Think Ahead When Buying Life Insurance

Physician's Money Digest, September 2006, Volume 13, Issue 9

Selecting the proper life insurance requires extensiveresearch and a full awareness of your needs,but many people purchase it solely based ondeath benefit and cost, with little regard to futurerealities. Without direction, many wind up facingproblems down the road.

Steps Taken by Some People

Term insurance, for example, can provide maximumdeath benefits with minimal outlay. An individualselects an amount (eg, $1,000,000) and is giventhe option for a 10-, 15-, 20-, 25-, or 30-year guaranteedlevel term plan. It is important to consider whereyou will be in your life at the point in time your planwill end. Most people do not take into considerationthe changes that will occur in their lives by the end ofthese term periods and their options. For most people,one of the following occurs: they continue their currentpolicy, usually with the new, higher rates; they areno longer insurable due to poor health; they switch toa new company that offers better rates; they droptheir coverage completely; or their current policy providesa conversion to a permanent insurance policy.

Conversion Policy Privileges

Typically, insurance policies will provide the insuredwith the right to convert their term policies over to permanentpolicies, but this is often an expensive option.Some carriers offer the policyholders the option toconvert their term policies to any of the permanentproducts they offer. Others limit this conversion privilegeto one or two policy types. Also, age is often a factor.Some policies may require you to be 65, some 70,etc. Others may not even allow for conversion or limitthis period to 5 or 10 years. It is important to be awareof this when you originally buy the policy.

A popular alternative to standard insurance is thereturn of the premium life insurance policy, which is aterm life policy providing both death benefit protectionand a return of your paid premiums. If you keep thepolicy for the entire term period, you will receive 100%of all of your premiums back at the end of the periodchosen. But the premiums are considerably higher thanpremiums for standard term policies.

There are many decisions you need to make beforepurchasing an insurance policy, such as how much lifeinsurance you really need, whether or not you shouldhave a combination of different plans, and who shouldbe the beneficiary. Most insurance agents can eitherhelp you or suggest an attorney you can work with.Life insurance can solve many financial problemsdown the road, but it can also create just as manyproblems if you don't start with the end in mind.

Ron Cohen, RHU, RR, has specialized in disability insurance forphysicians since 1969. He has authored many articles on thistopic, served as a guest speaker for insurance companies andprofessional organizations, and consulted with many companiesin the design of their disability products for physicians. Mr. Cohenwelcomes questions and comments at ron@roncohenrhu.com. For more information,visit www.roncohenrhu.com.