Life insurance can be a valuable part of a young lawyer's financial life. While useful for some lawyers, other lawyers may not need it now or ever. Life insurance can broadly be broken up into two types of policies: Term and Permanent. Generally young lawyers need life insurance when they have people depending on them for income.
I write this post as a fee-only financial planner. I intentionally do not accept commissions or fees on life insurance purchases, so I can inform and educate young lawyers on the pros and cons of life insurance without a financial incentive.
What is Life Insurance?
Life insurance is a policy that offers a payout if you die while the policy is in force. Since you have passed away when the policy pays out, life insurance is not about you — it's about the people who depend on your income. If you don't have anyone relying on your current or future income, there may not be a significant need for a policy.
Types of Life Insurance
Permanent Life Insurance
Permanent life insurance (whole, universal, variable, indexed universal) stays in effect for life as long as you pay premiums, and it can accumulate cash value in a tax-deferred way. Young lawyers rarely need it — the combination of insurance and investment tends to cost more in premiums or lower growth than buying protection and investing separately.
Term Life Insurance
Term life insurance is simpler: a death benefit, a premium, and a fixed coverage period (10-40 years). Since it isn't guaranteed to pay out, premiums are often 5-15 times cheaper than permanent insurance, and lawyers can put the savings toward investing instead.
When Do Young Lawyers Need Life Insurance?
- When you have kids who depend on your income.
- When one spouse relies on the other's income.
- When you have large debt, such as a mortgage, that would burden your heirs.
- If you are a partner at a firm, where partners often insure each other to fund buy-sell agreements.
How Much Life Insurance Do I Need?
There's no exact formula. Common rules of thumb include 10x your annual income, your salary multiplied by years to retirement, or the sum of your debts, income replacement needs, and children's education costs. Compare a few approaches and choose an amount you feel comfortable with.
Where Can I Buy Life Insurance?
Directly from an insurer, through a broker or agent, online, or through your employer's benefits. Be aware that employer-provided life insurance is often not portable if you leave your firm.
Final Takeaways
Before purchasing life insurance, understand your options, compare costs and coverage, and work with a fee-only financial professional who has no incentive to sell you a policy.
Have questions of your own?
I’m not taking new ongoing clients right now, but I’m still glad to offer a free 30-minute Meet & Confer — to answer your questions, add you to the waitlist, or point you toward another advisor.