Life Insurance for Doctors in Canada

As a physician, you have worked hard to build a successful medical practice and provide excellent care for your patients. However, have you taken adequate steps to protect your most valuable asset – your ability to earn an income?

Purchasing sufficient life insurance for doctors is an essential component of any Canadian doctor’s financial plan. It ensures that your family will remain financially secure even in the unfortunate event of your untimely passing.

In this comprehensive guide, we will dive deep into the world of life insurance, specifically for physicians in Canada. You’ll learn about:

• The reasons doctors need coverage
• Policy options like term, whole life, and universal life
• What factors affect your premiums
• Strategies to reduce rates
• The underwriting process
• Tax advantages of permanent policies
• Optimizing corporate-owned insurance
• Choosing the right advisor
• And more

Arm yourself with the knowledge you need to implement a customized life insurance plan that provides robust protection for both your loved ones and your medical practice.

Why Do You Need Life Insurance for Doctors?

The need for life insurance for doctors essentially boils down to replacing income in the event of death. As a doctor, your ability to earn a sizable paycheck year after year is one of your most valuable financial assets.

According to the Canadian Medical Association, the average annual gross clinical payment for a specialist physician is $329,868 [1]. For a family practice doctor, average gross earnings are $272,683 per year [1].

If you passed away unexpectedly in your working years without life insurance, the loss of your income could be financially devastating to your family. They may struggle to cover daily living expenses, the mortgage, loans, education costs for kids, and more.

Life insurance proceeds help fill the income gap so your surviving dependents can maintain their standard of living even after you are gone.

Beyond just replacing income, some other important reasons physicians require life insurance include:

Paying Off Debts

Most doctors have substantial debts like mortgages, lines of credit, car loans, and student loans that would be passed onto family members without life insurance. Your death benefit can pay off these outstanding debts so your loved ones don’t inherit the burden.

Covering Estate Taxes

In Canada, death triggers a “deemed disposition” where your estate is taxed on all your assets as if they were liquidated on the day prior to your passing. This can result in substantial taxes owed. Life insurance provides tax-free cash that your beneficiaries can use to pay estate taxes and other final bills.

Funding Buy-Sell Agreements

If you own a medical practice or share a clinic with other physicians, you likely have a buy-sell agreement that outlines what happens if an owner dies. Typically, these agreements allow the surviving owners to buy shares from your estate. The life insurance death benefit funds the share purchase so your family receives fair compensation while keeping ownership smooth.

Providing For Dependents With Special Needs

If you have a dependent child or family member with physical or cognitive disabilities who requires specialized care, life insurance is crucial to provide ongoing financial support after you’re gone. The funds can be used to cover medical bills, assisted living expenses, transportation, and other costs.

Leaving an Inheritance or Charitable Legacy

Permanent life insurance lets you easily leave behind an inheritance or charitable gift significantly larger than you could save with your assets alone. This allows you to pass on wealth or support a cause about which you are passionate.

As you can see, life insurance for doctors serves many important purposes specific to physicians beyond just replacing income. Speak with an advisor to analyze all your coverage needs. For most doctors, a total death benefit of $1 million to $5 million is usually sufficient.

Having adequate life insurance gives you peace of mind, knowing that no matter what happens, your family will be taken care of financially.

What Types Of Life Insurance Policies Are Best For Doctors?

Term Life Insurance for Doctors: Affordable Temporary Coverage

The most basic and affordable type of life insurance for doctors is term insurance. As the name suggests, the term life provides pure death benefit protection for a set period of time or “term.”

Term lengths are typically available in increments of 10, 20, or 30 years. Some policies also offer 15 or 25-year terms.

The defining features of term insurance are:

• Death benefit only – Term policies provide life insurance only. They do not accumulate cash value.
• Predefined term – Your coverage is guaranteed for the length of the policy term only. Once the term expires, so does your protection (unless you renew).
• Level premiums – Your premium amount remains constant for the entire term length. It does not increase with age during the term.
• Flexible death benefit – Most term policies allow you to select any death benefit amount to meet your needs. $250,000, $500,000, and $1 million policies are common.

Term life insurance is best suited for covering temporary needs like:

• Paying off a mortgage
• Covering childcare and education costs
• Replacing income until retirement
• Settling short-term debts

Term life tends to be about 75% less expensive than permanent life insurance for equivalent death benefit amounts, making it the most budget-friendly option for shorter-term needs [2].

For example, a healthy 40-year-old male non-smoker could expect to pay the following average annual premiums for a $750,000 term life policy:

Once your policy term expires, you have the option to renew your coverage annually. However, renewal rates will be significantly higher as you age and lose the preferred health status you qualified for when you are younger. Guaranteed renewability to an advanced age (usually 80 or 85) is common.

Tip: Lock in your rate while young and healthy. If you develop health issues later, your coverage cannot be cancelled as long as you pay the premiums.

Converting part or all of your term policy to a permanent life insurance policy is also an option with most insurers. This allows you to maintain lifelong protection and begin accumulating cash value. There is a narrow conversion window – usually within 5 years following the end of the term. Converting term policies is often more affordable than applying for a brand-new permanent policy after the conversion period has passed.

Utilizing a “laddering” strategy with multiple staggered term lengths ending in different years is one way to hedge against the price increases of renewal and conversion. Your advisor can illustrate optimal laddering timeframes specific to your situation.

In summary, term life insurance offers the most affordable way for Canadian physicians to secure substantial death benefit protection. For most doctors, term life works well to cover temporary needs for 20-30 years until closer to retirement.

Permanent Life Insurance for Doctors: Lifelong Protection with Savings

Unlike term life insurance, permanent life insurance for doctors is designed to provide lifelong protection as long as you continue to pay premiums. It also has an investment component that builds up cash value within the policy on a tax-advantaged basis.

The two main types of permanent life insurance are whole life and universal life. Let’s look at how each one works:

Whole Life Insurance for doctors

Whole life insurance for doctors offers lifelong guaranteed death benefit protection along with guaranteed cash value growth at a predetermined rate.

Most whole life policies have a level premium that remains fixed for your entire life. This allows you to lock in your rate for good. Some whole life policies have limited pay options where your premium is only paid for 10 or 20 years, after which coverage continues with no additional premiums required.

The insurance company invests your cash value for you and manages the growth. The assets are allocated into conservative long-term investments like government bonds. Interest rates earned vary by insurer and economic conditions, but policies guarantee a minimum rate of return.

Any funds paid above the cost of insurance are added to the policy’s cash value. This component grows on a tax-deferred basis and can be accessed via policy loans if needed.

Whole life insurance provides:

• Lifelong death benefit coverage
• Steady, conservative cash value growth
• Minimal volatility or investment risk
• Stable premiums over your lifetime
• Tax advantages

It is well-suited for goals like leaving an inheritance, funding business buy-sell agreements, and supplementing retirement income.

Universal Life Insurance for doctors

Universal life insurance for doctors also provides permanent death benefit coverage and tax-sheltered cash value accumulation. However, it is more flexible than whole life.

With universal policies, you can adjust your death benefit amount up or down over time as your insurance needs change. You also get to choose how your cash value is invested from a selection of investment subaccounts covering stocks, bonds, money markets, indexed accounts, or fixed-interest accounts.

Premium payments are flexible – you select an amount between a required minimum premium and maximum premium each year. This funds the cost of insurance and additional cash value investments.

The cash value earns returns based on the performance of the subaccounts you pick. This allows for greater growth potential than whole life but also introduces investment risk. Poor stock market returns could hamper growth.

Other features include:

• Option for limited pay periods, such as 10 or 20 years
• Access cash via withdrawals and policy loans
• Overloan protection prevents lapse if you borrow too much
• Convertible to whole life insurance

Universal life provides lifelong coverage with flexible premiums and growth potential. However, investment vigilance is required to ensure your policy lasts to maturity. An experienced advisor can help you optimize universal life insurance.

Which is the best type of permanent life insurance for doctors?

So when should you choose whole life versus universal life insurance for doctors? Here are some guidelines:

• Whole life is preferable if you want simple, steady protection with guaranteed values. It minimizes investment responsibility.
• Universal life is better if you require flexible premiums or greater cash value upside. You must be comfortable actively managing subaccount allocations.
• If the priority is leaving an estate or inheritance, whole life is likely the safer choice to guarantee benefits.
• For supplemental retirement income, universal life may allow you to grow your cash value faster through investing.
• Insurability concerns later in life make whole life attractive for locking in guaranteed rates now.
• If life insurance is used primarily for tax planning, analyze taxes on withdrawals – whole life loans create fewer tax obligations.

Most physicians utilize a blended approach of both permanent and term life insurance customized to their specific family and business needs.

Keep in mind that new tax rules in 2017 made investing in universal life insurance policies less beneficial due to passive income attribution. Today, some insurers have stopped offering universal life products. For those still available, professional advice specific to your situation is highly recommended before purchasing.

What Factors Affect Doctors’ Life Insurance Rates?

Life insurance companies undertake detailed underwriting to classify your risk and determine premiums. Many health and lifestyle factors impact rates.

Age

Age is the single biggest factor affecting life insurance rates. As you get older, premiums rise because the risk of dying increases.

For permanent life insurance, when you lock in coverage in your 30’s or 40’s, you secure a low premium for your entire life.

With term insurance, your rates will surge once your term expires and you renew at an older age. Locking in while young saves you money.

Gender

Because women statistically have greater life expectancies, they typically enjoy lower life insurance rates than men. For a $500,000 policy at age 40:

• Average annual premium for a woman: $480
• Average annual premium for a man: $600

This equates to around 25% in savings for women.

Lifestyle

Unhealthy lifestyle behaviours like smoking and excessive drinking heavily impact life insurance premiums.

For smokers, life insurance rates are 2 to 5 times higher compared to non-smokers, all other factors being equal. Other high-risk hobbies like scuba diving also bump up rates.

Disclosing lifestyle details is crucial – otherwise, you risk a denied claim later for fraudulent statements.

Health Status

Medical underwriting examines your current health and family history for conditions that foreshadow shorter longevity. Some factors that may increase life insurance rates include:

• Heart disease
• Cancer
• Stroke
• Diabetes
• Obesity
• Depression
• Anxiety
• Sleep apnea
• High blood pressure

Severity, age of onset, and how well conditions are controlled all affect insurability and premiums. Hazardous medical specialties may also impact rates.

Optimizing health is the best way to qualify for lower “preferred” rates (see our section on underwriting later). Be sure to disclose all medical details fully and truthfully.

Occupation

Your occupation plays a role in life insurance rates. Doctors are viewed favourably by life insurers due to higher-than-average income and education.

However, some medical specializations with higher mortality rates due to strain or occupational hazards may incur higher premiums. For example, a dermatologist may pay less than a cardiothoracic surgeon or emergency room physician, although many factors are considered.

Read more: Life Insurance for High Risk Occupations in Canada

Family History

You may pay a higher premium if multiple close family members have been diagnosed with hereditary conditions like cancer, diabetes, or heart disease before age 60.

Genetic testing can sometimes help you avoid increased rates for family histories if you test negative for problematic genetic variants. Talk to your advisor.

Read more: Family life insurance in Canada

How can you get the best rates of life insurance for doctors?

The above factors that increase premiums are out of your control. However, there are still ways savvy physicians can potentially lower their costs.

Lock In Young – Buy coverage in your 20s and 30s when premiums are lowest rather than waiting until later when health issues start appearing. Young lock-in discounts can yield over 50% savings for life.

Optimize Health – Improve your diet, exercise regularly, quit smoking, lower stress, and address medical issues to potentially qualify for “preferred” pricing tiers. Just a one-tier upgrade (e.g. standard to preferred) can save thousands over a lifetime.

Ladder With Term – Blend less expensive term life insurance into your plan to minimize permanent policy outlays. This reduces your overall premium expense.

Pay Annually – Paying life insurance premiums annually rather than monthly saves you about 5-8% because of lower administrative fees for insurers.

Buy When Rates Are Low – Interest rates impact how insurers price life insurance. Locking in during periods of economic downturn can yield savings.

Attach a Rider – Some riders that provide additional benefits may yield discounts on your base policy premiums. For example, a waiver of premium rider provides continued coverage if you become disabled, reducing financial risk to the insurer.

Review Dividends – For “participating” whole life policies, dividends paid from surplus insurer profits can reduce your net outlay. Insurers with strong dividend track records may offer savings.

Discuss options to tailor your policies for maximum savings while still getting the protection you need. A brokerage like Lifebuzz specializes in optimizing insurance for physicians at every stage of their careers.

What is the underwriting process for life insurance?

Underwriting is the process an insurance company uses to assess your health and life expectancy in order to classify your risk and set fair premium rates.

To determine rates, insurers follow standard mortality tables that reflect how long people in your risk class typically live. Those with medical issues or risky habits are placed in higher-risk classes with higher rates. Optimizing health can earn you lower “preferred” pricing.

How to apply for life insurance for doctors in Canada?

Today’s life insurance application process is streamlined, convenient, and mostly virtual.

Step 1: Complete an Online Application

This collects basic personal information like date of birth, contact info, family details, income, beneficiaries, and a high-level overview of your health. Applications today are dynamic, which means you only answer questions relevant to your situation.

Step 2: Schedule a Phone Interview

Next, you will have a short tele-interview at a day/time convenient for you. This goes over the comprehensive medical history questions previously asked at in-person exams – medications, doctor visits, disease history, etc. There are no surprises, and you can be sure to provide full, accurate details. Interviews take 20-30 minutes.

Step 3: Get a Paramedical Exam

In most cases, you will also need to complete a paramedical exam arranged by the insurance company. A trained medical professional will:

• Take your height, weight and vitals
• Collect blood/urine samples
• Potential EKG tracing
• Review comprehensive medical history

The exam is free and scheduled for your convenience at home or in the office.

Virtual exams are also growing in popularity when in-person is difficult. These involve recording a video of you taking your own vitals and answering medical questions online.

Step 4: Await Your Decision

The insurance company will review the totality of your application details, interview, exam results, and doctor’s records (if requested) to make a decision. Underwriters determine your mortality risk classification and best rate class.

For smaller policies (e.g. less than $1 million), this process is often accelerated, and insurers may make an approval decision in a matter of days without requiring fluids or full exams.

What are the different risk classes of life insurance for doctors?

Insurance companies rate applicants based on the following general risk classes:

Preferred or Preferred Plus – Exceptional health status qualifies for the lowest premium “preferred” pricing. Less than 10% of applicants achieve this tier.

Standard – Most applicants fall into this average-risk category with typical rates.

Substandard or Rated – Applicants with significant medical issues or risk factors are classified as substandard and will pay higher premiums.

Declined – Severe current health conditions or hazardous lifestyles may mean an applicant is declined for traditional life insurance due to uninsurable risk. Alternatives may be available.

Optimizing your health and lifestyle habits gives you the greatest chance at lower preferred rates, which can mean thousands in savings over your lifetime.

What are the tax benefits of permanent life insurance for doctors?

One of the lesser-known benefits of permanent life insurance for doctors is its uniquely favourable tax treatment and advantages for high-net-worth individuals like physicians.

Tax-Advantaged Growth

The cash value within your permanent life insurance policy grows tax-deferred. Unlike stocks or mutual funds, you pay no annual tax on interest, dividends or capital gains earned inside the policy. This facilitates faster growth compared to taxable investment accounts.

You can access cash tax-free via policy loans when needed. This gives your money a “tax haven” until accessed.

At death, the full sum is paid tax-free to beneficiaries. Permanent insurance is an excellent estate planning tool for maximizing the inheritance of your heirs.

Corporate Owned Insurance Benefits

When permanent life insurance is owned by your physician professional corporation (PC) instead of personally, additional tax perks become available.

Premiums are paid with lower-taxed surplus corporate dollars, investments grow tax-free inside, and cash can be accessed tax-free via policy loans when needed. This structure is very effective for business owners.

Proper setup is crucial – speak with your accountant.

Supplementary Retirement Income

Your policy’s cash value can provide supplementary retirement income through tax-free policy loans. This income may allow you to withdraw less from heavily taxed RRSP/RRIF accounts in retirement years, providing tax optimization.

Many physicians utilize this strategy to meet retirement cashflow needs and preserve registered accounts for final estate distribution.

Estate Planning

At death, the policy’s death benefit is paid tax-free to your named beneficiaries. For a corporately owned policy, this allows you to efficiently extract funds from your medical corporation and control future ownership.

Canada’s tax rules make permanent life insurance an attractive option for maximizing the value of your estate for your loved ones.

A physician specializing in the intricacies of life insurance and taxation is essential to leverage these benefits fully. 

What are the downsides of permanent life insurance for doctors?

While permanent policies offer lifetime protection and unique tax advantages, there are some potential downsides to consider:

Higher Minimum Outlay – To secure lifelong coverage, the annual premium for a permanent policy will be significantly higher than an equivalent term policy. The minimum can range from 5 to 15 times the cost of term insurance.

Interest Rate Risk – If interest rates rise substantially, your returns may suffer, leading to lower cash value growth. Newer policies have guarantees that help mitigate this risk.

Overinsurance Risk – If your death benefit far exceeds what your heirs actually need, insurance may end up being an inefficient asset class for the total dollars you put into premiums.

Opportunity Cost – Funds contributed to life insurance could have potentially earned higher returns in another type of investment without restrictions like taxation of withdrawals or benefit reductions.

Policy Complexities – Permanent insurance is admittedly quite complex. Without sufficient guidance, you may make costly mistakes that reduce your policy’s effectiveness.

An experienced advisor like Lifebuz can help you analyze the tradeoffs and create ideal policies, minimizing downsides for your needs and risk profile.

What are the top Canadian life insurance companies for doctors?

Purchasing from a highly rated life insurance company with a long track record is vital for permanent policies you’ll hold for life. Here are 6 major Canadian life insurance companies to consider:

Sun Life – Canada’s largest life insurer and a global provider with over 150 years in business. Known for financial strength, variety of products, and strong dividends on participating whole life policies.

Canada Life – Established in 1847, it is a leading and respected mutual life insurance company. Provides a wide range of individual and corporate-owned life insurance.

RBC Insurance – A wholly-owned subsidiary of the Royal Bank of Canada. Offers both term and permanent life insurance products with the ability to convert term to whole life coverage.

BMO Insurance – Part of Bank of Montreal Financial Group. Known for flexible universal life insurance options and 10/20-pay limited premium permanent policies.

Manulife – Founded in 1887, Manulife offers all standard policy types. Global insurer with a significant presence across Canada.

Equitable Life – One of the oldest mutual life insurance companies in Canada. Policy owners are members who vote and participate in profits through dividends.

Discuss your life insurance options with an advisor who has access to the top-rated life insurance companies in Canada. This ensures you get optimal products for your needs.

How to optimize corporately owned life insurance for doctors?

As discussed earlier, when structured properly, permanent life policies owned by your medical professional corporation provide enhanced tax benefits and advantages. However, there are intricacies involved in optimizing this approach.

Premiums Paid Internally – If you pay premiums through your corporation directly, the death benefit forms part of the capital dividend account balance. This often triggers the need for complex estate planning and a costly double taxation for your heirs, especially if your corporation has grown substantially.

Premiums Paid Externally – If, instead, you pay premiums outside the corporation (e.g. personally), the death benefit is fully received tax-free by your corporation. This avoids double taxation and simplifies planning. The outlay from your personal after-tax income is also smaller than remitting dividends first to yourself to cover premiums.

An experienced life insurance advisor and accountant familiar with physicians’ corporate structures is vital to implement this planning properly.

Read more: life insurance for Merchant Mariners

What should physicians look for in a life insurance advisor?

Purchasing adequate life insurance for doctors is a complex, long-term decision. Finding the right advisor is key to ensuring your physicians’ policies achieve your goals as efficiently as possible.

Look for an advisor who:

• Understands physicians’ unique needs – Your medical career has specialized insurance implications like liability, disability, survivor’s income, restrictive covenants, and practice valuation intricacies that most average agents simply do not understand. You want someone specifically experienced working with physicians.
• Provides unbiased professional advice – Opt for fee-based insurance consulting to remove commissions and recommendation biases. Fiduciary duty to the client is mandatory.
• Has access to every major insurance carrier – With coverage options from all of Canada’s top-rated life insurers, you are assured the optimal policy for your needs across the life insurance spectrum.
• Offers completely personalized recommendations – Generic “one size fits all” solutions tend to be suboptimal for physicians. Ensure your advisor starts by thoroughly analyzing your financial picture and life insurance goals through a collaborative fact-finding process before making product suggestions.
• Explain recommendations clearly – Life insurance can be complex, but your advisor should clearly walk you through the pros/cons of options tailored specifically for you without overwhelming industry jargon. Ask questions until you feel you have clarity.
• Stays involved long-term – Your life insurance plan must be monitored and optimized across your lifetime. Ongoing reviews, market analysis, product advancements, and strategy changes are key to maximizing value. The right advisor guides you throughout every stage of your medical career.

Finding the proper advisor can feel like an overwhelming task. An excellent option is Lifebuzz.ca; their advisors act fiducially for you, offering unbiased expertise and guidance. 

Summary: Life Insurance for Doctors Provides Peace of Mind

Life insurance for doctors often gets cast aside as something you don’t need to prioritize while actively practicing medicine. However, adequate coverage is truly foundational to any physician’s financial plan when loved ones depend on you.

Today’s streamlined application process, along with the potential for significant premium savings by locking in while young and healthy, makes getting life insurance easier and more affordable than ever.

Work with a specialized advisor to analyze your total insurance needs and implement policies providing robust lifelong protection. You’ve worked hard building a career caring for others – ensure your own family is cared for no matter what happens.

While no one likes thinking about tragedy striking, having personalized coverage in place lets you practice medicine with greater peace of mind.

Let us know if you have any other questions! We’re happy to provide any clarification needed on the optimal planning of life insurance for doctors in Canada.

FAQs about Life Insurance for Doctors in Canada