Posted by Amy Carbone on Jul 18, 2024 12:10:36 PM
Having worked with dentists and physicians for decades now, we believe we understand their career trajectory, and with that comes an understanding of their financial trajectory. Most incur a substantial amount of debt to fund their education. Upon graduation, that debt trend shifts as they begin to make money.
If this is you, then you know what we mean (and if you are still in training, hopefully, this will be your story soon). At some point, you will be able to save money toward future goals. You may purchase your home, perhaps you will start a family and choose to provide opportunities for your children.
All of this is possible.
When all this growth is happening in your life, it’s easy to ignore the potential risks that could get in the way of your vision for the future. Or, you may be so busy with your evolving career, an expanding practice, a growing family, and other initiatives that you simply forget or postpone looking into life insurance coverage.
5 Things To Know About Life Insurance for Medical Professionals
1. You May Need To Evaluate How Much Life Insurance You Need.
What if the unexpected happens?
Something we know from experience through giving financial advice to many dental and medical professionals is that from a life insurance perspective, many of you may be underinsured.
What does it mean to be underinsured? It may seem obvious, but it basically means that if you were to unexpectedly pass away, your family would not be able to maintain the lifestyle to which they have become accustomed based on your income.
2. The Life Insurance You Should Have Now May Not Be Appropriate Later.
It’s not just physicians and dentists who are underinsured when it comes to life insurance; it’s a big swath of the working population.
According to research conducted by the Life Insurance Marketing and Research Association (LIMRA) and Life Happens, “Overall, 52% of American adults report owning life insurance, and 41% of adults — both insured and uninsured — say they don’t have sufficient life insurance coverage.”
If you are reading this, chances are high you are a dentist or physician, and it’s possible that you, too, may be among the 41% of the American population that doesn’t have sufficient life insurance coverage.
Unless there are significant additional assets, a specialist earning say $400,000-500,000 a year may not be appropriately covered with just $2 million of life insurance.
Whether you make more or less than this in annual income is not the question. The point is: when was the last time you sat down to calculate how much insurance you truly need? People tend to buy life insurance in their thirties when they are in a residency program and thinking of having or starting a family. Many never go back to revise that amount as their family grows, or as their income grows.
3. Practice Values Influence Life Insurance Needs.
Another reason to re-evaluate your life insurance coverage has to do with practice values.
If you are a partner in private practice, you may have noticed that practice values have gone up dramatically in recent years. This is because private equity firms have entered the dental and medical space and have started acquiring practices, thereby driving up prices. If you were to have a valuation done on your practice, and it showed an increase in value, that should propel you to increase your life insurance coverage to adequately fund your buy-sell agreement.
Other things that have been trending upward in the past few years are incomes – which ties into another upward trending factor, namely inflation. Rising inflation means that the cost of everything is going up, and with it naturally, the replacement cost of everything in your life is going up. Your life insurance policies need to be updated to reflect these increases in price.
4. How To Calculate Life Insurance Needs for Medical Professionals
You may ask, how does one calculate one’s life insurance needs?
Without getting into too detailed of a calculation here, the simplest answer is your life insurance need is the amount of money your family will need in the future to live minus the assets (including retirement plans) and life insurance you currently have. This will give you a ballpark number as a starting point.
If you work with a financial professional, they will ask you how much you’re saving, how much taxes you’re paying, what assets you have, and how they are invested. That will give you a more accurate picture.
Saving vs. Spending
Another way to look at this is to ask, in your current life – how much are you saving, versus spending (note that spending includes taxes, because taxes reflect money that you are not saving).
Whatever you make in income, if you are spending 80% and saving 20%, that “spending” column needs to be replaced with some other income source in the unfortunate event that you are no longer here to provide that money. That 80% of your income today needs to be produced PLUS inflation protection for the rest of your spouse’s life, and it needs to provide for your children’s educational needs (if you have kids), as well as legacy desires if you have any.
Typically, we do not include your home as an asset in these calculations because if you pass away, your family will still need a place to live and will likely incur costs associated with this expense. Anyway, you do the math, and you will probably realize that you are underinsured.
5. A Professional Can Help You Determine What Life Insurance You Should Carry.
The best gift you can give yourself and your loved ones is to set up a meeting with an insurance professional to accurately calculate your life insurance needs.
From there, if you identify that you are underinsured, you can look at what is the right kind of insurance for you. Too many people get caught up in the question of “what kind of insurance should I buy?” and then abandon it altogether because they don’t understand the different products or they get overwhelmed by price-shopping, etc.
Tailor Your Life Insurance Policy
Start by figuring out how much life insurance coverage you may need. Once you know that, you can move to the next step of determining how best to fill your insurance coverage gap.
If you have any questions about life insurance, talk to an advisor to learn more about your options.
About Treloar & Heisel
Treloar & Heisel, an EPIC Company, is a premier financial services provider to dental and medical professionals across the country. We assist thousands of clients from residency to practice and through retirement with a comprehensive suite of financial services, custom-tailored advice, and a strong national network focused on delivering the highest level of service.
Insurance products offered through Treloar & Heisel, LLC.
