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.
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.
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.