Are your life insurance decisions still aligned with your current lifestyle and financial goals?
Life insurance is one of those financial planning topics physicians often set up early in their careers and rarely revisit, even though their income, family needs, assets, and long-term goals may have changed dramatically over time.
In this episode, Daniel Wrenne is joined by Ryan Inman of Financial Fellowship to discuss how mid-career physicians should reassess their life insurance needs. They break down how spending habits, growing assets, and changing family dynamics affect coverage needs over time.
Listen in to learn how to evaluate existing policies, when it may make sense to reduce or restructure coverage, and why life insurance planning should adapt as your financial life changes.
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Full Episode Transcript:
Daniel Wrenne: Essentially, all that the life insurance is doing is it’s like supercharging your wealth so that you’re immediately financially independent or you’re financially independent enough to, if the spouse is still gonna work, financially independent enough to kind of supplement their income to kind of keep things the same.
Welcome to Finance for Physicians, the show where we help physicians like you use money as a tool to live a great life. I’m your host, Daniel Wrenne, and I’ve spent the last decade advising physicians on their personal finances with the mission to help them understand that taking control of their finances now means creating a future where they can practice medicine where, when, and how long they want to.
Daniel Wrenne: Welcome back, guys. So, for those that were listening last show this is actually shockingly gonna be our final show, which is nuts to me. I guess it’s been years we’ve been doing this, which I’ve loved every minute of it. It’s great to be able to have you guys joining me.
That’s also a privilege, and I’ve enjoyed doing it for you guys. Really, that’s what it’s for. It’s for you guys listening. And so, for those that didn’t catch the last show, we’re gonna be calling it a day on this show. But good news is we’re gonna be keeping it going. This is not actually the last show.
We’re gonna continue having these exact same sort of conversations, and we’re just gonna be doing it in a little bit of a different setting, we’ll say. So I’ve got Ryan with me today, and we were talking. I introduced him last show, but we’ll do a quick intro again today. But I’m gonna be joining Ryan for his Financial Fellowship Podcast on the Wednesday shows, and we’re gonna be having basically the same sort of conversations you guys have been listening to over the years over there.
So all’s not lost. I’m excited to kind of make the transition. I got lots of history with Ryan. We’ve known each other for, what, 10 years now, and we established that it was not 10—it was not six years. It’s 10 years. So anyway like I said, I’m gonna do a kind of a quick intro again with Ryan, and then today we’re gonna be talking about life insurance.
So it’s actually one of my favorite topics. And I think really it’s such a valuable topic to me because it’s such an important component of a financial plan. And I actually started my career working in life insurance. I used to sell life insurance for many years, many of you guys know.
And so we’re gonna be talking about kind of like mid-career life insurance decisions and how kind of to potentially adjust your life insurance planning or how you might think about your life insurance as you get into that kind of middle career phase. So, before we get into that, Ryan, you wanna jump in for quick intro?
For those that didn’t catch the last show, maybe tell us a little bit about you and kind of the Financial Fellowship thing, like what that’s gonna look like?
Ryan Inman: Yeah, like Daniel said last episode, I gave a little bit more on the background, but the quick highlights. So I’m Ryan Inman. I’m over at financialfellowship.com, on the podcast, and on YouTube as well.
Really excited to have Daniel join me for our Wednesday show. We’re gonna be doing shows nearly every day. So you’re gonna get a lot of content from me, but really important that that you’re gonna get a lot of high-quality content that you’ve always been getting from Daniel.
You will get that still. We’re just changing venues, so to speak, from a podcast standpoint. But Daniel will still be in his same spot with his same background and then you’ll get to hang out with me as well. I’m married to a pediatric pulmonologist. We’ve been together for more than 20 years.
We’ve got two amazing kids that are 9 and 11. And yeah, just super pumped to have Daniel and the team join me over at the Fellowship. So, like I said, you can get a lot more of my background on last show that we just did. But Daniel, we’ve got an important topic today to kind of end out your podcast, which is very exciting to say.
Daniel Wrenne: Yeah.
Ryan Inman: Because that means that you’ll be joining me sooner full time, so.
Daniel Wrenne: Yeah.
Ryan Inman: Pumped on that. So we’re talking about life insurance for a mid-career physician, and this is someone who maybe they’ve purchased insurance earlier on in residency. Maybe they haven’t, right? And so there’s some calculations and some things that they need to be thinking about right now, whether they bought insurance or not.
So I think starting the show off right now is let’s assume that they’ve purchased some insurance. Yeah, let’s, for the sake of ease, just say it’s term insurance, which maybe you can kind of go over that. And then, how does the calculation change based on what they have going on now and their assets and all of that as they’ve been working for maybe a decade as a physician?
Daniel Wrenne: Yeah, so going with the assumptions Ryan was just talking through, like we’re gonna assume you’ve got some level of life insurance. So, I think the big factors, really, whether you’re mid-career or any point in your career, are your spending level, like how much do you need or want really to live on per year?
Like how much do you need to kind of sustain the life that you’re living? So we call that cash flow. So their cash flow is number one, and then your net worth, so assets and liabilities. So how much assets do you currently have, and what debts do you currently owe? And then the timeline is also of importance as well.
And so basically if any of those have changed from the time you got the life insurance till now, then your need has changed. So hopefully you did the analysis, and it took into consideration all those factors on the front end. So like I’ll go with that assumption that you did it and considered all those factors, and let’s just say you need two million dollars or whatever it is.
The problem is all those factors are always changing, in reality, and so therefore your need is gonna be changing.
Ryan Inman: Yeah, obviously when you put the policies in place, maybe as a resident, you were looking at your future attending income with some assumptions. “Oh, I am in anesthesia, I’ll probably make 350 to 400 therefore, I’m gonna put this in place.”
Well, it might turn out that you’re making 550, right? And so you’ve maybe had additional savings that you’ve had, or maybe you came out and you worked for a smaller community operation and you’re making 300, and so maybe your assets haven’t appreciated. There was a lot of assumptions that went in when you first bought those policies, that, you can’t predict the future perfectly.
But now if you’re, let’s say, Daniel, again, for the sake of the conversation, we can bounce around some different scenarios, but for this scenario, they’re 45, they’ve been working a little over a decade as a physician. They’re trying to figure out, well, how did my needs change?
Maybe what goes into like high level, we don’t, can’t get into the actual nitty-gritty of this stuff, but like high level, like how do they determine what that calculation will look like today if they were gonna go get new policies, right? What does that look like?
Daniel Wrenne: Yeah. So you mentioned income. And income is interesting because you gave the scenario of like increasing income.
What’s really interesting about increasing income is it can actually put you in a position where you need less life insurance or it can put you in a position where you need more. Because what the question is how much of that income increase are you spending or is going to lifestyle? Because if all of it is going to savings, that’s actually putting you in a better spot to probably need less life insurance, versus if you’re spending it all, that’s putting you in a higher lifestyle, which more than likely means you need more life insurance.
So really what it comes down to is what is that lifestyle like? Let’s just say, the annual amount you need to live, and you gotta look at that first. And then there’s like the spousal income. So the analysis, like the analysis you run, is like survivor income analysis is what we call it.
So it’s if you, so you start, with me and my wife’s Allison. So you do, you run the scenario. If we’re running the scenario, Daniel passes away. You’re like, okay, Allison’s the surviving spouse. What’s her income? Because that’s a factor. In my situation, my wife stays at home, so the income is zero, so that’s simple.
Then the question is, what is the annual need, like I was talking about a minute ago? So, say it’s $250,000 a year, and this is like the annual amount you need to keep all the plan going basically. And so if you’re using—I’m just gonna super oversimplify this, but if you’re using like a, the 4% rule kind of thing, let’s just say how much cash or wealth would you need today to basically fund $250,000 forever?
And that would be like 6.25 million if we’re using the 4% rule. So 6.25 million, that’s probably a good like really rough estimate. So I know in that same example, if me and my wife have 6.25 million of assets that are available to kind of keep the lifestyle going, we’re actually good. But if I have only a million of assets, then that’s where you start to get into what the life insurance need is.
So maybe you need 5.25 million, ’cause that essentially all that the life insurance is doing is it’s like supercharging your wealth so that you’re immediately financially independent, or you’re financially independent enough to, if the spouse is still gonna work, financially independent enough to kind of supplement their income to kind of keep things the same.
Ryan Inman: Yeah. And so sometimes advisors talk about laddering policies. Meaning if I needed that six million of coverage at the time, but you think ahead and you say, “Well, we’re gonna be saving, we’re gonna have increased assets,” right? We’re doing some of the right things. Right. Our spending’s not gonna balloon and go out of control like maybe a lot of your peers are doing.
Right? Hopefully you’re not doing that. And so you maybe only need six million of coverage for your first 10 or 15 years, right? And then maybe the calculation says, “Well, maybe then we only need four million of coverage for the remainder,” right? Or maybe we only need two million of coverage after 20 years, right?
Every… Again, everyone’s different, and so one strategy that physicians can employ is this laddering, and so if someone had done that when they were in residency and thought through this, some of those policies are potentially lapsing now, right? Right. As they’re kind of, or at least starting to get really close to lapsing.
Yeah. Which is interesting. But that’s how the plan is supposed to work. If they didn’t have those, do they have options if say, they bought 6 million of coverage for 30 years, that’s one policy and it’s just a big policy do they have options to look at? Should they reduce benefits?
Should they look at maybe different policies?
Daniel Wrenne: Yeah, you can… Well, you can, let’s just say you rerun the numbers in it. It’s y- you only need $3 million, then you can request a reduction in coverage and reduce your policy and so that’s pretty straightforward. And that’s easy to do.
Or you, if you’re still in good health, you can reapply and restructure. So maybe the 30-year policy, I guess if it’s been 10 years, you got 20 years left on it. Maybe it’s gonna be better to have, do a ladder thing and have a 10-year policy and a 20-year policy with half of it, so that’s gonna reduce your cost quite a bit.
And so maybe it makes sense to just reapply and get a new policy. Or in reality what I see happening is it’s really difficult to see, I mean, impossible to predict the future, so a lot of times we make all these plans for 20 years and we’re like, “Well, let’s predict the future for the next 20 years,” and then it’s say they do the ladder thing, or whatever they do, it’s a lot of assumptions.
And 10 years go by, and all of—not all of them—a lot of them are wrong. Maybe they’re not dramatically wrong, but they’re wrong. And so a lot of times you just kind of have to do a new plan, it’s let’s start from scratch and see what the need is, and then redraw the plan. And then based on what that says, it’s maybe you get a new policy, maybe you adjust what you have.
There’s typically lots of options.
Ryan Inman: And that’s the one of the common misconceptions just as a financial planner, right? That people think that we do is, “Oh, you put the plan together, and then it’s etched in stone and never changes.” And it’s no, this plan can change in 30 days. It can change in three months or a year, but the plans do change, right?
We forecast with probabilities of things happening and try to put goal planning together. But, I mean, think back 10 years ago, just yourself. What were your hobbies? What did you do? What were your goals then? It’s probably a lot different than it is now, right?
Daniel Wrenne: Yeah. Dramatically.
Ryan Inman: So, and then, kids change that, also dynamic dramatically.
If you didn’t have kids 10 years ago and you did your planning, then you’ve got kids now, like your beneficiaries, th- there’s more need, right? And so if you’re listening to this and happen to be an early career physician, and you maybe don’t have a significant other yet, but you plan on finding a spouse and having kids, you’re probably your healthiest you are now.
And it might be beneficial to put some of this stuff in place knowing that’s what your plan is. Again, plans can change. But I think all of that is just kind of surrounding basically what you were saying, that you do the best you can with the plan and the options that you have available at the time, but things do change, right?
Daniel Wrenne: Inevitably.
Ryan Inman: I wanna talk about one piece that, unfortunately, I saw quite a bit of, was that sometimes as a resident, you’re really kind of at your most vulnerable state financially, right? You’re not making a lot. You got a ton in debt. You’re just trying to figure it all out. You probably had very little financial education, and a slick salesman, gets you and says, “Hey, put on these type of policies.”
And maybe you bought a permanent policy, and now you’re reevaluating as a mid-career physician. How do they even tackle this? Do they wanna keep it? Should they keep it? How would you at least have that high-level preliminary conversation with a physician and kind of explain what that permanent policy is?
AD BREAK
Daniel Wrenne: Let’s take a quick break to talk about our firm, Wrenne Financial Planning.
The goal of our podcast is to empower you to make better financial decisions, but sometimes the best financial decision you can make is to work with someone who understands your financial goals and has the expertise to keep you on track to reach them. That’s where Wrenne Financial Planning comes in. We are a full-service financial planning firm that works with over 400 physicians and their families across the country.
We charge a transparent monthly flat fee for our services and offer virtual meetings you can take from anywhere. Best of all, you’ll get to work with a team that specializes in working with physician families. So whether you’re starting out and wondering how you’ll balance your student loan payments and saving for a home, or you are established physician trying to figure out how to pay for your kids’ college and how much you need to save to reach financial freedom, we can help.
I’ll put a link in the show notes to schedule a no-obligation meeting with one of our certified financial planners. Wrenne Financial Planning, LLC is a registered investment advisor. For more information about our firm, please visit wrennefinancial.com. That’s W-R-E-N-N-E financial.com.
AD BREAK END
Daniel Wrenne: Some people are gonna say always cancel it and get rid of it, and some people are gonna say always keep it. So I’m not gonna say either one. Most of the time, it’s best to get rid of it, but you have to be careful with getting rid of it too, because I’ll just give you an extreme example.
Let’s say you have pretty serious medical condition that you’ve developed after you got it, and it decreases your life expectancy dramatically. In that case, more than likely, it would be absolutely a terrible idea to get rid of it, even if it’s permanent life insurance and really expensive and high-cost, whatever.
And there’s a lot of different things in between where it might make sense to keep some of it. So say you’ve had it for a really long time and it’s with a really, one of the better companies. So the costs tend to go down on those things, and they tend to look a little better the longer that you have them.
And so, those examples are probably in my experience working with families let’s just say five percent or less of… are in that group where it’s a good idea to maybe keep some or all of it. And you don’t have to keep… That’s the other thing. It’s not an all or a none decision. You can choose to keep a little bit or a lot of it or all of it or none of it.
And so, anyway, I would say five percent is in that camp of let’s maybe preserve some of it. And then probably the 95% is let’s make sure you can get new coverage, and then get the new coverage, which is term, and then take the difference in cost savings and put it into investments that are ideally, they’re tax-sheltered, but even if they’re not, it’s still better.
Ryan Inman: Yeah. You mentioned, so term insurance, what we were referring to before is active for a term a set period of time.
Daniel Wrenne: Yeah.
Ryan Inman: Whereas whole life, just like the name, it’s permanent insurance, but it’s coverage for your whole life. So just super high level on that just so there wasn’t any confusion.
Daniel Wrenne: And what’s interesting. I’ve said this a bunch of times, but if permanent life insurance didn’t have so much hidden commissions in it, it actually would be a pretty good vehicle.
Ryan Inman: Problem is all the fees and commissions.
Daniel Wrenne: The problem is all the fees and commissions that are, like, embedded in it, and you cannot get rid of.
And so maybe at some point, one of these companies figure out a way to do a no-load permanent life insurance policy, and that will change things potentially on this. But that hasn’t happened yet.
Ryan Inman: Yeah, and I’m not hopeful on that.
Daniel Wrenne: Yeah.
Ryan Inman: You’re basically asking them to take a haircut on their revenue, and that’s the hard one.
Daniel Wrenne: Yeah.
Ryan Inman: Right. So you mentioned that your wife is a stay-at-home spouse, and so if a physician, let’s say, had a working spouse, and now the spouse is deciding they’re gonna retire, and, in the next couple years, that is gonna dramatically change maybe the income, which then changes the savings rate, maybe changes the amount that they’re spending.
But, if that’s the case, like, how would you have those conversations or discussions around how that calculation might change?
Daniel Wrenne: Yeah, assuming you’re not already financially independent, that’s gonna have typically a dramatic effect on things like life insurance need just because it’s like you’re turning off a big part of the spigot permanently.
Now, this is assuming you are counting on the spouse’s income continuing in the survivor income scenario. So I keep saying survivor income scenario. That’s like the survivor income analysis is what you do to kind of calculate the life insurance needs. So everybody’s gonna have a little bit of a different preference on what that looks like.
So, in the event that you were counting on your spouse’s income continuing in the survivor income analysis when you originally did it, hopefully, if that’s true, and then now it’s stopped, then that dramatically is gonna affect that analysis because the analysis counted on the spouse’s income continuing.
And so when you pull that out of the analysis, it’s “Well, we got a shortfall here,” so it’s gonna increase the amount of need for life insurance typically.
Ryan Inman: Yeah, meaning you might have to go get another policy assuming that you’re healthy and can actually qualify for that policy.
Daniel Wrenne: Right. Yeah, and good thing about term is it’s typically pretty inexpensive, so it’s not. I’m actually applying for term life insurance right now, funny enough. And it’s just not super expensive, which is nice.
Ryan Inman: Yeah, and it’s pretty painless and easy to do, right? You apply, you get your quotes.
They sometimes now are sending people out to your home to do the blood work and urine sample, and then they kind of handle it all and sign the e-sign document, and boom, you’re done, right? Make sure you set up auto pay and don’t forget it to do that part. You got to pay for it.
Daniel Wrenne: When I used to sell it, it was not quite that easy. It was painful, actually, and it’s gotten a lot easier these days.
Ryan Inman: Yep. Yep. If we were to kind of ask you what’s the most kind of common issue with life insurance for a mid-career physician, what would that look like?
Daniel Wrenne: I would say without a doubt it’s set it and forget it. It’s so common, with life insurance especially, and really with a lot of things.
You kind of hit on it with the planning. Like people do it with their planning, they tend to be like, “Oh, I’ve done my plan, and now I’m good.” But that plan had so many assumptions, and the only way it’s gonna be continuing to be good is if all those assumptions stay static, which they never do.
And so the same is true with life insurance. People tend to be like, “I did my life insurance. I did an analysis, or somebody did a thorough analysis for me, and we made the plan, and so I’m good to go.” And then a lot of times people never revisit it until… And they just don’t ever, and they, the policy lap.
Eventually, the 30 years are up, and they’re good, and they make it through. But ideally, the problem is if something happens along the way unexpectedly, somebody passes away. And that’s where that’s where I kinda feel like I’m the financial planner role. The accountability, like I wanna make sure I don’t have to have an uncomfortable conversation with the spouse, that’s like my worst nightmare, where I’m like, “We’re gonna have to cut,” or, “The plan’s not gonna be the same.” While at the same time they’re like super grieving about their loss. So to avoid that, even that risk of that situation happening, is you have to revisit it.
Instead of set it and forget it, you gotta revisit it over time. I don’t think it’s like a once a year kinda thing, but like we tend to, like with our planning clients, we tend to look at it every two to three years. Or if life circumstances have… big life circumstance changes. I think that’s a good frequency.
Ryan Inman: Yeah. Anytime a big decision has occurred or a big change has occurred is a good time to just quickly reevaluate what that is. I looked at it at net worth goals. So as your net worth hits a million or two million or three million, like probably a good time to look at your whole plan, right? Make sure your goals are being met, and that the goals are the same thing.
Insurance is being met, right? I have one more question for you before you close this out here.
Daniel Wrenne: All right.
Ryan Inman: ‘Cause I’ve heard this a lot. “Well, I’m close to being independent. I don’t necessarily need insurance right now, but I wanna keep it so my kids get a boatload of money if something happens to me.”
Would you recommend that strategy? Do you like that strategy? Or would you say, “Nah, save the premium and invest it or spend it or do whatever”? I’m gonna leave it open-ended for you to close that out.
Daniel Wrenne: That’s an interesting one. I’m not gonna push back too much on somebody… My philosophy on insurance is I’m gonna tell you what you need to have, but you might have a different preference on what you wanna have, and that’s all good.
So, I think in that case you definitely don’t—If you’re financially independent, you definitely don’t need life insurance. When you’re financially independent, the definition of it is that you don’t need life insurance ’cause you have enough wealth to live, even if things go south and income stops.
But some people still want to have it or choose to have insurances, and I’m not gonna argue with people’s priorities or values and it’s all good. So, if that’s important to you, it’s all good. The thing I would push back on maybe is that’s a temporary plan for what sounds like a permanent desire maybe or maybe it’s not a…
It’s kind of a strange desire to have temporarily. You know what I’m saying? It’s term life insu—assuming they have term life insurance. So if maybe the desire is just to have it, them have a lot of wealth or have a inheritance if something happens to me in the short term, and that’s perfect.
But if you truly wanna pass an inheritance to your children, you need to kinda have, also be thinking about, like, how do I actually build up wealth in case I outlive the policy?
Ryan Inman: Yeah, I always, I mean, I always say insurance is insurance, investments are investments. Don’t mix the two, right? So this is not the way that you invest.
You need to do other things. But a couple little tidbits, and I’ll let you close it out here, is if there’s a couple years left on the policy, I typically would just say no, just keep it. You never know what the market could do. You never know what the job situation could do.
Physicians found out in 2020 that not all the time their income is actually protected. They thought it was indestructible, and it wasn’t. So things come and go. Things change. So if it’s got a couple years, it’s one thing. If it’s got 15 years left It, it becomes a different conversation in that.
Not that I would say it’s bad to keep it, or it’s a must-have to keep. It’s going to be a very specific conversation with that person on what’s the next piece of this? Are you keeping it for peace of mind?
Sometimes you can’t beat that for like we talked about, term insurance is pretty cheap.
100 bucks a month, 50 bucks a month. If that gives you peace of mind, that’s well worth it, right?
Daniel Wrenne: Yeah. There’s also the type of term life insurance. So level term is the cheapest in the back end. The last few years are very inexpensive. But there’s other types of term that’s age-based, so it gets more expensive every year, and, totally different situation.
So, anyway. You get me going on life insurance, I can go a while.
Ryan Inman: I didn’t even make you go down the full permanent route either.
Daniel Wrenne: I know. We gotta save that for another day.
Ryan Inman: We’ll save it.
Daniel Wrenne: Lots of directions we could take it, but anyway. Ryan, thanks for coming on. I guess this is my last show, which is kinda weird to say.
So, for those of you guys that are joining us, I appreciate you coming on and listening, and being a loyal listener. It’s been an honor for me, and hopefully it’s not the last time we meet. I know Ryan and I will be hanging out at the Financial Fellowship show on Wednesday, so make sure to go check that out.
We’ll be doing the same sort of thing. So more to come on that.
No guests or clients appearing on the podcast received any form of compensation for their appearance and obtained no other benefit from us. It should not be assumed that every client has had the same experience.
