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*The views expressed by the authors below do not represent the views or opinions of MD Preferred Services.

Cash Value Life Insurance versus Term – A Doctor’s Choice

Wednesday, December 27, 2017

By Doug Mitchell, CLU - Ogletree Financial Services, LLC

The dispute between those who advocate for permanent cash value life insurance and those who advocate for affordable but temporary term insurance is ongoing and continually hotly contested. Regretfully, what we typically end up with is a lot of heat but very little light. So, which is better when it comes to cash value life insurance versus term? It’s simply a doctor’s choice based on their circumstances.

How you choose depends on where you are in your practice and what risks need to be financially mitigated. Based on that, here are some recommendations when you attempt to make an informed decision.

Do Not Put Off your Decision

Your life insurance coverage acts as the foundation for any financial plan, especially with medical professionals. This coverage will not get cheaper as you wait to make a decision and a purchase. If in doubt, go ahead and get a term insurance policy in place that you can easily convert to permanent life insurance down the road if you change your mind and decide cash value insurance is the better solution. 

The vital thing isn't term insurance versus whole life or universal life. The vital thing is getting the insurance in place, to begin with. You can always change over later as your career develops.

Purchase Financial Protection

Your important consideration and purpose for purchasing life insurance is to financially protect your family with a tax-free death benefit. Of course, there are many other benefits and advantages to cash value policies, but these are secondary considerations. Financial protection for your family and your practice comes first.

Shun the Zealots

Always remember first, life insurance products, like term, whole life, universal life, and equity-indexed universal life are financial products. They are the great tools that you can use to mitigate financial risk in your everyday life. They have evolved over time as the need for individuals, families, and business owners’ needs have changed. Becoming a zealot like the Dave Ramseys and Suze Ormans of the world makes little sense when you consider the product you require depends on the task at hand. 

You can hate using hammers until the time comes when you need to drive a nail. An Allen wrench isn’t very helpful when you are trying to turn a Phillips-head screw. The product you select will always depend on the problem (risk) you are trying to resolve. Start with the situation you’re in and resolve it by using the most appropriate tool (insurance product) available.

Life Insurance should be in force when You Die

This is not intended to rule out temporary (term) life insurance. Even though the policy is designed by the companies to NOT outlive the policyholder, temporary insurance is primarily used to provide coverage for a specific amount of time (typically when there is significant debt or unfunded liabilities like the costs for education at a much later date).

The reason term insurance is so affordable in the first place is because the mortality rate is much lower than permanent insurance products. Most term policy owners never keep a policy in force for the entire term, not because they die, but because they convert to a permanent insurance product or simply buy a permanent product and cancel their term policy.

Attempting to cover a huge amount of debt like student loan expenses or practice start-up expenses may be unaffordable with whole life insurance, and why would you insure a temporary debt with a permanent financial product in the first place? The most important thing above all others is that your life insurance is in-force when you die.

You belong to a Niche, not the Masses

If you’re reading this article, you are likely a doctor or some other medical professional, or will soon become one. The financial information and advice that you observe in the financial media is for the mass market and doesn't necessarily apply to you. You will likely earn more than the limit established for a Roth IRA, and you are very likely to become an entrepreneur at some point in time with a private practice if you aren't already.

Very few of the financial pundits you see on CNBC or CNN, or any other TV shows understand your situation. They are simply focused on the mass market so why would you fall for their one-size-fits-all advice. Obtain your financial, investment, insurance and tax advice from licensed professionals who are specialized in working with medical professionals, business owners, and other highly-compensated professionals. There are alternative applications for life insurance such as buy-sell funding, executive bonus plans for small businesses and key-person coverage. Your insurance advisor must understand your needs in order to meet them with any kind of insurance product.

It’s not about Who you know but Who You Listen To

If you are ever considering buying some life insurance and would like to get as many flawed opinions as possible, announce your intentions to your friends or coworkers. It is said that the road to hell is paved with good intentions, but we can easily substitute the word "intentions" with “opinions.” Another saying that is more appropriate is “The Fewer The Facts, The Stronger The Opinion.”  Arnold H. Glasow

YOUR advice about YOUR insurance products should come from YOUR insurance professional. Begin your search for insurance solutions with a licensed and reputable insurance professional who understands the industry you elected to work in and the challenges that you will be presented with as you build your medical practice or partner in an existing one. Your experienced insurance professional will offer advice based on many years of experience in their industry and your industry.


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