How Much Life Insurance Do Physicians Need?

Tips for Determining an Appropriate Level of Coverage

We all hope to work long, productive careers that allow us to retire with confidence and spend many years doing what we love. However, as physicians know better than anyone, a long life isn’t guaranteed, regardless of how healthy we may be. That’s why it’s important to plan for the unexpected by having a life insurance policy in place to protect your loved ones.

Even among physicians who understand the importance of having life insurance, a common question remains, “How much life insurance do I need?” The answer to this question depends on a number of factors.

1. Your income– If you are your family’s primary breadwinner, you may need more life insurance than someone who is not. That’s because your loved ones likely depend on your income to cover most of their living expenses, such as housing, utilities, groceries and other bills.

2. Your debt– If you have significant debt such as student loans, a mortgage, auto loans, etc., you may need more life insurance to ensure your family can pay off those obligations should you die unexpectedly.

3. Your dependents – You may need more life insurance if you have children or other dependents who rely on your earnings. Your life insurance can help pay for childcare, education expenses, kids’ camps and activities, and other costs of raising a family.

4. Your age – The younger you are when you purchase life insurance, the lower your premiums will likely be. This means that if you’re a young physician, it may be wise to purchase a larger policy that will provide more protection for your family in the long run.

In addition, young physicians tend to have more student debt, face additional childcare expenses and are often more likely to be the primary breadwinner as their spouse stays home to care for young children. All of these factors make it likely that you will need additional life insurance to protect your loved ones.

How to Calculate Your Life Insurance Needs

Following are several methods that may be helpful in calculating how much life insurance you may need.

• Multiple of income – A general rule of thumb is to purchase a life insurance policy equal to 10times your annual income. For example, if you are a physician making $200,000 per year, you may wan to purchase a policy that provides $2million in coverage.
• Human-life value – Another approach is to consider your future earnings potential and the value of the services you provide to your family, sometimes referred to as your “human-life value.” To calculate your human-life value, you must first determine your current annual income, an estimated number of years you plan to work and an estimate of how much your annual salary will increase over time. Considering all these factors can provide you with a ballpark estimate of how much coverage you may need to protect your family’s future.
• Needs-based method – This approach considers your current and future financial obligations in order to determine the amount of coverage your family may need to pay for those obligations. Factors considered include mortgage payments, children’s education expenses and other financial obligations. The goal of this approach is to determine a life insurance amount that allows your family members to maintain their current standard of living.
• Debt-based method – The debt-based method can be ideal for physicians with substantial debt, such as student loan, credit card and mortgage debt. This approach involves determining the amount of coverage your family would need to pay off all outstanding debts, as well as pay for their future financial needs.

While all these approaches are helpful in estimating the amount of life insurance coverage you may need, the best way to ensure an appropriate amount of coverage is by working with an experienced insurance professional.

At Scureman and Associates, we specialize in helping physicians identify and implement a wide range of insurance policies specifically designed to address their unique risks. If you could use some help determining how much life insurance you need, give us a call. We look forward to working with you.