You probably know whether you have life insurance. But do you know exactly how much coverage you have, what kind of policy you own, what happens to your coverage if you change jobs, or how it fits into the rest of your financial plan?
For many dentists, life insurance is something that gets put in place and then largely forgotten. Maybe you enrolled in coverage through an employer years ago. Maybe you purchased a policy after getting married or starting a family. Or perhaps life insurance was included as part of a broader financial strategy.
Whatever the case, simply having coverage doesn’t necessarily mean you understand what you have.
September is Life Insurance Awareness Month, making it a good opportunity to pull out your policies, review the details and ask a few important questions.
- How Much Life Insurance Coverage Do I Actually Have?
This sounds simple, but the answer isn’t always obvious.
You may have coverage from several different sources, including an employer-sponsored policy, an individually owned policy or even coverage connected to your dental practice or business planning.
Start by taking inventory. What policies are currently active? What is the death benefit of each? Who owns each policy? Who are the beneficiaries?
The goal isn’t necessarily to determine whether you need more insurance right away. It’s to understand the protection that’s already in place.
Once you know what you have, you can begin evaluating whether the coverage still matches what you’re trying to accomplish.
Related: How to Assess Life Insurance Needs
- Is the Life Insurance I Have Through Work Enough?
For associate dentists, employer-provided life insurance can be an easy benefit to overlook. You enroll during onboarding or benefits season, select a beneficiary and rarely think about it again.
Employer coverage can provide a helpful starting point, but it’s important to understand its limitations.
How much coverage does your employer actually provide? Is the benefit based on your salary or a fixed dollar amount? Can you purchase additional coverage? And perhaps most importantly, what happens to that policy if you change employers?
Dentists can experience significant career changes over time. An associate may move to another practice, become an independent contractor or transition into practice ownership. Coverage tied to an employer may not necessarily move with you.
That doesn’t mean employer coverage isn’t valuable. It simply means it should be understood as one part of the bigger picture.
- What Type of Life Insurance Do I Own—and How Does It Work?
Knowing that you have a life insurance policy is different from understanding how the policy actually works.
For example, is your coverage term insurance or permanent insurance?
Term life insurance generally provides coverage for a specific period of time. Permanent policies may be designed to remain in force longer and, depending on the policy, may include a cash-value component.
If you own a permanent policy, there are additional questions worth asking. How are premiums structured? Does the policy have cash value? Are there guarantees? Have you ever taken a loan or withdrawal from the policy?
Policy features can vary considerably, so understanding the details matters.
This is especially important before making changes to an existing policy. Surrendering coverage, borrowing against a policy or allowing certain policies to lapse can potentially have financial or tax consequences.
Related: Life Insurance Policy Loan: A Tax Nightmare
- What Am I Actually Trying to Protect?
Life insurance shouldn’t begin with a rule of thumb. It should begin with a purpose.
What was the policy intended to protect when you purchased it?
For one dentist, the primary goal may be replacing income for a spouse and children. For another, it may involve paying off debt or providing resources for future education costs. A practice owner may also have business obligations that need to be considered separately from personal coverage.
The important question is whether the policy you own today still supports the reason you have it.
That distinction matters because life insurance needs aren’t necessarily captured by simply multiplying your income by five or ten.
Your income, assets, liabilities and financial obligations all play a role in determining what protection may be appropriate.
Related: Broken Rules of Thumb: The Life Insurance Lie
- How Does My Life Insurance Fit Into the Rest of My Financial Plan?
Life insurance is only one part of your financial picture.
Your retirement accounts, investments, savings, debt, estate plan and business interests can all influence the role insurance plays in your strategy.
For example, a dentist early in their career may have substantial student loans, limited investments and a young family relying heavily on their income. Twenty years later, that same dentist may have accumulated significant retirement savings, built equity in a dental practice and paid down major debts.
Those two financial pictures are very different.
That’s why life insurance shouldn’t necessarily be evaluated in isolation. Understanding how your coverage works alongside your other assets and financial goals can provide a much clearer picture of whether your current strategy still makes sense.
Do You Understand the Coverage You Already Have?
Life Insurance Awareness Month doesn’t necessarily mean it’s time to buy another policy.
It can simply be a reminder to understand the policies you already own.
Take a look at your current coverage. Know the benefit amounts. Understand the type of insurance you have. Check your beneficiaries. Find out what happens to employer-sponsored coverage if your career changes. And, most importantly, consider how each policy fits into your broader financial plan.
A periodic review with your financial professional can help you identify questions you may not have considered and determine whether your existing coverage continues to align with your goals.
At Engage Advisors, we help dentists look at financial decisions as part of the bigger picture. If you have questions about how life insurance fits into your overall financial strategy, our team can help you review where you stand and what questions may be worth asking next.