Permanent life insurance provides death protection for policyholders, but is it the right solution for all physicians?
Here are five reasons why physicians might want to obtain or keep a permanent life insurance policy:
Physicians Need More Financial Protection
Physicians tend to accumulate more assets -- and more obligations -- than the average person, with debt portfolios that may feature student loans, business loans and encumbered personal assets.
Even for high-profile professionals, this can be a lot to lose, especially for young physicians taking on fresh financial obligations. Permanent life insurance can ensure that these obligations are paid if death occurs prematurely.
An Easier Way to Leave Money
The popular conception of life insurance is that it is used to pay mainly for end-of-life expenses, provide a safety net for spouses and children, or be used as a final solution to repay one’s outstanding debts. Just why it makes sense to use life insurance and not one’s estate toward such expenses is a nuance often lost on policyholders themselves.
When a person dies, his possessions pass to his estate. Probate, the process by which a deceased’s will is proved valid or invalid and estate possessions are distributed, can be time consuming in some cases, often taking upwards of six to eight months to complete. For family members and business entities affected by the death of an individual, this can be a very long time to wait.
Versatility and Value
A permanent life insurance policy is tied to the life of an insured individual, which guarantees a death benefit once that life expires, assuming premiums have been paid and the policy has been kept in force. This differs from term life insurance, which last only for a set number of years and may end up not paying out at all.
The guaranteed payout of permanent life insurance creates another of its defining features: It carries a real cash value. This value builds over time as those who carry permanent life insurance pay into their policies and may be used as collateral or even borrowed.
Accessing cash benefits of a permanent life policy is easier than taking out a standard loan. It does not require a lengthy verification process and offers policyholders a good deal of repayment flexibility. Policy loans are tax free to the extent that borrowed funds do not exceed net premiums, the value of any fixed premiums paid less dividends received.
In the event a permanent life plan matures while loans are still outstanding, the unpaid balance is subtracted from the policy’s death benefit.
Because You’re Never Too Young
Common knowledge holds that life insurance makes the most sense for the young and healthy. While this is not necessarily the case, permanent life policies do offer young purchasers many incentives not granted to those who have already enjoyed the better portion of their years.
Annual premiums tend to be cheaper for the young and death benefits higher. The reason is simple: Infirm or elderly individuals have shorter life expectancies, and so the same benefit received much later in life would necessitate higher premiums in order for an insurance carrier to consider the policy a feasible business decision.
Even for young purchasers, permanent life insurance isn’t the cheapest option. Term life insurance often features even lower premiums for the same death benefit; however, permanent life policies have several advantages over their term life counterparts.
Permanent life policies are based on the life of the insured party, whereas term policies expire after a set period of time. Beneficiaries of long-lived term life policyholders may end up never receiving any benefits.
Because You’re Never Too Old
Retiring physicians with permanent life insurance may be tempted to liquidate their policies. After all, once their kids are out of college, houses are paid off, and careers are approaching their swan songs with plenty of cash in their retirement accounts, it can seem as if the safety net provided by life insurance is no longer needed. So what’s the point?
Physicians nearing retirement with existing permanent life plans have many reasons to hang on to their policies:
Permanent life insurance is an effective estate-planning tool. Policyholders can use their benefits at the time of death -- whenever that occurs -- to pay off existing debts and provide for surviving heirs.
The cash value of permanent life policies can help provide additional financial flexibility, providing retirees with an easy source from which to obtain needed funds.
Permanent life insurance provides many useful features. For those in the profession of protecting health and saving lives, it can be a worthy investment for both their businesses and families. For physicians, to consider obtaining permanent life insurance coverage may be a good policy, indeed.