32. Insurance for the Professional

There is no hard-and-fast rule as to how much life insurance a professional should own. But there are a number of common sense guidelines.

The average businessperson who has a product to sell has a substantial estate planning edge on the professional whose income comes almost exclusively from fees for personal services. The businessperson who deals
in products knows that after death the business will continue to have considerable value to his or her family--the diminution in value as a result of the owner's death may not be very large. The estate executor might sell the business so that the family will have the proceeds of the sale. Or the business might be continued as before so that there will be a continuance of income for the family.

The same does not hold true when a professional dies. Except for the equipment and furnishings used in the office, a professional practice does not usually have much sale value. The price that can be received is usually minimal in relation to the income the family had enjoyed while the professional practitioner was alive.

A businessperson needs life insurance, if only to make sure that ready cash is available at death to pay death taxes and estate settlement costs. But professionals have been successful with outside investments, so that
there will be some source of outside income for their families. The loss of continuing annual income from a professional practice is not easy to make up. And there is no better way to guard against this loss than by life insurance geared to the professional's earnings.

The professional person also needs life insurance to guarantee a secure retirement. Unlike the business executive, the professional practitioner cannot look to corporate benefits to fill this need. The professional must create his or her own retirement fund.

Generally, a professional begins to earn money later than most business people. Although professionals usually reach their peak quicker, they have a shorter period of time to accumulate funds for retirement. Unless they funnel away large amounts of earnings during peak years, they will not have adequate funds for retirement.

A self-employed professional receives no salary continuation benefits if disabled and incapable of working. When disability strikes, the professional's income-producing ability comes to an end, and so do earnings. Along with a disability income insurance plan, the professional needs a waiver of premium benefit on life insurance contracts.

When there's a professional partnership involved instead of a solo practice, the partners should have a buy-sell agreement funded by life insurance on each of their lives. When one of the partners dies, the proceeds of the policy become available to the other partners who then use the money to purchase the deceased partner's interest in the practice from his or her family.

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