Life Insurance for Doctors in Canada

Doctors dedicate their lives to supporting and caring for their patients, often going above and beyond in their roles. Despite their unwavering commitment, the medical profession is known for its high levels of stress and exhaustion, compounded by years of rigorous education and training. In fact, according to a survey by the Canadian Medical Association (CMA) one quarter of doctors stated they experience career dissatisfaction and burnout.

Given these challenges, it’s crucial for doctors to consider the security that life insurance can provide. This guide offers an in-depth look at the life insurance options available to doctors in Canada, helping them make informed decisions about their financial future.

In this article:

• Why Do Doctors Need Life Insurance
• Types of Life Insurance for Doctors in Canada
  • Term Life Insurance
  • Permanent Life Insurance
  • No Medical Life Insurance
• Life Insurance Through a Medical Association in Canada
• Corporate Owned Life Insurance (COLI) for Doctors Who Own a Practice
  • Case Study Example of COLI for a Medical Practice
• Frequently Asked Questions (FAQs) about Life Insurance for Doctors in Canada

Why Do Doctors Need Life Insurance

Like all Canadians, doctors can benefit from life insurance as it provides a safety net to protect their families financially. However, the demanding and stressful nature of the medical profession makes this protection even more vital. Often serving as the primary breadwinners, doctors need a reliable way to replace their income to ensure their families maintain their lifestyle in the event of an untimely death.

Additionally, doctors face higher exposure to contagious illnesses and are prone to conditions associated with the physical and mental demands of their job, such as back pain, high blood pressure, and mental health issues. Considering these factors, here are the primary reasons why doctors should consider life insurance:

Types of Life Insurance for Doctors in Canada

There are a few different types of insurance available to Canadians. In the simplest terms options include term life insurance, which provides coverage for a specified period; permanent life insurance, which offers lifelong coverage; and no medical life insurance, which does not require a medical exam for qualification. The best policy for your situation will depend on a variety of factors including your financial goals. Here is an overview of the life insurance options available for doctors in Canada.

Term Life Insurance

One of the most popular life insurance options among Canadians is term life insurance. This type of insurance offers coverage for a specific period, typically ranging from 5 to 30 years. This makes it easy to align with temporary financial obligations, such as debt, and can be advantageous if you anticipate changes in your coverage needs over time. For doctors, term life insurance is beneficial if you are still progressing in your career, expect significant life changes such as starting a family or children moving out, or plan to take on shared debt like a mortgage.

The main advantages of term life insurance include:

• Term life insurance is one of the most affordable life insurance policies.
• The policy is only in effect for a set coverage period, making it ideal for those with changing coverage needs.
• Policies can be renewed or tailored to align with significant life events such as taking out a mortgage, children moving out, career promotions, and other milestones.

The main disadvantages of term life insurance include:

• Term life insurance can become unaffordable in the long term due to the higher premium costs associated with age or health changes.
• This type of policy does not offer any investment potential unlike certain permanent life insurance policies.
• If you outlive a term life insurance policy, the death benefit won’t need to be paid out to your beneficiaries.

What term life insurance costs:

Term life insurance is the most affordable type of life insurance and can make large coverage amounts easier to obtain. Here is a look at the monthly premium rates for males and females aged 40-45 for a 10-year term life insurance plan with $1,000,000 in coverage.

Permanent Life Insurance

As the name suggests, permanent life insurance offers lifelong protection with a policy that never expires. There are several types of permanent life insurance policies including whole life insurance, universal life insurance, and term 100 life insurance. The main difference between these policy types lies in their investment options. Both whole and universal life insurance policies have a cash value component that can be invested and grown tax-free throughout the life of the policy, allowing policyholders to withdraw from or borrow against this amount. Term 100 life insurance provides permanent coverage but does not include a cash value component. Permanent life insurance is ideal for doctors who are interested in the investment potential, are older and wish to lock in a premium rate, or otherwise interested in lifetime coverage.

Here is a quick overview of the different types of permanent life insurance policies:

The main advantages of permanent life insurance include:

• Permanent life insurance coverage allows you to lock in a premium rate so you don’t face increases with age or health related changes and can result in savings in the long term.
• Certain policies include a cash value component that can grow tax-free, potentially providing policyholders with an additional financial benefit.
• This type of policy is ideal for estate planning because it guarantees a payout upon your death, ensuring your heirs receive financial support when they inherit your assets.

The main disadvantages of term life insurance include:

• Permanent life insurance coverage is typically much more expensive than term life insurance coverage.
• Although the cash value grows tax-deferred, certain actions, such as large withdrawals or policy lapses, can cause tax liabilities.

What permanent life insurance costs:

The cost of permanent life insurance can vary depending on the policy and the insurer, but it is generally more expensive than term life insurance. Here is a look at the monthly premium rates for males and females aged 40-45 for a minimum-funded universal life insurance plan with $1,000,000 in coverage.

No Medical Life Insurance

No medical life insurance is a policy type designed for individuals who struggle with medical conditions that can make it more difficult to be approved for life insurance. This type of insurance can be underwritten as a term or permanent life insurance policy but is typically more expensive due to increased risk to the insurance provider. No medical life insurance is ideal for doctors with pre-existing conditions that may make it more difficult to find insurance.

The main advantages of no medical life insurance include:

• It is much easier to be approved for a no medical life insurance policy.
• Certain policies offer significantly shorter application approval times, with some even providing instant approval.
• A medical exam is not required, and questions about your medical history will either be limited or not required at all.

The main disadvantages of term life insurance include:

• It is generally much more expensive than a fully underwritten life insurance policy.
• Permanent no medical life insurance policies do not include an investment component.
• Maximum coverage amounts are typically lower than those offered by fully underwritten life insurance policies.

What no medical life insurance costs:

No medical life insurance is typically more expensive with lower maximum coverage amounts. Here is a look at the monthly no medical life insurance rates for males and females aged 40-45 for a 10-year term with $500K in coverage.

Life Insurance Through a Medical Association in Canada

Many medical associations in Canada offer life insurance to doctors. For example, the Ontario Medical Association (OMA) offers group life insurance up to age 75 with rates increasing every five years. While this can be beneficial for those looking for temporary coverage, those looking for permanent life insurance with fixed premium rates may benefit from a personal life insurance policy instead. Many physicians prefer personal policies as they are more flexible and can be tailored to their unique circumstances. This allows them to cover a variety of financial goals that may not be covered by a group policy.

Corporate Owned Life Insurance for Doctors Who Own a Practice

If you are a doctor and own your own medical practice, corporate owned life insurance (COLI) may be a beneficial option for you. Unlike individual policies, COLI is owned by the business, and funds for policy premiums will be paid out by the business. The policy typically covers a key person whose death would significantly impact the business, such as the owner. If that person were to pass away, the business would receive a tax-free death benefit. This can be an effective way to safeguard your medical practice, ensuring that funds are available to find a suitable replacement and cover any lost revenue.

The advantages of corporate owned life insurance include:

• Tax Advantages: COLI policies typically include a cash value component that grows tax-deferred, which your practice can access during the policy’s lifetime. Additionally, the death benefit received by your medical practice upon the death of the covered individual is generally tax-free.
• Key Person Protection: By covering a key person whose death would significantly impact your practice, you can safeguard the future of your business and ensure that funds are available to facilitate a smooth transition and avoid potential revenue loss.
• Employee Benefits: COLI policies are often used in employee benefit plans, with the promise that a portion of the policy’s cash value will be paid out to key employees upon retirement. Additionally, a portion of the death benefit can be paid out to an employee’s family if they were to pass away.

Case Study Example of Corporate Owned Life Insurance for a Medical Practice

The following is a fictional case study intended to outline the process of obtaining corporate owned life insurance (COLI) in Canada.

Dr. Robert Thompson and Dr. Samantha Miller, both general practitioners, own the Red Health Medical Clinic in Toronto, Canada. Their practice also employs Jessica Martin, an office administrator and payroll specialist who manages staffing and finances for the practice.

If any of these key employees were to pass away, the practice would face significant financial challenges, including loss of revenue, recruitment and training costs for replacements, and potential disruption in operations. To safeguard their practice against the financial risk posed by the potential loss of key employees, Robert and Samantha decide to secure a corporate-owned life insurance (COLI) policy.

The team considers the following to determine coverage needs:

• The cost to recruit and train a replacement will be $30,000.
• Temporary staffing after the loss of a key person will cost approximately $20,000.
• The practice will need $30,000 to offset revenue losses.
• An additional $20,000 will be needed to continue operations and offer support to staff members.

With these factors in mind, the team decides a policy with $100,000 in coverage is the best option. After coordinating with a knowledgeable financial advisor, they find a COLI policy with $100,000 in coverage and a cash value that grows at a fixed interest rate of 3% per year, which can be put towards a retirement fund for the key staff members. The monthly premiums for this policy would be $250 per employee.

Frequently Asked Questions (FAQs) about Life Insurance for Doctors in Canada

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