Term Life Insurance for Physicians

As a physician, it’s important you take steps to protect your loved ones in case something unexpected happens to you. Life insurance is a great first step, but what type of policy is best for you?

Term life insurance is a popular solution for many physicians because it provides straightforward coverage for a certain period of time, but there are some disadvantages to term life policies. Here, we examine the pros and cons of term life.

What is term life insurance?
Term life insurance allows you to pay a premium to access a death benefit for a certain period of time, known as the policy’s term. Your premium rates are determined by mortality tables, which reflect the increased risk of death as you age, as well as your current health and medication, whether or not you use tobacco and your age. Depending on the policy type, your premiums may increase each year or remain constant over the course of the term period.

For example, say you purchase a $1 million term life insurance policy with a 20-year term. You will pay modal (annually is the least expensive) premiums based on your age, gender and any health conditions for the 20-year term. If you die before the end of the 20-year period, your beneficiaries receive $1 million. If you do not die during that period, you receive nothing.

In contrast, a whole life/permanent insurance policy offers life-long coverage that accumulates a cash balance over time. If you ever need to, you can borrow against this cash balance. Whole life insurance has a completely different set of pros and cons that I’ll cover in a later article, but for now, just know that there is an alternative to term life.

Types of Term Life Insurance

There are four main types of term life insurance.

1. Level Term – With a level term policy, your premium payments and death benefit remain the same throughout the entire policy period. Level term policies are a straightforward, affordable option for those seeking life insurance. You are typically able to choose the term of the policy, at five-year increments between five and 40 years (10, 15, 20, 25, 30 years, etc.).

2. Renewable Term – Renewable policies offer you the option to renew for another period once your original term ends, regardless of your current health status. The premium typically increases with each new term. This can be a good option if you worry that your health will deteriorate in the future, leaving you unable to qualify for coverage.

3. Convertible Term – Convertible term policies allow the policy holder to convert a limited-term policy into one that provides indefinite coverage, without the need for a health assessment. The election to convert the policy must be made during a specified conversion period.

4. Adjustable Premium – This type of policy allows the insurance company to offer lower premiums at the onset of the policy, with the option to increase those premiums in the future. The policy typically states a maximum guaranteed premium that the insurance company cannot exceed.

It’s important to note that not all types of policies are available in all states or to people of all ages.

Pros and Cons of Term Life Insurance

Pros:

• Affordability – Term life insurance is typically less expensive than whole life/permanent insurance.
• Large Death Benefits – It’s possible to purchase a relatively large term life death benefit ($1 million to $10 million or more).
• Peace of Mind – Term life insurance offers you the comfort of knowing your loved ones will be provided for should you pass away during the policy’s term.
• Customizable Riders available – Many policies offer multiple rider options that allow you to customize the policy to meet your specific needs.
• Good for Families – Term life is well-suited for families with young children, as the term can be designed to expire when the kids are grown and no longer depend on your income.

Cons:

• Limited Term – Term life insurance only pays benefits if you die within the policy’s term. Once the term expires, you receive nothing.
• No CashValue – You are not eligible to receive a return of your premiums if the policy goes unused and there is no cash value to borrow against.
• Individuals with health conditions can be excluded – If you have pre-existing health conditions, you may not qualify for a term life policy or the insurance company may charge what is called a rating, which could be as high as 800% more.

When should physicians consider term life insurance?
As a physician, you may wish to purchase a term life insurance policy if someone is depending on your income or your potential income. Term life insurance may even make sense if you’re still in medical school or completing your residency, as your children and spouse may need financial support if something unexpected happens to you.

It may also make sense to stagger several term life insurance policies. For example, maybe you need a smaller policy while you’re still in medical school, then you purchase a larger policy once your income stabilizes, staggering the two or three terms to cover you for a longer period of time.

Not sure whether a term life insurance policy is right for you? Scureman and Associates is here for you. We specialize in helping physicians identify, implement and maintain life insurance policies that meet their specific needs. For a complimentary life insurance assessment, please schedule a call.