Life Insurance

While there are many decisions you will have to make when assessing your life insurance needs, one of the most basic is whether you need permanent life insurance or term life insurance.

 

A simple way to understand the differences between these two types of life insurance is by comparing them to something familiar to all of us---finding a place to live. Tailoring life insurance to fit your needs is like finding a place to live. Once you find the right home, you need to choose how to pay for it. Buying permanent life insurance is like owning a home, while buying term life insurance is like renting one.

  

For many physicians, the first step is typically purchasing a low cost term life insurance policy with guaranteed level premiums for 10, 20 or 30 years.  As your income and net worth rises, the purchase of a whole life insurance, universal life insurance or survivor life insurance policy for estate planning purposes is more likely.

 

At Physician Financial and Insurance Services, we have a dedicated a web site, LifeForPhysicians.com, which provides extensive information on life insurance plans for physicians and dentists.

                                                                    

                                                                            Request a quote.

 

Term life insurance is “pure” insurance. It offers protection only for a specific period of time. If you die within the time period defined in the policy, the insurance company will pay your beneficiaries the face value of your policy. Click for basics of term life insurance.

 

Term insurance differs from the permanent forms of life insurance, such as whole life, universal life, and variable universal life, which generally offer lifetime protection as long as premiums are kept current. Also, unlike other types of life insurance, term insurance does not accumulate cash value. All the premiums paid are used to cover the cost of insurance protection, and you don’t receive a refund at the end of the policy period. The policy simply expires.

 

Term life insurance is often less expensive than permanent insurance, especially when you are younger. It may be appropriate if you want insurance only for a certain length of time, such as until your youngest child finishes college or you are able to afford a more permanent type of life insurance.

 

The main drawback associated with all types of term insurance is that premiums increase every time coverage is renewed. The reason is simple: As you grow older, your chances of dying increase. And as the likelihood of your death increases, the risk that the insurance company will have to pay a death benefit goes up. Unfortunately, term insurance can become too expensive right when you need it most in your later years.

 

Several variations of term insurance do allow for level premiums throughout the duration of the contract. You may be able to obtain 5-, 10-, 20-, or even 30-year level term, or level term payable to age 65. An advantage of renewable term life insurance is that it is usually available without proof of insurability.

 

Life insurance can be used to achieve a variety of objectives. The cost and availability of the type of life insurance that is appropriate for you depend on factors such as age, health, and the type and amount of insurance you need. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges.

 

 

 

Who's it for?

  • People with a temporary need for life insurance protection.

  • Those who need a large amount of insurance protection but have limited budgets.

  • People with specific business needs (e.g., business owners who want to cover the life of a key employee who has a set number of years until retirement).

 

Benefits:

  • It provides insurance protection for a low cost (at least initially).

  • If your needs change, most policies allow you to convert your term policy for a permanent life insurance policy without having to take a medical exam or provide other information about your health.

  • Term insurance is a good way to supplement other coverage when you have added financial responsibilities for a given period of time (e.g., mortgage, college expenses).

  • Death benefits are generally received free from income tax.

 

Some drawbacks to consider:

  • Premiums generally increase with age and they could become unaffordable later in life.

  • There is no cash value element, so you miss the tax-deferred cash value of permanent life insurance policies, such as Whole Life.

  • Once the term period expires, the insurance coverage ceases and the policy has no further value

Permanent life insurance is distinguished from term insurance in several ways.

While term insurance provides protection only for a specific period of time, permanent insurance can provide protection for your entire lifetime, or in certain instances, up to a specific age.

In addition, permanent life insurance policies can build a cash value -- money that you can borrow against and, in some instances, withdraw to help meet future goals, such as paying for a child's college education.

 

Note:

You will usually have to wait for a period of time after the purchase of your policy for sufficient cash value to accumulate for you to borrow against. If the unpaid interest on your loan plus your outstanding loan balance exceeds the amount of your policy's cash value, your policy and all coverage will terminate.

Permanent life insurance policies enjoy favorable tax treatment under current rules. Cash value growth is generally on a tax-deferred basis, meaning that you pay no taxes on any earnings in the policy so long as the policy remains in force. Provided you adhere to certain premium limits (so that your policy is not classified as a Modified Endowment Contract), money can be taken out of the policy without having to pay taxes, since policy loans generally are not considered taxable income, and withdrawals generally can be taken up to the amount of premiums paid without being taxed.

 

Note:

If a policy is surrendered prematurely, there may be surrender charges and income tax implications. If you are considering purchasing life insurance, consult a professional to explore your options.

 

The two general types of permanent life insurance policies are Whole Life, a dividend-paying policy*, and Universal Life, a flexible policy.
*Dividends are not guaranteed.

 

 

Who's it for?


People who...

  • Know their need for life insurance is long term.

  • Want to accumulate a cash value to provide funds for education, retirement or other future goals.

  • Want to take advantage of the tax-favored treatment of cash value life insurance policies.

 

Benefits:

  • Over time, permanent insurance may be more economical than term insurance since premiums do not increase with age and the policy can build a cash value.

  • Earnings, and certain withdrawals and loans, may qualify for tax-favored treatment.

  • Policy loans and withdrawals provide access to your cash value.

  • If you cancel the policy, the accumulated cash value is yours to use as you wish. Surrender charges and taxes may apply.

 

Some drawbacks to consider:

  • Permanent insurance is initially more expensive than term insurance.

  • Permanent insurance offers no conversion option (the ability to exchange it for another type of plan later). Make sure the policy you buy is the one you really want.

  • Loans, withdrawals, and any unpaid loan interest generally reduce the death benefit, which could leave beneficiaries inadequately protected.

Term Life Insurance

Permanent Life Insurance