Are You Carrying Enough Life Insurance?

Your income, inflation, and practice values have all gone up. How is your life insurance keeping up?

Contributed by Shawn M Johnson, ChFC®, CLU®, CLTC

If you’re like most dentists and physicians, you likely incurred a substantial amount of debt to fund your education. Upon graduation, that debt trend shifted (or will shift, if you’re still in training!)  as you begin to make money. At some point, you will be able to save money toward future goals. You may purchase your home, perhaps you will start a family and choose to provide opportunities for your children. All of this is possible.

How will your family continue living the way you envisioned?

When all this growth is happening in your life, it’s easy to ignore the potential risks that could get in the way of your vision for the future. From a life insurance perspective many of you are woefully underinsured. Basically this means that if you were to unexpectedly pass away, your family would not be able to maintain the lifestyle to which they have become accustomed based on your income.

A significant portion of the population is underinsured.

According to research conducted by the Life Insurance Marketing and Research Association (LIMRA) and Life Happens, “Overall, 52% of American adults report owning life insurance, and 41% of adults — both insured and uninsured — say they don’t have sufficient life insurance coverage.”

As a dentist or physician, and it’s possible that you, too, may be among the 41% of the American population that doesn’t have sufficient life insurance coverage. For example, unless there are significant additional assets, a specialist earning say $400,000-500,000 a year may not be appropriately covered with just $2 million of life insurance.

Whether you make more or less than this in annual income is not the question. The point is: when was the last time you sat down to calculate how much insurance you truly need? People tend to buy life insurance in their thirties when they are thinking of having or starting a family. Many never go back to revise that amount as their family grows, or as their income grows.

Private equity has driven up the price of practices.

If you are a partner in private practice, you may have noticed that practice values have gone up dramatically in recent years. This is because private equity firms have entered the dental and medical space and have started acquiring practices, thereby driving up prices. If you were to have a valuation done on your practice, and it showed an increase in value, that should propel you to increase your life insurance coverage to adequately fund your buy-sell agreement.

Other things that have been trending upwards in the past few years are incomes – which ties into another upward trending factor, namely inflation. Rising inflation means that the cost of everything is going up, and with it naturally the replacement cost of everything in your life is going up. Your life insurance policies need to be updated to reflect these increases in price.

How do you know how much life insurance you need?

The simplest answer is that your life insurance need is the amount of money your family will need in the future to live minus the assets (including retirement plans) and life insurance you currently have.  This will give you a ballpark number. If you work with a financial professional, they will ask you how much you’re saving, how much taxes you’re paying, what assets you have and how they are invested. That will give you a more accurate picture.

Typically, we do not include your home as an asset in these calculations because if you pass away, your family will still need a place to live and will likely incur costs associated with this expense.  Anyway, you do the math, and you will probably realize that you are underinsured.

Review your existing life insurance coverage with an experienced professional

The best gift you can give yourself and your loved ones is to set up a meeting with an insurance professional to accurately calculate your life insurance need. The best place to begin is to figure out how much life insurance you truly need. Once you know that, you can move to the next step of determining how best to fill your insurance coverage gap.

If you have any questions about this, feel free to reach out to me!

Shawn Johnson is Vice President, Business Development, Treloar & Heisel, Inc.
CA Insurance Lic. # 0M88197
AR Insurance Lic #3667701

About Treloar & Heisel
Treloar & Heisel, an EPIC Company, is a financial services provider to dental and medical professionals across the country. We assist thousands of clients from residency through retirement and strive to deliver the highest level of service with custom-tailored advice and a strong national network.

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