Disability Insurance

15 Ways New Physicians Can Get On Track Financially

Your first year in practice is busy. In fact, you may have overlooked a few financial moves that can save taxes, avoid problems and lead to success. While financial planning for doctors is not complicated, it does require time and energy that’s in short supply during the first year or two of practice. To start making progress, you can use the following steps as a checklist to get on track with your finances.

1. Choose your family’s financial leader.

Your finances will run more smoothly when you choose one family member to be responsible for your money. That doesn’t mean they make all the decisions alone. It means all financial communications and major decisions pass through their hands so that they can keep your family moving in the right direction. If you are not sure whether you or your spouse will be better at this, pick the person who is more organized, the person who checks the mail, or the one who is most plugged in to the online world.

2. Find a competent, caring financial advisor.

Your family CFO may need someone to act as their eyes and ears, to keep them informed, and give them guidance. When you select an advisor look for one who will listen to you, speak clearly, and make themselves available to help when needed. Be certain the advisor is a fiduciary who is compensated on a fee-only basis with at least ten years experience and the Certified Financial Planner™ mark.

3. Find a bank that will save you time.

Look for a bank that’s large enough to handle your needs, but small enough to offer responsive service. If a “relationship banker” is available to you, be certain to spend some time getting to know them and what they can do to make your financial life run more smoothly. If you are banking your medical practice, a community-based bank might be a good fit for you. If you have minimal banking needs, consider using a credit union instead. They tend to offer higher rates on deposits and lower rates on consumer loans and lines of credit. The best bank won’t make you money but it will save you time.

4. Find a responsive, knowledgeable tax preparer.

Medical specialists earn more than 95% of all other taxpayers. That’s the good news. The bad news is that you will give up about half your earnings to the taxman over the next 20-40 years of your practice but a solid tax person can help you pay no more than you absolutely must. To find the right tax preparer, get a name or two from your colleagues and ask your financial advisor for a third name. Interview all three candidates and choose the one who makes you feel most comfortable. Avoid tax advisors who sell insurance and investments. Schedule a November tax planning session for the current tax year.

5. Use a reasonable, approachable attorney.

The best way to use an attorney is early and often. To find the right one, ask your colleagues who they use, ask your tax preparer for a referral, and ask your financial advisor who they prefer, then select your attorney before you really need their help. The best choice is likely to be a business attorney who also handles trusts and estates. Ask them to prepare a simple will for you now, and plan to do more complex estate planning as your net worth grows.

6. Re-examine your disability insurance.

You may have purchased disability insurance as a resident, but you’re probably not “covered.” Why? Because your income has increased now that you’ve begun to practice. Disability coverage is one of the most complex forms of insurance and special provisions apply to physicians. Seek the help of a disability insurance specialist who has at least 10 years experience with disability insurance for doctors and ask them to explain the “definition of disability” for any policy you own or may be asked to purchase.

7. Form a general financial game plan.

Before you make any major financial decision, find out how much it will cost to achieve the goals that lead to financial security for your family. Ask your financial advisor to help you put together a plan to refinance your student loans, save for college, and build a fund for retirement. Try to answer the question, “How much do I need to save each month to make sure I’m on track?”

8. Purchase a reasonable home.

Note that we didn’t say, “Build the nicest home you can afford.” Many, many physicians jeopardize their ability to achieve financial security by buying an expensive home whose payments make it challenging (or impossible) to save for other goals like college and retirement. Think about what your family needs in a home, form a budget, and stick with it. Once you become accustomed to living in a larger home, there’s no going back to a smaller one.

9. Load up on life insurance… term life insurance, that is.

Ask your financial advisor to help you calculate how much money you may need in order to pay off your home, create a college savings fund, establish an income for your survivors, and cover the cost of their retirement. Remember to diversify your policies the same way you would diversify an investment portfolio. Plan to pare back your coverage over time as you make progress toward your goals. Avoid permanent or “cash value” life insurance, especially variable universal life (VUL).

10. Re-discover your employee benefits.

If you work for a hospital or clinic, ask your human resources person to provide a list of all the benefits available to you – retirement, insurance… even parking passes – and schedule a time to meet with them to review the list. Make sure you’re getting the benefits you earned. If you are self-employed, talk to your financial advisor about ways to save taxes while you save for retirement, including a solo 401(k), profit sharing plan and defined benefit plan or “cash balance” plan.

11. Get a PLUP.

No self-respecting physician would willingly go without malpractice insurance but many will drive cars, walk dogs and coach sports teams without the type of insurance that protects them from claims that arise from accidents in these activities: a Personal Lines Umbrella Policy (PLUP). Ask your property and casualty agent to integrate your PLUP’s coverage with your home and auto insurance.

12. Establish an emergency savings account.

If you and your spouse/partner both work, set aside at least three months worth of living expenses. If only one of you earns an income, set aside six months worth of living expenses. Put this money in a safe place like a bank certificate of deposit or money market fund. You may never need it, but if you do you’ll have it.

13. Get a handle on your student loans.

Refinancing a student loan means getting a new loan to pay off an old one. The key is to get better terms—a lower interest rate or a lower payment—on the new loan without sacrificing protections, pledging more collateral or adding a co-signer to the new loan. A sound refinancing decision requires physicians to know the costs and benefits of their current student loans and be able to compare them to the costs and benefits of options for new loans. Think twice before you refinance federal loans using a private loan.

14. Start saving for college.

Kids grow up in a hurry, and the cost of college education has historically grown at a rate more than twice the average rate of inflation (about 7% per year). After you’ve fully funded your retirement plan and your emergency savings account, this is probably the next best place to be saving and, for most physicians, a Section 529 college savings plan is the best vehicle. Check to see if your state’s 529 plan offers tax incentives.

15. Organize your financial life.

At home, make a place for everything: bank statements, investment records, estate planning documents, insurance policies, tax documents, etc. Develop a system for keeping track of passwords so that you and your spouse/partner both know how to access your online accounts. Consider the installation of a safe for valuables and extra boxes of checks. (Most embezzlement situations we see begin when the nanny or housekeeper steals a spare set of checks.) If you use a cloud-based service to store everything, make sure your spouse has access in case something bad happens to you.

Get Started!

As a new physician, it may be challenging to find the time and energy to pull all of this together. Set aside some time this weekend, tackle one of these items, then come back to this list every now and then until you manage to get your family’s financial planning all done.

7 Steps to a More Financially Secure 2016 | Oncology Practice Management

It is a new year. That means you have another chance to start over again, to take a fresh look at your finances, and to get on track for the future. So, where should you begin? Every physician should take several steps when moving toward financial security, and we want to share a few of them with you at the beginning of 2016.

1. Delve into Your Disability Insurance Policy

When was the last time you reviewed your disability insurance for doctors policy? If it has been more than a few years, it has been too long. Things change, and your coverage should keep pace. If your earned income is higher now than when you originally purchased your policy or last updated your coverage, chances are very good that you are underinsured.

Next, sit down and read through each of your policies. Pay special attention to the definition of disability. Ideally, your policy should include a true or pure “own-occupation” definition of total disability, which specifically states that you will be considered totally disabled if you are unable to perform the material and substantial duties of your occupation.

This definition allows you to work in another occupation or medical specialty and to receive full benefits, regardless of the income you earn from another occupation or medical specialty. Some companies will even go as far as to state that if you have limited your practice to a professionally recognized specialty in medicine, that specialty will be deemed your occupation.

Look for medical exclusion riders. Were you suffering from low back pain when your policy was issued?

Were you seeing a psychologist while you were going through a divorce? If so, you may have a rider on your policy that excludes these preexisting conditions. But if that divorce is far behind you and your back is much better now, you can ask your insurance company to reconsider those exclusion riders to close the gaps in your coverage.

Last, but not least, see if your policy includes a “multilife” or association discount. Although this can provide male physicians with a savings of only 10% to 15% off of their policies, female physicians can save as much as 60% of the normal female rates, if a gender neutral or a “unisex” rate is available. Therefore, if you are still healthy, and your policy does not include any discounts, it may make sense to “shop” the marketplace to see if you can obtain a similar policy for a lower premium relative to when you first purchased your policy.

2. Lift Your Umbrella to Cover Your Assets

The past 7 years have seen a dramatic rise in stock prices and home values, so there is a good chance that your net worth has increased. That is the good news. The bad news is that you are now a bigger target for lawsuits than ever before. Although your malpractice coverage may protect you from bad outcomes in the clinic, there are plenty of dangers lurking in your everyday dealings, so you need to make sure that all those risks are covered too.

The liability coverage under your homeowners and automobile policies is your primary layer of protection. However, if you need additional protection, you should purchase an excess liability or “umbrella” policy. Personal umbrella liability protection is secondary coverage that works in conjunction with your primary policy. When the liability limit of your primary policy is exhausted, the umbrella policy will pay the balance of a liability claim against you up to the umbrella policy’s limit.

You should also avoid structuring your automobile and homeowners policies with low deductibles. Low deductibles will cause your premium rates to rise substantially. Therefore, it is best to increase your deductibles to at least $1000 and to devote the premium savings toward increasing your liability limits and/or purchasing an umbrella or excess liability policy.

3. Establish an Emergency Fund

When you look into your bank account, what do you see? Typically, we see physicians with 2 accounts, a checking account and a savings or a money market account. Although that is acceptable, it means that your emergency fund, if you have one, is pooled with all the other monies you use to pay your expenses, go on vacation, and pay your taxes. So, how much of that money is really reserved for bona fide emergencies? There is no way to tell.

You, your spouse, and your loved ones can gain great peace of mind by simply segregating your emergency fund into its own separate account, such as a checking account, savings account, or money market account, which can be easily accessed without penalty. This is a fund to be used for unforeseen or overlooked expenses. Although the size of the fund is a personal decision, suggestions range from 3 to 6 months of your living expenses. Either way, keeping this fund separate from all your other accounts makes it easier to see, so that everyone knows that the safety net is real.

4. “Max Out” the Match

You would not walk away from free money, would you? Of course not. Nonetheless, we routinely see physicians who miss out on their employer’s matching retirement plan contribution by failing to max out their own elective deferrals.

To make the most of your retirement plan, contribute all you can. The maximum elective deferral into Section 401(k), 403(b), 457(b), and government thrift savings plans remains unchanged for 2016, at $18,000 for most physicians and $24,000 for those aged 50 years or older this year.

While you are thinking about your workplace retirement accounts, take a look at the investment options in your plan. Have they changed? Each year, your plan fiduciaries (the people who put together the list of mutual funds from which you can choose) are supposed to review the options you have to choose from so you have ample opportunity to diversify your holdings. The key word here is “opportunity,” because it is your job to actually make the final decision about how to invest.

5. Do Not Tolerate High Interest Rates

Banks and financial institutions are bending over backward to win physicians as customers. After all, you earn 6 figures in a 5-figure world, and you are the pillar of your community—both of these make you a good risk for lenders. Make them earn your business.

Review all your loans—your student loans, your mortgage, your car loans, and your credit card balances—and then ask yourself, “Is this the best they can do?” Then call up your lender(s) and at least one other bank or financial institution, and ask them the exact same question.

When you get an offer from one, compare it with the other offers you have received. Ask if you can qualify for a lower interest rate and, if you do not, ask if they can waive an origination fee or see if you can qualify for less restrictive terms. Maybe one wants your spouse to cosign, whereas another does not. Do not forget that you are the customer and deserve only the very best.

6. Raise Your Deductible to Lower Your Taxes

Health savings accounts (HSAs) have been in use since 2003, but many physicians are just now learning how they work. If you have a qualifying high-deductible health plan, you can open an HSA for yourself or your family and contribute $6750 in 2016 (for family plans) or $3350 for individual plans, plus an additional $1000 for those aged ≥55 years.

Although $6750 may not seem all that much in the grand scheme of things, your HSA contribution can deliver permanent income tax savings plus years of tax deferral. For example, a physician in the top federal tax bracket can reduce his or her tax bill by $2673 when he or she makes the maximum family contribution.

However, many physicians who are using an HSA account are using it the wrong way. They will contribute to the account, get the tax break, and then spend the account down to zero on medical bills. A better strategy is to pay those bills out of pocket and invest the account balance, so that it can grow tax deferred for retirement, when it can be used to pay for healthcare.

7. Take a Second Look at Your Life

People are living longer today than ever before, so life insurance premiums have decreased steadily over the past several years. So if it has been many years since you reviewed your coverage, now is a great time to do so.

You should use the services of an experienced insurance agent who represents several companies to help you get the best rates, especially if your health is less than perfect.

The agent will know which carriers are likely to provide you with a better underwriting classification based on your height and weight, immediate family history, and/or other medical issues to allow you to secure a lower premium rate.

For example, if you are being treated for hypertension, certain companies will allow you to qualify for their best underwriting classification, but others will not. After all, using an agent or applying for the insurance product online will not cost you any additional money.

Conclusion

This article provides 7 steps to help you reach a more financially secure 2016. The key is to take the time to evaluate which of these concepts, if any, works for you in terms of your personal financial planning. After all, most people “don’t plan to fail, they simply fail to plan.”

W. Ben Utley, CFP, is the lead advisor with Physician Family Financial Advisors, a fee-only financial planning firm helping doctors throughout the United States to save for college, retirement, or other financial goals. He can be reached at 541-463-0899 or by e-mail at ben@physicianfamily.com.

Lawrence B. Keller, CFP, CLU, ChFC, RHU, LUTCF, is the founder of Physician Financial Services, a New York–based firm specializing in income protection and wealth accumulation strategies for physicians. He can be reached at 516-677-6211 or by e-mail at Lkeller@physicianfinancialservices.com with comments or questions.

This article originally appeared in page 42 of the January 2016 print edition of Oncology Practice Management.

5 Tips for physicians during open enrollment

It’s that time of year again: open enrollment. The folks in HR have just sent you either the cryptic email or the packet-o-stuff that gives you all the features and benefits of your health insurance, life insurance, disability insurance, and 401k/403b plans.

Whoa.

Do they expect you to actually read AND understand all that stuff?

No way.

Each year we field a bunch of questions about employee benefits for the physicians we serve, so I want to share the top things we look for as we review these plans for clients.

1. Save taxes with the right health insurance. If you are expecting to have huge medical bills next year or if a member of your family faces chronic health issues, then you should stick with low deductible health insurance.

However, if you and the other people in your family are in good health, you might be better off with a high deductlble health plan (HDHP).

Having the HDHP makes you eligible for a Health Savings Account (HSA) which lets you sock away up to $6750 next year, tax-free.

That can save you two or three thousand dollars in taxes… permanently.

2. Get insurance even if you’re “sick”. Is there something about your health that makes the insurance company queasy?

if you are uninsurable, group life insurance may be the perfect fit for you since most group life plans will allow you to buy a certain amount (usually about $250,000) without medical underwriting.

While $250,000 won’t be enough for any physician family who wants to become financially secure, it might be enough to pay off a mortgage or send two kids to a public, in-state college.

And if you are healthy but it’s been a while since you looked at your coverage, you will find a better deal if you buy coverage outside your group plan, where higher underwriting standards keep the costs low.

3. Don’t miss the match. Would you believe that some of your colleagues are missing out on free money?

How? By contributing less than they should to their 401k’s.

If you’re not maxing out your 401k/403b, there should be a very good reason (like saving for an emergency or paying off debt with a super high interest rate). Everybody else should max this out.

4. Skip the Roth. Now that we’re all in a higher tax bracket, I can think of precious few situations where physicians should contribute to the Roth 401k plan at work.

Yet, there is still a great deal of confusion on this topic that, evidently, was not cover in med school.

Simply put, the Roth vs. Traditional decision is a decision to pay taxes NOW (when you’re in the top marginal bracket) or later, when you may be in a lower bracket and have more control over your tax rate.

I could go into great detail here about Roth versus Traditional but let me save you some time. If you are reading this and you have M.D. or D.O. after your name, your best bet is to go with the regular old Traditional 401k. And if I’m wrong, you can still convert your Traditional 401k to a Roth 401k and pay all those taxes later.

5. Save big taxes later by paying little taxes now. If your employer pays the premium for your group disability insurance plan, you need to know that—if you become disabled—the benefit you receive will be taxable at the state and federal levels.

Occasionally though, I see plans where an employer allows physicians to elect to have this premium payment taxed as ordinary income.

I know, I know. Paying taxes is a bad thing, but not in this case.

If that premium is $100 but the benefit is $10,000, which would you rather pay: the tax on $100, or the tax on $10,000?

Make sure you check to see if this is an option for you.

During this important time of open enrollment, a little bit of time spent digging through your benefit packet may save you a bunch of money, and help put your family on the path to financial security.

New disability insurance rider a good fit for indebted young physicians

According to Larry Keller, a disability insurance guru who serves hundreds of physicians across the United States, Berkshire is now offering a rider to certain disability policies that will cover payments on student loans. When attached to their ProVider Plus policy, Berkshire's Student Loan Debt rider can pay anywhere from $500 to $2000 per month to young physicians--on top of the normal limits on newly-issued policies--and benefits may last as long as fifteen years. At $2000 per month, that's a cumulative benefit of $360,000 (15 years times 12 months times $2000), tax-free if you don't deduct your premiums from your taxes.

Student loan debt from both undergraduate and graduate education can be covered. While it's not necessary to provide proof of indebtedness to secure the rider, physicians will need to show evidence of their student loan indebtedness in order to receive benefits under a successful claim.

The rider is not available in all states, and insurance agents who don't focus on physicians may be unaware of this new and useful coverage, so you should shop carefully.

By the way, if it's been a few years since you looked at your disability insurance coverage, or if you've changed jobs, made partner or received a pay increase since you bought your coverage, now would be a good time to review your coverage.

3 Questions Every Financial Planner for Physicians Should Ask You about Life Insurance

Nobody likes to talk about death, especially when it’s the death of the person you love more than anyone else: your spouse. And nobody (really, nobody) likes to talk about life insurance except the agents who sell the stuff. As a financial planner for physicians, lately I’ve been having both of these conversations because you know that life must go on after your spouse dies, and you’ll need money to keep your family going.

If you’re thinking about getting life insurance, here are three questions a financial planner for physicians should as you:

  1. How will you pay your bills? Let’s assume for a minute that your wife/husband/partner died yesterday. What does today look like? Are you really thinking about going back to work right away? And if you do plan to return to work, can you really earn enough to support yourself and your kids? If you’re the doctor in your family, the answer may be an easy “yes”. But if you’re the spouse who stays at home with the kids or works part time, there may be more to consider here. Include some insurance to cover bills until retirement. When I do the math on this number, it usually runs between $2 million and $3 million.
  2. What about retirement? As a young doctor, you may be doing some financial planning for retirement but have you considered what your spouse will do without you? Since we’re talking about financial planning for all your goals, you might as well add some coverage to build a fund for your spouse’s retirement, especially if they’ll have a tough time supporting the family and saving for retirement. Assuming that life insurance proceeds will be invested to grow and support this goal, the number here is usually somewhere between $1 million and $3 million.
  3. Do you still want your kids to go to college? Of course you do. It’s the reason you started this conversation about dying and life insurance in the first place. But you might be shocked when you find out how much coverage you’ll need to build a College Fund. Ready? A private university runs about $40,000 per year. BUT, that cost of college rises at about 7% per year (really, that’s what it’s been for years), so if your child is newly born, you’ll need  about $600,000 by the time they’re ready for school (or about half that if they’re going to a public university). Given calculations for the time value of money, you might need another $150,000 to $250,000 worth of coverage per child to pay for college.

You’ll also want to factor in the cost of other smaller goals like repaying debts or supporting extended family but these three questions are the biggies.

After your death, it all comes down to two questions, and one answer.

When your spouse calls your financial planner to ask, “Are we gonna be ok? Do we have enough?” be certain the answer is undoubtedly “Yes.”

W. Ben Utley is a Certified Financial Planner™ for physicians who want to stop worrying about money and start building financial security for their families. Contact him at 541-463-0899.