Story at-a-glance
- Life insurance protects your family, business, and estate from financial disaster if you die unexpectedly.
- It replaces income, covers debts, pays for funeral and medical bills, and helps your family reach long-term goals like education.
- Life insurance can also support business continuity, charity goals, and estate tax planning.
- There are four main types of policies—term, whole, universal, and variable universal—each with different benefits and use cases.
- Physicians need customized coverage that supports both personal and professional needs.
Planning for the future involves taking into account all of life’s events and putting the financial pieces in place to ensure that they happen as they are envisioned. Proper planning also involves the recognition that life happens and that unforeseen events can disrupt the best laid plans. Most physicians don’t envision themselves dying prematurely and many would prefer not to consider the matter. The reality is that, without a sound life insurance plan in place, the family, or the business, or the estate could suffer catastrophic consequences.
Life insurance is more than planning for the security of one’s loved ones. Its unique properties can provide the needed solution in many difficult financial situations.
Survivor Needs
The most important purpose of life insurance is to ensure that family survivors are able to replace lost income, meet their immediate cash needs and still achieve important financial goals such as a college education.
Careful consideration should be given to the income needs of the surviving family, including living expenses, child care needs, future education costs, and the ability of the surviving spouse to earn a meaningful income. For more information see attending physician disability insurance.
The death of one of the heads of the family typically results in several immediate cash needs such as funeral costs and unpaid medical bills. In most cases, there are also outstanding mortgages and debts that, if paid in full, could reduce the surviving family’s financial burdens. Estate settlement costs such as probate expenses, attorney fees and death taxes may also be due.
Other Important Uses for Life Insurance
Life insurance can play a critical role in addressing many other financial issues.
For the business owner, it can ensure that the business is protected against the loss of a key employee. It can also provide the capital needed to buy out (see physicians buy-out insurance) the family members of a deceased business partner. There are also instances when a family business is passed on to active family members and life insurance can be used to equalize the inheritance for non-active members.
For the charitably inclined, life insurance proceeds can be gifted directly to a charity, or it can be used to replace the value of a gifted asset such as property.
Life insurance is also the means for paying estate taxes and settlement cost. With estate taxes as high as 50%, a large, unprotected estate could be decimated resulting in the liquidation of valuable properties or a business.
Types of Physicians Life Insurance Policies
Term Life Insurance:
Low cost insurance that protects needs for a known period of time such as during the dependency years of children. Yearly renewable term has increasing premiums for a level death benefit. Level premium term provides level death benefit coverage, and decreasing term has a level premium with decreasing protection.
Whole Life Insurance:
A permanent form of life insurance used for long term contingency planning where the need for life insurance will likely continue. It can be available to pay for a spouse’s income for life, provide estate liquidity and even provide supplemental retirement income. Whole life policies require a fixed level premium to pay for level coverage that will not expire as long as premiums are paid.
Universal Life Insurance:
Another form of permanent insurance that offers more flexibility in premium payments and death benefits. It has a separate cash value account with competitive interest rates that can be accessed through loans or withdrawals (subject to charges and possible taxes). Premiums are level and can be adjusted based on the performance of the cash value account.
Variable Universal Life Insurance:
Similar to universal life except that they have separate, managed accounts that invest in stock or bond portfolios. These policies are suitable for those who are knowledgeable with investing and understand investment risk. The premiums and coverage are level but can be adjusted based on the performance of the underlying accounts. Should the accounts not perform well, premiums could increase and account values could decrease.
FAQs
Why do physicians need life insurance?
Because your income supports your family—and your practice. Life insurance protects loved ones and business partners from financial hardship if you die unexpectedly.
What is the main purpose of life insurance?
To replace lost income, cover immediate expenses (like funeral and medical bills), pay off debt, and help your family reach long-term goals like college funding.
How can life insurance help with estate planning?
It can pay estate taxes and settlement costs so your heirs don’t have to sell off property or businesses to cover them.
What about physicians who own a practice?
Life insurance can help buy out your share of the business, protect against losing a key partner, and ensure fair inheritance distribution among family members.
Can life insurance support charitable goals?
Yes. You can name a charity as your beneficiary or use life insurance to replace the value of assets you donate during your lifetime.
What are the main types of life insurance?
- Term Life: Low-cost, temporary coverage
- Whole Life: Fixed premiums, lifelong protection, cash value
- Universal Life: Flexible premiums and death benefits, cash value growth
- Variable Universal Life: Investment-linked cash value, more risk/reward
Which type is best for physicians?
It depends on your goals. Term life is great for short-term needs; whole and universal policies are better for long-term planning, estate taxes, or retirement income.
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