and income. Some doctors and high earners use term life insurance as their primary coverage. They assume that they’ll ultimately amass significant assets and, at that point, be able to guarantee their dependents’ financial stability without needing the “extra” money provided by life insurance.

However, many other doctors and high earners still choose to supplement their term life coverage with a permanent life insurance policy. Why? Because permanent life insurance – whether whole life insurance or universal life insurance – can do double duty. First, it can extend the number of years of coverage and increase the death benefit due to your survivors in the event of your passing.

Second, permanent life insurance includes a cash value component that allows you to accrue gains on a tax-deferred basis. After you've built up the cash value, you will be able to access the cash — for any purpose, from paying college tuition to buying a new car — via withdrawals, loans, or termination of the policy.4 For doctors who have "maxed out" their retirement account contributions and need another tax-advantaged asset for their excess funds, permanent life insurance offers an attractive option. By using term life insurance in combination with a permanent life insurance policy, doctors can provide significant financial protection for their families and build assets tax-deferred.

How to get started

If you’re ready to purchase life insurance – or to supplement your current life insurance policy – it's a good idea to talk with an insurance agent or financial professional about your specific coverage needs and financial goals. They can provide knowledgeable information and guidance to help you to make the right decisions for yourself and your dependents and help answer your questions about other forms of financial protection, such as physician's disability insurance. Ask a trusted friend or relative for a referral if you don't know a reputable financial professional or insurance agent. Or ask Guardian to connect you with a financial professional in your area.

Frequently asked questions about life insurance for physicians

Should physicians get life insurance?

When it comes to life insurance, physicians are no different than anybody else. If they have dependents – a spouse, a partner, or children – and they want to guarantee that their dependents will be financially protected in the event of their death and the absence of their support – they should consider getting life insurance.

Do doctors have life insurance?

Private practitioners are responsible for purchasing their own life insurance. Doctors employed by a health system, health plan, hospital, or hospital-owned practice will probably have an opportunity to secure employer-sponsored life insurance. However, it’s important to note that these plans may not be adequate for their needs. In that case, they should consider supplementing their employer-sponsored coverage with another policy.

How much life insurance should a doctor get?

The amount of life insurance required by a physician depends on several factors, including age, health status, income, amount of student debt, and – most importantly – the number of dependents. The cost to support your family and provide the lifestyle and education you want them may be significant, and your coverage should reflect that. On the other hand, a doctor without a spouse, partner, or children may not need any life insurance at all.

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This article is for informational purposes only. Guardian may not offer all products discussed. Please consult with a financial professional to understand what life insurance products are available for sale.

1 Source: If your loan servicer receives acceptable documentation of your death, your federal student loans will be discharged.

2 All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

3 Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial professional and refer to your individual whole life policy illustration for more information.

4 Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

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