The chief benefit of life insurance can be summed up very simply: Life insurance is a practical way of protecting the financial security of the people you love and who depend on you.
If the worst should happen to you, life insurance benefits could pay off the mortgage, pay your daughter’s medical school tuition, take care of your debts, or help your family to continue to enjoy the standard of living you worked so hard to attain.
You certainly know the basics. You purchase a policy, pay the premiums, and designate a person or persons to receive the benefit. That’s just the starting point.
Life insurance benefits are often tax-free and are paid to the beneficiary immediately upon presentation of a completed claim and certification of death[1] That means your loved ones will have immediate access to funds when they are needed most, and not have to wait for a probate court to settle your estate, which can take a year or more.
Unquestionably, life insurance deserves an important place in your financial portfolio, but there are many kinds of life insurance, each with its own attributes. As your family changes and you progress through your professional career, you will likely be best served by a physician insurance portfolio that includes several insurance types.
[1] There may be exceptions. Please check your attorney or tax advisor when making any decisions involving legal or tax matters.
A term life insurance policy has a predetermined lifespan, often 10, 20 or 25 years. With affordable rates, it is an excellent choice for young physicians.
Term life insurance offers peace of mind that a much-desired goal can be achieved, in spite of the policyholder’s untimely passing. A newborn’s college education is provided for. Or a mortgage can be paid off. Benefits could take care of any student loan debt that passes on to survivors. The term of the insurance can be matched to the time when an obligation ends. Term life insurance does not accumulate cash value.
There are several types of permanent life insurance, all of which can remain in force throughout the policyholder’s life. Unlike term life insurance, permanent life insurance policies accumulate cash value and may include some investment capabilities. There are significant and sometimes complex differences between permanent insurance types, best explained by a professional physician insurance specialist who can explain exactly how each works and relates to your personal situation.
Whole life insurance is designed to pay a guaranteed death benefit and can accumulate cash value that the policyholder can access if needed, perhaps to pay for long-term care.
Universal life insurance offers the policyholder flexibility to adjust premium payments and death benefits throughout the policy’s life. The cash value is accessible and can be used to pay premiums.
Variable life insurance is a cash value life insurance policy that includes an investment capability—and the payout depends on the performance of the underlying investments, which can include stocks, bonds and mutual funds. There is an element of risk that must be considered.
Yes, many life insurance policies can be customized by attaching riders, which add specific benefits usually for an additional cost. The following are some of the most frequently used.
Chronic Illness Rider allows you to access up to 50% of your existing life insurance benefit, if you suffer a qualifying chronic illness. It can help defray the costs of such an illness while leaving the remaining benefit to your beneficiaries.
The Waiver of Premium Rider lets you continue coverage without paying the premium, if you become seriously ill or disabled and are unable to earn income.
The Automatic Benefit Increase Rider lets you increase the benefit at specified intervals and amounts, so your insurance adjusts to your growing income. You do not need medical questions or exams to qualify for the increases.
How much life insurance do you need? Experts give varying answers to that question. Some say 10X annual income, others 8X. The best answer—in fact, the only accurate answer—is derived from a thorough analysis of your personal situation. An insurance professional can help with that analysis.
The best time to buy insurance is now. Insurance rates are based on risk, and every birthday increases your risk. Then there is the risk of declining health. While there are life insurance policies that require no medical underwriting, most do. As a physician, you know that serious health conditions, which can increase your rates or decrease your insurability, can crop up at any time. Your best rates are almost certainly the rates you’ll qualify for today.
Consult a specialist in insurance for physicians, someone who works exclusively with physicians and their families, who understands their needs, and who is familiar with the marketplace. The optimum choice is a salaried professional whose recommendation is not affected by commissions. A good place to look is within your professional association.
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