have a cosigner on your student loans? What about loans
associated with starting your practice? Do you provide
support to any family members now, or will they rely on
your support in the future? And who will cover your final
expenses and funeral costs? An inexpensive term life
insurance policy could cover all of these situations. And if
you do plan to get married or have children in the future,
purchasing life insurance while you are young and healthy
is the best way to secure the most affordable rates.
Determining the amount of coverage you require is
a little bit art, a little bit science, and a little bit crystal
ball reading. There is no simple, one-size-fits-all
formula that can be applied to ascertain life insurance
needs. There are many things to take into account,
but this four-step process is a good place to start.
Step One – determine your immediate needs.
What expenses will your family incur immediately
after your death? One of the first needs will be your
final expenses. According to LearningVest Planning
Services, “the average funeral in the United States costs
anywhere from $7,000 to $10,000.” Additional short term
expenses can include unpaid medical bills, attorney’s
and other fees to settle your estate, and estate taxes.
Next, factor in your current short-term debt. Add up
all your immediate debt, such as student loans, car
loans, credit card balances, home equity loans and
any other outstanding debts. Then, calculate three
to six months of living expenses, including mortgage
payments, food and groceries, utilities, child care, etc.
Tally your final costs, your short-term debt and six months
of living expenses to arrive at your immediate needs.
Step two – determine your family’s long term
Your family’s long term needs are any expenses required
to maintain their current standard of living as well as
expenses they will incur in the future, such as your
children’s education, your spouse’s retirement, care of
elderly parents, etc. A good place to start is with your
current ongoing expenses such as mortgage payments,
utilities, child care, groceries, tuition, health insurance,
regular medical expenses. Take these annual expenses
and multiple by the number of years you will want to
provide coverage. For instance, if your youngest child
is four-years-old and you want to provide your family
with coverage until he turns 25, multiple your ongoing
annual expenses by 21. Don’t worry about the future
value of money when determining long term needs. The
idea is to leave your family enough resources that, when
invested wisely, will cover expenses in the future.
In addition to the expenses needed to maintain your
family’s lifestyle, you’ll also want to consider any future
expenses such as your children’s college tuition. While
you might not know where your children will end up
going to college and how much money they will need,
keep in mind that according to the National Center for
Education Statistics, “for the 2011–12 academic year,
annual current dollar prices for undergraduate tuition,
room, and board were estimated to be $14,300 at public
institutions, $37,800 at private nonprofit institutions,
and $23,300 at private for-profit institutions.”
Step three – assess your current available
The next thing to factor in are the assets you already
have available to cover your immediate and future
expenses. How much money do you currently have in
savings? Do you have an emergency fund established?
Have you already started saving for your children’s
future tuition payments? Do you have annuities or
retirement savings in place? Do you have any other
life insurance policies? Will your surviving spouse or
dependent children be eligible for social security?
Step four – calculate your deficit.
Add your short term needs from step one and your
long term needs from step two. Then subtract your
available resources from step three. The total provides
a good estimate of your current life insurance needs.
Life events such as getting married, buying a house, having
a child, starting a new practice, increasing your income,
getting divorced, retiring, selling a practice, becoming a
caregiver, all impact the level of life insurance you need.
It’ important to review your life insurance after any major
life event to ensure you have adequate coverage.
Life Insurance Riders & Exclusions
A life insurance rider is an additional provision added to
your policy at the time of purchase that creates a benefit
for you, the policy holder. While a rider will increase
your premiums, there is typically little or no additional
underwriting involved. The most popular riders are:
Guaranteed insurability – with this rider, you
will not need to undergo a physical exam when
you renew your policy. Your renewal rates will
be based on your age rather than your health.
Term conversion – this allows you to convert
your term policy into a whole life policy
without undergoing a physical exam.
Premium waiver – if you get sick or disabled
and are unable to work for a certain amount of
time, this rider allows you to stop paying your
Journal of the Indiana Dental Association | Winter 2015 · Volume 94 · Issue 1