Category Archives: Insurance and Risk Management

Protect Future Earnings with Disability Insurance

Physicians face a dilemma. Their earning potential is high, but time is not on their side to fund a comfortable retirement due to the length of their education and training. Many of their peers in other professions have been paying down debts and accruing savings for several years before the physician even enters practice. For many doctors, their future income and the ability to earn it is their biggest asset. If you become too sick or too hurt to work early in your career, all the sweat equity you invested in becoming a specialist may go to waste. Disability insurance can be an effective means of protecting that earning capacity.

Before you can decide whether you have adequate disability coverage, you need to determine the net monthly income you need to support yourself and your dependents in the event of a disability. It’s preferable to consider the net income instead of gross income because some disability benefits can be taxable. Typically, this happens when the practice takes a tax deduction on the premiums paid. It might be tempting to take that small deduction every year, but it can cause a future tax liability if it is used. Ideally, you pay these premiums on an after-tax basis, and some employers will even allow you to impute the premium as income each year to help ensure your disability benefits remain tax free. It is highly recommended that you or your practice seek the advice of a tax professional familiar with your specific situation before taking action.

It’s also important to note that many mid-to-high earning physician specialists need more than one disability policy to cover 60% of their income. This is due to the coverage limits offered by disability insurance companies. Policy definition, structure and costs are all important items to consider when evaluating your protection needs.

Not All Disability Policies Are Created Equal

The nuances between disability insurance policies is beyond the scope of a single article, but there are some critical items to consider. First, many physicians combine employer and individual coverage. When combining disability policies, it’s essential to exhaust all possibilities for individual coverage before you take on any group coverage. That is because group coverage counts against you when determining the amount of coverage for which you are eligible on an individual policy.

Disability Insurance for Doctors

Secondly, while obtaining the proper amount of coverage is a priority, the strength of that coverage is just as important. In many cases, hospitals and universities offer “any occupation” disability coverage to their employees. These policies state that as long as you are capable of performing even the most menial tasks of employment, you are no longer considered disabled. In order to fully protect your future income, you should seek a rider for “own-occupation, specialty-specific” coverage. By definition, your policy would pay out full disability benefits in the event you can no longer perform your specialty.

Another desirable rider for your policy is known as a “future increase pool” which could also save you a substantial amount of money. Policies with this rider have locked in a set amount of future income protection with no further medical requirements. It usually just requires a short application and proof of earning to execute. An additional important piece in these policies are non-revocable, and guaranteed renewals as long as you pay your premium on time. This means your policy is essentially locked-in so that your premiums remain flat.

Research indicates that nearly a quarter of physicians plan to change jobs in the near future. It’s imperative to make sure that your disability coverage will not be affected by any change of employment. It is a good idea to review your current employment contract to verify whether your disability policy is portable should you move to a new employer. It may help your decision making process.

Preparing for the Future

When using insurance to protect against potential catastrophe, it is best to map out a risk management strategy before any unfortunate circumstances come to light. A proactive approach will put yourself and your family in a better position to prosper financially by limiting your risk exposure.

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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 needs.

Medical Malpractice Insurance Cost

We continue to stress that not knowing the right questions to ask when making financial and legal decisions can lead to unintended consequences. This is especially true in the area of malpractice insurance. Not understanding the various options and intricacies of malpractice insurance can cost you time and money–and cause major problems with your medical credentials.

This is how it often works: One doctor asks another, “Which company do you use?” and he purchases that plan without any further investigation into the important issues surrounding the type of coverage provided. This is great for the insurance company, but not always great for the doctor or dentist. The following sections provide the essential knowledge base for choosing medical and dental malpractice insurance.

Competition Benefits the Physician

When everyone uses the same company, this greatly reduces competition–allowing the company to set rates to their advantage. In fact, in some states, there is very little malpractice insurance competition, so pricing varies greatly from state to state. Understanding competing options by researching them, either on your own or through your financial advisor, can have a significant impact on your medical malpractice insurance cost.

Different Types of Coverage

Doctors and dentists need to understand the difference between “claims-made” and “occurrence-based” coverage. The best way to explain the difference is through a timeline.

Dental Malpractice Insurance

In the timeline above, note that the physician was working with a different practice in 2010, before switching practices at the beginning of 2011. The occurrence happened in September of 2010 while the physician was still at Practice A, but the claim was not made/filed until April of 2011, when the physician had moved to Practice B.

If the physician had occurrence-based coverage while at Practice A, he would still be covered for the event that happened in September 2010, even though he was no longer with that practice. However, if instead the physician only maintained  claims-made coverage while at Practice A, he would not be covered for the September 2010 incident. Instead, he would need tail coverage to pick up where his claims-made policy left off in January of 2011. Understanding this difference, and the type of coverage that you hold, is especially important anytime you consider joining a new practice.

Risk/Retention Groups and Captive Insurance Companies

In response to the non-stop increase in malpractice insurance premiums over the past decade, many physicians are now creating risk/retention groups and captive insurance companies in order to better control costs. Through these structures, the member physician “owns” a portion of the entity. Provided that claims are minimal, the profits of the entity are distributed back to the doctors.

Premiums for risk/retention groups or captive insurance companies are usually substantially lower due to the doctor members’ ownership. This also gives the potential for a tax break to the physicians, provided that the risk/retention group or captive insurance company is well structured.

Practices with more than ten doctors often pay between $200,000 and $250,000 in annual malpractice premiums for the group. Right now OB/GYN doctors are hit especially hard, often paying $50,000-$100,000 in premium each year per physician. In the above example, if ten OB/GYN physicians came together to form a risk/retention group or captive insurance company, they could likely reduce their premiums by half or more. (12)

Questions to Ask

These are questions you ought to know the answers for regarding your medical and dental malpractice insurance:

  • How much coverage do you have, and are the limits commensurate with your state laws?
  • When was the last time you shopped for competitive rates?
  • Do you know what your coverage actually is–and what its limits are?
  • Does your coverage have a “hammer clause”–a statement inside the policy that details the insurance company’s right to settle a claim? In other words, if you get sued, do you have the right to determine if the case is settled, or does the insurance company maintain this right?

Physicians fail to realize until it is too late that many insurance companies prefer to settle claims out of court instead of fighting them. The problem is that a settled claim shows up on your professional record. It is important to make sure that it is your choice whether the case gets settled–and not the insurance company’s, especially if you have no fault in the case.

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(12) Risk retention groups and captive insurance companies have several risks associated with them. Consult with qualified legal and insurance professionals prior to implementing either of these strategies.

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.

Disability Insurance for Doctors

We recently learned a client had been diagnosed with aggressive prostate cancer that has since spread into his bones and other organs. Immediately life was put in perspective for his family. When we met for an update at their home, this client’s primary concern was about his personal disability insurance. He wanted to make sure his family would be okay if he was unable to work for an extended period of time. The doctor has been the sole breadwinner for his family for a number of years, but they are not yet at a point where they are financially independent without insurance.

We quickly reminded the family that they had well-structured disability insurance in place (three policies working together), and that they would be just fine financially no matter the direction this cancer took. This client had set out a clear mandate years earlier when he told us, “My objective is to take care of my family whether I live too long, die too early, or get disabled along the journey.” His courageous outlook, in spite of this traumatic experience, is inspiring–but it also emphasizes the need for every doctor to make sure his or her disability insurance is well thought out.

When it comes to designing a doctor disability insurance program, three important issues work together in determining your best outcome:

  1. How much net income you desire.
  2. The strength of the insurance coverage available.
  3. How to best coordinate individual insurance benefits with group benefits.

Income Protection Desired–After Taxes

Determining the correct amount of net monthly income you desire is the most important factor when evaluating your disability insurance needs. We highlight net because disability benefits are either paid out income-taxable or income tax-free, depending respectively on whether 1) you or your practice took a tax deduction for the premiums paid or 2) if the premiums were not deducted.

Most physicians receive some basic coverage from the practice, group, university, or hospital with whom they are affiliated. This is often equivalent to a percentage of pay (for example 60%) up to a maximum cap–anywhere from $2,500 to $25,000+ per month, depending on the employer.

Physicians should complement their group disability coverage with individually owned disability insurance coverage. The question becomes, “How much additional coverage is appropriate?” The answer is found in the following formula:

Disability Insurance for Physicians

Physician Disability Insurance

The proper amount of coverage is important–but equally important is the strength of the coverage. To simplify this issue, we divide policies into three tiers of available coverage.

Tier 1 “Any Occupation” Coverage

Tier 1 coverage is the weakest form of disability insurance. A Tier 1 plan states that if you can work in any profession, you are no longer disabled. Even though you can no longer work as a physician, if you can answer the telephone, you are no longer disabled because you could work as a receptionist at your office. Many group disability insurance policies provided by a university or hospital start as Tier 2 or Tier 3 coverage, and quickly turn into Tier 1 coverage after two years of disability. As faulty as this coverage is, it is much more prevalent than many physicians and practice managers realize.

Tier 2 “Specialty Specific–Not Working” Coverage

Tier 2 coverage is anecdotally the most common for physicians, but we usually cringe when we encounter specialty physicians who own it. Tier 2 coverage pays a benefit if you cannot work in your specialty, provided that you are also not working in any other capacity. In other words, if you cannot perform surgery, but you can still conduct office visits–and want to continue doing so to maintain your partnership status in the practice– you would no longer be considered disabled. The same would be true if you wanted to teach or move into hospital administration.

Tier 3 “Specialty Specific” Coverage

Tier 3 coverage is what the specialized physician should own whenever possible. Tier 3 coverage has a simple definition that says you are disabled if you cannot perform your specialty. Period! If you cannot perform the duties of your specialty, you are disabled, and should receive full benefits. It does not matter if you work elsewhere, teach, conduct office visits, or move into administration. If you can no longer perform your specialty, you are disabled. The good news is that a properly structured Tier 3 plan frequently has the same cost, or often less, than a Tier 2 plan. (23)

The above details lead to the conclusion that it is very important to make sure you understand which Tier your individual and group disability insurance policy falls into in order to ensure that you have not accidentally acquired Tier 2 coverage.

One of the biggest problems we encounter is that some insurance agents actually masquerade their Tier 2 coverage as Tier 3 coverage. We have an email on file that was forwarded to us from a physician. His insurance agent, from a popular mutual insurance company, was boldly misleading his client about this issue. He was “assuring” the client that his disability coverage was better than anything else on the market, when it was clearly Tier 2 coverage instead of the stronger Tier 3 coverage.

The worst part was that the agent apparently did not even understand the contract for the coverage he was selling, because he misused several terms and described things inaccurately to his client. We put the physician in direct contact with the underwriters from the insurance companies so that he could ask his specific questions. After doing so, the physician immediately opted for the stronger Tier 3 coverage instead of the weaker Tier 2 coverage. It also happened to be less expensive.

Properly Combining Coverage

One final issue, important to many higher-income specialists, is how to properly combine multiple disability insurance policies. For higher income specialties, three policies are often at play that must work hand-in-hand to be structured as efficiently as possible:

  1. Your “base” individually owned policy
  2. Your “secondary” individually owned policy
  3. Your group policy from your practice/employer

The finer details of how to properly combine these three policies are beyond the scope of this article. However, at a basic level, it is important to know that whenever possible, it is essential to put your individual policies (base and secondary) in place before you join your group or take on your group coverage because group coverage counts against you when determining the amount of coverage for which you are eligible. Conversely, individual coverage does not usually count against you when determining the amount of group coverage available.

The good news from a cost standpoint is that disability insurance is a temporary solution. Once your assets are sufficient and can provide for your family on their own merit, disability insurance is among the first a physician can afford to reduce or cancel. Think of it this way, when you are young, your debts are high, and your assets are low, so your need for coverage is likely to be the greatest. As you reduce debt and acquire assets, your need for coverage should continue to decrease.

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(23) Martin, CFP®, Thomas S. Life’s Toughest Battles. St. Louis, MO: Larson Financial Group, LLC, 2008.

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.

5 Ways to Keep Your Car Insurance Bill from Being a Disaster

Auto insurance is a familiar if vexing financial burden for American drivers.

Across the country, annual prices range from $934 in Maine to $2,699 in Louisiana, but one thing auto insurance shoppers have in common is that they can get a price break on their insurance bill.

Financial Advice for Doctors

If, that is, they follow these tips:

  • Be patient—and look around: Don’t pull the trigger on the first deal you get. Auto insurance websites such as FastQuotesDirect.com allow you to check multiple auto insurance quotes at one time. In addition, you can vet individual companies via your state’s insurance department website. Visit USA.gov for a direct link to your state’s insurance commission.
  • Get a group discount: You can get a good deal on car insurance in some offbeat places. Big-box retailers such as Costco offer discounts of 10% or so simply by signing up as a member (through Progressive Insurance, in that case). Or look into an affiliation discount through groups such as AARP, which can offer even deeper discounts for members.
  • Check your mileage: Mileage figures aren’t static. More Americans are working at home or have switched jobs that may lead to a shorter commute from work. In many states, that matters a great deal when it comes to car insurance rates. Check your current insurance policy—look for the number on the policy’s declarations page—and see if your average mileage has been reduced in recent months. If so, let your insurer know right away. It could save you a bundle, as auto insurers base their policy fees on how much you drive.
  • Get vocal about your vehicle’s safety features: Does your car or truck have antilock breaks, vehicle theft protection, and front and side airbags? Insurance companies love these features and will likely offer you a price break for having them. Chances are your insurance agent or your carrier will ask you about such features, but if they don’t, make sure to bring them up—and ask for a discount.
  • Consolidate your insurance: You can’t swing an engine block without seeing media ads for “multi-policy” discounts on auto insurance. Don’t be reluctant to get on board with consolidated insurance—you can save big bucks. Nationwide Insurance, for example, offers discounts of up to 25% for a combined auto, life, and home insurance package. Most insurers offer similar discounts.

Also, always mention your safe driving record when dealing with an auto insurance agent or company. That may lead to your best deal on vehicle insurance.

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Coordinating Group Benefits with Your Overall Financial Plan

Physicians have the responsibility of managing the risks inherent to their profession while protecting their current and future income. Fortunately, most practices and hospitals offer basic insurance and investment options for their employees. Coordinating these employee benefits with the rest of your finances is a crucial component in a sound financial foundation.

Insurance benefits can be a complex issue, but evaluating all the available options can help protect your family in the event of an accident or hardship. Most doctors are dependent on their income or assets to fund their investments and other fiscal endeavors, and seemingly minor setbacks can derail even the most carefully laid plans. However, if set up right initially, insurance plans require little time and effort to maintain.

Physician Disability Insurance Benefits

Prior to enrolling in a disability policy offered by an employer, physicians should take it upon themselves to exhaust all possible options for individual coverage. Holding multiple disability policies is one of the most effective ways to protect future income. Disability benefits provided by an employer are not permanent, and should be considered a supplement to individual coverage.

Disability Insurance for Doctors

A pro-active approach is crucial for protecting insurability down the road because you’ll never be younger and healthier than you are today. The amount of coverage you can obtain will vary depending on your income and specialty. If you are young, healthy and have a good credit score and driving record, insurance can be reasonably affordable if structured correctly.

Insurance is a commodity, but finding the policy that costs the least should not be the primary factor that influences your decision. Instead, your goal should be to find a physicians life insurance company offering the strongest coverage at the best available price. There’s no “one-size-fits-all” answer for determining what kind of coverage is most appropriate for your family. In the end, it comes down to how much income you’ll want to be available in the event that you are no longer able to provide for your family.

Health Insurance Benefits

Unlike disability insurance, there’s no benefit to keeping an individual health insurance policy on top of an employer-sponsored plan. Besides, group health insurance is usually more affordable than anything you can purchase on your own (and as a physician you usually have access to great group healthcare options). Employer health plans have the benefit of offering subsidized group rates by leveraging economies of scale.

Many employers offer flexible spending accounts (FSAs), which are tax-advantaged financial accounts that allow you to automatically deposit a portion of your pretax paycheck. These pretax contributions can be used to offset your out-of-pocket medical expenses. The funds can be used towards qualified medical expenses not covered by insurance such as dental and optometrist visits and certain “FSA-approved” over-the-counter medications and supplies for chronic conditions. Furthermore, you avoid both income and social security taxes on the money contributed.

Dependent-care FSAs allow you to reserve money for the care of dependents. They are often used for child care expenses, but they can also fund the daily care of dependent adults. Most Americans have the option of deducting the cost of childcare off their income for tax purposes. However, physicians are typically excluded from this deduction due to their annual salary being too high. Participating in a dependent care assistance plan would allow a physician to become eligible for tax savings that were previously lost due to high income.

Other Significant Benefits

Retirement plans are another common benefit provided to employees, and there’s hardly any scenario where it would make sense to decline an employer’s contributions into a 401(k) or some other comparable account. On top of this, some employers will match contributions to a retirement plan up to a certain percent. By opting out of this benefit, you are essentially leaving “free” money on the table.

Enrolling in a retirement savings plan can help establish financial security by reducing your tax liability. You can contribute up to $17,500 to a 401(k) or similar plan and that contribution will not be included in your taxable income. If you’re concerned that tax rates will be higher when the time comes to divest your plan down the road, it may be worth checking to see if your employer offers Roth 401(k) plans. Contributions to these plans won’t have any effect on your taxable income when deducted from your paycheck, but you’ll be able to withdraw the money tax free during retirement.

Think of group benefits as added compensation for all the dedicated work you perform on a daily basis. When reviewing your group benefits package, it’s generally advisable to take what is being offered and not leave anything on the table. You can always revisit your decision and determine if there’s any conflict or overlap between your group and individual coverage. The proper coordination of benefits with the fundamental goals of your financial plan will help mitigate risk and provide a solid foundation for your family that can weather the twists and turns of life.

Have Questions?

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

Any information or opinion contained herein should not be construed as an offer, recommendation or solicitation to invest. Consult an investment professional for personalized advice.

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.