More than most people, doctors see firsthand the fragility of life. Yet, dealing with essentials like life insurance remains an uncomfortable conversation. Because of this discomfort, many physicians make mistakes when choosing their life insurance policies, accepting the default options given by their employer, or opting for the cheapest offer.
As of 2024, life insurance trends show that at least 100 million Americans don’t have coverage or enough coverage to handle their needs. That statistic encompasses the average American, but you have above-average requirements as a physician.
In this article, we’ll share the common life insurance mistakes doctors make so you can avoid them when choosing your next policy.
1. Not Having Enough Coverage
What’s your goal for your death benefit? Do you want to give your beneficiary enough money to cover your funeral expenses? Is the intent to pay off your debt so they aren’t saddled with it? Or do you want to set them up to live comfortably without your income?
Consider this goal when you select your life insurance coverage amount. This benefit is paid out in one lump sum, and if it isn’t enough to cover the bills, your loved ones will have financial stress on top of the emotional pain of your loss.
Choosing the right amount of coverage can be a complex matter, but your financial advisor can help you take into account factors like:
- Debts that are forgiven upon death versus those that your loved ones will remain responsible for
- Mortgage payoff amounts
- College education funds for your children
- Inflation considerations
- Medical insurance
In addition to the daily expenses of living, you may want to leave your spouse with enough of a retirement savings to live comfortably. You may think your chosen death benefit is enough, but after adding up all of these numbers, it could be woefully short.
2. Sticking With Group Term Insurance
If the only life insurance you have is the policy provided by your employer, you’ve made mistake number two. Group life insurance is always term, which means it will eventually end. Term policies are cheaper than whole life policies, but they don’t move with you if you leave your employer, and they don’t earn any cash value.
This article by OJM Group discusses the differences between various types of life insurance coverage. In general, your employer’s group term insurance coverage provides a default death benefit rather than a specific coverage amount that considers your needs.
That’s not to say you shouldn’t accept the group policy, especially if it’s free or very cheap. However, it shouldn’t be your only life insurance coverage. Look for an individual policy, whether whole, hybrid, or term, that offers enough of a death benefit to take care of your loved ones in the event of your passing.
3. Not Having Family Coverage
We don’t like to think about our loved ones passing before we do, but it can happen. Even though your spouse or children may not provide financially for you, they should still be covered under your life insurance policy.
Unexpectedly losing a family member comes with its own set of expenses. From the initial funeral and burial costs to things like covering childcare, taking time off of work, or hiring extra help around the house, the costs add up.
Even though it’s a difficult thing to do, think about what life would look like without each person in your family around. How would things change? What would those changes cost? Use those answers to determine how much of a death benefit to assign to your family members, and be sure to have coverage for everyone.
4. Taking Life Insurance Out “Later”
Statsitically, we’re more likely to survive into our “old age” than to pass away young, which is why life insurance is so much cheaper if you purchase it early. However, that same reason is why many people think they can afford to delay the expense of a life insurance policy.
But the older you are when you apply for insurance, the more expensive the policy becomes. In some cases, you’ll need to qualify for coverage through a medical examination. If anything is diagnosed, you could be excluded from coverage or pay higher rates.
Taking out a whole life insurance policy while young guarantees the premium stays the same, which can end up saving you money over waiting until you’re older. These policies also build cash value over time, so instead of an expense, they become an asset. Delaying your investment in life insurance could be an expensive mistake.
Conclusion
Physicians are some of the best-educated individuals in the world, yet when it comes to choosing life insurance policies, they often opt for the default settings. Before you fall in that same boat as your colleagues, consider these four common mistakes and avoid the pitfalls that come with them.