If you’re a physician and you have loved ones who rely on your income, it’s critical to have enough life insurance to provide for them after you pass away. But too often, life insurance is an overlooked aspect of personal finances.
In fact, according to a 2021 study conducted by Life Happens and LIMRA, which closely follows life insurance trends, nearly 50 percent of Americans say that they have no life insurance coverage at all, even though 59% of people without life insurance recognize the need to obtain it.
Rule of Thumb
Realizing the role life insurance can play in your finances is an important first step. A critical second step is determining how much life insurance you may need.
A quick way to do this assessment is with the DIME method. Add Debt, ten years of Income, Mortgage payoff amount, and the cost of your children’s college Education.
But for real peace of mind, you should analyze your situation on a personal basis. Things like owning your own practice or having group coverage in place can change your insurance needs. As a high income earner, you want to make sure you’re not leaving any gaps in your coverage.
The first step to add up needs and obligations.
Short-Term Needs
Which funds will need to be available for final expenses? These may include costs of a funeral, final medical bills, and any outstanding debts, such as credit cards or personal loans. How much to make available for short-term needs will depend on your individual situation.
Long-Term Needs
How much will it cost to maintain your family’s standard of living? How much is spent on necessities, like housing, food, and clothing? Also, consider factoring in expenses, such as travel and entertainment. Ask yourself, “what would it cost per year to maintain this current lifestyle?”
Owning your own medical practice adds an additional layer to this. You may need an additional policy, like a buy/sell agreement to protect your family and business. Read more about insuring your business here.
New Obligations
What additional expenses may arise in the future? What family considerations will need to be addressed, especially if there are young children? Will aging parents need some kind of support? How about college costs? Factoring in potential new obligations allows for a more accurate picture of ongoing financial needs.
Next, subtract all current assets available.
Liquid Assets
Any assets that can be redeemed quickly and for a predictable price are considered liquid. Generally, houses and cars are not considered liquid assets since time may be required to sell them. Also, remember that selling a home may adjust a family’s current standard of living.
Needs and obligations – minus liquid assets – can help you get a better idea of the amount of life insurance coverage you may need. While this exercise is a good start to understanding your insurance needs, a more detailed review may be necessary to better assess your situation.
Next Steps
Life insurance can be a simple way to find peace of mind for both you and your family. Give us a call (or an email) if you have questions about it – we’re here to help. Take some time this Life Insurance Awareness Month to learn about the types of life insurance available to you. Get an instant quote on our site or send us a message for a review of your existing policies and insurance needs.