Most people consider life insurance to be essential. Despite that, many people don’t have enough coverage (or any coverage at all.) Take a look at these numbers from LIMRA’s 2016 Life Insurance Survey:
- 86% of those surveyed believed most people require some sort of life insurance coverage
- 3 in 5 people have some sort of life insurance coverage
- 66% of American consumers are concerned about being able to retire comfortably
- 58% of those surveyed said their major concern is long term care costs and medical expenses
- 80% of respondents were wrong about how much life insurance costs (Millennials thought life insurance was three times more expensive than it is)
So even though the vast majority of people agree that life insurance is crucial to long term financial health, there is still a pretty large segment of the population not buying in. Why? Most commonly, it’s because they have other financial priorities or believe they can’t afford coverage. If you’re holding out (or need to up your coverage,) here are some reasons to bump up your plan:
Life Insurance is Affordable
Here’s the deal with buying life insurance: You can find a plan that is affordable for you, but it pays to start early. A lot of young people skip the life insurance because they believe they’re invincible, or it just isn’t on their radar yet. But paying into a plan at a younger age means major financial benefits down the line. Many people wait to get coverage until they’re 50 or older, and at that point, it does become more expensive.
You want to hit that life insurance sweet spot, where you’re settled enough to want coverage but young enough to qualify for better rates. If you haven’t already, aim for buying coverage in your 30s or 40s.
Your Work Coverage May Not Be Enough
Life insurance is a pretty common workplace benefit, and it’s smart to take advantage of that. According to the U.S. Bureau of Labor Statistics, 75% of full-time workers are offered life insurance at work. Nearly all of them sign up for it, and then feel that they are comfortably covered. But without running the numbers, you might not know if your policy is enough for you and your family. Most employers offer life insurance that is one to two times an employee’s annual salary.
That might sound good in theory, and if you don’t have dependents, it could be sufficient. But for someone with a family and a mortgage, that’s usually not enough. You want to aim for seven to 10 times your annual salary.
Whole Life vs. Term Life
When you’re shopping around for life insurance, you’ll have two main options:
- Whole Life: Offers lifelong coverage and a tax-deferred investment option called the cash value.
- Term Life: Provides coverage for a certain time limit (usually 10, 20 or 30 years) and your beneficiaries receive the payout if you die within those terms. Has a set payout and premium throughout the term.
Whole life sounds good to a lot of people, and it’s commonly used as an investment opportunity. However, life insurance is not an investment. That’s why I recommend term life insurance. Consider life insurance as a replacement for your salary if something should happen to you, which is exactly what term life insurance does. If you’re looking for an investment opportunity, there are far better ways to put your money to use than whole life insurance.
Your goal is to buy term life insurance and invest the difference that you would be spending on a whole life policy, because after the policy term runs out, you should be able to live off your portfolio.
Life Insurance for Physicians
It’s a smart move to buy a life insurance policy when you’re in residency, especially if you’ll need $2-4 million down the road to replace your income. The problem with that is that many residents are living on a small income while also probably paying down some hefty loans. Do what you can, even if it’s buying some coverage now and bumping it up later.
For many residents, residency graduation is a good time to seriously look at getting coverage. Look more carefully at what you’ll need long term and increase your coverage or buy a policy if you haven’t already. Term life insurance, in most cases, works well for physicians.
Life insurance is a vital component of your financial health. If someone depends on you for your income, you need life insurance. But regardless of your work and income situation, you can find a policy that is right for you and your family. For more insurance info, check out our last post on disability insurance.