Life insurance is one of the key foundations of a good financial plan. In this article, we will discuss the basics of life insurance.
Why life insurance?
While you might feel invincible and 100% healthy, as physicians we all know patients or colleagues who were diagnosed with terminal cancer or died suddenly because of an accident or health condition.
If someone is dependent on your income (usually your spouse or children), then life insurance can help provide for them financially if you were to die unexpectedly.
Who needs life insurance?
Not everyone needs life insurance. If no one depends on your income, then there is no need for you to purchase life insurance. Similarly, if no one actually needs your income if you were to die, then it might not be necessary to buy life insurance. For example, if you are independently wealthy and your spouse and kids could live without your income, then you would not need life insurance.
Similarly, once you become financially independent, you don’t need to continue to pay the premiums on your life insurance. You should only buy life insurance if you need it.
However, if you have family (spouse, kids, parents, etc.) who depend on your current or future income for their livelihood, then you should consider purchasing life insurance to protect against the risk of losing that income.
Keep it simple: Buy term life insurance
Insurance agents may try to sell you all types of life insurance. However, for the vast majority of physicians, the only life insurance you should purchase is term life insurance.
How does term life insurance work?
When you purchase term life insurance, you agree to pay the insurance company a fixed amount of money, called the premium, on a periodic basis (typically monthly or annually). In return, if you were to die prematurely, then the beneficiaries on your life insurance would receive the benefit amount.
How do I buy term life insurance?
Unfortunately, I am not aware of a way to purchase life insurance without going through an insurance agent. The Term4Sale website will list local insurance agents if you want to work with someone locally. However, it is not required that you work with an insurance agent locally. I purchased my term life insurance from an insurance agent who worked in a different state hundreds of miles away from where I lived.
I already have life insurance through my employer. Do I need my own life insurance?
Many employers offer life insurance to their employees as a benefit. However, many physicians will want additional life insurance, as the benefit amount was likely designed with all employees in mind. Most physicians will have higher spending and higher incomes to protect than the average employee. So if a doctor needs life insurance, he or she should consider purchasing additional life insurance separate from their employer.
How much does term life insurance cost?
Insurance rates are individualized to your personal situation. Insurance companies put a lot of effort and math into figure out the likelihood you will die. Your insurance premiums will depend on a number of factors, including your age, gender, smoking status, and pre-existing medical conditions.
To get a ballpark estimate of how much term life insurance might cost for you, go to Term4Sale and enter your information.
As an example, a 30-year-old male never smoker in excellent health from New York would be able to purchase $1,000,000 in 20-year term life insurance for around $400 per year.
When should I purchase term life insurance?
Life insurance should be purchased when your family would depend on your income. Many residents who are married with children might choose to purchase life insurance as a resident. Others wait until they finish residency, when they can more easily afford the premiums.
While it might tempting to wait until you have finished residency to purchase life insurance when you have a higher salary and better cash flow, I would strongly consider finding a place in your budget for life insurance if you have children or other beneficiaries who depend on your future income.
By purchasing term life insurance in residency, you will pay lower premiums (as you will be younger at the time of insurance purchase), and you lock in the insurance rates while you are still healthy. If you get ill or disabled during residency, your premiums could rise significantly, and you may even become uninsurable. I personally purchased term life insurance as an intern for these reasons.
Life insurance is not for everyone, but it is something that should be considered during residency or shortly after you start working as an attending physician. If you purchase life insurance, always choose term life insurance: Stay away from any other variant.
“Wall Street Physician,” a former Wall Street derivatives trader , is a physician who blogs at his self-titled site, the Wall Street Physician.
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