Life Insurance

How it Works

There are two main types of life insurance that one will come across:

1. Term Life Insurance:

This is typically the most common way to acquire life insurance to protect your insurable interest. Basically you purchase coverage for a period of time, like renting a house. This can be 1 Year, 5 Years, 10 Years, 15 Years, 20 Years, 25 Years, 30 Years or even as long as 35 Years. The idea is if you die during the term period you receive the amount of insurance purchased, if not the insurance company keeps the premiums. Now this is typically a bet the insured wants to lose as winning means not living to see the payout. However it protects families when household net worth is low, can be used as collateral when purchasing a practice to get a loan from the bank, and to protect a business interest so a partner in a practice and the insureds family can be made whole without conflict if one of the partners in a practice pass away.

Life insurance is extremely important in protecting major risks. Today with Modern Medicine and technologies we are living longer and longer. However no one has a crystal ball and although the risk is low, it is important to hedge any risk that can not be avoided. No one ever plans to pass away so life insurance is a core component to any financial plan for our dentists as it can protect the interests of loved ones, business partners and be used in many other scenarios to avoid the uneasiness of leaving too much risk on the table for any other stakeholders involved in the life of our clients.

2. Whole Life Insurance:
Another way to buy life insurance is to just outright buy the benefit. The equivalent of buying versus renting a house for the insured. When you buy life insurance as a whole life there can be cash value accumulated from paying premiums that can later be used as a tax advantageous resource of cash or as an investment. The death benefit also can be designed to grow significantly over time to leave behind more money to heirs or even to leave behind as a charity.

Other than permanent ownership of death benefit, whole life allows the insured to design the plan for personal gain as well. There are strategies such as infinity banking where the insured actually buys an extremely low death benefit and tries to utilize the dividends from the insurance company to design a sort of high yield savings account from the plan. Sometimes bringing in as high of a return of 4-6% a year tax free.

Whole life can be a valuable portion of the planning process if designed properly for whatever the insured’s intended use is. These products can also be manipulated to take advantage of clients who do not understand all of the different complexions involved in designing a plan tailored to their interest and goals. Many financial advisors who are not obligated to follow in a fiduciary standard use these products as an opportunity to take advantage of others for commission payouts and design plans in a poor fashion just for their own personal gain. It is extremely important to stay away from any non-Guaranteed returns and benefits and make sure that you are purchasing a Pure Whole Life plan. Not a modified version such as Indexed Universal Life (IULs) or Variable Universal Life (VULs) that are tied to the market and make promises of high Non-Guaranteed returns.

A Pure Whole life plan has built in Guaranteed Cash Value growth and can pay non-guaranteed dividends beyond that. Always just plan to receive the guarantee when buying these for a planning purchase. Never bank on non-guaranteed monies.

These plans can be great as Alternative Investments once all other tax advantageous vehicles are utilized such as ROTH IRAs, 401Ks, 403Bs, Thrift Savings Plans, etc..

Just make sure you are in the right position when thinking of whole life products and be sure to consult with a financial professional who is not enticed by commissions and has to work in your best interests when designing and servicing your plan.