A lot can happen in a year. Maybe you got married or divorced. Did a child start college? Or perhaps your kids are all graduated and are out on their own. But changes in any of these circumstances could result in a need for more protection, or possibly less.
Why worry about it? Well, for instance, mortgages are a big concern. Once you commit, you don’t want something like a temporary disability making it impossible to keep up on payments.
Insurance is income protection that brings peace of mind. When you have the right insurance, you know that you can meet your basic financial needs for whatever life throws at you. If an accident or injury prevents you from practicing, you can keep up with your mortgage, car, and college payments. And should you die, death benefits will enable your family to carry on.
You want to carry enough insurance to cover your current needs, but you don’t want to pay for more than you need. And to ensure your coverage is just right, you’ll need to do an annual review. It’s your financial physical.
To make the most of your annual review, here are some scenarios to consider and questions to ask.
Reviewing Your Life Insurance
When preparing for your life insurance review, you need to assess your life personally and professionally.
Let’s start with your beneficiaries. Are you recently married or divorced? Have you had a baby or lost a spouse or child? Do you wish to make any adjustments to your list of beneficiaries?
Next, review your assets. Have you purchased a home and are now carrying a mortgage? Have you bought real estate, such as a medical building? You want to ensure that your benefit is enough to cover loan or mortgage payments should you suddenly die.
This is an excellent time to revisit the type of policy you have—term or cash-value life insurance.
Term Life Insurance: As the name suggests, these policies are for a specified period (typically 20-30 years). If you were to pass during the level term period, a tax-free benefit would be paid to your beneficiaries. Because term coverage is temporary, insurance carriers assume less risk and can provide this protection at a relatively low cost to you.
Cash-Value Life Insurance: Polices such as Whole and Universal Life are an asset on your balance sheet. The death benefit will be paid regardless of when you pass if the policy is in force. The cash-value of the policy grows over time and can be accessed while you’re alive, tax-free. Having access to this tax-free bucket can serve to strengthen your financial plan while alive, and your legacy when you’re gone.
If you have term life, check to see if any of your policies are near the end. And if so, consider whether you need to replace them or if you have outgrown the need. For example, if you took out a loan to start your practice or buy a medical building and used the term insurance to protect your family in the event of your death, once the loan is repaid, you probably don’t need to replace the policy.
On the other hand, you may have new needs. For example, are you interested in additional policy features, such as a long-term care rider?
Finally, consider your lifestyle, children’s education, and any outstanding debts. How much income would your family need if you passed away? And for how long? Discuss this number with your agent and how best to ensure their protection should you die.
Reviewing Your Disability Insurance
Disability insurance protects your income should you be injured or have an accident and can’t work for a period. If you don’t have a disability policy, talk with your agent during your review because it’s more affordable when you’re younger. Your premium could increase as much as five percent every year you wait. And once you have a policy, if you have a future purchase option rider, it’s easy to increase the coverage as your income grows.
If you are looking to buy disability insurance, discuss the difference between own-occupation and any-occupation or total disability. The critical thing to know is that you’re covered for your injury with an own-occupation policy if it precludes you from working in your current position. For example, suppose a surgeon had an injury that prevents them from doing surgery. With an own-occupation policy, they may receive their total disability payout—even if they can take another job, such as in teaching or research.
An any-occupation disability policy, on the other hand, is more restrictive. If you cannot work in your specialty or perform surgery, you are expected to work at what you can—even if it’s a position NOT commensurate with your education, training, or expected income. That’s why many physicians opt for own-occupation policies.
Finally, if you have disability insurance, you have two questions to consider during your annual review:
1. If you have an employer group disability policy, is it enough to cover you and your family?
While employer group disability is affordable and easier to get, it may not provide enough coverage. Employer policies typically cover only around 60% of income and benefits are typically taxable. You may want to provide more coverage. On the other hand, if you’re only a few years from retiring and have prepared for your retirement, you may decide that you can afford to drop your individual policy and rely on the employer policy.
2. Do you need additional riders to your policy?
You may want to discuss riders for the future purchase option, such as partial disability benefit or cost-of-living protection.
Next Steps to Prepare for Your Annual Review
- Start by gathering ALL of your insurance policies, including employer and individual policies. A review will determine if they are collectively comprehensive or if you have incomplete coverage and protection.
- Schedule an appointment with a financial professional who understands insurance, and more importantly, understands physicians’ needs. While you can go to your agent (and probably should schedule a review), you might want a second opinion from a reputable agency.
- Review your beneficiaries. Have any of these changed?
- On the other hand, if you still need insurance, ask your agent to look for discounts based on your health and lifestyle changes or the fact that you have multiple policies with the same agency.
Life changes, and so do your requirements for protection. This year, get a policy review to ensure you have the coverage and peace of mind you need.
