Should You Buy Life Insurance as a Resident?
When it comes to life insurance, there are plenty of reasons for and against buying coverage as a resident. Let’s examine both schools of thought to determine which best applies to you at this stage in your career.
Why you shouldn’t buy term life insurance as a resident
Life insurance is intended to replace your source of income for surviving dependents when you pass. But if you’re single without children, you may not have anyone relying on your earnings yet.
Furthermore, factoring an insurance premium into your budget on a resident salary may be challenging.
Often times, life insurance can also help with debt repayment and asset transfer. So if you don’t own assets and your only debt is student loans, you may not need it yet.
If you have group life insurance coverage, that will probably suffice until you begin practice.
Why you should buy life insurance as a resident
Still, there are plenty of legitimate arguments for buying individual life insurance as a resident.
Term life insurance is affordable. You can base the majority of your decision on finding the most complete coverage at the lowest available cost. Unlike disability insurance, life insurance features and provisions do not vary much between carriers. Typically, residents should avoid whole life insurance or other cash value policies due to the added cost.
In fact, it will never be more affordable than it is right now. One of the underwriting factors that determines the cost of life insurance is age. So the younger you are, the less you will spend on coverage. Simple as that.
You do no have complete control over your future underwriting status. Sure, you may be perfectly healthy now. But what happens if you wait and become unexpectedly ill or are a victim of an accident? Not only will these ailments add to the cost of life insurance later. They may even prevent you from qualifying for coverage.
You cannot rely solely on group coverage. A group policy is better than nothing. But it’s contingent on your employment or association membership. Unfortunately, these are often subject to cancellation at anytime. Meanwhile, you can keep your individual policy as long as you pay the premiums.
How to buy coverage for today and tomorrow
Chances are, the life insurance policy you buy today will not be robust enough to meet your needs tomorrow.
One way to increase your death benefit amount later on is to buy a guaranteed purchase option (GPO) rider. Also known as a guaranteed insurability (GI) rider, this features allows you to increase your coverage amount going through the underwriting process again. There may be limits on how you use this option, such as:
- The amount of death benefit you can add.
- When you can increase coverage.
Another possible option for residents is to purchase annual renewable term (ART) life insurance. This is a short-term policy which affords you coverage for one year, with the option of renewing each year.
ART is similar to level term insurance, but with one key difference. Level term charges the same premium amount for the full length of the term period. ART premiums increase over time.
Though you must renew ART coverage annually, contracts guarantee you a period of insurability. The premiums for ART policy start out lower than comparable level term policies. This makes them an attractive option for short-term insurance needs. Each year you renew, the premium will increase while the death benefit amount stays the same.
Laddering is another way to increase your coverage as your needs change. This means owning two or more separate life policies.
For example, say you are a resident or new physician with a spouse, but no children. You purchase a $600,000, 30-year term policy to provide for your spouse in the event you pass away. Later, you purchase a home. To help ensure your surviving spouse can pay off the mortgage, you add a $400,000 20-year policy to your previous policy. Once you have children, you may want to add another policy to ensure they would be cared for.
Everyone’s financial situation is unique. What works well for one medical resident in training certainly may not work at all for another. In assessing your coverage needs, it’s important to educate yourself on:
- The reasons against buying life insurance in residency.
- The reasons for buying life insurance in residency.
At this stage in your career, it’s best to avoid whole life insurance. But you may want to explore other opportunities like an ART policy, a GPO rider and laddering coverage.