As a doctor, you need life insurance for the same reasons as others do. If you have someone in your life who depends on you financially, consider getting life insurance coverage.

In this blog post, we'll cover the various life insurance options available to physicians, help you to determine how much coverage you need, and go over the cost of getting life insurance. So let's dive in.

Life Insurance for Doctors: Which type of policy should you get?

There are two types of life insurance for doctors: term and permanent life insurance.

Term life insurance is the most affordable type of insurance since it only protects you for a fixed amount of time. This is usually 10, 20, or 30 years. After the policy term, you have the option to renew your coverage at a higher rate. Most term life insurance policies are renewable up to a specific age.

Permanent life insurance, on the other hand, lasts for your entire lifetime. With permanent life insurance, your beneficiaries will receive a life insurance payout, no matter how long you live.

Whole life insurance and universal life insurance are two common types of permanent life insurance policy. In addition to lifelong insurance coverage, both options have a savings component called the cash value.

A portion of your monthly payments are used to pay for the life insurance and administrative costs. The remainder is used to accumulate cash value, which grows tax-deferred. The cash value component plays a crucial role in accumulating savings that policyholders can borrow against or withdraw from during their lifetime. You can access the cash value while you are alive (mainly by borrowing against it). Meanwhile, the death benefit is paid to the beneficiary when you die.

So, which type of insurance is best for you? Term or Permanent life insurance? This depends on how long you will need life insurance coverage and whether you want to build cash value over time.

Do you need life insurance for a limited period of time?

Most people don't need life insurance to cover a lifetime. Term life is a more affordable option if you only need life insurance for things like paying off your debts or paying for your children's expenses until they are adults.

Do you need coverage that lasts your entire life? 

Are you worried that your beneficiaries will outlive you? In that case, consider permanent life insurance coverage.

For example, you may want to cover your final funeral expenses when you pass away. Or you may have a special-needs child and you want to ensure your child continues to receive medical and personal care after you are gone. Or are looking to leave a legacy behind for your children or a charity?

These are all good reasons to consider getting permanent life insurance.

Do you want to leave a financial legacy? 

If you want to leave an inheritance for a relative or make a charitable donation, you are better off buying a permanent life policy. 

Do you want to use life insurance as both an income replacement and an investment tool? 

Permanent life insurance policies serve two purposes. It provides financial support to your family after your death and accumulates money tax-deferred. Doctors with a high net worth who have exhausted traditional investment vehicles such as RRSPs may profit from purchasing whole life or universal life insurance. Both generate cash value, albeit in slightly different ways.

Cash value grows at a predetermined rate over your entire life. Universal life insurance, on the other hand, does not provide such a guarantee. The growth rate varies according to the performance of the investing sub-accounts you select.  

Why do doctors need life insurance?

Physicians need life insurance for the same reasons other people need it — to cover a loan, secure their family’s future, leave a legacy, etc. Whether or not one needs life insurance depends on individual circumstances such as having dependents, financial obligations, and personal health status. If you have a loan that others will inherit or if someone depends on you for their financial well-being, you probably need life insurance.

How much insurance coverage do you need?

Your life insurance coverage should be sufficient to cover all of your financial responsibilities upon your death. Examine your current financial demands and resources to establish how much money your dependents will require to live comfortably if you are no longer around to pay for them. If you need a quick estimate, consider these principles as a starting point.

1. Multiply your annual income by 10

This is the simplest and quickest way to put a dollar value on your life, but it fails to take your unique circumstances into account.

2. Multiply your income by 10 and add $100,000 per child for college fees

With college being so expensive in Canada, your family may struggle to pay for it if you die prematurely. If you have children, you can improve your family's safety by adding $100,000 per child for college expenses to the 10-times-income rule. Nevertheless, this strategy does not account for some crucial factors, such as overall debt or ultimate expenses. 

3. The DIME formula

The DIME formula ensures that the four most critical aspects of your life insurance policy are covered: debt, income, mortgage balance, and education expenses:

• Debt: Determine your total debt, other than the mortgage.
• Income: For how long your loved ones would need financial support? Now multiply your annual income by this number. 
• Mortgage balance: If you die without repaying the mortgage, the debt will not go away.  It must be paid from your estate. That is why it is important that life insurance accounts for your mortgage.  
• Education: Determine how much money your surviving spouse will need to ensure each child gets a good education. 

Add up all these obligations to get a fair estimate of your life insurance needs. 

How much does term life insurance typically cost for a doctor?

The cost of term life depends on several factors, including: 

What is the typical length of a term insurance policy a doctor needs?

Term length is the amount of period a term life policy lasts. Most people need term life coverage that lasts at least 20 years, but it all depends on your situation. Consider the length of the circumstance or debt you wish to cover while determining the optimal term length.

If you need life insurance to finance your mortgage and the amortization period is 20 years, you should consider a 20-year term life policy. On the other hand, if you are buying life insurance to cover your family until your children finish college, and that will take eight years, buy a 10-year term life plan.  

When should a physician purchase term life insurance?

The best time to buy life insurance is when you are young and (presumably) healthy. Since traditional life insurance policies involve medical underwriting, the earlier you buy it, the lower your premium rate will be.

When you get term life policy in your 20s or early 30s, you can lock in a cheap premium for the next two or three decades. Every year you delay purchasing life insurance, the premium rate rises by 5-10% on average.   

Life insurance is absolutely necessary if you have dependents, as it helps provide for them financially should you die unexpectedly. But that does not mean young doctors fresh from medical school do not need life insurance protection. If you have a student debt co-signed by a parent, the life insurance payout can help them repay it. 

What are the different types of term life insurance a doctor could purchase?

The most common types of term lifeplans are as follows:

Level Term Life Insurance

This type of term life policy has a level death benefit for the entire time coverage remains in force. Your beneficiary receives the same payout, regardless of whether you pass away in the first or last year of the policy. 

Decreasing Term Life Insurance

Declining term life plans provides coverage for a set length of time, but the death benefits diminish over time. The premium rate, on the other hand, remains constant during the term of the policy. 

A decreasing term life policy is typically used for covering a specific loan, like a mortgage. The policy lasts as long as your debt, and the insurance payout decreases as you repay the loan.

Annual Renewable Term Life Insurance 

An annual renewable term life policy provides coverage for one year. However, you can renew the policy at the end of each year — at a higher rate — if you want. 

This type of term life policy is best suited for short-term life insurance needs. Because the premium rate goes up every year, an annual renewable term life plan eventually becomes costlier than a comparable level term life policy, where the premium rate does not change for the entire time coverage is in force.       

Return of Premium Term Life Insurance

Return of premium term life policy pays the insurance proceeds to your beneficiary if you pass during the policy term, but refunds the premiums paid if you outlive it. 

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What are the available riders for doctors for their term life insurance policy?

Life insurance requirements are rarely one-size-fits-all. Fortunately, you may tailor the coverage to your specific need by using life insurance riders. These are optional features that can be added to a standard policy at an additional expense.

Some of the common life insurance riders available with term life insurance include: 

• Accelerated death benefit rider: This rider allows you to receive a portion of the death benefit if you are diagnosed with a qualifying illness, usually a terminal one. 
• Accidental death and dismemberment (AD&D) rider: An AD&D rider can provide up to double the payout if you die or lose a function or limb in an accident. 
• Child term rider: It provides term life insurance for your children, including those not yet born. If any of your children passes away, the policy will pay a small death benefit, typically not more than $30,000. 
• Waiver of premium rider: If you have this rider, the insurer will waive premium payments if you become disabled. 
• Conversion rider: Most term life insurance plans include the conversion rider by default. It allows you to convert your term life policy to a permanent life policy without submitting proof of good health. 
• Return of premium rider: If you outlive your term life policy, the insurer will return a part or all of the money of you paid in premiums.

Is life insurance right for me?

Like others, doctors should consider life insurance if they have dependents. Depending on their needs, they can either buy term or permanent life insurance. Term life is the more affordable of the two, but it comes with an end date. A permanent life insurance policy, in contrast, lasts as long as you do and also builds cash value.

Still not sure which type of life insurance you should buy? Let Dundas Life help you. Get in touch with us and our advisor will recommend the best policy for your unique situation.

Frequently Asked Questions (FAQs)

Should doctors get life insurance?

If you are a doctor with dependents, you should purchase life insurance. After you die, life insurance provides a financial safety net for your loved ones, allowing them to continue living comfortably. 

I already have life insurance through my employer? Should I buy additional life insurance? 

Even if you have access to group life insurance, you should think about purchasing an individual policy. Group insurance typically has a lower death benefit, frequently not exceeding two times the annual pay. Most likely, your family would require more money to maintain their current standard of living.

Individual life insurance policies can be a great way to supplement your corporate plan and guarantee your family is sufficiently protected. In addition, unlike group life insurance, an individual plan is not linked to your job. It will remain in effect even if you lose or leave your employment.   

How much life insurance should a doctor buy? 

The amount of life insurance required by a physician is determined by several factors, including income, debt, and the number of dependents. Your life insurance policy should be adequate to meet all of your financial needs.