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Life Insurance

by John E. Finnegan, Vice President
Insurance and Financial Planning
Group Insurance Administrators for ACP

How many times have you heard a television or radio commercial that reminded you that there are over 1700 life insurance companies, and each one has its own way of pricing the policy? To make matters even worse, you must decide which form of life insurance is best for your needs: term life, whole life, permanent life, or universal life. The purpose of this article is to help you decide which type of life insurance will most likely meet your immediate needs, and to suggest a particular product that is a "best buy."

A good place to start is to recall an advertising slogan used by one of the larger financial institutions: "Insurance for the unexpected - investment for the opportunity." For young physicians, insurance for the unexpected is a primary requirement. After all, having just completed residency training, the financial concerns are real and generally include significant debt, mortgage, car, possibly a new family, and other basics like food, clothing, and taxes! This all points to a need to protect your most valuable asset: your ability to work and meet your financial obligations.

Protection from the "unexpected" can involve both life and disability insurance. This article will focus on life insurance. Of the four types of life insurance, term insurance is probably best suited for a young physician because it will adequately protect your ability to provide an income, yet it won't not take on the added expense of an investment vehicle as do the other types of life insurance. As compared to whole life, permanent life, or universal insurance, term insurance provides the lowest cost protection for limited periods of time. Whole and permanent life provide more costly protection that is not time limited, and also offers a limited investment opportunity. Universal life can also provide protection that is not time limited, albeit more costly than term, and has increased investment potential as compared to whole and permanent life.

Term insurance can be purchased as an individual policy or a group policy from any one of the 1700 different insurance companies or from employers, county medical societies, state or national professional organizations. The cost of insurance includes a prediction about the probably of dying during the lifetime of the policy (assumed mortality), administrative expenses, marketing expenses, and interest earned on your premium dollar (investable cash flow).

One of the best term insurance buys for the dollar is provided to ACP members as a benefit. This program has been sponsored by the College for over 35 years and is very popular because of its relatively low cost as compared to other term policies. Its competitiveness is related to the principles of life insurance pricing:

• Assumed mortality: The mortality statistics of the ACP sponsored term insurance plan are based upon the mortality experience of ACP members, and not the general population. Internists are better educated and take better care of their health as compared to other general or professional populations. As a result, they have significantly reduced mortality and as a consequence, the premium is lower.
• Administrative and Marketing Expenses: The ACP term life insurance plan is supervised by a subcommittee of the finance committee. This subcommittee is able to negotiate favorable administrative and marketing expenses with its insurance underwriters, as well as with the appointed administrator of the plan, Group Insurance Administrators.
• Interest Earned on Investable Cash Flow: The subcommittee also is responsible for reviewing, periodically, all interest credits that are generated by the investable cash flow to ensure maximum return, further minimizing the premium cost.

How much term life insurance you should buy and for what period of time are reasonable next questions. Term life insurance is sold as policies that cover a predetermined number of years: 10, 20 or 30 years, for example. As a young physician, it probably is best to purchase a policy that covers the maximum number of years. There are two reasons for this, including your ability to lock in on a low premium while still young, and the anticipation of a professional career that will probably span at least three decades.

The amount of term insurance to purchase will depend upon your financial obligations. A single person without dependents should purchase enough insurance to cover outstanding debts (educational and business loans, mortgage, car, and taxes). An individual with dependents should consider not only these expenses, but also the cost of providing for the dependents until they become self-sufficient. Obviously, insurance is not a static, and it is important to alter the amount of protection as your life's circumstances change. Getting married, having children, and purchasing a more expensive house are just a few reasons to re-evaluate the adequacy of your term life insurance policy.

For more information about the College's term life insurance program visit the Marsh Affinity website.

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