By Dr. Jim 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.]
This is the article I was thinking of. At our site after all : )
http://www.insuringincome.com/laddered-term-life-insurance-rider-can-help-reduce-cost-banner-life/
The quotes I have are already from banner. It seems that laddering quotes are just combining policies and prices but subtracting the 60 dollar fee for each additional policy?
Exactly right. Where did Cincinnati Life come in for pricing out two plans? Less than Banner?
I decided to go with the ladder for 1.5 Million for Years 1-20 and 1 million for 21-30. Came out to around $72.
The policy I am changing from I got a year ago when I wasn’t very life insurance literate. It’s from Mass Mutual for 1 million, graded premium which stays relatively stable for the first 10 years then jumps considerably. Looking back, I am not sure why the agent recommended this to me. I think he was going to have me covert to some type of permanent life policy in a few years…
Does anyone know an insurance company that is more understanding / lenient with climbers? If yes, any specifics in terms of what they asked?
I am in the process of purchasing long-term, level-premium term life insurance. My local insurance agent is looking into things. Seems like costs go way, way up once one discloses that they climb. Seems a little ridiculous compared to what I would argue are the vast number of other activities that are equally if not more dangerous, but that’s out of my control.
Thank you for replying. WCI, I’m a longtime reader and first-time poster. Love the book and the site.
Here’s my tip for a climber- stop climbing, buy life insurance, start climbing again. If you’re like most, there is a period of time during the year when you haven’t been climbing for the last few months and don’t have any upcoming climbs planned. That’s the time to buy. Residency, fellowship, military service etc all have periods of time where you’re too busy to climb much. That’s a good time to buy. I had a ridiculously expensive “climber’s” policy during residency which I replaced while I lived on the East Coast.
Working woth a doc now that has climbed the Himalayas and all over the world. Serious climber. Prudential is the best for him. Give us a shout. It’s going to vary based on specifics but we can help.
[email protected]
Prudential is a good option but everyone’s situation is different and another carrier may be better based on your avocation. Typically what carriers ask for is the frequency of climbs included location, altitude, Yosemite Decimal System (YDS, class 1-5) and YDS sub grade of rock climbing (range from 5.0-5.15) – if applicable. I agree there are a lot of other activities that can potentially be more dangerous so it can be a bit frustrating for someone like you! We’re happy to help if you want to send us the specifics listed above.
[email protected]
Yes, that’s what they ask for but you can’t tell what they do with the info. Am I less risky or more risky if I climb 5.9 instead of 5.10?
Generally a more technically difficult climb will lead to a higher rating classification (which means higher premiums for you). Again every company underwrites a little differently so I suggest working with a broker who can shop the marketplace, depending on your specific situation, and find the best company for your needs. Hope that helps!
That’s interesting, because some would argue that the less skilled climber is more likely to have an accident.
I agree. I highly doubt there is any data to back any of this up (i.e., are those that climb more difficult routes more or less prone to death while climbing?). For better or worse, climbing is one of the activities singled out by insurance companies. If I could, I’d propose they consider experience (such as number of years climbing… without dying) as an indicator of an individual’s risk profile.
Thank you to all those who responded. I’ll share if I learn anything more.
They should also consider gender- males get hurt far more often climbing, whether you wear a helmet- those who do are generally much more safety conscious, how often you’re on lead, whether you do ice etc.
Maybe you could get the lowest price or best rating if you agree to having an exclusion for death by climbing. I just did this for a client who scuba dives at night. The price for her term was about $600 with the exclusion and $4500 with no exclusion. If you are confident that climbing doesn’t pose a death risk then maybe this is an option for you.
That’s what I ended up doing on my disability insurance, but I couldn’t get them to do that for my life insurance. Besides, what’s the point of life insurance that might not cover you if you die? I doubt any serious climber is going to argue there is zero risk of him dying while climbing, the argument is simply that it isn’t ten times as risky as the rest of his life.
Joshua, thank you for sharing the interesting option. Perhaps I split my total coverage 50/50 with one policy that excludes death by climbing, and another that doesn’t. For example, 20 year 500K with exclusion, 20 year 500K without, and revisit in 5-10 years if I no longer climb (which I hope is not the case). Of course this will end up being more expensive than a normal policy and is not ideal, but probably less than going with a full policy that includes climbing.
I agree with WCI: undoubtedly there is increased risk of dying with climbing, as there is with any elected activity outdoors, such as skiing, mountain biking, or other activities that insurance companies do not deem especially high risk. I understand and agree with paying more for life insurance, it just seems the proportion of risk is really exaggerated. I have climbed for 17 years and am fortunate to be a part of a very large climbing community. I imagine the math may be slightly more complex than this, but I do not see my fellow climbers dying at 2-6x the rate of my non-climbing friends of the same age. If that was the case… forget insurance, I would not climb!
I am reaching out to my community and will share any information I find.
Be sure to also look at any group life insurance policies available to you such as your employer or your specialty society. A lot of times those policies don’t ask those pesky questions and if you string enough of them together, you can get to a substantial amount. The insurance is often more expensive than a good individual policy, but way cheaper than a policy with a climbing rating on it.
It’s bizarre that they’ve zeroed in on climbing, but not backcountry skiing (2 dead in my area so far this Winter), parasailing, ATV riding, road biking (several dead in my city in the last year), canyoneering (8 dead in my state in the last year), bungee jumping, etc etc etc. Life is risky. Seriously though, if you get a period of a few months when you’re not climbing that’s the time to reshop it. I think my agent asked if I had climbed in the last 3 months or if I had any climbing planned in the next three months. By the end of the Winter those are pretty easy questions to answer “no.” Then, after two years, it is not contestable.
Also, be sure to look into the American Alpine Club policy:
http://americanalpineclub.org/p/insurance
http://www.nicholashillgroup.com/lifeaac
They seem to actually want the answers to relevant questions- climbs in last 24 months, planned climbs in next 24 months, altitude climbed at, type of climbing etc.
Can agents discount lower than the rates shown on Term4Sale and other sites? I accidentally found out that they were willing to lower disability insurance rates from the original quotes when I got 2 agents countering the other’s quote.
Thank you,
Lin
Life Insurance rates cannot be discounted by agents. Some large insurers, like State Farm, will offer ‘bundle’ discounts for people that have multiple lines of insurance, however the discount is applied to one of the other lines of coverage. The carriers you see on term4sale have pricing that is set by the insurance companies themselves and cannot be discounted.
I am 38 and planning to buy life insurance for 3M, 30 years term. I am debating between United Omaha Term Life (for $3300 annual premium) vs. AG (American General Life Insurance) Select (for $3000 annul premium). I was told that United Omaha has a higher Comdex score compared to AG Select (92 vs. 81). Do you have any recommendation for these two options? I believe these are the lowest premiums I’ve found. Thank you
I would buy the United of Omaha policy as it includes living benefits and waiver of premium standard. You comparing comdex scores is missing the point.
Both great companies. I would go with the lower priced of the two. American General is AIG of course. They are massive and you have to really ask if the Codex of 81 means much. Are they going out of business any time soon? Can we say that United of Omaha would be immune to financial issues just because their COMDEX is higher?
Term life is really a commodity as long as you are looking at companies with an A rating or better.
Save the money and put it to better use.
What state are you in? Life insurance is typically based on “nearest age”. Have you crossed your half birthday? 38 or are you 39 for life insurance now?
Male?
I can send you a report from VitalSigns that compares the companies at a much deeper financial level than just a COMDEX score if you want. Can actually run 6 companies side by side if anybody ever wants to see them.
Is there a point at which you would consider not having any life insurance or disability insurance? How much do you need to save in order to not require any insurance?
Yes, when you’re financially independent which happens somewhere in the neighborhood of having 25 times what you spend each year.
How do you calculate the annual cost of health insurance after reaching financial independence, assuming its before Medicare kicks in?
It’s the same as it is for me right now. How do you calculate the annual cost of food? Could it change? Sure. But so can everything else.
https://www.whitecoatinvestor.com/forums/topic/how-much-to-budget-for-health-insuranceexpenses-in-early-retirement/
When you say “reasonably reputable” what company rating on term4sale.com does that correlate to?
I think the default setting is fine. I believe it is A-
Wondering if you have any input on AMA insurance for physicians.
https://www.whitecoatinvestor.com/physician-financial-partners/
https://www.whitecoatinvestor.com/association-disability-plans-all-that-glitters-is-not-gold/
https://www.whitecoatinvestor.com/should-i-purchase-life-or-disability-insurance-from-professional-societies/
Bottom line: I don’t think there’s anything special there. Probably not the worst policies, but I can’t think of someone who went through the process properly who ended up there.
Hello, I am about to begin residency and will be having my first child in a few weeks. As dumb as this sounds, I decided to read up on life insurance and disability insurance the day AFTER being pressured into buying 500,000 Term 80 life insurance through an agent at northwestern mutual. (friend of a friend)
I have read many of the posts above and realize that I have probably made a mistake.
I guess my question is what I should do now? I have already signed papers, but the health inspection isn’t happening until Monday. Is it too late to get out of this policy scot-free? If we are fairly tight on funds, would you recommend a 30 yr level term policy we can afford now and purchasing another 30 yr term policy once I have a more robust salary after residency? Is there any advantage to a Term 80 policy for people that are unable to afford a hefty monthly payment now but would be able to in a few years?
Thanks for the help!
If you haven’t given them any money and haven’t even been examined, it’s definitely not too late. Yes, one 30 year level term now and one later sounds like a good plan.
I’m not a fan of NML’s term insurance and especially not their insurance selling practices.
You are not locked into a policy…you can simply cancel your health examination and compare rates for a more affordable term policy. I’m an insurance agent so can send price comparisons if you’d like to email me.
The Term 80 product sounds like it would not fit your needs properly. That policy is a term to age 80 when most resident physicians are trying to get coverage over a shorter term period (20-30 years). You can always apply to add more coverage once your income and needs change.
So, exactly how does being an ER doctor qualify you to give financial and insurance related advice?
Penn State did a study on the horrible waste of money term is, a product you suggest, people should buy ALOT of … in fact, 97% of all policies expire valueless representing a loss that compounds significantly over time. Since so few people actually “cash in” by “checking out” wouldn’t they be better following your mutual fund advice (whatever it is – heck, even if it’s bad advice like this term insurance suggestion you’ve made here – it has to be better than just losing the money to the insurance company.
Whereas, that “bad insurance” whole life .. heck make it 10 pay so the premiums are astronomical in your view Doctor it pays up and then wow in less than 10 years the cash value exceeds the premiums and then … if you pick a solid mutual company the cash tends to accumulate at a rate of 3.5% – 5.5% a year … wait that is accessible tax free so when you tax adjust that you end up with paid up insurance with no opportunity loss (like term) and an asset growing, that can be accessed at any time, tax free, growing at a tax adjusted 4.5% – 7%.
Do everyone a favor study medicine … your right that alot of advisors aren’t good – like the ones who get paid 130% of the term insurance premium you pay because the company knows the possibility of a payout is minuscule. I’m sure you’ll comment – you’re young, a doctor and absolutely sure that you know everything … the worst thing in life is when you are sure you are right and learn too late you’re not and the harm here – people are listening to you – that’s the shame – do no harm doctor. Right? Oh, and when you fire back whole life pays more … you are 100% wrong – limited pay whole life is the lowest commission product the industry offers.
Hmmmm…. Ad hominem attacks, lack of understanding of what insurance is for, leaving out important details…pretty much par for the course for insurance agents coming by here. Looks like I’ve got another person/firm to add to the list of the “bad guys” in the financial services industry.
[Ad hominem attack deleted.
Get a life Matt. Go troll somewhere else. But do us all a favor and quit selling doctors whole life insurance they don’t need and once they understand how it works, don’t want.]
as a football fan the jim harbaugh name drop made me LOL.
u mad bro?
And please do everyone a favor Matt and brush up on your spelling and the grammatical rules for apostrophes. “A lot” is two words not one. “Your” is possessive and indicates that something belongs to you. Your coat, your job, your whole life insurance policy etc. You’re is short for “you are”, as in you’re dilenquent on some outrageously expensive universal life premiums.
Some of my favorite comments are “grammar nazi” comments with misspelled words. 🙂
Oh come on, don’t delete the ad hominem attacks- I was looking forward to seeing this clown’s comeback, which I am sure included a thorough discussion of the commissions and fees associated with the products he peddles.
Sorry, it was kind of fun back in 2012 and 2013, but I’ve just got better things to do than listen to people repeat whole life myths 1-30 over and over again.
https://www.whitecoatinvestor.com/debunking-the-myths-of-whole-life-insurance/
Did you imply that Jim Harbaugh is smart, rich, and successful because of a possible life insurance policy that we really don’t know that he owns? Even if he does have one of those policies it doesn’t mean anything. Jim Harbaugh has drastically different financial circumstances than 99% of doctors. How many doctors have estates worth over $40 million? You’re just a jive talking Turkey.
Any thoughts on online life insurance providers? I am about to have a baby and need to add more coverage to what I have. Been seeing adds for “Ladder Life Insurance” company out there, and the concept of being able to apply directly online without an agent seems appealing.
I don’t have a problem with an online company but I’d just use an independent agent, even if you’re just talking to them by phone.
https://www.whitecoatinvestor.com/websites-2/insurance/
I’m an independent agent licensed in all 50 states. If you would like to discuss my direct # is 619-719-5444. We’re able to quickly get comparisons on policies from the various life insurance carriers. I can also answer any questions you have pertaining to laddering policies.
Carl DeSiena
You know most people who advertise on this site have the courtesy to pay me to do so. 🙂
Those people can be found here:
https://www.whitecoatinvestor.com/websites-2/insurance/
and I recommend readers help support the site by using them and telling them where they found their name.
There aren’t many companies that allow you to apply online without an agent but there are a couple. The one I’ve seen the most is Haven Life (part of Mass Mutual). That being said you are more likely to get a better price by speaking with an agent that represents several carriers. By shopping you get the best price/policy for your needs. I am an agent myself so can get rates if needed (email [email protected]). Term4sale.com is also a good option to explore life insurance rates as it lists premiums from most of the top rated term life insurance carriers.
Drop in on our website and take a look. We make the entire process very simple. Insuringincome.com
Heres my deal — I have 1.5m term life insurance, and about to have first child and starting fellowship. I think I need more coverage, but can’t afford a long term. Should I get a short term policy, and hope my health stays for a few years? Is there value in getting a policy that can convert to a “permanent” policy if my health falls apart (which i dont expect, but never know)?
If you can’t afford a long term right now it would be best to get a shorter term policy. Most carriers offer a 10 year term at minimum and do include a guaranteed conversion option if your health changes. There are a few companies that even do Annual Renewable Term policies so you are only buying insurance 1 year at time…American National (ANICO) is one of those carriers.
Tough choice. You either buy enough coverage in a short term policy or not enough in a long term policy. Either way, you’re hoping you don’t die before you’re able to buy more.
You can usually get the option to convert to a permanent policy for free, so sure, why not? So I guess that’s one option if you decide to go with a “full-size” but short term policy, but not a very good one. Imagine paying the premiums on a $2-5M whole life policy? You think that’ll be easy when you find it tough to buy an adequate term policy? Attendings don’t make THAT much more than fellows.
I think what I’d do as a fellow is buy a $1M 30 year policy and then buy another $1-2 M 20-25 year policy after finishing assuming I’m still healthy enough to do so. But I can understand if you wanted to do something different.
Thx for the advice. Obviously the amount of coverage each person/family needs is up to their individual needs/desires. I already have a 30 year 1 million term and a 20 year 500k term. I don’t think this is enough for what I would want wife and kid to have going forward.
Ideally I could get enough coverage to cover this family expansion and any that may happen in the future so I don’t have to go through the process again, but seems unrealistic. I will probably try to add a 10 to 20 year term now with somewhere between 500k to 1m coverage, pending on the quotes I get.
You all know better than me, but in a previous convertible insurance that I cancelled before I got the plan above, it seemed to be a higher premium to be a convertible plan (from Mass Mutual). I’ll see what current agent i use comes up with in the quotes.
Question- working on obtaining life insurance and disability insurance.
Currently trying to get sold a term policy through Nationwide for 41/mo (27 F non-smoker). However, I know other rates are cheaper but they are pushing the issue of “conversion to whole life” ability to use that mother other places, etc.
Agreed. It’s a commodity. Buy the cheaper policy. I would not put much value on ability to convert to whole life because it is so unlikely I would do so.
Hi there, Nationwide is not unique in allowing conversion to whole life…in fact, most of the major carriers also include the ability to convert up until age 65-70. To me it sounds more like a sales tactic and would pursue broadening your search to other companies that specialize in term life insurance. Again nearly all the major term carriers have a guaranteed conversion option so unless there is something else they can tell you that separates this policy from the rest I would go with a better priced company. Please post if you have any additional questions–
Carl
Hi
Please e mail my answer
I am watching different you tubes about whole life insurance be your own banker & concept of infinite banking . It says create your own bak & be your own banker.
Watching mr Nash & Patrick danahoe all talking about the benefit of whole life insurance & co Lat loan available through life insurance.
The concept is very desirable unless there is some catch to it that I donot get it
You saying something different . Could u e mail me what’s bad about whole life insurance.
The concept I have got so far 5% guarantee interest it become compound interest
I can borrow money from my own policy & not pay interest I get one mil death benefit which is not very attractive I want life benefit not death benefit
Also they talking if I put for example 100 k in my life insurance
Borrow 70 k still I get interest on the base of 100 k
So these are lies or some catch to it
Please advise if some one can give me more info since I am about to buy
Thx
Kiki
Yes there’s a catch. You have to buy the life insurance policy you don’t need with all the downsides, costs, and opportunity cost that entails. More details here:
https://www.whitecoatinvestor.com/a-twist-on-whole-life-insurance/