Hey! I'm Robbie, the founder of Roots Financial Planning, a fee-only, fiduciary advisor located in San Antonio, TX working virtually with dentists across the United States. When I'm not helping dentists live their best life, you can find me making pizza, swimming, or skiing.
What is life insurance?
The purpose of insurance is to protect you from catastrophic events that have a low likelihood of occurring. Life insurance fits into that description perfectly. The policy promises to pay a sum of money to your beneficiaries in the event of your death. This is called the death benefit and usually occurs free of taxes.
Life insurance is meant to take care of your loved ones when you are gone. It gives them the resources to continue living without having to make any major life changes immediately.
Term Life Insurance
Term Life Insurance is life insurance that is in effect for a certain number of years. For example, a 30-year term policy would be valid for 30 years, and then in year 31 you would no longer be covered. The premiums for these types of policies are much cheaper compared to permanent insurance. Term is suitable for the majority of the population.
Whole (Permanent) Life Insurance
Whole or Permanent life insurance stays in effect for your whole life as long as you continue to pay the premiums. The premiums are much more expensive than term. Generally, there is also an investment part of the account that you can access later in life if you hold the policy for long enough. Whole life insurance is not suitable for most people.
Do dentists need life insurance?
Yes. Though, the specifics of the insurance will depend on your unique life situation.
A case could be made for a young, single dentist not needing any life insurance. However, since they are young, it might make since to purchase at least a small policy while the rates are low. You never know where life will take you.
When should you get life insurance?
It is almost always prudent to get life insurance as soon as possible. Especially if you have others depending on your income like a spouse and kids. Additionally, the policy will be cheaper the younger and healthier you are.
How much life insurance coverage do you need?
The answer to this question really depends on your specific circumstances. Here are some ways to think about it.
How many years of your income do you want to replace? Do you want to cover any outstanding debts? Do you want to make sure your funeral is paid for? Do you want to have extra funds to send your children through college debt free? Consider the cost of childcare if you leave behind a spouse and kids.
Let’s look at an example. You’re 30 years old and have a salary of $100,000. You want to cover your salary until at least your estimated retirement age of 60. You would like to pay off the mortgage for your spouse of $400,000 if you die. You also want to ensure your kids get an undergraduate degree without financial stress. You estimate that will cost at least $200,000. To estimate your life insurance need first multiply your salary by the years of coverage you desire. $100,000 x 30 = $3,000,000. Add to that the cost of the mortgage and college tuition $3,000,000 + $200,000 + $400,000 = $3,600,000. Since you wanted to cover yourself for 30 years this would also need to be a 30-year policy.
The dollar amount and term of the policy will depend on your risk tolerance and unique goals. Generally, you can also reduce the death benefit later in life. You might decide a higher level of coverage is no longer needed because you have accumulated a certain amount of other assets. This will also reduce your premium payments accordingly.
How much will you pay for life insurance?
Life insurance is generally one of the least expensive insurance policies you own as a dentist compared to the benefit it can provide. At the time of this writing (Sept 2022), a healthy, 30-year-old man could get a 30-year term policy with a $1,000,000 benefit for about $50-$60 per month. The same policy for a female would be about $40-$50 per month.
Since statistics show women live longer than men, their life insurance policies are a bit cheaper. However, the opposite is the case for disability insurance. Women are more likely to have a disability, thus higher premiums for disability insurance.
Buying a policy will also be cheapest when you are younger and healthier. Healthy and young means less likely to die. Once you acquire a policy the premiums will stay fixed for the entire term.
Life insurance is important for all dentists. Especially those with a family that depends on them. Life insurance takes care of your family in the event of your untimely death. The majority of dentists can purchase a simple term life insurance policy and know that they will be covered throughout their career.