Category Archives: Insurance and Risk Management

As you have likely heard in the news, credit reporting agency Equifax announced that hackers had potentially gained access to sensitive information for 143 million consumers, including Social Security numbers and driver’s license numbers. Sadly this is just the latest major breach to make headlines, as Target, Home Depot and Yahoo! have also seen their customers’ personal information exposed just to name a few recent examples.¹

With cyber attacks becoming increasingly common with each passing year, it’s only human nature to react to these stories with a general sense of apathy. However, that would be a mistake. If anything, these incidents serve as a powerful reminder that we all need to be diligent with protecting our personal information. Whether you’re already a victim or just trying to avoid becoming one, the following tips have proven to be effective measures for boosting cybersecurity.

Recovering Your Identity and Limiting the Damage

In response to their breach, Equifax is offering complimentary identity theft protection and credit file monitoring. While this is hardly a comprehensive solution, this can at least help prevent fraudulent activity and notify you in real-time if it does occur. You can learn if your sensitive information is at risk and enroll by going here: https://www.equifaxsecurity2017.com

If you’re already seeing suspicious activity with any of your accounts, it’s important to act quickly. Follow these steps to alert the proper authorities that your identity has been stolen:

• Call your credit card companies immediately. Explain what happened, and ask where to send a copy of the police report.
• File a police report and make several copies
• Complete a Federal Trade Commission (FTC) Theft Affidavit and FTC report (call 1-887-ID-THEFT to request the forms).
• Call your bank. They can place an alert on your Driver’s License number and Social Security Number, and freeze your account.
• Call the fraud units of the three credit report agencies (Experian, Equifax and Transunion)

One final measure that can be effective in protecting your identity and preventing anyone from opening new accounts in your name is to place a “freeze” on your credit file with all 3 credit bureaus. Doing this prevents businesses from issuing any new credit in your name unless you’ve contacted the bureaus to authorize the release of your information. The primary downside is you may be required to pay a $5-10 fee each time you either place or remove the freeze with one of the bureaus. Equifax is currently waiving all fees for the next few months, but the other 2 bureaus are not.

Taking a Proactive Approach to Cybersecurity

While there’s nothing you can do to completely eliminate the risk of identity theft, there are some steps you can take to make it prohibitively difficult for criminals. This includes using two-factor authentication with banking and social media sites whenever possible. It’s also recommended that you change passwords frequently and avoid using the same password across multiple websites. Furthermore, you should avoid entering any sensitive information into Websites that do not encrypt your connection.

Another vigilant approach is to continuously monitor your accounts and bank statements for any suspicious activity. While credit monitoring services can alert you of any potential red flags, reviewing your purchases is more effective for quickly identifying fraudulent activity. And as a positive by-product, you can also become more aware of where your money goes each month and confirm your current budget is compatible with your long-term goals.

Finally, many homeowners are unaware that you can add an identity theft protection coverage endorsement to your existing home insurance policy. This coverage reimburses certain expenses associated with identity recovery and restoration such as stolen funds, lost wages and attorney fees. This is usually less expensive than a credit monitoring service, although it’s meant to compensate you after the fact and does nothing to proactively curb the threat of identity theft.

The Bottom Line

Breaches have become the norm as organizations have out of date systems that leave information vulnerable. Traditional defenses that worked in the past, such as firewalls and antivirus software, can now be exploited by hackers for potential security holes and entry points. Given the sheer number of recent data breaches, it’s likely that your personal information could already be at risk.

The best way to exercise caution is to continuously keep an eye on your credit. Consumers are allowed one free credit report from each of the credit reporting agencies every year. Be sure to take advantage of this law by regularly checking your credit reports for any discrepancies.

Have Questions?

References:

1. Josh Keller, K.K. Rebecca Lai, Nicole Perlroth “How Many Times Has Your Personal Information Been Exposed to Hackers?” (September 2017). https://www.nytimes.com/interactive/2015/07/29/technology/personaltech/what-parts-of-your-information-have-been-exposed-to-hackers-quiz.html

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

In today’s increasingly litigious society, asset protection is an area of wealth management that affluent physicians cannot afford to ignore. Inadequate liability insurance is perhaps the most common oversight that could cause a doctor’s assets to be vulnerable in the face of legal action. The most common example is a simple car accident; if you are found to be at-fault in a liability lawsuit, and the jury award exceeds your policy limits, you could be required to pay for the damages out of your current assets, or even future income. A carefully drafted risk management plan for your personal and professional life will help protect your investments and future earnings.

In the insurance world, a line is drawn between your professional, and personal pursuits/assets and this article addresses protecting your ‘personal’ assets through high levels of liability coverage. You can purchase higher liability coverage in two ways, either by raising the limits on each of your individual policies, or, by purchasing a separate policy called an “umbrella” or “excess liability” policy that will top off all of the underlying policies at one time. An umbrella or excess liability policy is the most cost-effective method for protecting current assets, as well as future earning potential. There is a difference between an ‘umbrella’ and an ‘excess liability’ policy, so be sure to talk through this with your insurance consultant.

How Does it Work?

A personal umbrella/excess liability policy coordinates with your homeowner/renter and auto policies to provide liability protection above (excess liability) and sometimes beyond (umbrella) the coverage offered by your other policies. For example, the $250,000 of per person bodily injury liability coverage on an auto insurance policy is probably not enough coverage if you or one of your vehicles causes an accident that seriously injures another person. Therefore, you would be personally liable for damages that exceed these policy limits.¹

Auto accidents aren’t the only mishaps that would fall under the protection of a personal umbrella policy. Your property’s “personal liability” coverage comes into play for incidents that occur not only on your property, but throughout your personal life such as on the golf course or accidentally bumping into a fragile senior citizen at the grocery store. Lately, there has been an increase in claims due to kids posting on social media and pets that believe they are defending their home.²

When purchasing umbrella insurance, you’ll often be required to have certain minimum liability limits on both home and auto insurance and it is recommended to have as many policies as possible with the same carrier in order to coordinate claims coverage. It’s extremely important to understand the limits of what your umbrella actually covers and for how much so you can take proactive measures to organize your assets so that any exposure is limited to the scope of the policy. These limits will be very clearly defined by the insurance company.³

Why is it Necessary?

Even if you have a pristine driving record, accidents can and probably will happen at some point no matter how cautious you are. In fact, approximately 15,000 traffic accidents occur each and every day.⁴ Seven-figure lawsuits stemming from auto accidents are not uncommon as even one day in an ICU can reach up to $100,000 in extreme cases. Such a verdict could severely hamper your long-term financial planning.

Umbrella and Excess Liability policies can help pay court costs and awards, up to the limit stated in your policy documents and you often purchase these policies in increments of one million. When you consider an additional $1 million of liability coverage can cost less than $20 a month, purchasing an umbrella policy is an economically-responsible decision especially for families with significant assets or future earning potential.⁵

You’ve invested far too much time and resources in your career in medicine only to see it jeopardized due to an unfortunate tragedy involving you or your family. Implementing an asset protection plan that legally separates your personal and professional assets will ensure that everything is not fair game in the event of a liability. But this must be done on a proactive basis with the assistance of qualified legal counsel, as asset protection laws and case history vary widely from state to state.

References:

1. Bruce Sackrison, “Do You or Your Business Need an Umbrella (Policy)?” Napa Valley Register (May 2017). http://napavalleyregister.com/business/do-you-or-your-business-need-an-umbrella-policy/article_d25bdb2d-3de5-5a1e-839b-5a7ca79637a1.html
2. Gina Roberts-Grey, “How an Umbrella Policy Could Save You From Financial Ruin” Realtor.com (May 2016). http://www.realtor.com/advice/buy/umbrella-insurance/
3. Ike Devji, JD, “Liability Insurance Umbrella Policies Vital for Physicians” Physicians Practice (October 2013). http://www.physicianspractice.com/blog/liability-insurance-umbrella-policies-vital-physicians
4. Andy Glasgow, “Kelly Insurance Emphasizes the Value of Umbrella Insurance” Digital Journal (August 2017). http://www.digitaljournal.com/pr/3439905
5. Becky Rapse, “For Added Protection, Buy an Umbrella (Policy, that is)” Cleveland Jewish News (July 2017). http://www.clevelandjewishnews.com/features/business/for-added-protection-buy-an-umbrella-policy-that-is/article_e613b30c-7141-11e7-9159-d78527f83e77.html

Have Questions?

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

Insurance services offered through Larson Financial Group, LLC, an insurance agency.

One of the unfortunate realities of practicing medicine is that most doctors will be the target of a lawsuit at some point during their career. In fact, a study published by the New England Journal of Medicine found that a staggering 99% of physicians in high-risk specialties will be sued by the age of 65.¹ Medical malpractice insurance is essential and, depending on specialty and geographic location, can be one of the more substantial costs associated with operating a medical practice.

One alternative risk strategy available to medical groups is to form a captive insurance company. Through this process, the medical group(s) establishes its own insurance company to provide medical malpractice insurance. For certain specialties in high-risk states, this can be a very cost-effective solution. It can reduce malpractice premiums drastically while protecting some of the practice’s assets at the same time.

What is a Captive Insurance Company?

Captive insurance companies (CICs) are properly registered and capitalized insurance companies owned by one or more individuals. Their sole purpose is insuring the company that owns it, hence the name captive. They are subject to all the regulations and reporting requirements of the state they are formed in, and therefore must be run with a high degree of compliance and disclosure.² However, it’s important not to confuse CICs with Risk Retention Groups (RRGs), which are held to an even greater degree of oversight and scrutiny.

Doctors have very high insurance premiums. Instead of paying these coverage premiums to a private insurer with built-in company costs such as overhead, commissions, advertising, etc., you could pay these premiums into a company that you own with the flexibility to either reserve or re-invest those premiums in a tax-advantaged way for the profit of the insurance company. Essentially you’re turning an expense into an asset.³

You’ll still want to purchase medical malpractice insurance from a commercial carrier, albeit one that offers high-deductible plans with substantial discounts. Your CIC exists to insure the deductible of that policy. The ultimate goal is to be properly insured while maintaining control of premiums as much as possible. In some cases, captives are used to provide supplemental coverage on risks not covered in traditional liability policies such as data breach or employee lawsuits.²

Potential Benefits of CICs

Captive insurance can help stabilize risk management costs by insuring risks that are currently uninsurable or insurable only at a prohibitive cost. It allows you the flexibility to determine premiums based on the group’s loss experience instead of the experience of a comparable peer group where loss ratios could be much higher.⁴

If you’re able to manage and avoid risks while limiting your claim history, you may soon find yourself sitting on a surplus of reserve funds that are asset protected. Early on, you’ll want to keep this money very liquid in case a claim needs to be paid. As time goes by, you can put these surplus funds to work with an investment strategy that fits your group’s goals and objectives.

If you’re lucky enough to avoid any claims before retiring from your career in medicine, you can use this money as a supplemental retirement income. Not only will you be improving the practice’s bottom line by reducing insurance expenses, but there are potential tax advantages as well if you follow proper guidelines. In addition to deducting the premiums as an expense to your business, any future distribution of profits from the captive you own would be taxed at the more favorable capital gains rate. Taxation should not be the primary justification for the creation of a captive insurance arrangement, and realizing these benefits requires the management of specialized tax and legal counsel.⁵

Potential Risks of CICs

A captive insurance arrangement is not an ideal fit for every medical practice. Generally speaking, a practice would need to generate a gross operating income of at least $300,000 per year in order to justify the cost of establishing and maintaining a CIC. However, if your practice has several benefit-eligible employees and a high profit margin, it could be a prudent move to explore the viability of adding a captive.

Founding a CIC is a complex financial undertaking, and the fees to create a formal insurance mechanism can be hefty. It should not be undertaken without a competent team of professionals in the legal, tax and actuarial disciplines with extensive experience in this type of insurance. Importantly, these experts must take the time to integrate the captive into both the existing business structure and into the owners’ personal financial goals. The cost may be $50,000-$100,000 to create the CIC and $40,000-$80,000 annually to maintain it.⁵ It will also require the buy-in and contributions of your partners and other key stakeholders in the practice to be economically viable.

If used appropriately, many physicians and physician-owned practices can benefit from implementing this unique financial solution. Besides shifting risks from the practice partners onto the CIC, all assets in contained within the CIC carry the maximum rating of protection against creditors. No matter how careful you are, many events can transpire that could financially cripple a medical practice. But if you can successfully avoid these claims, you’ll have reduced the cost of third-party insurance while possibly increasing your liability coverage at the same time.

Have Questions?

References

1. Anupam B. Jena, M.D.,Ph.D., Seth Seabury, Ph.D., Darius Lakdawalla, Ph.D., and Amitabh Chandra, Ph.D. “Malpractice Risk According to Specialty” (August 18, 2011). http://www.nejm.org/doi/full/10.1056/NEJMsa1012370#t=article
2. Ike Devji, JD “A Physician’s Guide to Captive Insurance Companies” (July 17, 2012). http://www.physicianspractice.com/blog/physicians-guide-captive-insurance-companies
3. Erica Sprey “Captive Insurance Can Bring Windfall to Physicians” (July 11, 2016). http://www.diagnosticimaging.com/blog/captive-insurance-can-bring-windfall-physicians
4. Mark E. Battersby “Consider Captive Insurance Plan to Protect Your Practice” (May 25, 2011). http://medicaleconomics.modernmedicine.com/medical-economics/news/modernmedicine/modern-medicine-feature-articles/consider-captive-insurance-pl?page=full
5. John Henry Dreyfuss “Captive Insurance Company Can Help Your Practice Earn More, Keep More, and Maintain Greater Control of Assets” (May 28, 2015). http://www.mdalert.com/article/aptive-insurance-company-can-help-your-practice-earn-more-keep-more-and-maintain-greater-control-of-assets

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC. Medical Malpractice Insurance offered through Larson Financial Brokerage, LLC.

Medical Malpractice Insurance is a complicated issue and cannot be fully covered within the context of this article. This article should not be construed as legal advice. Please contact a qualified attorney and/or insurance carrier with knowledge about your specific needs.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal advice or services. Please consult the appropriate professional regarding your legal needs.

Recent data released by LIMRA, an international association of life insurance financial planning companies, found that 40% of Americans have no life insurance and half of those who do are underinsured¹. This is especially odd considering that life insurance rates are now at all-time lows. In just the past decade, the cost of basic term life insurance has fallen by about 50%.²

Life insurance lessens the financial burdens for surviving family members in the aftermath of an unexpected death by helping cover the cost of final expenses, outstanding debts, planned educational expenses and lost income. Simply put, if you have anyone dependent on you financially, life insurance is basically a necessity. However, it’s easy to feel overwhelmed by the complexity and sheer amount of options available when purchasing life insurance. For doctors currently in residency or fellowship, the time to act is now.

The Right Time to Buy

Many young doctors and dentists stand to earn more than $10-$25 million in income over their working years. Imagine suddenly losing that income stream when a worst case scenario like cancer or a car accident takes away that potential for your family. You can protect against this by acquiring as much inexpensive, convertible term-life insurance as possible.

Term-life insurance is the simplest, least expensive form of life insurance. Term insurance covers you for a set period of time, such as 10 or 20 years during which the premiums remain flat. As your grow older, the cost will increase if you decide to renew the policy for another term. A healthy, non-smoking, 30-something male could pay as little as $500 a year for a 20-year term policy with a million-dollar death benefit.

It can be tempting to eschew the additional cost of life insurance while in training because of your high level of debt and modest income. Besides, life expectancies are longer than they’ve ever been. However, this can be a costly mistake. It’s very likely that you’ll never be younger and healthier than you are today, and one small change in your health can cause a drastic increase to your cost of acquiring new coverage.

Finding the Ideal Fit

Some financial planners say you need insurance to replace seven to 10 years of your salary. If you have young children or significant debt, you should consider bumping up your coverage to replace as much as 15 years of your annual salary. Remember, the sole purpose of life insurance is to replace your income in case you die, so that your dependents can maintain their current lifestyle. So if you make $50,000 during residency, you should shoot for a policy of $500,000 to $750,000.

There are several online tools available that can help give you an idea of how much money you should pay for the policy you need. However, there’s no substitute for the advice of a competent, licensed insurance agent with knowledge of your personal circumstances.

The premiums at a given insurance company are identical whether you apply online, via a toll-free number or with a person. A knowledgeable insurance broker may help you save money by choosing the best carrier for your particular situation. Most companies have a niche where they are most competitive, so you’ll want to obtain quotes from multiple companies to find the best possible fit for your unique circumstances. If you encounter any high-pressure sales tactics, just walk away.

Have Questions?

References

1. http://www.usatoday.com/story/money/personalfinance/2016/09/15/life-insurance-term-whole-policy/89932376/
2. https://www.lifehappens.org/press-releases/consumers-overestimate-cost-of-life-insurance-by-nearly-three-times/

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs. Insurance services offered through Larson Financial Group, LLC, an insurance agency.

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Over the weekend, my husband and I saw Marvel’s latest origin story film, Doctor Strange. Though I went to the movie to be entertained, I couldn’t help but be struck by the unfortunate story of the distinguished neurosurgeon, Dr. Stephen Strange, and the tragic circumstances that led him to become Marvel’s newest superhero.

The Story

Dr. Steven Strange, portrayed by Benedict Cumberbatch, is a renowned neurosurgeon whose entire life is devoted to his work. The camera pans over a case full of countless distinctions bestowed upon Dr. Strange for his research and his clinical work. He lives in a penthouse condo with a stunning city view, has a collection of probably twenty luxury watches and drives a Lamborghini. A colleague comments that he blows through money “as fast as he can make it.”

On his way to give a speech at a society dinner, Dr. Strange is glancing at his tablet while speeding down a winding and narrow mountain road. In an instant, he hits another car head on and is flipped over the side of the mountain. He is trapped inside a twisted ball of metal, bloody and unconscious, when the first responders reach him.

Dr. Strange wakes up in his hospital with his arms suspended by slings. His hands were completely crushed in the accident and had to be restructured with metal rods and pins. Once he heals, his hands shake constantly. He goes through countless experimental surgeries in a desperate attempt to steady his hands, but to no avail. His medical career is over. This is when he crosses paths with “the ancient one” and begins his journey to become an all-powerful sorcerer in the Marvel Universe.

The Lessons

Obviously serious injury is something that can affect anyone, in any career, but as the daughter of a cardiologist and as a financial advisor who has worked with doctors over the last 6 years, I couldn’t help but wonder what would have become of Dr. Strange in the real world. As soon as he “lost” his hands, he had nothing. He had taken the money and the future earning potential for granted.

Doctors should realize disability is a particular risk for them – the skill set and ability that affords them their lifestyle can be taken in an instant. How would they be positioned to recover financially? Thankfully, we can learn from this fictional doctor’s mistakes and take some lessons with us for the real world:

1. 1. Consider purchasing good disability insurance. Specialized physicians should seek coverage that will protect their ability to work in their specialized area of medicine, not just their ability to work any job. Unfortunately, I have also encountered many physicians who believe they have this type of coverage, only to read their contracts and find out they do not. It is worth a second opinion to be sure.

1. 1. Save money early. I have talked to so many physicians that have good intentions to save, but they want to enjoy their hard earned money early on and they push off investing to later in their careers. The earlier you start to save, the easier it will be, and the more flexibility you will give yourself to change paths if life doesn’t play out the way you thought it would. Consider meeting with a financial advisor early in your career to establish a consistent plan for paying yourself first and building your wealth.

1. 1. Plan for the unknown. Many physicians have not put in place powers of attorney, healthcare directives, living wills or any other documents to protect their wishes in the case of an unfortunate event. A good estate planning attorney will not only help you set up a plan in the case of your death, but also in the case of your severe disability or incapacitation.

Have Questions?

Advisory Services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, Member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide tax advice or services. Please consult the appropriate professional regarding your tax planning needs.