Recent data released by LIMRA, an international association of life insurance financial planning companies, found that 40% of Americans have no life insurance and half of those who do are underinsured. This is especially odd considering that life insurance rates are now at all-time lows. In just the past decade, the cost of basic term life insurance has fallen by about 50%.
Life insurance lessens the financial burdens for surviving family members in the aftermath of an unexpected death by helping cover the cost of final expenses, outstanding debts, planned educational expenses and lost income. Simply put, if you have anyone dependent on you financially, life insurance is basically a necessity. However, it’s easy to feel overwhelmed by the complexity and sheer amount of options available when purchasing life insurance. For doctors currently in residency or fellowship, the time to act is now.
The Right Time to Buy
Many young doctors and dentists stand to earn more than $10-$25 million in income over their working years. Imagine suddenly losing that income stream when a worst case scenario like cancer or a car accident takes away that potential for your family. The best way to protect against this is to acquire as much inexpensive, convertible term-life insurance as possible.
Term-life insurance is the simplest, least expensive form of life insurance. Term insurance covers you for a set period of time, such as 10 or 20 years during which the premiums remain flat. As your grow older, the cost will increase if you decide to renew the policy for another term. A healthy, non-smoking, 30-something male could pay as little as $500 a year for a 20-year term policy with a million-dollar death benefit.
It can be tempting to eschew the additional cost of life insurance while in training because of your high level of debt and modest income. Besides, life expectancies are longer than they’ve ever been. However, this can be a costly mistake. You’ll never be younger and healthier than you are today, and one small change in your health can cause a drastic increase to your cost of acquiring new coverage.
Finding the Ideal Fit
Some financial planners say you need insurance to replace seven to 10 years of your salary. If you have young children or significant debt, you should bump up your coverage to replace as much as 15 years of your annual salary. Remember, the sole purpose of life insurance is to replace your income in case you die, so that your dependents can maintain their current lifestyle. So if you make $50,000 during residency, you should shoot for a policy of $500,000 to $750,000.
There are several online tools available that can help give you an idea of how much money you should pay for the policy you need. However, there’s no substitute for the advice of a competent, licensed insurance agent with knowledge of your personal circumstances.
The premiums at a given insurance company are identical whether you apply online, via a toll-free number or with a person. A knowledgeable insurance broker may help you save money by choosing the best carrier for your particular situation. Most companies have a niche where they are most competitive, so you’ll want to obtain quotes from multiple companies to find the best possible fit for your unique circumstances. If you encounter any high-pressure sales tactics, just walk away.