In the final part of our four-part series on life insurance, we offer some final thoughts on the tricky decisions you must make as you purchase your policy.
In Part 1 of this series on life insurance, we provided an overall summary of life insurance and why it is an important part of any financial plan. Part 2 covered the basic types of life insurance. Part 3 outlined the kinds of policies that might be right for you, and some key considerations for arriving at that decision.
Now, let’s wrap it up with a summary, some precautions, and a few best practices that can help you find the right policy for you.
We write often on this site about the value of working with a professional, but we also point out many financial matters that can be ably handled without help. For most, life insurance is one of those areas of financial planning that should be probably be handled alongside a professional who specializes in these products. Why? Three key reasons:
For physicians in particular, I would add a fourth reason. Many individuals still believe in the mythical target number of $1 million as the amount of life insurance you need. This number is wrong on so many levels. For most physicians, this number is way too low to provide anywhere near the sort of income you use to support your family now. A much better estimate for the yearly income that a lump sum generates is 4%. Thus, if you have a $1 million insurance policy, that will produce about $40,000 of annual income for the rest of your loved one’s life. This assumes the income grows with inflation each year.
Complexity, an over-abundance of choice, uncertainty about the amount of insurance needed, and the consideration of working with an outside advisor combine for a dangerous mix that lead many physicians to prioritize other needs over obtaining life insurance. Yet, even those three factors aren’t the top reason people put it off. That reason is cost. A 2015 study found that 80% of consumers misjudge the price for term life insurance—often guessing that it will cost them two to three times more than it would actually cost. Physicians are not immune to this way of thinking, despite their proximity to the health (or lack thereof) of their patients.
A life insurance professional can help you better understand the costs for the kind of protection you want. Look for a professional you trust, interview as many as it takes to find that person, and get started.
Life insurance isn’t easy, and while it may not cost as much as you fear, it isn’t always cheap. Should something that offers protection for your family and establishes your legacy be cheap and easy?