Life Insurance - A Necessary Evil
Peace of Mind or Long Term Investment
Let’s be honest: Death that is the evil part of this equation and the reason behind the need for life insurance. Without getting too morbid, let’s take a quick look at the two primary types of life insurance.
Term Life Insurance is designed to cover you for a set term like 20 or 30 years. These policies are similar to the other insurance policies your carry, like car or home owners. You pay a premium every month and if something bad happens (for life insurance that would be your untimely death), the benefit is paid out. Term life insurance is intended to take care of those you leave behind before you have established financial freedom and paid off your debt.
Low Cost - The premiums, especially if you enroll in your 20s, are very affordable.
Flexibility - You can find a term that fits your needs. If you are a young unmarried dentist, you likely only need a 10 year term policy as required by the bank for your practice loan.
Extendable - You can always extend the term of the policy if you still need coverage, although the cost will increase as you get older.
Peace of Mind - Your primary goal with life insurance is to ensure that your family is financial stable should you meet your maker before you are ready.
A term life policy is best for anyone who has people relying on them for financial benefits. This could include the bank, a spouse or young children. In our experience, this is the type of policy that will work for 99% of dentist.
Permanent Life Insurance is permanent life insurance that is guaranteed to pay out upon your death as long as you keep paying your premiums. This term covers both Whole Life and Variable Life policies.
Higher Cost - Since every policy pays out, the premiums are significantly higher.
Lifetime Coverage - The policy pays out if you die in your 30s or at 106. If you will have people financially dependent upon you into your golden years beyond your savings, this can be an attractive benefit.
Borrow - A portion of your premium has an investment portion that can be borrowed against during your life time. You will make payments on that loan just like you would for any standard loan.
A permanent life policy can be a fantastic estate planning tool for high net worth couples (net worth over $10million) but is not necessary for a majority of dentist, especially in the early stages of your career. When considering a permanent life policy, you should always connect with your independent financial advisor rather than relying on the insurance broker selling your the policy.
Tax Note - Proceeds from a life insurance policy are generally not taxable to the beneficiary but the premiums paid are also not tax deductible costs (except in three narrow exceptions that likely don’t apply to your practice).
No two lives (or deaths) are the same so if you have questions on your specific situation, please schedule a consultation with JNG Advisors today to determine the insurance coverage that will work best for you.