Wealth Matters for Physicians

Article6 Ways You Could Be Saving Money on Life Insurance

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Andrew Altfest

By Andrew Altfest, MBA, CFP®

Having enough life insurance to protect your family is critical, should the unthinkable happen. Physicians who pass away in the prime of their careers can leave behind a significant debt burden, but being prepared can mitigate this risk. Involving a financial professional to calculate appropriate levels of coverage to replace the long-term value of your income can make all the difference in the lifelong cost of a policy.

At the same time, there are ways to cut costs of any life insurance you may currently have. Here are a few suggestions for savings that a financial advisor can help you pinpoint.

 

1. Periodically Review Your Insurance Needs

As you age and your children or beneficiaries grow up, it is possible you would need less life insurance as your expenses from their needs decline. Perhaps you’re able to pay off your mortgage sooner than its term, or you have a solid retirement plan in place to generate income when you’re older and are no longer practicing. In cases like these, insurance carriers can adjust your coverage and premium downward to reflect a decreasing need for robust income protection. Doing so definitely could bring down your insurance costs immediately, and significantly lower the total amount you pay over your lifetime. Also, the advisor or insurance broker evaluating your coverage should check to see if there are products or features — such as guaranteed contracts or hybrid products — that are appropriate for you, but may not have available when you originally purchased your insurance.

 

2. Examine Your Riders So You Know What You’re Paying For

If your life insurance policy has a guaranteed conversion rider that allows you to convert term insurance to a permanent policy, consider dropping it in order to reduce your premiums, especially if there is no anticipation of a need for coverage at the end of the term period. Though before making this decision to remove a guaranteed conversion rider, keep in mind there could be factors in the future that could be hard to predict today — such as planning for a child who could develop a disability and would require support beyond what was originally anticipated, or a future estate tax problem. Be aware that some policies provide the conversion guarantee as a policy provision, not as a rider. In that case, the benefit cannot be deleted. Another way to save on your policy could be to drop a guaranteed insurability rider, if you have one. This rider, which carries an additional premium, gives you the right to purchase additional insurance on the policy in the future without regard for your health status, and is only available at the time of policy application. So if you drop the coverage, it cannot be retrieved.

 

3. Consider an Irrevocable Life Insurance Trust (ILIT) to Minimize Estate Taxes

If you expect a federal and/or state estate tax liability upon your death, or have young children as beneficiaries, establishing an ILIT could protect your heirs from having to shoulder this burden. The insurance death benefit would be paid to a trust that applies for, owns and is the beneficiary of the policy. The ILIT would then pay the estate tax due with the life insurance benefit, reducing the risk of your heir or heirs having to liquidate other assets at an unwelcome time. Not only can life insurance owned by an ILIT be used to pay estate taxes, it also can reduce the size of your estate.

 

4. Rethink Renewable Term Insurance

Let’s say your existing life insurance is an annually renewable term policy (also called a yearly renewable or one-year term), you have no existing medical condition and expect to keep the coverage after age 40. In this case, you could consider switching to a level premium term policy, or even dropping the annually renewable term policy, if you no longer need the coverage. Annually renewable policies sometimes can become prohibitively expensive after age 40.

 

5. Update Your Policy to Account for Current Health

If your policy was issued with a health classification that was not the highest and your current health status has improved since purchasing the policy, you can contact your carrier with a request to revise the policy’s rating structure. One example of this might be if you’ve recently quit smoking – you would want your premium to reflect this. Normally, the request for a rate reduction will be entertained after the policy has been in force for two years, and most insurers will make such a change for a former smoker if there has been no tobacco use for one year. Your policy also should be evaluated to account for other changes to your insurability. For example, any reason that was the basis of your current policy’s rate/category (medical history, build, family history, etc.) should be reviewed. Insurers are constantly updating and adapting their underwriting, so you may be able to pay less now for the same coverage.

 

6. Reevaluate Your Policies to Ensure Appropriate Coverage

Physicians are often sold permanent life policies that may not make sense for their current needs and cost significantly more than other, more appropriate options. In our recent Altfest Answers video, The Young Doctor with a High Insurance Premium, you’ll hear about a doctor that had been sold a permanent whole-life policy with a very large death benefit and high premiums he would have to pay for the rest of his life. After conducting a needs analysis, an objective financial advisor would show that he was over-insured, and offer a different permanent life or term policy that still met his needs while also being easier on his wallet. A fee-only fiduciary financial advisor like those at Altfest can offer objective consulting on your insurance portfolio, as we don’t sell any insurance products. All decisions are made in your best interest, with the goal of enhancing your overall financial wellness, including saving you money long term.

Any of these steps has the potential to make your life insurance less expensive while increasing its efficiency, while still providing sufficient coverage to protect your loved ones’ financial future.

 

How an Altfest advisor can help

Consulting with an advisor who can objectively evaluate your insurance needs can save you money now and for the long term. As fee-only financial advisors at Altfest, we make recommendations in many areas of our clients’ financial lives, but do not sell products like life insurance.

 

Click here to schedule a complimentary consultation to assess your life insurance expenses with an Altfest financial advisor.

 

 

 

This article was designed to complement the discussion and should not be a complete resource for this topic. Altfest Personal Wealth Management does not provide tax, legal, or accounting advice. In considering this material, you should discuss your individual circumstances with professionals in those areas before making any decisions.

 

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