Just Starting Out: Introduction to Life Insurance

Financial planning for dentists just starting their careers is impacted by dozens of factors, including lingering dental school debt, starting salary, plans for buying a practice or buying into a practice partnership, and perhaps buying a home and starting a family. That’s a lot for one plate, even before you start to think about other essentials, such as crafting a long-term saving and investing plan.

All those who are just entering the workforce can be forgiven if they aren’t laser-focused on securing life insurance right out of the gate. But (you knew there was a “but” coming, right?), the simple truth is that insuring before you invest is a sound long-term strategy, even if it may seem like it’s putting the cart before the horse.

Given all your other priorities, the many priorities competing for your salary, and what many consider the complex world of life insurance products, this important step in your financial planning understandably often gets shifted to the back burner. It shouldn’t.

Protecting Your Family—and Your Business

Many people start thinking about life insurance when they begin the family planning process. Life policies offer protection for your family from personal risk exposures such as paying for funeral expenses, repayment of debts after death, providing for a surviving spouse and children, perhaps putting your kids through college. But for dentists who either run their own practice or hope to do so someday, it can be particularly crucial, because your untimely demise could leave your partners, your employees, in financial hardship that is added to the grief they will feel at your loss.

Key Questions to Ask When Considering Your Need

The biggest, of course, is “Do I need life insurance?” Only you know. If you are single and plan to stay that way for a while, you may not need coverage at all. But if you have financial dependents or will in the near future, you’ll want to think about some protection. You will also ask yourself:

• How much life insurance do I need?
• Is now the right time to establish it?
• For how long will I need it?
• What type of life insurance makes the most sense for my needs and overall financial plan?

We’ll tackle each of these questions in a four-part series. Before we get there, however, there’s a rule of thumb about life insurance needs that endures but probably shouldn’t. People considering life insurance have long been told that they’ll need a policy that covers six to ten times their gross annual income. This estimation is both pointless and potentially damaging, because it is so vague as to be useless and so ignorant of your financial goals as to be possibly counter to what you want to achieve. Like almost all financial questions, the amount of coverage you will need is a highly personal decision that can’t be trimmed to a standardized formula. We’ll tackle this in further detail in the next installment.