By Dr. James M. Dahle, WCI Founder
I received a question today from a physician about how to buy life insurance. This is surprisingly simple for 98% of doctors. Wondering what type of life insurance and how much life insurance you should buy? Buy the cheapest, long-term, level-premium term life insurance policy from a reasonably-reputable company that you can find.
#1 Buy Term Life Insurance
Don't let anyone talk you into buying any type of permanent life insurance such as whole life, variable life, universal life, variable universal life, etc. Term life insurance is a commodity, so the pricing is very competitive and shopping/comparison is simple. Fees and commissions are necessarily kept low because people shop for it primarily on price. Don't mix insurance and investing.
#2 Buy Long-Term Level-Premium Term Life Insurance
You may become uninsurable (or your health or habits may worsen and you become insurable only at a higher price) in a few years. So buy insurance now for the longest term you need, meaning until you become financially independent. The default option should be 30 years. Level premium means the premiums never go up. So you may pay $100 a month for $1 Million in insurance. Twenty-five years from now you'll still be paying that $100 a month. As you get older and inflation kicks in that $100 a month will cost you less and less as time goes on. Likewise, the face value of your insurance will be worth less and less. But that's okay, because your portfolio will be growing to replace it so as time goes on you have less need for insurance.
Another reasonable option, especially for someone who plans to become financially independent relatively early in life (and thus cancel their life insurance), is to buy annually renewable term insurance. It starts out dirt cheap and gets more expensive each year. But if you don't need it after 50 or so, you will have spent much less money than buying a 30-year level premium policy that goes to age 60 or 65.
Are your kids as cute as mine? Then why don't you have life insurance?
#3 Buy a Lot of Long-Term Level-Premium Term Life Insurance
Your decision shouldn't be “Should I get $300,000 or $350,000.” This stuff is pretty cheap. The default option should probably be about $2 million, but it varies according to your circumstances. A dual-physician couple that has no kids and could easily live off one income probably doesn't need life insurance at all.
You need to decide what you want the insurance to cover. Until I was financially independent, I basically wanted my family to have the exact same lifestyle whether I was here or not. So if I died, my insurance would need to pay off the house, send the kids to college, allow my wife to stay at home until the kids are out of the house, and provide most of her retirement portfolio.
#4 Buy a Lot of Long-Term Level-Premium Term Life Insurance from a Reasonably-Reputable Company
Although the company can go out of business at any time, this isn't nearly the risk it may seem to be. You probably don't need to buy from the “very best” company, despite what many insurance salesmen will tell you. If the insurance goes out of business, the policy will likely be acquired by another company and its terms won't change. If not, your state will guarantee at least the first $300,000 of your insurance policy.
Let's say the worst happens and your company goes out of business and no one will buy the policy from them. If your policy was much bigger than $300,000, chances are you'll be healthy enough to buy a new one to replace the old policy for a similar price. For example, if you buy a 30-year policy at age 30, and you need a new one at age 50, you'll likely only need a 10-year policy, which really won't be much more expensive than the original 30-year policy.
Buy Multiple Policies
You can minimize this risk by buying more than one policy. Most of us end up doing this anyway as our insurance needs change. For example, you might buy a $500,000 policy as a resident, then buy another $1,000,000 policy upon graduation, keeping the original policy. You can also buy multiple policies so they expire at different times.
For example, originally I had one policy that would expire at age 53, when our original financial plan anticipated we would be financially independent. My other policy was set to expire when I was 60, which would be helpful if I had not met my goal of financial independence by my early 50s. It was a Plan B of sorts. Of course, once I was financially independent I canceled both before age 50 not long after I dropped my disability insurance. This plan cost me a bit more per month than if I had just gotten a shorter policy, but less than if I had just gotten a longer policy. It's a small cost and hassle for the extra benefit it provided.
#5 Buy the Cheapest, Long-Term, Level-Premium, Term Life Insurance Policy from a Reasonably-Reputable Company That You Can Find
Term life insurance is a commodity. This isn't disability insurance where the definition of “dead” is all-important. With life insurance, you're either dead, or you're not. By law, you have to buy life insurance from an agent. But you don't necessarily have to buy it from a “captive” agent, that is, one that is employed by a single insurance company. You can buy it from an agent that can sell you a policy from any insurance company. Two of the best places on the internet to compare life insurance policies are insuringincome.com and Term4sale.com. Both are advertisers on this site but are totally free resources to you.
Here's how it works. You enter in your information and it spits out a comparison of the same policy from several dozen insurance companies. Term4sale.com gives you the names of three local agents you can buy your policy from. Print out the list, walk into one of the agent's offices, and ask them to sell you the cheapest policy on your list. Done. You'll get the price quoted on the site. Easy, quick commission for them and you have what you need without any hassle. Well, you might have to tell the agent once or twice that you definitely don't want to buy a whole life insurance policy, but that's it. (Joe Capone at insuringincome.com promises to help you get your desired policy without having to decline whole life insurance multiple times.)
If your circumstances are unique, such as risky hobbies or health problems, a good agent can point you to the cheapest policy that is least likely to move you from the most preferred classification due to your particular risk. Lastly, remember that policies are usually cheaper if you pay annually rather than monthly, even counting in the time value of money. If you can handle the slightly more complex budgeting, you might as well save a few bucks.
Have more questions about life insurance and what kind of policies would be the best for you? Hire a WCI-vetted professional to help you sort it out.
What do you think? How did you buy your life insurance? Are you glad you used that method? Why or why not? Comment below!
[This updated post was originally published in 2011.]
I agree with all this. however, I am starting to go active military (HPSP scholarship). I originally had very cheap term to the tune of 1 mill. When I looked at the policy, act of war of course was not covered. In fact, they would fight anything if I was on active duty. So I started to look around and most companies seemed the same. Very hard to insure military.
So I ended up buyng from USAA- mainly b/c they don’t have the same war riders. There is a but- they will only insure up to 750,000 if you are active duty. So its cheaper both b/c its USAA and its less insurance, but they also have a rider to increase it by 400,000 without another physical that you can use.
So two lessons from all this: one read your policy carefully and if you active military USAA is a good option for alot of banking and insurance needs.
BTW: USAA did not sponsor this post.
Sorry if the answer is obvious to everyone else, but I’ll ask anyway. How do docs in the Guard or Reserves handle life insurance and disability insurance?
For what it is worth, USAA will consider larger policies for active-duty if you contact them and let them know that you are a physician. Same goes for other high paying specialties/professions.
I also have a $750K USAA policy for those reasons. My other policy wasn’t USAA and didn’t cover acts of war. But the fact is a doctor isn’t very likely to die in an act of war. I only know of a handful in the last decade. So if you need more than $750K, I’d buy another policy from someone else and not worry too much about the act of war stuff. (And of course get the SGLI.)
I enjoy your site and think you do a commendable job. I like how you break down the investment components of life insurance. I think it is also very dangerous as well.
Many of the statistics have no basis, such as 98% only need term insurance. Life insurance products are complex. Some are good, some are not so good. None address all financial issues. I am privileged to have many affluent clients who I call friends. We often talk about investments. Life insurance, in particular permanent life insurance has a place in many financial strategies.
To dismiss them outright and to encourage people to get rid of them can be extremely dangerous. Of course with the nature of the site you do not have any liability. I think your site would be better served in determining which cases they make sense for and analyzing the use for them. I recently 1035 exchanged an older policy I have had for year which had loans against them. I moved over the loans and cash value into a new policy with is fully paid up including addressing the loan. This is just a personal example of a technique in addressing policy issues that I have not seen here (or may have overlooked).
I think 98% is about right for those who only need term insurance. What data do you have to dispute that estimate? There is little reason to purchase cash value insurance for someone who hasn’t even maxed out all available retirement accounts (including HSA and personal and spousal backdoor Roths.) Guess what percentage of Americans are doing that? It’s not even that high among physicians.
I have written about 1035s and dozens of other “uses” for cash value life insurance on the site. If you would like to start a website whose main purpose is “determining which cases [cash value life insurance] makes sens for and analyzing the use for them,” feel free. The internet is a free place. The purpose of this web site is to help docs get a fair shake from the financial services industry that is continually fleecing them using products such as cash value life insurance. If a doc truly understands how the policy works and still wants it, more power to him. But in my experience, when docs realize how these things really work, they generally don’t purchase them and give serious consideration to dropping policies they have already purchased.
[Offensive comment removed. I’m going to leave the rest of this comment just for fun, mostly because it displays a certain level of ignorance as to how retirement accounts work that should be educational for readers-ed]
I can’t believe what I’m reading. Max out all of your qualified retirement accounts? Are you kidding? Any person with 1/10th of a brain can wrap their head around the FACT that income tax rates are at a 60 yr low and when the govt needs money, guess what? So coupled with our $19T credit card with China and the lingering reality of entitlement insolvency, buy term and max out the Q accounts is the worst advice you can possibly give someone. invest $1 today and know right out of the gate I owe uncle sam $.35? Is that really what you’re telling people to do. Are the readers really that gullible with advanced medical degrees?
If you really believe effective tax rates are going up, then use Roth IRAs, Roth 401(k)s, do Roth conversions etc. That’s hardly a reason to go buy cash value life insurance, which appears to be your preferred investing strategy based on the plethora of comments you posted on the site today.
I would think that more than 2% of physicians on this site max out their Roth, 457, 403/401, and HSA, maybe 529 to max tax benefit if they have kids, but this site is hardly a random sampling of people. I am pretty happy it’s not. Though I would probably feel better if we had the other 98% on here that aren’t doing it correctly, it was make me feel even more prepared.
How much can you contribute to a backdoor Roth?
$5,500 for you and $5,500 for your spouse in 2017 if you are under 50. $6,500 if over.
So only $11k per year? That doesn’t seem like very much if we make a combined $500k. That’s only 2% going tax-free, and only about one years worth of income 20 years from now if I get 8% return.. How do I get more money tax-free? I don’t like taxes.
I’m not sure you’re asking the right question. The right question is how can you have the most money after-tax, not how you can get more tax-free money or how you can pay less in taxes. The easiest way to pay less in taxes is to not make any money. But if your goal is the most after-tax money, that usually means maxing out tax-deferred accounts during peak earnings years, using tax-free accounts in a smart way, and investing tax-efficiently in non-qualified accounts.
If you feel like doing more Roth and less tax-deferred contributions is right for you, you are limited to $18.5K in a Roth 401(k) or Roth 403(b) or Roth Individual 401(k) for you if under 50, $18.5K in a Roth 401(k) or Roth 403(b) or Roth Individual 401(k) for your spouse, possibly $18.5K into a Roth 457(b) for each of you if you have access to one, $5.5K each into Backdoor Roth IRAs, and possibly if allowed by your plan a Mega Backdoor Roth IRA. You can also do Roth conversions if you’re convinced your tax rate later will be higher than what you’re paying now to do the conversion.
But people who ask questions like you’re asking and who try to pay less in taxes often get suckered into “investments” like whole life insurance that result in lower tax bills but MUCH lower after-tax amounts. So be careful and really think about what you want.
It sounds like you just restated my question in a different way.. Isn’t after-tax money also tax-free? And I’m not sure I follow how contributing to tax-deferred accounts helps with the after-tax issue? Isn’t that the exact opposite? Or can I convert my entire 401k into a roth down the road? Would I incur taxes at my rate at that time? I’m just trying to figure all this out.
So if we do roth everything, that’s about 10% of our income to savings. Is that a good percent to save?
Do you think you are going to be in a lower tax bracket in the future? I just find it hard to believe that for high income earners the tax rate will drop much in the future. Am I thinking about that correctly?
No, I didn’t. Your original question was “how can I get more tax-free money.” What you should be asking is “how can I get more money after paying whatever taxes are due.” There is a subtle but important difference there. For example, if you buy a muni bond paying 2%, you get 2% tax-free. So that’s “more tax-free money.” But if you buy a taxable bond paying 6%, and pay 1/3 of it in taxes, you end up with 4%, twice as much as the other bond after-tax.
Tax-deferred accounts are useful for minimizing the tax rate applied to your income. They give you a tax break now, tax-protected growth, and probably an arbitrage between the tax rate you saved putting the money in and the tax rate you paid pulling the money out.
Yes, you can convert your entire 401(k) to a Roth IRA down the road if you wish. It may not be a good move to do it all or to do it all at once, but converting part of it during low-tax years is likely a very good move. That’s called a Roth conversion. And yes, you pay taxes in the year you do the conversion.
10% is better than 5%, but I generally recommend attending physicians put 20% of gross toward retirement. Any other savings (college, house down payment etc) is above and beyond that.
My crystal ball is cloudy regarding what the tax brackets will look like, but if you are a typical physician, you are likely putting money into a 401(k) at a marginal rate savings of something like 32-37% and will pull it out at an effective rate of 10-15%. So no, you aren’t thinking about it correctly. You’re thinking about the brackets, not what YOUR bracket will be. You would be very unusual to have more taxable income, on an inflation adjusted basis, during retirement than during your peak earnings years as a physician.
I think 750,000 plus SGLI is pretty good. almost a mill there. and disability insurance after I separate (will be 35/36).
It is also important to note that one must not only compare the premium rates as they show up on http://www.term4sale.com (in price order from lowest to highest) as you may not qualify for the best underwriting classification. Family history, height and weight and other health factors play a large role in terms of which category you may potentially receive.
Therefore, rates that are seemingly less expensive for one company compared to another might not actually be the case. For example, if you have a family history (mother, father, brother, sister) of cancer, you may be moved down to the second or third category with some companies. The same is true for height and weight. So, do yourself a favor, and speak with an agent that represents several companies after you have done your initial research.
After all, in most cases, even if you are purchasing coverage via the internet, you are not actually buying direct but rather from an agent or broker. It is best to have someone working on your behalf that can help educate you so you can make a well-informed decision that you can feel good about.
Many agents, like myself, also subscribe to compulife (the creator of http://www.term4sale.com) and use their software on a daily basis.
That’s an important point. Insurance companies don’t all define their categories the same. If you aren’t in the healthiest category, shopping around can really pay off. And I agree with going to an independent agent, such as a compulife subscriber, who can sell you policies from dozens of companies.
What do you think about return on premium for a young doctor? I’m 30, we have a 1-year-old, and the difference is about $700/yr for 30-yr term vs. 30-yr term w/ROP. I’m in great health and no family history of chronic illness, so I think my odds of making it to 60 are excellent.
With regular term, I’m losing my entire premium at 60, so active investment of that $700/yr saved will have to generate a decent ROI to cover the premium, principle, and tax liability. To me, ROP makes sense if you can afford it, but I’ve seen other opinions that it’s just a waste of money.
Thoughts?
Good question, AppleDoc, and perhaps one that ought to make the Friday Q&A series. You should consider two things. First, the regular old term market has a lot more participants (both insurance companies and clients) and thus is more competitive and efficient with pricing. You’re just buying a plain old widget. Once you start adding bells and whistles like ROP, there are fewer companies and more variations between them, making it harder to compare apples to apples and know when you’re actually getting a good deal.
More importantly, you need to remember the time value of money. I assure you the insurance company is not losing money on ROP policies. The reason why is that they get to use all your premiums for the next 30 years to invest and make money. Consider this example:
You can pay, say $1000 a year for 30 year level term. Let’s say the same policy as a ROP policy runs $2000 a year, but if you live 30 years, you get $60K at the end. What kind of a return do you need to make on your money in order to come out ahead buying term?
$1000 per year for 30 years at 5% (nominal) equals $69,760. So you’d get your $60K back, plus $9K in profit. If the insurance company did the same thing, it would pay you $60K, and pocket the $9K as profit.
At 2%, it comes out to $41,379, in which case the ROP policy looks pretty good. Does that make sense?
Now, the question is what is the implied rate of return on the policies YOU’RE being offered? I can use term4sale.com very easily and see what I can buy term for. But I don’t know of a similar tool for ROP policies. This site suggests premiums are 44% more for 30 year ROP policies, 300% more for 20 year policies, and 600% more for 15 year policies.
I suspect those figures use AVERAGE term rates, not the best term rates you can get off something like term4sale.com. But let’s run the numbers just using those percentages.
15 years, $1000 for a term policy vs $6000 a year for a ROP policy. Rate of return required to beat the ROP policy would be 2.3%.
20 years, $1000 for term vs $3000 for ROP. Rate of return required would be 3.7%.
30 years, $1000 for term vs $1,440 for ROP. Rate of return required would be 6.9%.
If you can really get a 30 year ROP policy that’s only 44% more expensive than the best term policy you can buy, that looks like a pretty good deal to me. But I don’t know why an insurance company would offer a deal that good. I’d probably take that deal for anything better than 5-6% guaranteed.
I just finished a post on ROP insurance. It’ll run in a couple of weeks. It turns out the returns are much lower than I calculated above!
Thanks for getting back to me. The prices I’m looking at are a little less than 40% more for 30-yr term w/ROP versus standard 30-yr term. So it seems like it might be a good deal for me.
AppleDoc-
I’ve emailed you the upcoming post. Make sure you’re comparing this ROP policy to the CHEAPEST term insurance you can get. It may not look so good.
I am married and about to start medical school this fall. Currently, my wife and I both have a non-level premium term policy for $250k per person that increases coverage by 10%/year, up to $500k, till we’re 95. The premium should remain level over the next couple of decades, but after that may start to creep up. This about $50/month.
Obviously, I would rather get level-premium term insurance, and I could get a lot more coverage for the same amount of money each month. I was looking at term4sale.com and could get a $1 million dollar policy for each of us (15 year term) for the same price.
So, then, my question is this: I would prefer to just get a 30 year term (hopefully, by that point, we wouldn’t need it any more!). However, as we enter a financially tighter season, we won’t really able to afford the extra cost for a longer term. Would it be reasonable to buy $1 million 15 year term insurance for each of us (for the same price we are paying now) and then either 1) adding more coverage as needed later or 2) down the road, cancelling that policy and just getting a new (probably shorter term?) policy for more coverage when we can afford to pay a little more?
Ideally you’d buy $3M now, but you can’t afford it. You’ve got a couple of options. You can keep it cheapest by buying 5 year level term. That’ll cover you through medical school. You’re rolling the dice that you’ll stay healthy for 5 years. You can then buy 30 year level term as a resident. The other option is just buy less insurance. Instead of a million (or whatever), you buy $750K and hope for the best. Lots of options, none are ideal. Make sure you don’t cancel one policy before getting another.
So just to make sure: You recommend buying a 5 year $3 million term policy now, and then buying a 30 year $3 million policy in residency?
If we could comfortably get the 15 year policy described above, would it be appropriate to just get that, keep it through residency, and upgrade to a better policy once I’ve reached attending-land?
One more thought:
What if we bought a 15 year $1 million policy for each of us now, which we could afford and would at least be something in the somewhat-distant future if for some reason we become uninsurable between now and residency/afterwards. Then, in residency, I could add a 5 year $1-2 million policy on myself. Afterwards, I could cancel both policies after getting a 20-30 year $3 million policy. We could probably keep my wife’s policy until it reached it’s term and then perhaps buy another ~10-15 year policy, probably still at $1 million. Thoughts?
Sounds like a great compromise.
I’m just starting residency next month and have been on this site and Bogleheads for some time. I already am going through the process of getting disability insurance, but I’m debating life insurance at this time because I am not married yet (wedding in 2015) and have no dependents. If I were to get term life insurance now, would I be able to designate a non-related beneficiary, such as my fiancee?
You could designate your fiance. Keep in mind that you can change your beneficiary at any point by completing a form from the insurance company. You could also name your parents (or anyone that you would like to name).
Life policies are legal contracts and the terms of the contract describe the limitations of the insured events. Specific exclusions are often written into the contract to limit the liability of the insurer; common examples are claims relating to suicide, fraud, war, riot and civil commotion.^”;.
Take a look at our personal blog site as well
<http://healthmedicinejournal.com/index.php
Hi WCI,
I have a question about purchasing term-life. I currently have a $2.5 million policy with NWM for $1600/ year.
After reading your post, I asked my insurance agent to give me some quotes for different companies for a 37 year-old non-smoking male for $4 million for a 20 year term. The quotes range from $2060 (Principal) up to $3004 for a NWM policy. The quotes for MassMutual and Guardian were in the mid-2000s.
He states that the reason for the NWM policy being more expensive is that it has the ability to be converted to whole life (i the next 10 years) should I want or need it. Do you think that this feature is worth the price difference?
He also gave two quotes for 30 year term for $4million (apparently not many companies are doing 30 year) for Principal ($3500) and Guardian ($4400). He states that the reason for the price difference is that Guardian is a higher-rated company.
Overall, I’d prefer a 30 year term policy but I’m not sure whether I’m better off buying a higher-rated company.
Thanks for your input.
Go to Term4Sale and see how many companies are offering 30 year term and at what price. Did you notice how NML is never on the list?
Personally, I’d pick one of the top three on that list and buy a policy from them. Then I’d move on with life. I certainly wouldn’t spend more for a “higher rated company” or for the option to convert to whole life.
When I go to term4sale I see that a 37 year old male can buy a 30 year level term policy for $4 Million for as little as $3270 a year, $200+ less than your quotes. A 20 year can be as little as $1740, again $250+ less than your quote. Principal is on the list, but they’re nowhere near the top.
Why not show your agent the list and ask him to sell you the cheapest one?
Jsong,
It is hard to run into a term life contract that doesn’t have a conversion feature. This was just a sales tactic that your NWL advisor employs to keep your insurance with his company. Almost all companies allow for conversion, in fact, you will start getting letters and calls from life insurance agents after one year of buying term to inform you of this most important feature associated with your term life contract.
Any thoughts on Limited Pay life insurances? Is this something worth further consideration. How does the dividend paying work? Thanks!
Limited pay is whole life that is paid up in just 10-20 years. It’s obviously FAR more expensive than buying term insurance. I’m not a big advocate of permanent life insurance as it combines insurance with investing adding fees all along the way. I prefer to keep them separate.
Ok, thanks!
What are your thoughts on term life insurance laddering? I’m thinking that as time goes on, I will have less need for life insurance as I have saved more money and would lose less income in the event of untimely demise. I ran the following numbers for a healthy 30-year-old male in my state. $3 million dollars of 30-year term costs $2,000 per year x 30 years = $60,000 over the next 30 years. Alternatively, that person could buy $1M in 10-year term for $250 per year ($2,500 total), $500K in 15-year-term for $200 per year ($3,000 total), $500K in 20-year-term for $250 per year ($5,000 total), $500K in 25-year-term for $350 per year ($8,750 total), $500K in 30-year-term for $400 per year ($12,000 total). The laddered approach would cost a total of $31,250 instead of $60,000 over 30 years. In fact, in the first year alone, our hypothetical purchaser would only pay $1,450 instead of $2,000 and the premium savings would increase after the 10-year policy lapsed. Of course, you’re getting less coverage for less money, but it seems that you need less. The alternative approach would be that if you die when you’re 59, your dependents get $3M and if you die when you’re 61 they get nothing because you’ve presumably saved enough to provide for them. Also, by buying 5 policies ($1M and 4 x $500K) you can diversify among different insurers and have more of the death benefit covered by the state guaranty association ($300K x 5 = $1.5M instead of $300K).
My two policies are also “laddered” so I obviously think it’s a good idea. Don’t forget to consider inflation when designing your ladder. For example, if you would need $2 Million now in insurance + portfolio, in 20 years that might be $4 Million. So if you buy a $2 Million policy now, and in 20 years you have $2 Million in your portfolio, you might still need that $2 Million in insurance. You also want to make sure you’ve built in some wiggle room, in case things don’t go as planned (you can’t save as much as you expect, your insurance needs change, your portfolio returns are lower than expected, or inflation is higher than expected. The stuff is so cheap better to buy a little too much than too little.
Forgive me if my question is dumb, but based on the below, am I (A) Over insured? and (B) If I die dies my wife get a payout on all three “laddered” policies below, no idea how it works. We had a Financial Advisor sell my wife (the doc) and I life insurance three years ago. I think I’m comfortable with my wife’s policies but I don’t understand why I need $1.5 million in coverage when I make only $70k per year. God forbid something happen to me, I think my wife and two daughters should be just fine on her 250k income and perhaps a 500k to 1million payout for college. She has only 80k in med school loans courtery of NHSC. My salary currently goes to funding 401k 100%, HSA 100%, DCRA 100%, and cheap family health insurance since I work for the state. I currently have 500k 15yr guaranteed level (MET), 500k 30yr guaranteed level (MET), and $1million level renewable 20yrs. My wife has the same numbers except for 1.5million on the 20yr.
That’s more insurance than I carry, but that doesn’t mean you’re overinsured. You need to figure out a few things:
1) What is the financial plan if I die tomorrow? and
2) What is the financial plan if my wife dies tomorrow?
If the financial plan if you die tomorrow is for the family to save a little less for retirement each year and buy health insurance on the open market, then you don’t need much life insurance on you. Many dual physician families without children don’t have any need for life insurance at all.
The way I figured it is this. How much would I need to retire right now? How much do I have saved up? Subtract what I have from what I need and fill that gap with term insurance. The gap gets smaller as the years go by and my portfolio gets bigger. My wife has no income and I would be just fine (financially speaking only, of course) if she died tomorrow. I’d have to save a little less each year to pay for some of the things she does now, but we could maintain our standard of living. So we have no life insurance on her at all. On the other hand, if I died, there would be a dramatic decrease in her standard of living without life insurance. They would have to move, she’d have to go back to work etc etc. Life insurance prevents those consequences.
If you’re unsure exactly how much you need, err on the high side. Term life insurance is pretty cheap.
from your kids’ photos this is still pertinent 8 years on… if your wife died you would actually need, likely, to hire a full time housekeeper/ nanny, possibly requiring 2-4 people to complete all her usual duties and perhaps needing 1-2 of them to live in the home with you. So actually couples with kids may need SOME life insurance on a stay at home parent if the worker plans to keep working- especially with after hour ER/ on call duties like many docs. And even if no kids- standard of life will decrease once widowed as you have to resume all the work a (good) spouse provided, or switch to more take out/ microwavable food and a less clean home and worse gifts/ gatherings for relatives at holidays.
We could certainly afford those additional costs. My biggest cost now if my wife died would be hiring a Chief Product Officer for WCI!
But I agree with your point.
I wanted to point something out to you for help with laddering policies. Banner Life has a unique rider that allows you to purchase a base 30 year term policy, with riders being added for during durations for your laddering.
The benefit is that you save yourself from paying for a policy fee for each policy. You can add as many “riders” as you want.
I am including a link to a page at insuringincome.com. If you would like a quote, just let us know.
http://www.insuringincome.com/laddered-term-life-insurance-rider-can-help-reduce-cost-banner-life/
Is there a benefit in getting the Northwestern Mutual’s Term 80 insurance versus the 20 year term? I am in my early 30s, very good health, 2nd year of residency with a family.
Why are you only looking at Northwestern’s term products? It is not priced competitively. The selling point, I suppose, is that it converts to Northwestern’s Whole Life product. Read the posts on this site about Whole Life. If you are in your early 30’s, look to purchase a 30 year term policy. SBLI, Banner, Prudential, Genworth, American General, Pacific Life, etc have the lowest rates and have an A rating or better. Take the difference between the more expensive term insurance and the lower cost term insurance and put it in the bank, in an IRA, or apply it toward a high quality “own occupation” individual disability policy.
The ‘financial advisor’ that my husband and i met with was from NWM but claimed he could sell insurance from other companies as well. NWM quote for me was $48 for level term 80. And when i checked the term4sale.com website, other companies had similar quotes for a 30 year term, so it wasn’t cheaper. But i understand that the premiums are guaranteed only for 5 years.
Exactly. You’re not comparing apples to apples. You’re comparing a 5 year term to a 30 year term. A 30 year old female can get a $1 Million 5 year level term policy for $280 per year. If she instead gets a 30 year level term policy it costs twice as much- $550 per year.
Do you really need life insurance at age 80? Probably not. They might call it level term, but if the premium changes every 5 years, that’s not level. More like a staircase.
I agree that NWM is usually a terrible choice for term life insurance. I know, I owned a policy once.
First, thanks for taking the time to keep up this blog. Just finished your book and wish it had been handed to me when I got my HPSP bonus check. How would you suggest transitioning out of NWM policies? Currently have just over $1M of coverage spread across “adjustable compulife”, Term 80, and 65 Life.
Disregard above, found your article on it. Thanks again!
Exactly the policies I was inappropriately sold as a med student. Here’s the post for anyone else looking for it:
https://www.whitecoatinvestor.com/how-to-dump-your-whole-life-policy/
SBLI is a good company. Very competitive rates. You can buy a 30 year term policy. The policy is convertible to their whole life product for the entire 30 years without a medical exam (this is built into the price of the term cost…great feature). You should only look to convert to whole life if you find that you still NEED life insurance after 30 years and have sustained a change in health that would make you uninsurable. For the most part, plan to have the term policy for 30 years and then not have it at all. Look for low cost, A rated or better.
Term4sale.com shows the pricing….then, when you click through to an agent, you could end up with a Northwestern agent or any other person. You could find that you go through the same garbage that is “let me tell you about “.
SBLI History – http://www.insuringincome.com/sbli-history-information/
I fall into that dual-physician income, however I am the first one out of residency (30yo F). I’m just now looking at life insurance, more to cover my liabilities of student loan debt if I consolidate with a private company ($180,000). No kids now, but plan on a few in the future. Figured my husband would get larger chunk of life insurance later, however he will be will be 37-38 by the time fellowship is over. Do I still need $2-5 million, or could I do with less?
How much does your husband need/want if you die? Buy that much. If you plan on kids in the next few years, buy enough that they’re set if you die until they’re 18, perhaps including education costs.
hi
If I use term4sale it always gives me the same insurance agents for all the quotes. Is this any kind of things where insurance agents pay to get their name on the site and in return charge consumers extra money – just curious or should we not put our zip code in there.
Insurance agents pay to be listed on the site (that’s how the site makes money) but you aren’t charged any more to use them. You can’t buy life insurance WITHOUT an agent, and the commission on any given policy is the same no matter who the agent is. You can access the same database through blog sponsor Joe Capone’s site at http://insuringincome.com. Like any other agent, he’d love to sell you a policy.
Is there anything special about life insurance products marketed by the AMA or the American College of Physicians? Recently got a letter from ACP advertising their Group 10year level term life insurance – do those have any benefits when compared to individually purchased plans?
Do you need a 10 year level term policy? I never have. But it’s easy to compare one life policy to another. The disability ones are where it gets tricky.
Hello, I work with Primerica Life Insurance and noticed some people commenting on exclusions for war, acts of terror etc and said in their comment that it must be on all policies from all companies. I wanted to point out that we take great pride in that we do not have any exclusion except suicide in the first two years and THAT IS a more or less universal exclusion. I’ve thouroghly enjoyed your post and site. I would prefer that your post did not say to never buy from a captive agent because that is what I am. We have an outstanding benefit in the industries best renewal rates and term that you can keep affordably all the way to age 95, which those ywo things I think are worth paying a little more for on the start of thr policy. The downside of our company with regard to comparison sites is that I dont think any other entity can quote our rate.(like yhe two sites you mentioned)
I’m sorry your company doesn’t play well with others. That likely costs both them and you money. The problem with using a captive agent is that he cannot give you unbiased advice (without losing a lot of money.) For example, if Banner is a much better deal for the client, a Primerica agent is highly unlikely to recommend it because he can’t get paid for doing so.
First off, love the site. Thanks for all the great info. I’ve got a question about life insurance. I’m currently 30, married, no kids (yet), finishing up my intern year and looking to get some term-life. I’m healthy so my rates are pretty good. Finances aren’t strained necessarily but they are borderline tight, and will become tighter as I start having to pay more and more on my student loans as my income (slowly) rises. I can “afford” a 30-year $1M policy, which was my initial gut instinct. However, a 20-year term is almost half price ($35 vs $65). What’s the real disadvantage to getting a 20-year policy now, saving almost 50% on premiums for 20 years, and just getting another 10-year policy when I’m 50 (if I even need it). Additionally, I can always buy more after residency and my income jumps correct? I’m just trying to decide if it’s really worth it to go ahead and get the 30-year term now.
When does your investing policy statement/financial plan say you’ll be financially independent? Add a few years to that and buy term insurance of that length. If you haven’t drawn up a financial plan, I suggest you do so. Of course it may change somewhat, but it’s important to get it started. For example, if I think I’ll need $100K of income in retirement in today’s dollars, and I can save $50K a year and earn an annualized 5% real on it, then it will take me about 25 years to become financially independent. (Portfolio of $2.5M in today’s dollars x 4% = $100K per year). However, if I can put $100K toward retirement each year, then I’ll be financially independent in 16 years. In the first case, I’d buy 30 year term. In the second, I’d buy 20 year term. Does that make sense?