I got this via email from a two-doc couple a while back.
Q.
We have over $1M in invested assets. I am married to another physician. We have only ever carried $1.4M in life insurance each and the maximum (66% of salary) for disability. I bought multiple disability plans and two term life insurance policies for each of us long ago with the idea of slowly dropping them as our invested assets increased.
That said, I’m at the point to implement my plan and can’t bring myself to do it. I can’t be the only one struggling. Any advice?
A.
This is a very important question but unfortunately one with no right answer. A key aspect of this whole idea of insuring only until financial independence is to actually drop the coverage upon reaching financial independence. This can even be done gradually as you approach financial independence as you originally planned. It is important to recognize that your need for life and disability insurance is greatest in the beginning when you have a high potential future wealth but have not yet converted any of your time and work into actual wealth yet. Then as you gradually convert your time and effort into actual wealth throughout your life, that need for insurance gradually decreases until it eventually disappears. If you continue to pay premiums at that point you are not insuring against financial catastrophe, you are making a bet against an insurance company and hoping you will win. That isn’t necessarily a bad thing to do (especially if you aren’t feeling well) but it is a different thing to do. For example, some people choose to ride out their level-premium term insurance to the end of the term. Since the premiums are level, they recognize that they overpaid for insurance in the beginning and are now “getting a good deal” on it. You can avoid that issue with an annually renewable term policy.
Another aspect of your situation worth discussing is the fact that in some ways you are married to a life and disability policy. Each of you earns a great living and I suspect you two could live very happily on just one of your incomes. One might argue that you don’t really have a need for life or disability insurance at all already. What you need, is a plan in the event of the disability or death of one of you. If the plan is to live on the other’s income, you could have dumped all this insurance years ago. That’s a totally different situation from mine where my spouse’s professional training is in school teaching, which earns an order of magnitude less than an emergency doc in this part of the woods. I suppose there is a very small chance of both of your dying prematurely or becoming disabled at the same time. You might be able to find a life insurance company willing to sell you a term second to die policy (probably they’d want you to buy a permanent product to get that feature) but I doubt that any company offers a second to be disabled policy. And of course there is the risk that you cancel insurance, then get divorced and maybe even remarried and find you now have a need for insurance but are no longer insurable. Again, it seems a relatively low risk and maybe not one worth insuring against.
I am also surprised to hear you feel that a million is a large enough sum that you’re already ready to cut back on coverage. That amount of assets can probably only be counted on for $30-40K a year of income if you’re going to start drawing it in your early 40s. That seems much less than I would expect most two-physician couples would be use to spending. Heck, it would only cover my mortgage payments. If $1 Million makes you rethink your coverage, you’re probably dramatically overinsured. If you have really maxed it out, I wouldn’t be surprised if you have twice as much disability coverage as your actual expenses.
Another option to save money might be to cancel some disability insurance riders. A cost of living rider becomes less valuable each year and you certainly don’t need to be paying for a future purchase option rider. If you’ve bought riders you now regret (such as the retirement benefit rider or catastrophic disability rider) you could cancel those too and save some money.
When To Drop Life Insurance
Let’s examine carefully when a reasonable time might be to drop life insurance. The key is to go back to the decision to buy it. What were you planning to use the proceeds to cover in the event of the death of the insured? Perhaps your plan was to:
- Pay off a $400K mortgage
- Put $100K toward college for each of three kids
- Use $1M to create a nest egg that would pay for spouse’s retirement at 65
- Maintain an income of $100K per year from now (age 35) to 65 for spouse.
Let’s say you totaled that all up, made some projections of returns, and decided to buy $400K + $200K (it had time to grow) + $1 M + $2M = $3.6M of insurance. Now here you are a few years later at 45. The house is paid off. You have the college accounts adequately funded. You have a million dollar portfolio. If you were buying insurance today, how much would you buy? Well, maybe now your need is only $1.5 Million. So technically, you would drop $2.1 Million worth of coverage. Reassess again in 2 or 3 years and maybe you can drop another $500K-$1M.
When To Drop Disability Insurance
Disability insurance can be a little more straightforward. You only need enough disability insurance to cover your after-tax monthly expenses and your retirement savings. If you’re done saving for retirement (it wouldn’t be unreasonable to expect that $1M to grow to $4M over the next 20 years and cover retirement), then you only need enough disability benefit to cover your monthly expenses. If you spend $10K a month, then you need $10K of benefit.
Your Situation
Personally, in your situation where it isn’t even clear that you need the life and disability insurance at all, and you’re paying $21K total for it (compared to the $6K I’m paying,) I think I’d take a moderate approach. You obviously weren’t comfortable with being each other’s life and disability policies before so you probably aren’t now. Why not cancel one disability policy each and cut your life insurance back to $500-$1 Million each and give it a year or two and see how you feel about it? Then you can reevaluate.
What do you think readers? How did or will you decide when to drop your life and disability coverage? Will you carry it all right up to the point of financial independence or drop it gradually as you approach? Comment below!
I purchased 20 year term life insurance as an intern. I felt that by the end of the 20 years, I would be financially secure enough that I would no longer need the life insurance. You are correct that I could slowly reduce the amount of coverage if things work out better financially then I expected. However, at the time I purchased the insurance, I figured that inflation would make the benefit less valuable over time. Great analysis of this common situation facing physicians.
That’s how I thought about it too. Inflation and flat rate makes it cheaper towards the end of the policy, but also proportionately decreases the value of the payout. In my mind it’s kind of a wash. So at least for term life insurance, I plan on holding the same amount for myself until I reach FI and then canceling the policy (this seems much easier than trying to take out new policies over time, lowering the amt as you approach FI, especially with the relatively low cost of this type of insurance). I pay $745/year for 2 million of coverage fixed for 20 years. I also get an additional 800k for free (well…as part of my benefit package) from my job. Agree with WCI that the best way to choose the amount is to look at what income/costs you’re trying to replace and buy that amount.
As a two doc couple, we always viewed each other as part of our disability income replacement plan. In this post’s example, I would keep the term life policies but seriously reduce the disability policies. I would prefer to keep the own occ disability policies over others. I would also be sure I wasn’t paying for any short term disability policies. They should be able to wait 6 months or longer for disability to start paying out. This issue is very personal and based in fear of unknown bad outcomes. Each person needs to decide how much the cost of allaying their fear is worth to them. My husband and I have discussed what we would do in the case of the other’s disability which makes it easier to put a number on it.
Is there an option to get only long-term disability insurance? Those premiums for the disability insurance look like they might provide a short-term and a long-term benefit… I wonder if this couple can self-insure the short-term risk.
Two minor points, too, to throw into someone’s analysis. First, if you have children, social security survivor’s benefits make a difference to your life insurance calculus. Second, especially for long-term disability insurance, I think you’d want to look at paying for the policy with after-tax dollars to avoid paying income taxes on the benefit.
Interesting. I always prefer to pay premiums with PRE-TAX dollars, when given a choice. Sure my benefit will be taxed, but I’ll likely be in a lower tax bracket if I end up collecting. To each their own.
Gipper, WCI, et. al., I agree with the marginal tax rate math. Some of you know I often make this point with regard to Roth v. Non-Roth accounts…
But to explain myself, I see a handful of reasons for my partly gut feeling and partly quantitative conclusion about paying long-term premiums with after-tax dollars:
1. The long-term premiums are often pretty small. In my case, for example, long-term disability was a few hundred bucks a year while short-term disability would have been thousands a year. I might have felt differently if I wasn’t self-insuring the short-term disability. (Actually I probably *would* have felt differently…)
2. I always felt like I simply couldn’t buy enough long-term disability when I needed it. Converting the benefits to a tax-free income stream made me feel like, in effect, I had a little more insurance.
3. My preference (and this is probably pretty quantitative) also stemmed from fact that I was always operating as an S corporation and so intentionally pushed down my earnings to the absolute lowest value which still worked as “reasonable compensation” and that then pushed down the disability coverage I could buy.
Excellent points.
$20,000 a year for disability insurance is a whole bunch of money. $20,000 growing at a 5% to 8% clip will be a Million dollars in 20 to 25 years.
If they are now over-insured, it would make sense to cut back on those policies. Mine was less than $4,000, and I thought that stung.
I waited until I had closer to $2 Million to drop my policies, and we live rather modestly compared to most physician families. It might be best for this couple to reduce coverages before dropping them altogether.
Best,
-PoF
A question PoF – was it 2 million in net worth or invested assets?
Good question, but I’m not entirely sure — ~80% of my net worth was invested assets, 20% in two homes. With the strong market we had, combined with a good job, I think I went from $2 million net worth to $2 million invested assets within a year. My money works as hard as I do these days 🙂
I never really had a plan for this, but with increasing age, decreasing career timeline, and increasing net worth, I have gradually pealed off these insurances. We are left with a small life insurance policies for myself and my wife (the latter provided as a benefit from my wife’s company) and a “mandatory” group disability plan from my work, for more coverage than I would buy on my own.
Here is one other option to throw into the equation depending on whether you have control over it or not or whether it is even legal (experts please weigh in here): if you were to decide that you are overinsured from a disability standpoint given your increasing net worth, it may be wise to switch your disability premium payments from after-tax to pretax by having your company pay the premiums on your behalf instead of you paying the premiums (your company could account for your additional expense on the corporate side of the equation so that it is fair to the others in your group). By doing this, you could potentially decrease your true cost/benefits of the policies (avoid taxes on that previous income), but it would also decrease your benefits as they would now be pretax income in the event that you became disabled).
Additionally, it may have been a good idea to do this in the beginning for both economies of scale purposes and tax arbitrage purposes. First, economies of scale benefits: if the incremental increase in cost of a policy goes down the larger it is, then if you were to increase the amount of pre-tax benefits coverage to equal post tax benefits coverage, then it may be cheaper from an apples to apples comparison when you look at the cost of the policy depending on whether you use pretax or post-tax income to pay for the policy.
Second, you are likely to benefit from tax arbitrage if you pay the premiums with pretax income as well, meaning your tax bracket is likely higher during your working years while you pay for the policy, but in the event that you become disabled, then your tax bracket will likely drop significantly and the proceeds will likely be taxed at a lower rate than at your previously higher rate during your working/premium paying years.
I’d be interested to see what holes more experienced people punch through my thought process. There may be many nuances, including legal, that I am not aware of, but this could potentially be a post by one of the “good guy” insurance experts to explain it better and correct any falsehoods I may be stating.
I like the idea of paying disability premiums with pre-tax dollars. The premiums are guaranteed, but you have a 6/7 chance of never collecting benefits. So might as well get the guaranteed tax break. Besides, if you live on disability, you should have a lower marginal tax rate so you won’t pay that much anyway.
But alas, I discovered when trying to actually do this that I could not for any business structure I was part of. I can’t recall exactly, but I think you had to be a C corp to do it. I know a sole proprietor and a partnership could not take that deduction.
Jumping in a bit late, but if you do end up needing to use your disability insurance like me you will be very glad to get it non-taxable. It can be very difficult to accurately predict your added medical and get-to-medical and home assistance costs so that you can adequately insure for them before you are disabled. And thinking you will be able to live within the budget you set feels very different from knowing that you will probably never be able to make other income. Thirdly, a lot of government and non-government assistance programs for the disabled are income-based and getting your insurance benefits on a taxable basis might disqualify you from getting assistance you need. And finally your ability to downsize to reduce costs will appear far more insurmountable – moving is a Herculean task when making a sandwich is a major achievement. If you think you are overinsuring it’s better to reduce your coverage amount and pay in post-tax dollars rather than pay for more coverage in pre-tax dollars.
This is the Biggest Croc of crap I have ever read. However considering the source it is coming from doesn’t surprise me. When your dealing with people who want to take your money and put it in a High Risk environment like the Stock market where they are paid weather you have gains or Losses, it pretty much explains their view on life insurance. Everyone knows and if they don’t then they need to go back to school. Life insurance is designed to Protect your loved ones in the event of your untimely death. It provides a Tax-Free Death Benefit to your Beneficiaries in order to maintain their lifestyle when they can no longer depend on your income. It pays for your Final expenses, Taxes and any Debt that you leave behind to your Estate.
The one thing I do agree with is article is that when UL policies were first came onto the market back in the 1970’s they were poorly designed and were set up for failure as I have seen as well. That however is not the case in today’s market with all the regulations that are put into place to Protect the Consumer. The One policy I would Never put my hard earned money would be in a VUL policy as you are putting your money Directly in the Stock Market were you have All The Risk and No Protection, especially if you plan on using that money in your retirement years.
Term insurance is designed to protect you and your assets for the short term while paying off your home, or while the your children are in school and if you should die it will complete its purpose. However if you only buy term insurance and not have a permanent policy in place, you run the Risk of not being able to be insured in later years when your health goes south.
Permeant life insurance on the other hand provides Living Benefits that you don’t have To Die to use. For example it builds cash value that you can access Tax-Free when you need it. It also builds Cash Vaule on a Tax-Deferred And Compound basis, which can be used to supplement your retirement income Tax-Free. It will also provide you with a Lump Sum payment that you can take from your death benefit in the event you have a Heart Attack, Stroke, or Cancer without having to buy a separate Critical Illness policy. Also along with Annuities that Stock Brokers are Reluctant to put your money into to keep it Safe because they can’t earn more commissions when your money is not available to them to churn to earn money while you are losing money in the market. Life Insurance and Annuities are the Only two products that are Creditor & Judgement Proof. I bet your Stock Broker Never mentioned that?
When it comes to Disability coverage, this is to protect and provide you income in your working years in the event you suffer an event that prohibits you from earning an income and paying your bills. It’s not for when your no longer earning an income. If you become Temporary or Permanently Disabled, your ability to earn a paycheck is exhausted. That’s what makes Disability insurance so important. Particularly for someone who depends on your income, like your family or business that you may own.
I could continue to go on how Important life insurance and disability insurance is now as well into your retirement years, but I believe that I have made my case quite clear.
In closing, consider the Financial Impact this will have on You, your Family, your Finances now as well into the future without the proper coverage in place. If you want peace of mind, you are the only one who can make that decision. Be Informed and don’t let Greed or Fear be your guide. It will Always steer you Wrong! Americanfamilybenefits.org
Just waiting here waiting for the WCI takedown…
that Shift key can Be so Tricky sometimes!
+1 🙂
Good try Elliott! New to the site?
Argh! you Beat me To the Comment!
FWIW, I have 3 disability policies that I plan on discontinuing step-wise with specific financial goal achievements: 1) with finishing mortgage, 2) with going to part-time, 3) with fully retired.
As for term-life, I was definitely under-insured initially and now I’m at the point it’d be a nice bolus of cash, although it would only replace a few years of earnings. I’ve always argued that my death shouldn’t be my family winning the lottery–my family will have enough to be comfortable, but they’re not going to be lounging on the beach of a private island.
It’s like Elliott didn’t bother even reading the post. Or he completely misunderstood it. Since his post was chock full of spelling and grammatical errors, I’m betting on the latter.
Nothing you said, Elliott, convinced me that I need something as terrible as permanent life insurance. Thanks for playing though!! Buh bye.
I disagree with almost everything Elliot wrote, but I still really enjoyed reading that comment. Not sure it will drum up a lot of business among this crowd, but I like the passion!
Excellent example of how fear of unknown bad outcomes can be used to try to sell financial products.
His comment just shows why so many people have such a low opinion of insurance salesman. Not only is it rude and pushy, it is full of 1/2 truths and how he doesn’t understand the limitations of insurance or the alternatives.
Let me correct just a few….He is a proponent of ULs b/c of the guarantees. Well many life insurance companies have decided to increase the cost of insurance well above the scheduled increase to make up for the short comings they had on the investment side. Guess what that guaranteed interest rate wasn’t worth a darn…Of course there are lawsuits over this currently but at the moment many people who put their faith in the insurance agent are screwed. Hopefully they aren’t also using the policy to obtain money in retirement as he proposes.
No they aren’t the only products with protection. Again it varies state to state but qualified plans are protected as well. And to boot, for insurance its more like a liability early on. Lets just say you purchase a permanent insurance policy and then get taken to the cleaners. Guess what your insurance policy still needs on going premiums and if you don’t pay them then it goes bust. So really its just another mouth to feed for many many years.
Stocks in a taxable account also get a step up in basis at death so they have the same income tax free benefit.
All loans in the US are tax free. Not just ones against your life insurance policy. The interest rate on insurance loans isn’t even competitive at the moment and the ones with better loan rates have lower dividends/interest rates.
So yes be informed. I really wish agents were.
The typical financially independent high income professional doesn’t have a need for life or disability insurance. Paying for unnecessary insurance is a waste of money.
If you are arguing anything else, and to be honest it’s not very easy to see what you are arguing despite feeling you have “made your case quite clear” (although it is obvious what you are selling,) then you are at best mistaken and at worst conniving to sell doctors expensive, high-commission financial products they neither need, nor want once they understand how they work.
If you are like most agents who leave comments like this one, I truly believe that you “could continue to go on about…life insurance” for a very long time. The other 100 guys over the last 6 years certainly did.
and boom goes the dynamite
Elliott Peart perhaps you did not realize that this is a website devoted to physicians and other high income professionals which Emphasizes a cost conscious approach to building wealth over time. Overpaying for unneeded insurance products is not something many of the readers here are likely to do. Term life is of course recommended early as is disability insurance. I own neither product and you would not convince me that I need either one. I managed to dodge the whole life bullet in my youth. It was pitched to me several times. I dropped disability when I knew I had more than “enough”. I am self insuring for LTC also. Malpractice insurance generally covers physicians main creditors. An adequate umbrella covers the rest.
I’m not an opponent of Whole life either, but I do believe that you should have some firm of permanent life insurance. I don’t believe that you should be insurance poor, however there are many benefits to life insurance. Especially in your retirement years. Please enlighten me on your blog as I’m not trying to convince anyone to buy something that they don’t need.
You need to do a lot of reading. There are lots of posts here on life insurance. I suggest though you go to an insurance agent forum though.
You should also be very careful about recommending the “living benefits” of life insurance. Many policies fail because of loans and then not only does the person lose the death benefit, any gains are immediately taxed as income including phantom gains because of interest. This is in particular true in a lowering dividend environment.
Most of us aren’t agents and we just aren’t going to train you but so you know you aren’t going to be able to make a case for either WL or ULs unless the person needs or really wants a permanent death benefit. As a strict investment it is very uncommon to be a smart move. You also don’t seem to realize that insurance companies invest the money and ones returns are primarily related to that minus huge commissions, fees and cost of insurance bumped up a little bc most policies lapse. Cost of insurance is also typically MORE than in a cheap term policy. Good luck.
well, I just checked AmericanFamilyBenefits off of my list of people to shop for insurance from. I just sent out 3 quote requests for disability since I’m finishing EM residency in 5 months and hope to save some money by applying now. I like the part of the post where you give a list of things to consider when calculating a number rather than just blindly picking a $$ amount.
I talk to many of my physician colleagues and see they are over insured. I never believe that one’s death needs to be a lottery winning for the survivors. They also neglect to realize that they already have a very small disability policy through social security. This physician couple is currently way overinsured. They are far better off taking that extra money and enjoying a nice vacation, cutting back on work, or investing it. Personally I think you can get rid of the disability policies completely.
Elliot Peart appears to be an insurance salesman who probably does not realize what blog he stepped into. Permanent life insurance provides very lucrative commissions to Elliot Peart. Commissions he is glad to take from his clients. Elliot benefits most when he sells these products therefor he is either clueless on the products he sells or he is willing choosing to be non fiduciary he clients for his own self interest.
Wow, I will leave the responses to Elliott Peart’s post to other as I am sure it will be swift and harsh. It does remind me of this quote:
“It is difficult to get a man to understand something, when his salary depends on his not understanding it.” – Upton Sinclair.
On a separate note, I found this post to be quite timely as I have a 2 Physician household, in my early 40s, and see my insurance premiums climbing significantly yearly due to a graded premium on my DI policy. Last year, we spend ~ $20-25K on insurance (all insurance including home, DI, term, auto) and have just started contemplating when to try to start cutting back on the DI.
Couple of thoughts I had but was wondering what others thought. Much of my net worth is tied up into the stock market (with retirement plans, taxable accounts) and with the domestic market currently at all-time highs (70/30 domestic/international split), I’m wondering if my decision to cut back on disability insurance would alter if my net worth suddenly plunged by 30% (or more)????
So for now, I’m willing to pay as I’m doing for my premiums and see how comfortable I feel cutting back after the inevitable downturn in the market.
I agree a market bottom is a far better time to assess your financial independence than 8 years into a bull market.
An insurance salesman alleging incentive malfeasance against another. That’s rich.
Appreciate the post, WCI.
I just dropped my disability insurance this year.
I retired and have enough in passive income to cover our expenses, so there’s no real need for it.
Even so, it was tough to cancel. It’s a bit like pulling away a safety net of some sort.
However, it was pricey ($3k a year) so it wasn’t that hard to do. 😉
If you retired why would you continue to carry disability insurance? Is it even legal to do so if you have no earned income?
When I bought my term life insurance, I laddered my insurance needs. A 10-yr policy for $1M, a 20-yr policy for $500k, and a 30-yr policy for $250k. Years 0-10, insured for $1.75M. Years 10-20, insured for $750k. Years 20-30, insured for $250k.
As for disability, I hope it becomes clear when I should be able to drop it but right now it costs me $4.5k/yr to get $2.5m of benefits. Seems like a good deal at the moment so I’m good with paying the premium.
Not sure I understand what you’re saying. Are you saying you bought a disability insurance benefit of $2.5 MILLION per year for only $4.5K per year? Do you want to double check that? It seems off by at least an order of magnitude.
He’s probably adding up the lifetime benefits…
E.g. 7k month*12 months*30 years = ~2.5 mil
Gabe is correct, my monthly benefit is $8535 and am insured until age 65 (which is about 25 years away) so the lifetime benefits would be $2.5m. At some point, even if I continue working until age 65, the policy won’t be worth it given the amount I *could* collect, the policy premium, and the likelihood of me becoming disabled.
Hardly see the point of laddering them in that fashion. Maybe 1 mil 10 year , 1 mil 20 year and 1 mil 30 year term, or even reverse the order of your policies. You seem to have forgotten to account for inflation, and the fact that 25 years from now 250k is hardly going to insure you against anything.
My intent is to eventually self-insure. If I die in years 0-10, the house can be paid off, the college education funded, and the family set up with a nice cushion with the life insurance proceeds. As an earlier poster mentioned, I don’t intend my death to be a lottery ticket for my family. Rather I intend it to allow them to not have to do anything drastic for the first 5 years. The $1.75m will cover these needs.
In years 10-20, I expect to have paid off my house, funded the college education, and have retirement taken care of. There will still be child raising expenses and again, I don’t want my family to feel like they need to make drastic decisions in the first few years after my death, so $750k should take care of these needs.
In years 20-30, I don’t expect to have any financial goals to achieve but I also don’t want my family to have to worry about any immediate funding needs by needing to “figure out” where the money will come from. The $250k will take care of that.
If I insured like you suggested, I would be over-insured in every year. $3m years 0-10, $2m in years 10-20, and $1m in years 20-30. And obviously being over-insured means I’m paying more in annual premiums than I need to.
The topic here is talking about when to drop or reduce life insurance and by laddering the insurance from the beginning to meet my financial objectives, I’ve been able to minimize my annual premiums and taken the angst out of the decision later in life.
Sounds like you thought it out well. Numbers make more sense assuming FI after 10 years. I was just pulling nice even numbers out, guess I should have used 500k, instead. Was just pointing out that 250k 25 years from now is a pittance of a sum (inflation historically will halve the value every 20 years). But it looks like you basically only wanted it for funeral exspenses, etc anyway, as FI would have already been reached.
I brought up a similar topic on the forum in regards to how much disability insurance to purchase as a young dual physician couple. Mine costs about $4000 per year already and I don’t really want to double that but feel ensuring the spouses income in some way is a reasonable thing to do. Still not sure what the right answer is but that usually means that’s because there isn’t one.
As a slightly older two physician couple (early 50s), we maintained term life for both, and own-occupation disability for both, despite a decent net worth. Our rationale had to do with how much hassle we wanted to deal with, in the event the other spouse died or became disabled. Yes, I could maintain the household income stream if my wife had to stop working. But that would mean I would have to continue working, rather than staying home to help take care of her, or visa versa. The cost of insurance does not affect how we live, the size of the house, vacation, or cars that we drive. So for us, it buys some peace of mind for the surviving or non-disabled spouse. That being said, we likely will cancel these policies in our late 50s.
I’m intrigued by the thought that they could consider each other as a disability policy since you are now shifting the bet from being disabled to betting that you won’t get divorced or disabled. I wouldn’t want to take that bet given that the divorce rate in this country (and particularly physician couples) is quite a bit higher than the rate of disability.
Physician couples actually have a lower rate of divorce, believe it or not! But excellent point. However, you’re not considering the fact that you are quite likely to be able to buy disability insurance in the event of divorce.
Is this true? I tried to increase my disability coverage with guardian but was denied because I was diagnosed as a type 2 diabetic before the age of 40. are there any other own occ companies I should look at?
“Likely” means most but obviously excludes those whose health deteriorates markedly.
That would be the big concern – during the years that go by before divorce, you increase the risk of getting diagnosed with something that would preclude you from getting affordable coverage.
The other concern would be if you were disabled before the divorce. If you had the disability insurance, you would be getting the monthly payment regardless of your marital status. Once divorced, I doubt the ex-spouse will continue to pay your expenses as he/she did while married and I wouldn’t bet on the divorce arrangement covering all the expenses. Especially if the disability requires some form of assistance for housework, cooking, etc – that would require the use of a paid attendant if no other family/friends is available to assist. The rate of divorce in patients with disabilities is much higher than normal, particularly if the woman becomes disabled.
Dual physician couples do have a lower rate, but it is not zero.
One physician couples IIRC have a higher than average rate
I don’t think that is right.
http://www.huffingtonpost.com/2015/02/25/doctor-divorce-rate_n_6743032.html
You and your damn data WCI
I think I am right about the dual physicians being lower however
https://www.ncbi.nlm.nih.gov/pubmed/11915527
There is also this older study in NEJM
https://www.sciencedaily.com/releases/1997/03/970313111952.htm
“Over 30 years of follow-up, the divorce rate was 51 percent for psychiatrists, 33 percent for surgeons, 24 percent for internists, 22 percent for pediatricians and pathologists, and 31 percent for other specialties. The overall divorce rate was 29 percent after three decades of follow-up and 32 percent after nearly four decades of follow-up.”
Alas my spouse and I are psychiatry and surgery. Happily married but we both have disability insurance..
I think that is correct- dual physician couples are less likely to divorce than one physician couples and no physician couples.
Regarding the Disability insurance…not knowing the details of your health and other financial details, wow $20K is a big bill to pay each year. My wife and I are dual-physician and we both have 60% income replacement through our W-2 jobs, plus two small plans providing $3K for her and $5K for me per month, the premiums for which total around $250/month. Not bad for a little extra cushion–note we have a mortgage to pay and a ways to go before reaching FI. In my case the $5K policy is on a graded increasing premium which starts low and increases each year, the break-even point (compared to level premium) being around 10 years from now, at which point we’ll probably drop one or both, and we’d still have the 60% coverage from our W-2 jobs. Point being, maybe you can just replace yours with two smaller policies. I think small policies around $3-5K/month don’t even require a medical exam (might be wrong about that–depends on insurer I guess). Of course all of this depends on many decision factors as noted above…
I have life insurance through my employer. It is term and pretty cheap. I still have my disability policy from residency. It too is pretty cheap and “own occ.” I could drop all this coverage but I have continued them for now. I’m not sure it will make or break me either way.
I can’t reduce my disability insurance since I don’t have any :D. Well, besides what Social Security provides at least.
I figure we will drop our life insurance once we start generating substantial passive income. That is aways away but if all goes even slightly according to plan it should be accomplishable within the 20 year level term period.
Just for comparison I looked it up. We pay $6600 per year for two 11k monthly policies for spouse and myself. One is a graded policy (currently cheaper) and both are anticipated to be dropped in future once able to self-insure.
Asking for thoughts on this scenario – I am close to 70, retired 4 years ago, wife works full time for the Feds (GS14), have only one life insurance policy now (stupidly realized it’s a “Flexible Premium Universal Life” that I was talked into years ago and whose cash value is down to $2300) for $250,000. Have a substantial IRA(well into 7 figures). Just got semiannual premium notice of $1195. Told wife I was going to cancel policy because “insurance is to replace salary” and she’s a bit concerned (she will not retire for at least 7 years). Am I being dumb if I cancel this policy?
Life insurance is designed to soften the financial loss of a catastrophic loss of life when there are financial dependents. If you have kids, I’m assuming they are older and likely independent? Your wife would inherit at least your 7-figure IRA, so I don’t hear a lot of risk with dropping the policy.
Do you have enough for her to live the rest of her life without the insurance money?
$2400 a year for your wife to buy a $1/4 million lottery ticket, with at age 70 and average life expectancy 15 years plus. If you are healthy and likely to make it another decade or more she’d do better just playing the lotto with that $40,000 over 16 years. Now if you are living on borrowed time, that’s another story. At a much lower level and age we continued our fixed term policies after we were retired and college etc all saved for, until the fixed rate expired and we’d be paying an awful lot to play the lottery. I didn’t want either of us eyeing the other and thinking ‘worth more dead than alive…’ but took that cheap gamble for the few years the term life was still pretty cheap.
yes – unless she goes bonkers spending on useless stuff (PS – she has more life insurance than I do – term)
Then yes. You have enough, are in good health (right?), and no longer have a need for life insurance. In that scenario, I would personally cancel it. But if it is going to make your wife furious, then maybe the premiums are the cost of maintaining peace. Better to pay tribute than go to war sometimes.
How come no one mentions the asset protection and estate planning benefits of keeping your life insurance policies although you’ve already reached financial independence? Does everyone think the government is going to become fiscally sound and never need the tax revenue generated by inheritance taxation? Ten million dollars may sound like a lot of money now but a few years of high inflation may erode that value significantly.
What asset protection and estate planning benefits? We’re talking about disability and term life here, not permanent life. There is no cash value in either of those policies that needs to be protected from creditors. Disability payments go away with your death. No estate planning value there.
Excuse me, but I didn’t think this discussion was limited to term policy owners only. Maybe none of this sites bloggers presently have estates in excess of the current estate tax threshold but, when they do, they would enjoy knowing that their heirs would have life insurance proceeds and therefore won’t need to liquidate assets to pay their inheritance taxes.
The post is about DROPPING AND REDUCING disability and life insurance coverage upon reaching financial independence. Permanent life insurance, unlike term life insurance, is not designed to be dropped upon reaching financial independence. It is occasionally useful in estate planning for someone with an estate tax problem and a liquidity problem.
There are dozens of posts on the site about permanent life insurance you are welcome to comment on or sign up for the forum and discuss it there. But it doesn’t make a lot of sense to discuss it in the comments section to this post which talks about when you can drop your term coverage.
Well that’s bc the protection isn’t that great early on. Permanent insurance requires ongoing premiums for a long time and if you get sued during those years then you need to pay the premiums in addition to your event. It thus can be an extra burden.
Also just take the premiums and invest in taxable. Same step up in basis at death and superior return great majority of the time. Use that to pay the taxes. Neither is immune from estate taxes.
Also “trumps plan” actually included removing tax benefits from insurance so no reason to assume it will be safe more than anything else. Personally I don’t see that happening but it shows no reason to allow agents to use that scare tactic.
I recently called my northwestern mutual insurance agent to cancel two of my three term policies, which he sold me 10 years ago. When he asked why I told him I had savings in excess of the face value of the policies, I was keeping one of them because my wife wants me to. He suggested we meet to discuss my financial situation. I responded I was doing well thank you, and wished him a good day.
I rather enjoyed that call
I found this blog quite interesting. I know everyone’s situation is different but I will give you my 2 cents worth.
I would keep the term life insurance as it is cheap. I have several term life policies and have reached FI. I am keeping these policies for estate planning purposes (ILIT).
The disability policies are a bigger dilemma as your premiums are large and we all have biases against paying for something we will likely not use (7/8). I am not sure of your age or overall portfolio but paying those large premiums may not make sense the closer you get to retirement. If you are young, your human capital is huge and income loss is your biggest risk.
Unfortunately, I suffered an accident 5 years ago and am glad I paid those disability premiums with after-tax money. Having said that, I would give anything (except my family) to get back my health.