Term Life Insurance: What Physicians Need to Know Before You Buy

Over the course of their careers, physicians typically purchase substantial amounts of term life insurance. Because term life insurance is largely a commodity, pricing is competitive and comparison shopping is relatively straightforward. Yet despite this, many physicians either own the wrong type of term coverage or pay significantly more than necessary.

This article is intended to serve as a practical guide to help you purchase the appropriate type of term life insurance — at the lowest possible cost — while aligning coverage with your individual needs and long-term financial goals.

What Is Term Life Insurance?

Term life insurance provides pure death benefit protection and does not accumulate cash value. Its primary advantage is efficiency: it allows you to purchase a large death benefit while minimizing initial premium outlay.

When you purchase a term life insurance policy, coverage is provided for a specified period of time (the “term”). If you die during that period, the insurance company pays the death benefit to your beneficiary or beneficiaries. If you outlive the term, coverage expires unless renewed or converted.

Annual Renewable Term (ART) / Yearly Renewable Term (YRT)

Historically, term life insurance was often issued with annually increasing premiums, commonly referred to as Annual Renewable Term (ART) or Yearly Renewable Term (YRT). Alternatively, policies were issued with Level Premium Term, under which premiums are guaranteed for a defined period.

Unlike level premium term insurance — the most common form of term coverage today — ART/YRT policies have non-guaranteed premium structures. These policies typically include two premium scales:

• A scheduled (non-guaranteed) premium, and
• A guaranteed maximum premium, often significantly higher.

After the first policy year, premiums may increase beyond the scheduled rate, though never above the guaranteed maximum. This structure is conceptually similar to an adjustable-rate mortgage.

Having sold a significant number of ART/YRT policies earlier in my career — before level premium term insurance became widely available — I can say from experience that these policies frequently become prohibitively expensive over time. As a result, very few carriers actively market this type of coverage today.

When ART/YRT policies are offered, they are typically used for:

• Very short-term needs (e.g., temporary loan protection), or
• As “pre-conversion” term insurance for individuals who intend to convert to permanent life insurance.

More often than not, however, policy owners do not fully understand that they are purchasing this type of product for these specific purposes.

Level Premium Term Life Insurance

Level premium term life insurance is available with guaranteed premium periods of 5, 10, 15, 20, 25, 30, 35, or even 40 years. During this period, premiums remain unchanged.

Some carriers also offer policies with level premium periods in one-year increments (e.g., 16–30 years), providing additional flexibility.

Once the level premium period expires, policies typically convert to annually renewable term or experience a significant reduction in death benefit. As premiums increase sharply after the guaranteed period, long-term affordability can become a concern if coverage is still needed.

Should You “Ladder” Your Term Life Insurance Coverage?

A common guideline when purchasing life insurance is to replace approximately 7–10 times gross annual income. Many physicians simply purchase a single 30-year level term policy to meet this need.

However, as children grow older, debts are paid down, and education expenses are funded, the need for long-term death benefit protection often declines.

For example, instead of purchasing a single $4,000,000 30-year term policy, consider purchasing:

• $3,000,000 of 20-year level term coverage, and
• $1,000,000 of 30-year level term coverage.

This approach provides the same $4,000,000 death benefit for the first 20 years, after which coverage decreases to $1,000,000 for the remaining 10 years.

Using current pricing assumptions, 35-year-old male in New York purchasing $4,000,000 of 30-year level term coverage in the best underwriting classification might pay approximately $2,203 annually. A laddered approach could reduce the premium to approximately $1,571 annually, resulting in savings of about 29% while still providing appropriate protection.

Some carriers allow laddering within a single policy using level term riders. Others waive policy fees on additional policies, producing a similar cost benefit. Separate policies, however, often provide greater flexibility, as riders cannot be maintained independently of the base policy.

Another alternative is to purchase a longer-term policy and reduce the death benefit over time. While this approach is typically more expensive than laddering, it can preserve flexibility if coverage is needed longer than initially anticipated.

Conversion Options

Most term life insurance policies include a conversion option, allowing you to convert some or all of the term coverage to permanent insurance without evidence of insurability. Importantly, the underwriting classification at issue is preserved at conversion.

While many policies allow conversion throughout the entire guaranteed term, some restrict conversion to a limited number of years unless an extended conversion rider is added.

If conversion is a long-term objective, it is essential to work with an insurer that offers a broad range of permanent life insurance products. Otherwise, a carrier specializing in low-cost term insurance may be more appropriate.

Waiver of Premium Rider

The Waiver of Premium Rider provides that premiums are waived if the insured becomes totally disabled, typically after a six-month elimination period. Depending on the carrier, an “own-occupation” definition of disability may apply for a limited period.

This rider is particularly valuable if you anticipate converting term insurance to permanent coverage, as it can waive the substantially higher premiums associated with permanent policies. If conversion is unlikely, the rider may be less cost-effective.

Underwriting Considerations

Life insurance underwriting evaluates factors such as:

• Age, height, and weight
• Personal medical history
• Immediate family history of cardiac disease or cancer

Underwriting guidelines vary significantly by carrier. For this reason, working with an experienced independent agent who represents multiple companies can materially improve outcomes — especially for individuals with less-than-perfect health.

Special Underwriting Topics

Foreign Nationals (Visa Holders)

Underwriting for foreign nationals varies widely and depends on visa type, length of U.S. residency, financial ties to the United States, travel history, and intent to remain in the country. Outcomes can differ dramatically between carriers.

Gestational Diabetes

A history of gestational diabetes often results in a Standard Plus or Standard underwriting classification, depending on the carrier. Policies and guidelines have become more uniform across the industry in recent years. However, some insurance companies will address this history on a case by case basis.

Build (Height/Weight)

Some carriers are more lenient with build requirements than others. Weight loss within 12 months of application is typically added back by 50% for underwriting purposes.

Tobacco and Nicotine Use

Occasional cigar use may still qualify for non-tobacco rates. Cigarette use typically results in tobacco classifications. Some carriers offer favorable treatment for smokeless tobacco, nicotine replacement, vaping, or e-cigarette use.

Term Life Insurance with Living Benefits

Many policies include Accelerated Benefit Riders, which allow access to a portion of the death benefit in the event of terminal, chronic, or critical illness. These benefits may be provided at no cost but can reduce the ultimate death benefit and may have tax or public assistance implications.

Policy owners should consult qualified tax and legal professionals before accessing these benefits.

Financial Strength of the Insurance Company

Always review the financial ratings of insurers under consideration. Independent rating agencies include A.M. Best, Standard & Poor’s, Fitch, Moody’s, and Weiss.

The Comdex score aggregates these ratings on a percentile basis (1–100). While not a rating itself, it provides a useful comparative benchmark.

Summary

Although term life insurance is largely a commodity, selecting the appropriate structure requires careful consideration of your age, health, income, family obligations, and long-term objectives. Whether purchasing new coverage or replacing an existing policy, working with an experienced agent who represents multiple carriers can help ensure optimal pricing and policy design.

Lawrence B. Keller, CFP®, CLU®, ChFC®, RHU®, LUTCF is the founder of Physician Financial Services, a New York- based firm specializing in income protection and wealth accumulation strategies for physicians. He can be reached at (516) 677-6211 or by email to Lkeller@physicianfinancialservices.com with comments or questions.

*All life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company.

**Riders may incur an additional cost or premium. Rider benefits may not be available in all states.

***A Waiver of Premium rider waives the obligation for the policyholder to pay further premiums should he or she become totally disabled continuously for at least six months. This rider will incur an additional cost. See policy contract for additional details and requirements.

+ Comdex is not a rating, but a composite of all ratings that a company has received from the major rating agencies (A.M. Best, Standard & Poor's, Moody's, and Fitch). Comdex percentile ranks the companies, on a scale of 1 to 100 (with 100 being the best).

This material contains the current opinions of the author but not necessarily those of Guardian or its subsidiaries and such opinions are subject to change without notice. Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice.

Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 777 Third Avenue, Suite 1703, New York, NY 10017, 212-541-8800. Securities products and advisory services are offered through PAS, member FINRA, SIPC. Financial Representative, The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Physician Financial Services is not an affiliate or subsidiary of PAS or Guardian. The individuals associated with Physician Financial Services do not maintain specialized licenses or qualifications for the financial services provided to medical professionals. AR Insurance License #1057229, CA Insurance License #0C37340.

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