As a lawyer, juggling multiple cases and deadlines is a daily reality. But amidst the chaos, it's easy to overlook the importance of protecting your loved ones.
Life insurance is an important tool that provides a lifeline of financial security for lawyers and their families in the event of an untimely death. So, take a quick break from the high-pressure world of law and discover why life insurance is a must-have in this blog post.
What is life insurance and why do lawyers need it?
Life insurance is a crucial part of any financial plan for lawyers. It guarantees that your family maintains their standard of living in the event of your passing.
Put simply, life insurance is a contract made between you and the insurer. You (the insuree) agree to pay a fixed amount of money each month to the insurer. In return, the insurer guarantees a payout to your loved ones (beneficiaries) during the length of the insurance contract.
What’s inside a life insurance policy?
Here are a few key terms you should know about life insurance.
- Beneficiary: The Person(s) or organizations (e.g. charity) receiving payment in event of the insured's death
- Death Benefit: Tax-Free money paid to a beneficiary upon the insured's death
- Insured: Person covered by policy
- Insurer: Company issuing and backing the policy
- Policy: Legal contract; sets terms of coverage
- Policyholder: Owner of the policy; pays regular premiums
- Premium: Money paid to maintain an active policy, affecting risk level
- Rating & Rider: Additional charges that modify coverage clauses
- Grace Period: The timeframe allowed for late premium payments without losing your coverage
- Conversion Option: Ability to change your policy from term life insurance to whole life Insurance without a medical exam
- Renewability: The option to renew your term life insurance policy after it expires (ie. roll it over into a new policy)
How much life insurance do lawyers need?
As a lawyer, having the right amount of life insurance coverage is important for protecting your family in the event of an untimely passing. To determine how much you need, start by calculating your anticipated expenses, such as a mortgage and college tuition, and account for all sources of income (spousal wages, investments, etc).
Furthermore, add up any additional costs that come up upon your passing, such as unpaid medical bills or funeral expenses.
Typically, we recommend getting life insurance that is six to 10 times your annual income to start. For example, if you earn $300,000/year, consider getting $1.8 million to $3 million in life insurance coverage.
However, if multiple people depend on you financially, you may need more coverage. Ultimately, it’s essential for lawyers to speak with a licensed insurance broker like Dundas Life to find the right policy for your needs.
What are the different types of life insurance policies available to lawyers?
There are two main types of life insurance policies available:
Whole life insurance is a popular option that features guaranteed premiums and provides death benefit protection for your entire lifetime.
Term life insurance also offers fixed premiums for the duration of your policy. Term life is less expensive since it only provides coverage for a fixed period of time (e.g. 20 years). This makes it great for lawyers who want temporary protection at a more cost-effective rate.
Additionally, there are hybrid policies such as universal life and variable life, which offer greater flexibility and potential to grow their cash values. These are great if you’re looking for a long-term policy with robust benefits and investment options.
Whatever you choose, make sure the life insurance policy is tailored to fit your individual needs!
What are your options for term life insurance?
Lawyers have many options available to them when it comes to term life insurance policies.
One type of term life policy you may want to consider is an annual renewable term life policy. It offers affordable coverage in one-year increments and can be easily renewed if their health has not changed significantly.
Another option is a guaranteed level premium policy, which guarantees the same rate for their life insurance policy for a fixed number of years. This makes budgeting easier over time (most term life insurance policies have this feature).
If you have a spouse, consider getting a joint life insurance policy. This type of insurance covers both you and your partner. A joint first-to-die policy pays out when the first person in the couple passes away. A joint last-to-die policy is a bit cheaper and pays out once both parties pass away.
Ultimately, think carefully about the kind of protection you need and consult with an expert who can help them make the best decision for your situation.
Why buying multiple-term policies may be beneficial to you?
An often overlooked option when it comes to life insurance is buying multiple term policies.
Life insurance laddering means buying multiple term policies with different expiry length. This can provide you with more coverage on a budget.
Let’s say that you’re 20 years old and looking to become financially independent by 50. Buying three separate policies for a total of $1 million, one for 10 years, one for 20 years and one for 30 years is one option. This way, you'll start with $1 million in coverage and it will gradually decrease by $333K every decade. It's more cost-effective than maintaining a $1 million policy for 30 years and adapting as your needs change as you build savings.
How to choose the right life insurance policy for lawyers
With so many coverage options available, it's crucial for lawyers to have a clear understanding of both their short-term and long-term goals. One key decision to make is whether to go with term or permanent coverage.
Term life insurance is a more affordable option with coverage for a specific period, while permanent life insurance offers lifelong coverage and the added benefit of building cash value over time.
Another important aspect to consider is additional features such as accidental death benefits, which can provide added protection in case of unforeseen circumstances. Lastly, the cost of living adjustments should also be evaluated to ensure that the policy will continue to meet the lawyer's financial needs, both now and in the future.
By taking all of these factors into account, you can select the most appropriate and affordable policy for your family.
What are common mistakes that lawyers make when buying life insurance policies?
Generally speaking, lawyers tend to overestimate the amount of coverage they need, fail to read the fine print, or may not update their policy as their life and financial situation change. Failing to estimate an accurate coverage amount can really cost lawyers financially down the line.
Additionally, it’s important to keep your policy up-to-date with your lifestyle.
Did you recently purchase a new home? Have a second child? Your life insurance policy may need updating after a major life event. Working with a trusted life insurance advisor on a long-term basis can help here (we have several lawyers as clients!).
By following these simple tips, you can avoid the most common mistakes when it comes to life insurance.
How can lawyers get the most out of their life insurance policies?
To get the most out of your policy, it's important to regularly review your coverage and ensure it aligns with your current needs - such as an increase in coverage if you have had children or taken on additional debt.
Adding life insurance riders, like accidental death coverage or long-term care coverage can provide added protection. To find the best life insurance policy at the most competitive price, shop around and compare quotes from different insurance providers.
Most importantly, understand your policy's terms and conditions to fully take advantage of all the benefits and to know how to claim them.
Should I get life insurance as a lawyer?
Navigating the sea of life insurance options can be a daunting task. Don't let the overwhelming choices weigh you down.
Calculate how much life insurance you need by looking at your income, expenses, and dependents. Determine if a term of a permanent life insurance policy makes more sense. Compare options and read the fine print to find the perfect plan.
If you need an extra hand, contact us at Dundas Life. We are here to guide you through the process.
Frequently Asked Questions:
Should lawyers buy life insurance through their bar association?
Buying life insurance through one's professional bar association is an easy way to protect your loved ones. The bar association offers lawyers certain benefits not found with other providers, such as flexible payment plans and discounts for those who practice in certain fields or have a family history of illness.
That said, it’s important to also compare life insurance options outside of your bar association. You will often find the best prices for coverage are offered by external companies.
Is the life insurance provided by your job good enough?
Depending on your job and the company offering it, the coverage you get may not provide enough coverage for your family (life insurance amounts are usually limited to $100,000 or less here). for your family. Life insurance through work also doesn’t cover you once you leave your job, or if are laid off. It is important to review the policy carefully and understand any restrictions that may apply and determine if it’s enough.
Do you need additional life insurance for your student loans?
While many lawyers already have life insurance policies in place to protect their families, additional coverage may be required for any outstanding student loan debt. Having a policy in place that would pay off any loans in the event of your death can give you and your loved ones peace of mind.
For example, if you have $100,000 in outstanding student loans, your family may be on the hook to pay for this if you unexpectedly pass away. Ultimately, the decision to purchase extra life insurance to cover your student loan debt is a personal one that should be based on your individual financial situation and risk appetite.