Life insurance is an optional part of life that only becomes truly missed when you need it most and don’t have it. As a doctor, you’ve seen the nuances of this dilemma play out every time you give a terminal diagnosis or talk to loved ones after a patient passes away.
Because of your unique position in handling the fragility of the human body, you know life insurance is an essential tool. But what you might not understand is how it works and how to ensure you have the best policy to keep your loved ones safe after you’re gone.
This guide explains everything physicians should know about life insurance to free your dependents from financial burdens when you aren’t there to care for them.
1. Life Insurance Has Other Benefits Besides the Payout
You know the foundation of life insurance. The insured pays a monthly premium to an insurer, who, in return, provides a contractually guaranteed death benefit amount to the beneficiary when the insured dies.
But a life insurance policy involves so much more than that. Understanding how it works can mean the difference between paying for an asset that accrues cash or paying for a liability you’ll (hopefully) never use before it expires.
Since your earnings tend to be higher than the average worker, you and your loved ones will likely grow accustomed to a greater standard of living. Do you want to protect your family from losing that standard when you pass away?
The right life insurance policy provides a tax-free benefit that can — if planned well — cover your debts and funeral expenses. It also keeps your dependents comfortable until they can adjust to life without you and your financial contributions.
Still, an often-overlooked advantage physicians can benefit from with life insurance is that it is a tax-efficient strategy to build their retirement portfolio. Certain types of permanent life insurance buffer your tax liability and grow your other investments, as OJM Group explains here.
2. Your Debts Aren’t Always Forgiven — But Your Life Insurance Policy Can Help
Many people live under the misconception that when they die, their debts disappear with them. They believe that when a creditor comes calling for their money, their loved ones simply have to provide them with proof of the death, and the debt goes away. The reality is much different.
Do you still have student debt from your years at medical school? If you’re like 70-89% of med school graduates, your degree comes with about $200,000 or more in debt (as of 2024). Unless you take the student loan forgiveness path, it will take you (on average) 10-30 years to pay off your education. And should you pass away before that debt is paid, your family will be responsible for the rest of the amount (unless you took out federal loans).
Consider your current debt load and which creditors offer forgiveness after death. This list is a (non-exhaustive) place to start:
- Private student loans that aren’t expressly forgiven by the lender in your contract terms,
- Credit card debts, which are only written off after the estate is settled and determined to not have enough assets,
- Mortgages, unless you have mortgage insurance that covers the property in the event of a death of one person on the loan,
- Medical debt creditors can come after the estate for payment,
- Car loans, again unless you have insurance coverage or terms that forgive the balance in the event of death
As a general rule, you can assume that your estate will be responsible for your debts. Until those creditors are taken care of, your family may not see the life insurance money.
3. Your Employer’s Policy May Not Be Enough
Think you’re covered because your job comes with life insurance? Better check the fine print.
Employer health insurance is almost always term, which means it will end when your time working with them is over. Because it’s likely a group plan, the benefits may not be enough to cover your family’s needs. Look at the policy and review the costs and terms.
If you’re still unsure as to whether you have enough coverage, bring your policy to your fiduciary advisor. They’ll help you understand your net worth (assets and liabilities), project a future financial forecast for your beneficiaries, and come up with a minimum death benefit figure.
They’ll also offer suggestions on the benefits and drawbacks of term and permanent insurance. Even if your employer’s death benefit is sufficient for your needs, that coverage has an expiration date. By the time you decide to invest in another type of life insurance, you’ll be older and may have had a medical diagnosis that inhibits your ability to get affordable coverage. The younger you invest in a permanent life insurance policy, the lower your rates are (and the lower they’ll stay), so you can get more coverage at a rate you are comfortable with.
Conclusion
Life insurance is one of the few insurances that you’re permitted to have multiple policies. Whether you’re ready to invest in your first policy or supplement your current one, make your choices strategically. Evaluate your needs, your debt, and your goals, and find a policy that covers them all, giving you peace of mind that your family will be taken care of when you can’t take care of them.
