Using Your Insurance
Flexible Insurance Gives Dentist Options
When Byron Beard, DMD, exchanged his term life insurance for a universal life policy 10 years ago, he was attracted by the ability to combine life insurance protection with an investment account where his money could grow tax-deferred. "I saw it as a conservative way to save because the plan offered a guaranteed minimum return, compounded daily," he recalls.
"Initially, I put a lot of money into the plan, sometimes up to the maximum amount allowed by the IRS," Dr. Beard says. "Then in the past 6 years, I have not funded it at all."
PROTECTION PLUS MORE
During those 6 years, the cash value in Dr. Beard’s universal life policy was more than enough to pay for the monthly cost of the insurance (the same as equivalent term life coverage) plus a $4.10 monthly administrative fee. In fact, his account balance has grown to the point where he has several options going forward:
- Keep funding the plan. To continue growing his account, Dr. Beard can make deposits up to age 90, when he can either surrender the policy for its cash value or exchange it for permanent paid-up life insurance. As long as he keeps the policy in force, he will never have to reapply or requalify medically.
- Use the cash value. Dr. Beard also has the option of withdrawing funds from the policy’s cash value or borrowing against it. "I may use some of the cash value to help pay for my share of a joint venture with five professionals in Pueblo West, Colorado, to construct a new building for our practices," he explains. Under current tax law, Dr. Beard will not be taxed on the amount withdrawn from his universal life policy unless it exceeds what he has paid into the plan. However, the decision to withdraw cash value vs borrowing against it can have different effects on the policy’s death benefit.
- Do nothing. Because Dr. Beard heavily funded his universal life account in the early years, sufficient cash value exists to keep his insurance paid up until he is in his 70s, even if he does not make future contributions. "By that time, I may decide that I do not need life insurance any longer," the 54-year-old dentist says. In contrast, if Dr. Beard had underfunded the plan, his insurance coverage could have lapsed.
- Exchange the policy for paid-up insurance. Dr. Beard also has enough cash value in his universal life policy now to immediately convert it to a reduced paid-up permanent policy.
To help evaluate his options, Dr. Beard relies on his attorney, accountant, and insurance specialist. "My insurance is sponsored by the American Dental Association and administered by Great-West Life & Annuity Insurance Company," Dr. Beard says. "I have worked with Kerry Schmidt at Great-West Life for the past 10 years. Whenever I call, Kerry is great at explaining my options and providing me with illustrations so I can make an informed decision."
Schmidt adds, "Dentists can go in several directions with universal life depending on their needs, because it is not a cookie-cutter product. I see my role as helping dentists see different perspectives on what their insurance can do for them."
Dr. Beard agrees. "Kerry has helped me understand that I can continue to protect my family with my insurance and, at the same time, use some of the cash value to help pay for the new building," he says.
CONCLUSION
"The past 10 years have given me the opportunity to witness firsthand the power of compounding as I have watched the cash value grow in my universal life policy," Dr. Beard concludes. "If I could pass along any advice to other dentists when it comes to universal life policies, it would be start early and fund heavily."
Editor’s note:
Dr. Beard’s statements were obtained by Great-West Life & Annuity Insurance Company, relative to his coverage under Group Policy #104GUL, and reprinted with permission. For more information, visit www.insurance.ada.org, or call 888-463-4545. This article does not constitute legal, tax, or financial advice; please seek professional input as appropriate to your situation.
