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White Coat Investor Podcast
WCI #409: Tail Coverage, Whole Life, and Other Insurance Questions
01:03:33
Today we are talking all about insurance. We answer a few questions about tail coverage. We talk about annuities and whole life insurance and yet again encourage you all to avoid these products. We also have a short interview with a doc who has found...
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- [00:00]
Dr. Jim Dahle
This is the White Coat Investor Podcast where we help those who wear the white coat get a fair shake on Wall Street. We've been helping doctors and other high income professionals stop doing dumb things with their money since 2011.
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This is White Coat Investor podcast number 409. As you prepare your taxes this season.
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Dr. Michelle Lee
You might be wondering if you're paying.
- [00:23]
Dr. Jim Dahle
More than you should. Over the past decade, clients of Cerebral Tax Advisors have seen an average return.
- [00:28]
Dr. Michelle Lee
Of 453% on their investment in Cerebral's.
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Dr. Jim Dahle
Tax planning as a White Coat investor recommended firm trusted by physicians nationwide. Cerebral uses court tested IRS approved strategies to reduce personal and business taxes. Cerebral founder Alexis Galati comes from a.
- [00:43]
Dr. Michelle Lee
Family of physicians and brings over 20.
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Dr. Jim Dahle
Years of experience in tax strategy and multi state tax preparation. Don't let another year go by leaving.
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Dr. Michelle Lee
Money on the table.
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Dr. Jim Dahle
Schedule your free discovery session today@cerebraltaxadvisors.com all.
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Dr. Michelle Lee
Right, welcome back to the podcast and.
- [00:57]
Dr. Jim Dahle
Thanks everybody for what you do out there. If you're on your way to work.
- [01:00]
Dr. Michelle Lee
Way home from work, had a bad.
- [01:02]
Dr. Jim Dahle
Day today, out walking the dog or exercising.
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Dr. Michelle Lee
Whatever you do while you listen to.
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Dr. Jim Dahle
This podcast, know that you're appreciated. And if nobody else has said thank you to you today, let me be the first. Thank you for what you're doing. This podcast is aimed at high income professionals. Most of our listeners are doctors and you all spent a lot of time learning your craft and trying to be.
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Dr. Michelle Lee
The best you could so that you.
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Dr. Jim Dahle
Can help as many people as possible. And you deserve the high compensation you get from that. But it's not that hard to feel unappreciated sometimes and you're asked to do a lot, so I appreciate you. Okay, it's interesting. We're recording this on February 20th, so this is one of the last podcasts.
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Dr. Michelle Lee
I'm recording before we go to San.
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Dr. Jim Dahle
Antonio for WCICON 25. But it'll be one of the first podcasts that runs after the conference. And in fact when you're hearing this, it will be the day that ends our pre sale for the 2026 conference.
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Dr. Michelle Lee
WC icon 26 the physician wellness and.
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Dr. Jim Dahle
Financial Literacy Conference is going to be in Las Vegas. It's going to be the JW Marriott in Las Vegas. That is not on the Strip. It's 15 or 20 minutes away from the Strip.
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Dr. Michelle Lee
And so it's a really nice resort down there.
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Dr. Jim Dahle
If you want to go in and have the Las Vegas Strip experience, you can go in and do that in the evenings or whatever, but you don't have to have a Las Vegas experience to come to this conference.
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Dr. Michelle Lee
In fact, I'm told the way the.
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Dr. Jim Dahle
Hotel'S set up, you don't even have to walk through the casino at any point during your stay there. It's gonna be a little bit later.
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Dr. Michelle Lee
Than this year's conference.
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Dr. Jim Dahle
It's March 25th through 28th, 2026, and with this pre sale you're getting $500 off. So a general in person tickets $14.99, that's regularly $19.99 and the premium in person ticket is $19.99, it's regularly 24.99. So if you go to wcievents.com today is the lowest price you're ever going to get on next year's conference. And you can get that by signing up today for WCICON 26. It's a fantastic conference. I'm sure we'll have lots of great things to say about this year's conference by the time I've actually been there, but as I'm recording this, I haven't actually been to this year's conference yet, so looking forward to seeing a whole bunch of you down there this year. Let's get into your questions. This podcast is driven by you almost entirely. Very rarely do I talk about something that I feel like needs to be said out there.
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Dr. Michelle Lee
It's almost all driven by your questions.
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Dr. Jim Dahle
Your feedback, the things you guys want to hear about. And today is no exception. So this is an email I got from somebody that thought this was good information to pass along to you guys. He writes in I wanted to let you know I just filed my taxes for 2024 and there's no longer an option to purchase $5,000 in I bonds with your tax refund. The Biden administration adjusted that option, so as of January 1, 2025, it doesn't exist. This was a nice way to obtain more I bonds on top of the $10,000 limit, so I wanted to make you aware in case your readership had questions about it. Thanks for all you do. All right, well, I appreciate that information. And for those who aren't aware, it's true that option for buying I bonds is gone. It used to be you could buy $10,000 electronically at your TreasuryDirect account, but you could buy another $5,000 with your tax refund. So if you're doing married filing jointly, you could each buy $10,000 in your treasury Direct account and then you get another $5,000 with your married filing jointly tax refund. It wasn't a Great way to buy I bonds in the first place. Getting rid of it just reduces complexity, let's be honest.
- [04:42]
Dr. Michelle Lee
But the big problem with I bonds.
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Dr. Jim Dahle
Is if you want to make them a significant part of your portfolio, you better not be very rich yet, because you can only buy a little bit a year, right? $10,000 for you, maybe $10,000 for your spouse, maybe $10,000 for YOUR LLC, maybe $10,000 for Your Trust. And then you got to start coming up with new entities if you want to buy more. So if you wanted to invest $250,000 into I bonds this year, it's just not going to happen. And so unless you are, I don't want to say poor, because poor people don't buy $10,000 worth of I bonds at a time. But if you've got a multimillion dollar.
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Dr. Michelle Lee
Portfolio, you probably can't add these as.
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Dr. Jim Dahle
A significant asset class to your portfolio. If you are just starting out and you like the concept of an I bond, right, it's inflation adjusted, really doesn't go down in principal value. They're very safe investments. Not with a hugely high expected return or anything, but they're very safe investments. And if you're just getting started and they're attractive to you, and you think buying 10 or $20,000 a year is gonna keep up with how much you're.
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Dr. Michelle Lee
Investing each year, they could be a.
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Dr. Jim Dahle
Significant part of your portfolio. But for lots of high income earners, these just don't work. I mean, we tried to add some a few years ago and I don't know, we've got a very low six.
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Dr. Michelle Lee
Figure amount in I bonds after a.
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Dr. Jim Dahle
Few years, but it's just not enough to move the needle for us. I think we're probably getting rid of ours this year. Not that I have any problem with I bonds, it's just additional complexity in our portfolio that we don't really need. All right, we got a question, a request from a podcast listener to get someone who works for an insurance company on the podcast. And a few weeks ago I passed.
- [06:23]
Dr. Michelle Lee
That request along to you and said, hey, any of you that work for.
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Dr. Jim Dahle
An insurance company, we'd like to bring you on the podcast. You know, I mean, insurance company executives are getting gunned down and they thought it'd be interesting to hear from the other side. Well, one of you volunteered to come on and talk about what it's like to work on the other side. And I really think there's a lot to learn from that perspective, not only as a consumer, but as a Doctor So let's get him on the line and let's talk about it for a few minutes. Our guest today on the White Coat.
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Dr. Michelle Lee
Investor podcast is Mushier Mushir.
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Dr. Jim Dahle
Welcome to the podcast.
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Dr. Bashir Mushir
Thanks, Jim. Thanks for having me on.
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Dr. Jim Dahle
Now we're bringing you on as requested.
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Dr. Michelle Lee
By a number of White Coat investors that kind of wanted to hear more.
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Dr. Jim Dahle
About what it's like to kind of work on the other side of the discussion that docs often have with health plans, with health insurance companies, et cetera. People have requested, hey, we want to hear from a doc who's out there, you know, looking at all of these pre approvals and those sorts of issues people run into trying to get insurance companies and health plans to cover procedures or medications or whatever. And you've had kind of a broad.
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Dr. Michelle Lee
Career and been able to kind of.
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Dr. Jim Dahle
Work on both sides of that interaction. So why don't we start with you talking just a little bit about your career journey, what you trained in, what you did at first, and how that's progressed over the years.
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Dr. Bashir Mushir
Sure. So I did a busy primary care practice in suburban Milwaukee for 25 years. I'm actually still practicing in that. I do volunteer at FQHC two days a month just to keep my clinical skills up. But my full time job now is I'm the chief medical officer for a local health plan. I got there by doing some hospital administrative work as a chief medical officer for a local hospital system from 2016, 2021. And that whole journey starts with like a lot of docs, when you're affiliated with the hospital, they ask you to do some committee work and eventually someone starts tapping on the shoulder saying, hey, you seem to like meetings. Maybe you should do some more meetings and help lead up some of these things, whether it's P and T or Department of Medicine, what have you. And, and I think once you start to realize that, hey, there's probably some benefit to having docs at the table where decisions are made that can influence how practices and care is delivered. It's probably important to have our voice in the room to do that. That's always been kind of a personal gripe of mine and desire for me to say it's probably better to be involved to see if you can make things better for both doctors and patients, if you can influence how the policies are laid out.
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Dr. Jim Dahle
Yeah, for sure. So it sounds like relatively early in your career you started doing quite a bit of administrative kind of work and then at some point the offer was made for you to work and you're careful to distinguish this work for a.
- [09:11]
Dr. Michelle Lee
Health plan, not necessarily a health insurance.
- [09:13]
Dr. Jim Dahle
Company, but to work for a health plan on the other side to try to help them appropriately cover medical expenses among those on the plan. Tell us about that transition.
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Dr. Bashir Mushir
Sure. So I was asked about do I want to come over to do more work on the health plan side. My initial response is no, because health insurance companies I thought had very negative reputation. I thought they were evil. But the person that hired me, my CEO, said why don't you try doing some, um, work initially part time and see if you like it. And once you get exposed to seeing how the decisions are made, whether, you know, folks may have familiarity with MCG guidelines or intercal guidelines that are sort of evidence based databases that are used to help judge what is appropriate for say, inpatient care versus observation or what's appropriate for newer technologies that are coming to the floor for coverage, then you see that, okay, there's actually some science behind why people will say no. Whether something is considered to be more experimental in the clinical trial phase versus no. This is standardly accepted practice that everyone's doing now. We should be paying for this as standard of care. And once I saw that there was some degree of science that was behind it and it wasn't just strictly people doing denials simply because they wanted to have a certain threshold met of denial so they can cover financial losses or gains, then I was more open to the idea of being more integrated with the health plan. I think it's important also to understand that a health plan versus a health insurance company, health plans that are owned by hospital systems, any profits they make, go back into the community via the hospital. And so I think that's an important distinction to make. There's no answering to Wall street, if you will, that occurs on that side. I would also though stick up for some of the health insurance folks that are CMOs to say that, you know, they're also using similar guidelines that I'm using to try and have some degree of evidence behind the why people get to know. Now, as a former primary care doctor, my desire is how can we get to yes more quickly and with as little administrative burden as possible. How can you automate things? How can you remove obstacles so people can get to yes more quickly? I think that's part of why I wanted to go into this role is having had the two decades of primary care experience. You knew what frustrated you, the frustration was the stack of faxes at 5pm that you had to get through that. No one's compensating you for that, you kind of have to go through the doldrums to get done. Because you're advocating for your patient.
- [11:38]
Dr. Jim Dahle
Yeah. Now I think you're assuming a little more familiarity with the process than maybe a lot of docs have. You talk about these guidelines that are available out there for what should be covered and what shouldn't be covered. Who writes these guidelines? Where do they come from?
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Dr. Bashir Mushir
So the guidelines are. They're two big bodies that are doing so. A lot of folks have heard of Milliman. Milliman is an actuarial firm that is out there. One of their spinoff businesses is mcg. So MCG comes from Milliman care guidelines. And they have a body of literature they've done where they take studies and doctor expert panels and basically compose a database of what they view as being appropriate for, whether it's inpatient care, number of physical therapy stays, things like that. That's all kind of encompassed in there where they're using what the literature says that we've published as physicians to be out there. A lot of docs have heard of choosing wisely and just kind of the guidelines that came through that the abim, whether you should give antibiotics for sinusitis, whether you should use an MRI for every episode of back pain. So I think doctors have some familiarity for what people think is appropriate care and what consensus bodies have said should be appropriate. Think of that as now then being uploaded into a larger database and that same approach being taken for a number of different evidence summaries.
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Dr. Jim Dahle
So it's an online database, in essence, multiple textbook size. I suspect that you can look up just about every condition, every medication, et cetera, and indications for that. And if the patient doesn't meet them, they get denied. That's kind of how it works.
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Dr. Bashir Mushir
That's the basis for the denial. Yes. Now, obviously there's going to be some nuance that's going to exist for specific patients where then you have the peer to peer discussions that can occur. Physician to physician.
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Dr. Jim Dahle
Yeah.
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Dr. Michelle Lee
I think one of the things that.
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Dr. Jim Dahle
Drives a lot of docs nuts about this is exactly what you mentioned. You know, the 5pm stack of faxes of unpaid work. Now, is there anything on the horizon.
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Dr. Michelle Lee
Where docs could be paid for doing.
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Dr. Jim Dahle
This work, this fight with the insurance companies? I mean, are there docs out there that are charging patients for it or somehow getting compensated by the insurance company for all that extra work?
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Dr. Bashir Mushir
Well, I know that for a fact that there are doctors that are charging for paperwork in regards to what it is, whether It's FMLA forms, prior auth work, what have you. I think that that's something that we then have to take a step back and say, okay, on the continuum of care, where should some compensation be? I mean, I think a lot of docs are probably familiar with EPIC or some EMR of that sort that has the online accessibility for patients. And we are certainly discussing, as have other health plans, there should be some compensation present there because you are giving some care virtually in that regard. But I think we can all agree there's probably a gradient that exists of a refill request is not the same degree of medical intensity and thought process for the doctor as a 7 bullet point email that you have to reply back to.
- [14:39]
Dr. Jim Dahle
Yeah, for sure. There's definitely different levels of it.
- [14:42]
Dr. Bashir Mushir
Jim, I was asking this though. I think that you're bringing up an important point though. There's a lot of work that physicians do that's not compensated, that's administrative, that we have to attack. And we have to attack it in terms of can we remove it altogether by using some automation tools. And if we can't do that, then we have to have a discussion about what can we do to ensure that there's some version of compensation that exists. It may not be a per sheet type thing, it may be more in a global risk sharing agreement, what have you. But that that has to be addressed by both payers as well as likely provider systems that likely employ a lot of the docs that are doing this work.
- [15:19]
Dr. Jim Dahle
Yeah. Another complaint I hear about from time to time is typically some sort of subspecialist who has, you know, decided to do a surgery or decided to do some expensive treatment, medication, whatever, and then feels like it got denied by a doctor not in their specialty.
- [15:41]
Dr. Bashir Mushir
Yeah.
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Dr. Jim Dahle
Is there merit to that complaint and how often does that happen?
- [15:45]
Dr. Bashir Mushir
I disagree with the merit to that complaint and the reason I say it is this way. I'm an internal medicine doctor and so if I'm getting a complex lung cancer chemotherapy request, let's say I don't feel comfortable having decision making on such a case. So I want to get subject matter expertise involved to do that. If there is an appeal that generates from that, again, I can't review that. I have to have a third party outside reviewer, same specialty review that. Now that's our process as our health plan that does it. I would say by and large, most health insurers are doing that as well. And what I've also started to notice is that physicians are also putting that in their appeal letters. I Demand that a same specialty reviewer looks at this. We've been, that's been our natural, our internal process as it is is that we need to have an independent review person that's not affiliated with us that takes a look at any appeals that come through to us.
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Dr. Jim Dahle
So it sounds like they get that on the appeal, but they don't necessarily get it on the initial denial, is that right?
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Dr. Bashir Mushir
On the initial denial? That's correct. That could happen. And I'm being purposely a little bit cautious of what I'm saying because there are some specialties that we automatically send out to subject matter experts as well. Because again, we don't feel as though we're not comfortable making decisions on that sort of thing, that we want to get outside expertise involved, say a complex spine surgery, for example. And I think each health insurer is going to have their own level of expertise internally that they'll have to do that as well. The larger insurers, some of the big national carriers will likely have employed orthopedic surgeons, ent surgeons and such that are subspecialists that will likely review those cases.
- [17:26]
Dr. Jim Dahle
Yeah, and I assume this is a.
- [17:27]
Dr. Michelle Lee
Side gig for most of those docs.
- [17:30]
Dr. Jim Dahle
Most of these reviewers are not full time employees of the plan or of the insurance company, correct?
- [17:35]
Dr. Bashir Mushir
From my understanding, yes.
- [17:37]
Dr. Jim Dahle
So how do you get a job doing that?
- [17:39]
Dr. Michelle Lee
If you're interested in doing that as.
- [17:40]
Dr. Bashir Mushir
A side gig, I would say it's probably important to do a little bit of dabbling in it and probably try to find the way that I found it, which is, you know, reaching out to different health plans. Probably having some hospital experience is going to be helpful because being able to navigate conversations with physicians as peers is a skill set that you want going into such a discussion. And I think if you've been, if you've done some hospital leadership roles, it's helpful to have that type of collegial discussion part of your makeup that makes you more marketable to such an entity. There are health insurers that have need for this skill set of folks that have subject matter expertise that may want to offer side gig type of opportunities. There's also then these third party reviewers, there's large third party view organizations that exist that do this sort of review as well, that people can offer their services to as well.
- [18:34]
Dr. Jim Dahle
And how well do these jobs pay? I mean, you're, you're getting work piecemeal. I assume it gets sent to you.
- [18:41]
Dr. Michelle Lee
And there needs to be a turnaround.
- [18:42]
Dr. Jim Dahle
Within a day or two. And what, what does that typically pay is it an hourly rate or by review rate or how does that work?
- [18:51]
Dr. Bashir Mushir
So I'm sure each Pell plan is slightly different. We tend to do by an hourly rate with the folks that we have working with us. I think it's going to be our area is governed by basically what our market assessment does every three to five years. We would do an hourly rate update every three to five years for what physician time would be. The difficulty I think in this scenario is going to be it's likely not going to be as productive for those who are in subspecialties to do this sort of work because administrative work, not necessarily procedural work. So it'll be less headache, but while still having some intellectual capabilities that are used. I would say my experience shows that a lot of folks are probably more at the tail end of their careers looking to wind down some of the business of the day to day practice that like to do this work because they've got a wealth of experience that they bring to the table that they can offer to these review organizations.
- [19:42]
Dr. Jim Dahle
Yeah.
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Dr. Michelle Lee
Now people who do medical legal work.
- [19:45]
Dr. Jim Dahle
They'Re reviewing stuff for malpractice cases, you know, defense or prosecution or whatever, they kind of expect to be paid more on an hourly basis than they typically make in clinic. Is that the case working for an insurance company or a plan as well, or is it kind of much more typical to what you make in clinic?
- [20:02]
Dr. Bashir Mushir
I think you can expect to make about the same. I mean, I don't think anyone's going to come over for a pay cut. But I think that the market that would come in from recruiting employees that want to do this type of work is going to be the lifestyle issue. And being able to have the ability to not feel that you're tied to an office for nine to five and you can't leave. There's obviously now even looking at our conversation today, the ability to do things remotely does exist as well. Case review over your laptop has a certain amount of value if you're able to travel with your laptop and kind of if you want to be in Arizona for a month in the winter and you're in Midwestern, it makes a lot of sense.
- [20:40]
Dr. Jim Dahle
The other question I think people would have are people that maybe are kind of burned out on clinical practice and are looking to transition into something else, they want to work full time or some sort of other company like this, Is this a good option for somebody that's burnt out on clinical medicine to maybe cut back to quarter time clinical medicine and then do this like you're working as a chief medical officer for a plan, et cetera. Is that you think a good option for somebody?
- [21:09]
Dr. Bashir Mushir
I think it's certainly something to consider. I think that what I would say is we as physicians should really take stock in the wealth of experience that we have, especially over time, that adds to the ability to offer clinical insight into health plan approvals, health plan decision making.
- [21:29]
Dr. Jim Dahle
Now, the other interesting view, point of view I think you've got looking at it from that side, is you probably see some ridiculous stuff being requested, coming across, wanting the plan to cover. Can you share a percentage maybe, of what sort of stuff comes across that just seems absolutely ridiculous for the plan to cover, and maybe even an example of something that was declined.
- [21:56]
Dr. Bashir Mushir
I would say that the outlier stuff that we see that you kind of scratching your head and saying, what are they even thinking? Is definitely less than 5%, probably closer to 1%, because I think, by and large our profession is pretty good about doing what we think is standard of care for our patients. You're asking me on the spot to think of a ridiculous case. I mean, I'll get probably once a month, an MRI of a shoulder request where, you know, person's been seen for their first visit having shoulder pain for, say, two months, but has done no conservative therapy, no physical therapy, nothing's been tried, and they're going straight to mri. And so that, to me is kind of, you know, clearly someone that's not either in front of the guidelines nor, I mean, honestly is probably practicing what we think is proper medicine. I think that there's some newer technologies that are out there as well that I have my own opinions on that are pretty good revenue generators for some of the surgical subspecialties that like to be touted as being standard of care but aren't necessarily endorsed by their own specialty societies. And I think we want to be careful about that. We have to be conscious of the fact that there are some in our profession that are very open to some of the device makers, and being the first to try the early adopters gives.
- [23:15]
Dr. Jim Dahle
You good insight into what's getting denied out there. When you think about it being such.
- [23:22]
Dr. Michelle Lee
A small percentage, though, it makes you.
- [23:24]
Dr. Jim Dahle
Wonder if the review process is even worth the money that's being spent on it. I mean, a doctor to do these reviews is not cheap.
- [23:32]
Dr. Bashir Mushir
It's not cheap? No, not at all.
- [23:34]
Dr. Jim Dahle
And it makes you wonder, is it.
- [23:35]
Dr. Michelle Lee
Worth paying you and a bunch of folks like you to do denials if.
- [23:39]
Dr. Jim Dahle
It'S really only 1 or 2 or 3% of people that or submissions, whatever you want to call it, claims. I don't know if they're claims yet until you do it. But if it's really that small, is it worth the whole rigmarole to go through this?
- [23:51]
Dr. Bashir Mushir
Well, I would say this. I think that from a prior authorization standpoint, we have the discussion that you just said, Jim, on a regular basis, which is, is the juice worth the squeeze for us to investigate this. And let me give you an example. We used to review echocardiograms on a pretty regular basis to see if there's medical necessity for the echo. It just didn't make sense after all because we were approving 95%. So, okay, if that's the case, it's not worth the squeezer. Just say yes automatically. We do that for a lot of different things now. We just kind of on a yearly basis we review to say if we're approving this in a certain percentage, usually above 90%. Does it make sense for us to do that? Let's just remove the authorization requirement altogether to try and really remove the headache that's existing there because it's not worthwhile for us to do it. Now obviously, given the events that occurred in late last year with the unfortunate shooting that occurred, the murder that occurred, there's been a lot of focus on both prior authorization and probably larger broken healthcare system. That's probably a topic for another day. But I think that the issue of prior authority needs to be addressed. And I would say this, we have a lot of smaller groups that insure with us, including some physician owned practices that have employees of maybe 5 to 35 employees. Not one of those physician owned practices have come to us and said give us an insurance product where wherever the doctor orders you, you just put it through. Remove all prior off. There's been no physician practice that has come to us to ask for that insurance product. And so what that tells you is that even as a profession, we also know that there are some outlier physicians that work in our communities that we want to have some degree of guardrails present there. So I think to, to argue that, you know, we, we should just remove all the guardrails and just look what the doctor orders should be done. The reality is I don't think even physicians when they're business owners agree with that logic.
- [25:47]
Dr. Jim Dahle
Yeah, it certainly is a discussion that I think doesn't get had very often. I think basically it's mostly just griping about prior authorizations and not much perspective from the other side of maybe there's some good they're doing as well, particularly in keeping the costs of the insurance low.
- [26:06]
Dr. Michelle Lee
Right.
- [26:06]
Dr. Jim Dahle
I mean, if you could just get everything. Well, all of a sudden now you're priced out of being able to buy the insurance at all. So you're absolutely right that we've got to think about both sides of it for sure. Well, our time is short, but is there anything else we haven't talked about.
- [26:23]
Dr. Michelle Lee
That you think docs need to hear.
- [26:24]
Dr. Jim Dahle
About working with on the other side.
- [26:28]
Dr. Michelle Lee
Or working with the other side to.
- [26:30]
Dr. Jim Dahle
Try to get care for their patients?
- [26:33]
Dr. Bashir Mushir
I think one of my big learnings early on was I didn't realize that there's a governmental regulations courtesy of the ACA that mandate that a certain percentage of any revenue an insurance company takes in has to be spent on medical care. And usually that's roughly, it's been about 85% minimum. And what I can tell you is that for the most part a lot of health plans, they're usually spending closer to 90. And so I had this view beforehand five years ago that oh, with some of these big insurance companies, they, they're probably taking in, you know, 40% profit and that, that's, that's been a big learning phrase, that that's not correct. And I think when I've talked to physicians, because a lot of my physician friends, you know, the poke fun at me is to help housing like, you know, the other side being Darth Vader now, and I'll just point that out, I say, you know, I, I didn't realize this, that the, the margins that some of the smaller health plans in particular have to work with is somewhat limited by a lot of governmental regulation that exists as well, which I think is a good thing because I think that you're taking revenue and to spend it on medical care, that's the right thing to do. But I think that the notion that somehow there's outrageous profits that are being made, I don't know if that's necessarily correct, especially at the smaller health line level.
- [27:50]
Dr. Jim Dahle
Now that 15%, that includes obviously profit. But does that also include all the other expenses of the insurance company?
- [27:58]
Dr. Bashir Mushir
Yeah, our entire 500 person organization has to get paid out of 15%.
- [28:03]
Dr. Jim Dahle
Yeah.
- [28:04]
Dr. Bashir Mushir
And so that there's an administrative cost that's probably around, you know, between 10 to 12% that exists in there. And so if you get to 90% and you have a 12% administrative ratio, you're not 102%. So you haven't made any money.
- [28:16]
Dr. Jim Dahle
Yeah, yeah. There's not, not a lot of meat left on that bone at that point. No. Yeah. All right, well, Bashir, thank you so much for coming on the podcast and.
- [28:26]
Dr. Michelle Lee
Maybe giving us some insight into a.
- [28:27]
Dr. Jim Dahle
Process that I think a lot of doctors aren't all that familiar with and for sharing your career journey as well.
- [28:32]
Dr. Bashir Mushir
Jim, thank you. And thank you for the great work that you're doing.
- [28:36]
Dr. Jim Dahle
I hope you enjoyed that interview as much as I did. It's always fun, I think, to talk to white coat investors out there and.
- [28:43]
Dr. Michelle Lee
What you're doing in your lives and with your careers.
- [28:45]
Dr. Jim Dahle
And I always learn something talking to each of you individually. All right, our other questions today that we're going to deal with on the.
- [28:53]
Dr. Michelle Lee
Podcast also have to do with insurance.
- [28:55]
Dr. Jim Dahle
Not necessarily this particular issue with insurance, but with insurance. So I got an email that was titled American Physician Tail Coverage Debacle. And the emailer said, I don't know if you already did, but I didn't see it and was wondering if maybe you could recomment, as a lot of.
- [29:12]
Dr. Michelle Lee
Us that used to work for American.
- [29:13]
Dr. Jim Dahle
Physician Partners before they let us all.
- [29:15]
Dr. Michelle Lee
Go, without much to do at the.
- [29:16]
Dr. Jim Dahle
End of July 2023. Have you ever done a discussion on.
- [29:20]
Dr. Michelle Lee
Insurance coverage, specifically tail coverage, when the.
- [29:23]
Dr. Jim Dahle
Company just disappears and you're left without because they didn't pay it because they folded, or some variant of that? Well, you know, it's interesting because about the same time, we got this speak pipe from Mohammad.
- [29:37]
Dr. Mohammad
Hey, Dr. Daly, this is Mohammed from the Midwest. I have a question. I am a surgeon. My wife is an OB gyn. She practices both OB and gynecology. And we had a question. She is debating to take a slight leave from work. Uh, she's less than 55 years old, and we're trying to understand the implications of that in terms of tail coverage and needing to pay for tail coverage and the cost associated with that. Any advice on that would be great. Love your podcast. Really trust everything you do and glad you're doing well.
- [30:12]
Dr. Jim Dahle
Okay, so let's talk about tail coverage.
- [30:15]
Dr. Michelle Lee
What are we talking about here?
- [30:16]
Dr. Jim Dahle
We're talking about malpractice insurance.
- [30:20]
Dr. Michelle Lee
And for most of you listening to.
- [30:21]
Dr. Jim Dahle
This, you have a malpractice insurance policy of some kind. It is one of two types. The first type is occurrence. Say you buy a policy for this year, for 2025, and anything that happens during 2025, if there's a claim resulting from it, it's paid for by that occurrence policy. No matter when the claim is made. If the claim is not made for six months or a year or two years or 19 years. That occurrence policy covers the defense of that claim. It covers any settlements offered, it pays any judgments that come out of that claim, at least up to policy limits. So that's kind of the gold standard for insurance coverage. And it's. I don't want to say it's relatively new, it's been around for a long time, but I feel like it's becoming a little bit more common these days. In the olden days, people bought coverage that was basically claims made coverage, meaning it's not. If something occurred during 2025, it covers any claims made during 2025. Okay, so that works fine as long as you keep working and keep buying claims made policies. But what happens if you stop working?
- [31:37]
Dr. Michelle Lee
What happens if you retire? Well, then what?
- [31:39]
Dr. Jim Dahle
What if there's a claim next year for something you did this year? Well, now you don't have any coverage.
- [31:46]
Dr. Michelle Lee
And so the solution to that is.
- [31:48]
Dr. Jim Dahle
A type of policy called tail coverage, meaning it's the tail, the end part of your coverage, you know, the end.
- [31:56]
Dr. Michelle Lee
Of your career, it's the tail.
- [31:58]
Dr. Jim Dahle
Get it? And so the idea was when you quit practicing, you bought tail coverage, and that covered anything that happened prior to then, but that a claim had not been made for. And you think about that and you're like, well, how long is that time period? Well, the statute of limitations on malpractice in most states is something like two years, but it's often two years from.
- [32:18]
Dr. Michelle Lee
Discovery of the problem or two years.
- [32:20]
Dr. Jim Dahle
From the time that minor turns 18. So it can be a lot of years. It could potentially be decades.
- [32:27]
Dr. Michelle Lee
And so it's important coverage to have.
- [32:29]
Dr. Jim Dahle
I mean, the last thing you want.
- [32:30]
Dr. Michelle Lee
To do is retire, have some claim come up that you don't have coverage for, and all of a sudden now.
- [32:34]
Dr. Jim Dahle
You'Re out the couple million dollars you.
- [32:36]
Dr. Michelle Lee
Were planning to live on in retirement.
- [32:38]
Dr. Jim Dahle
It's a real problem. And so you got to do something about that.
- [32:41]
Dr. Michelle Lee
If you're in a situation where you.
- [32:43]
Dr. Jim Dahle
Find out or you knew ahead of.
- [32:45]
Dr. Michelle Lee
Time that you had claims made coverage.
- [32:48]
Dr. Jim Dahle
You'Ve got to know about the tail. So let me tell you a story.
- [32:51]
Dr. Michelle Lee
When I joined my current emergency medicine.
- [32:53]
Dr. Jim Dahle
Group in 2010, we had claims made coverage. And I asked, well, what happens if you fire me or I quit and move on to another job? Well, then you'd have to get a tail coverage.
- [33:07]
Dr. Michelle Lee
They tell me.
- [33:08]
Dr. Jim Dahle
And I'm like, well, how much is that?
- [33:10]
Dr. Michelle Lee
And the managing partner of my group.
- [33:11]
Dr. Jim Dahle
Did not know how much it was. He had to go to the insurance company and ask. And what we discovered is that the amount was like the equivalent of two and a half years of malpractice coverage. So I think at that time my malpractice coverage was like 16 or $18,000 a year. Thankfully, it's gone down for emergency docs in Utah since 2010.
- [33:33]
Dr. Michelle Lee
It's a lot cheaper now for me.
- [33:35]
Dr. Jim Dahle
Especially now that I'm only working part. But that's what it was. For a year of claims made coverage, it was 16,000 or $18,000 a year. Well, the tail, when we got the quote was about $50,000. It was not insignificant. So what does that work out to be? Two and a half, three years of coverage? And I don't know that that's some.
- [33:55]
Dr. Michelle Lee
Sort of a rule of thumb, but.
- [33:57]
Dr. Jim Dahle
It'S not cheap is the bottom line, it's going to cost you more than a year of your regular coverage. So this is not something you can.
- [34:03]
Dr. Michelle Lee
Ignore when you're negotiating a contract.
- [34:05]
Dr. Jim Dahle
You need to know what kind of coverage you're getting and if it's claims made, who's going to pay for the tail, under what circumstances. So what I ended up doing as I negotiated this pre partner position with.
- [34:18]
Dr. Michelle Lee
My group is I negotiated that if.
- [34:20]
Dr. Jim Dahle
I left, I'd pay for the tail. If they fired me, they'd pay for the tail. Now it all worked out fine. Obviously I'm still in the group 15.
- [34:28]
Dr. Michelle Lee
Years later and we've subsequently swapped to an occurrence policy. So this was never an issue for me.
- [34:33]
Dr. Jim Dahle
But for these two people, the one.
- [34:35]
Dr. Michelle Lee
Sending in the email where the company.
- [34:36]
Dr. Jim Dahle
Just went kibosh and the other one.
- [34:40]
Dr. Michelle Lee
Who wants to take some time off.
- [34:42]
Dr. Jim Dahle
But has claims made coverage, you don't have a lot of choices here. You can either buy the tail yourself and like I said, it's probably not that cheap.
- [34:51]
Dr. Michelle Lee
You can roll the dice and just.
- [34:53]
Dr. Jim Dahle
Hope a claim doesn't come in.
- [34:55]
Dr. Michelle Lee
Or there is a third option.
- [34:57]
Dr. Jim Dahle
This is one I recommend. In most cases it might not work.
- [35:00]
Dr. Michelle Lee
For the person taking a few months off or whatever.
- [35:02]
Dr. Jim Dahle
In that case, I would just try to keep your malpractice coverage going even if you have to pay the premiums yourself. But what I would do in most.
- [35:10]
Dr. Michelle Lee
Cases, if you're changing jobs or whatever.
- [35:13]
Dr. Jim Dahle
And you need tail coverage, is I would talk to the new employer, the.
- [35:18]
Dr. Michelle Lee
New insurance carrier that's going to be covering you afterward into giving you nose coverage.
- [35:24]
Dr. Jim Dahle
Okay, get it? Tail coverage is at the end, nose coverage is at the beginning. Right. So this is essentially you're buying your tail coverage from your new insurance company and that's what I'd recommend you try to negotiate because this is not something you can ignore. I mean, 50 grand still a lot of money to most doctors. And I'm sure if you're an obgyn, it's probably more expensive than that.
- [35:44]
Dr. Michelle Lee
You know, neurosurgeon is probably more expensive than that.
- [35:46]
Dr. Jim Dahle
But when I got a quote for it for emergency medicine back in 2010, that's what it was. It was a little over $50,000 to buy that tail cover. I suspect it's a little bit cheaper now for emergency medicine and it's probably a lot cheaper for a lot of other specialties. But this is something that definitely needs to be on your mind when you're negotiating any sort of a contract that involves insurance coverage. All right, our quote of the day today comes from Henry David Thoreau, who said the price of anything is the amount of life you exchange for it. Love that quote. Okay, another question about insurance. This one's coming off the speak pipe. I think two separate speak pipes, but let's listen to these.
- [36:28]
Dr. Jamil Fatih
Hello, my name is Jamil Fatih. I am physician, my CPA who also my tax planner recommends me to purchase whole life insurance as a part of tax strategy to save income tax. I am now 45 years old. I already have two term life insurances, so I do not need death benefit. So the whole life insurance is only to save tax. The annual premium is 100,000 a year. I have 92% cash value every year for 15 years against my death benefits, which I don't really need. Would you recommend me to go ahead. I appreciate your valuable advice. Thank you.
- [37:12]
Dr. Jim Dahle
Thanks for your great question. We are not big fans of whole life insurance here at White Coat Investor. I don't have anywhere near enough information.
- [37:22]
Dr. Michelle Lee
About you or your situation to decide.
- [37:25]
Dr. Jim Dahle
If this is a good idea for you or a bad idea for you. Most likely it's a bad idea for you because it almost always is a bad idea to buy whole life insurance.
- [37:34]
Dr. Michelle Lee
There are a few niche uses for it.
- [37:37]
Dr. Jim Dahle
Lowering your tax bill this year is not really one of those. So if you really don't want a permanent death benefit, you've almost surely not bought something that you should have bought. Whole life insurance is a lifelong insurance policy. So no matter when you die, whether you die at 35 or 65 or 95, it's going to pay that death benefit to your heirs to your estate, whatever. That's the main purpose to buy it is you're buying a policy that's going to pay out no matter when you die because if you buy a term policy at age 35 and it's a 30 year term, right, and you make.
- [38:15]
Dr. Michelle Lee
Payments on it until you're 65 and.
- [38:17]
Dr. Jim Dahle
Then it's done, right?
- [38:19]
Dr. Michelle Lee
So most of the people that buy.
- [38:21]
Dr. Jim Dahle
It aren't going to die before 65, they're going to die after 65, and there's not going to be a payout.
- [38:27]
Dr. Michelle Lee
To their heirs or their estate or.
- [38:29]
Dr. Jim Dahle
Whatever because of that. It's much cheaper than to buy whole life insurance.
- [38:35]
Dr. Michelle Lee
And the truth is, most of us.
- [38:36]
Dr. Jim Dahle
Don'T have a permanent need for a death benefit. We have a temporary need for a death benefit. We need it for 15, 20, 25, 30 years, something like that. And after that time period's up, we're.
- [38:49]
Dr. Michelle Lee
Financially independent, we have plenty of money.
- [38:51]
Dr. Jim Dahle
If we died, our loved ones could.
- [38:53]
Dr. Michelle Lee
Live off what we were planning to.
- [38:55]
Dr. Jim Dahle
Live on for the rest of our lives.
- [38:58]
Dr. Michelle Lee
And so buying insurance for a period.
- [39:00]
Dr. Jim Dahle
Of time, which you don't need insurance.
- [39:02]
Dr. Michelle Lee
Is a good way to waste money. And that's the main problem with whole life insurance. If you don't need a permanent death.
- [39:08]
Dr. Jim Dahle
Benefit, don't buy a policy that offers a permanent death benefit. Now, sometimes people get talked into buying whole life insurance as some sort of a retirement account. And mostly it's because people don't realize. You can always invest more in your taxable account, okay? Just because you maxed out your backdoor Roth IRA or just because you maxed out your 401k or your 403 and your 457 or whatever, you feel like.
- [39:34]
Dr. Michelle Lee
You can't save any more for retirement.
- [39:35]
Dr. Jim Dahle
Well, that's a bunch of crap. You can always save more in your taxable account, okay? And it's probably going to get you.
- [39:44]
Dr. Michelle Lee
Better returns doing that. Especially if you invest relatively tax efficiently and you're investing in relatively aggressive investments.
- [39:51]
Dr. Jim Dahle
Like stock index funds or real estate or something like that, you're probably going to come out ahead than investing in whole life insurance. A big problem for doctors is they come out of residency and they get their first tax bill after that first year and they gasp when they realize they're paying more in taxes than they used to make as a resident or a fellow. And that's really hard for them. They feel like they need to do something about that tax bill. But I've got news for you. This is the way our progressive tax system works, okay? Mitt Romney got much maligned for it back when he was running against Barack Obama for the presidency. But he correctly pointed out that something like 47% of taxpayers don't pay income tax. That is a true fact. Now they pay payroll taxes, they pay sales taxes, property taxes, those sorts of things, but they don't actually pay income taxes.
- [40:50]
Dr. Michelle Lee
It's a progressive system.
- [40:52]
Dr. Jim Dahle
A whole bunch of people have a negative income tax or pay nothing in income tax. And the people who pay all the income tax are those who earn a fair amount of money. And as a physician, if you're doing.
- [41:04]
Dr. Michelle Lee
This right, you're making a fair amount of money.
- [41:07]
Dr. Jim Dahle
You're making 200, 300, 400, 600, $800,000 a year. Maybe your spouse is also earning some money. And when you're earning that sort of.
- [41:16]
Dr. Michelle Lee
Money, your tax bill is not insignificant.
- [41:19]
Dr. Jim Dahle
It's usually some sort of a six figure amount. And so you start thinking, oh, I got to do something to reduce this.
- [41:26]
Dr. Michelle Lee
Well, the truth is that you reduce your tax bill mostly by living your.
- [41:32]
Dr. Jim Dahle
Financial life differently, not by filing your taxes in some sort of unique way, not by coming up with some sort of trick with your taxes like buying whole life insurance. You live your financial life differently, you save more for retirement, you make tax deferred contributions instead of Roth contributions, you give more money to charity, you get married, you have kids, you buy a house, and now you can all of a sudden deduct your mortgage interest, you move to a different state with a lower state income tax. These are the sorts of things that really make a dent when it comes to lowering your tax bill. Now when it comes to investment related taxes, you try to do some tax loss harvesting.
- [42:13]
Dr. Michelle Lee
You try not to buy and sell.
- [42:14]
Dr. Jim Dahle
Willy nilly and pay a bunch of capital gains taxes. You try to invest in tax efficient investments inside your taxable account. You use depreciation to shelter your real estate income. So you try to learn how to be tax efficient when it comes to your investments. But for the most part, buying a.
- [42:33]
Dr. Michelle Lee
Whole life insurance policy is not a great way to do this.
- [42:36]
Dr. Jim Dahle
Now, I can't tell exactly what your setup is, is maybe this is being bought by your business or something, and so somehow it's qualifying as a business tax deduction.
- [42:45]
Dr. Michelle Lee
That's the only way I can think.
- [42:47]
Dr. Jim Dahle
That buying a whole life insurance policy is going to save you any taxes this year. Now, whole life insurance does have some tax benefits, okay? As the money grows inside the policy, you don't pay taxes on the dividends because technically they're returns of premium. You know, you paid too much in.
- [43:07]
Dr. Michelle Lee
Premium and it's being returned to you.
- [43:09]
Dr. Jim Dahle
And that's not taxable.
- [43:10]
Dr. Michelle Lee
Those dividends as they get paid.
- [43:11]
Dr. Jim Dahle
So it grows in sort of a tax protected way. But if you surrender that policy and take your money out of it, assuming there's a gain, which there often isn't, in the first five to 15, sometimes longer years, if there's a gain, you're going to pay taxes on it when you surrender that policy and you're going.
- [43:31]
Dr. Michelle Lee
To pay those taxes not at long.
- [43:32]
Dr. Jim Dahle
Term capital gains rates, but at ordinary income tax rates. So what A lot of people do that have whole life insurance policies, whether they meant to buy them or not, they borrow against the policy. And when you borrow against the value of your home or the value of.
- [43:49]
Dr. Michelle Lee
Your car, the value of your whole.
- [43:50]
Dr. Jim Dahle
Life policy or the value of your investment portfolio, well, that's tax free, right?
- [43:54]
Dr. Michelle Lee
It's not interest free, but it's tax free.
- [43:56]
Dr. Jim Dahle
And a lot of people in the.
- [43:58]
Dr. Michelle Lee
Last few years of life, when they.
- [43:59]
Dr. Jim Dahle
Have highly appreciated shares of mutual funds or stocks in their portfolio, instead of.
- [44:05]
Dr. Michelle Lee
Selling them and paying a bunch of capital gains taxes, they just borrow against.
- [44:08]
Dr. Jim Dahle
Them and pay a little bit of interest in the last year or two of life and then their heirs benefit from the step up in basis at death. And nobody ever pays those capital gains taxes. So that's a conscious decision lots of elderly people make to try to pay.
- [44:21]
Dr. Michelle Lee
A little bit of interest instead of.
- [44:23]
Dr. Jim Dahle
A lot of capital gains taxes. Now, the one real benefit of whole life insurance, it's pretty unique, is if you do a partial surrender of the policy. You surrender as much of the policy as will get you basically what you paid in premiums. And the benefit here, the tax benefit.
- [44:44]
Dr. Michelle Lee
Is that with that partial surrender, basically the premiums, the principal, the basis, whatever.
- [44:48]
Dr. Jim Dahle
You want to call it, comes out first. So if you paid $300,000 toward this policy and now it's worth 30 years later, now it's worth $450,000 or and you only take 300,000 out as a partial surrender, well, that comes out tax free. It's your principal. So that's the cool tax benefit of whole life insurance.
- [45:10]
Dr. Michelle Lee
The rest of it is just kind.
- [45:11]
Dr. Jim Dahle
Of the way the tax world works. But that part is cool.
- [45:14]
Dr. Michelle Lee
It's better tax treatment than you get.
- [45:16]
Dr. Jim Dahle
With an annuity, for instance. And even when you sell something that's appreciated in your taxable account, some of.
- [45:22]
Dr. Michelle Lee
It'S going to be principal and some.
- [45:24]
Dr. Jim Dahle
Of it's going to be earnings appreciation. And so you're going to pay capital gains on the appreciation portion of it. But you can't just pull out the principal like you can with the whole Life insurance policy. So that is a cool feature of whole life insurance. That's the way it works. The problem is this whole time you've got this investment, you're paying for insurance you don't need, and you're getting a lousy return on the cash value portion of this policy.
- [45:51]
Dr. Michelle Lee
And it's just one pot of money, right?
- [45:53]
Dr. Jim Dahle
The death benefit is the cash value. So if you borrow a bunch of money against the policy, that cash value you're taking out by borrowing against it. Let's say you've got a death benefit.
- [46:05]
Dr. Michelle Lee
Of a million dollars and you borrowed out $800,000 to spend in retirement when.
- [46:09]
Dr. Jim Dahle
You die, it's not going to pay.
- [46:10]
Dr. Michelle Lee
You another million dollars.
- [46:11]
Dr. Jim Dahle
It's only going to pay you 200,000. It's one pot of money there, so keep that in mind. But that's the way those policies work. So a lot of people get sold these policies because they're products designed to be sold.
- [46:25]
Dr. Michelle Lee
They're sold to you by people who are paid very well to sell them.
- [46:28]
Dr. Jim Dahle
They get paid, paid big commissions.
- [46:29]
Dr. Michelle Lee
And a typical commission on selling these.
- [46:31]
Dr. Jim Dahle
Things is something like 50 to 110% of that first year's premium. So if you're buying a policy that's.
- [46:40]
Dr. Michelle Lee
$100,000 a year, that guy who sold.
- [46:42]
Dr. Jim Dahle
It to you is getting paid 50 or $100,000 to sell it to you. That's a serious conflict of interest.
- [46:51]
Dr. Michelle Lee
And if you're taking financial advice from somebody who is financially benefiting from selling.
- [46:56]
Dr. Jim Dahle
These things to you, whether they call.
- [46:58]
Dr. Michelle Lee
Themselves a CPA or tax planner or.
- [47:00]
Dr. Jim Dahle
A financial advisor, that's a real problem, right? Because they're selling you something that you probably don't want. Once you understand how it works, that you almost certainly don't need. If you're in a situation like you are and that person's selling you this product designed to be sold, not bought. So a lot of white coat investors, as they become more financially literate, realize they own one of these things. And I did too.
- [47:24]
Dr. Michelle Lee
I owned a whole life policy for seven years.
- [47:26]
Dr. Jim Dahle
Thankfully, mine was not $100,000 a year premiums. Mine was pretty trivial. In fact, as I was calculating my net Worth in 2004 for a talk I'm giving at WC Icon coming up, I saw that in 2004 I had $540 in cash value in whole life. And I didn't keep it very many years beyond that. So mine was a pretty tiny policy. But I dumped it anyway because you know what? I didn't need it.
- [47:53]
Dr. Michelle Lee
It was Sold to me inappropriately.
- [47:55]
Dr. Jim Dahle
It made me angry every time I looked at it.
- [47:57]
Dr. Michelle Lee
And frankly my overall return in those seven years I owned it was minus 33%.
- [48:02]
Dr. Jim Dahle
It was terrible. And so lots of white coat investors that do this realize they've been conned essentially into buying something they don't want and they surrender it and walk away. Now if you have a big loss.
- [48:15]
Dr. Michelle Lee
It can make sense to exchange it into a very low cost variable annuity.
- [48:20]
Dr. Jim Dahle
Like those at Fidelity, and let it grow back inside that annuity to basis, to the amount that you paid for.
- [48:28]
Dr. Michelle Lee
Those whole life insurance premiums. And then you surrender the annuity and.
- [48:31]
Dr. Jim Dahle
Walk away essentially with your money. And what that gets you is a little bit of tax free growth as it grows back to basis. But most people just kind of surrender it and walk away and count their losses as stupid tax or whatever you want to call it. Just the price you pay for making a mistake because you didn't know that much about how the financial world works. But when I hear about a doctor buying a huge whole life policy like $100,000 a year, the first question I ask him is how much money do you make?
- [49:02]
Dr. Michelle Lee
How wealthy are you?
- [49:03]
Dr. Jim Dahle
Do you really not have a better.
- [49:04]
Dr. Michelle Lee
Use for your money than dumping 30, 40, 50, $100,000 a year into whole life? And the answer is almost always that.
- [49:12]
Dr. Jim Dahle
They have a better use for their money. You know, they might have a mortgage.
- [49:15]
Dr. Michelle Lee
They'Re paying 7% on.
- [49:16]
Dr. Jim Dahle
Well that's going to way outperform your.
- [49:18]
Dr. Michelle Lee
Whole life insurance policy as an investment.
- [49:21]
Dr. Jim Dahle
Maybe they need to save for their.
- [49:22]
Dr. Michelle Lee
Kids college or maybe they're not putting enough away for retirement already, or maybe.
- [49:26]
Dr. Jim Dahle
They need to buy a car or whatever. You know, everyone's almost always got a.
- [49:30]
Dr. Michelle Lee
Better use than funding some huge whole life insurance policy.
- [49:33]
Dr. Jim Dahle
And I'll bet you do too. So I've got a couple of blog posts on the website.
- [49:38]
Dr. Michelle Lee
If you go there and search, you.
- [49:40]
Dr. Jim Dahle
Know, dump is really all you have to search. And these posts will come up. One's how to evaluate your own whole life insurance policy. That basically involves getting an in force illustration calculating what your return's likely to be going forward. Because sometimes even though you bought something you shouldn't have bought, going forward, the return's acceptable to you. Maybe you'll make 5% going forward and you're okay with that. Great. Keep it.
- [50:04]
Dr. Michelle Lee
I don't care.
- [50:05]
Dr. Jim Dahle
I'm not getting money for you to.
- [50:07]
Dr. Michelle Lee
Dump your whole life insurance policy or something.
- [50:10]
Dr. Jim Dahle
You want to keep it, keep it.
- [50:12]
Dr. Michelle Lee
The returns, long term returns on a.
- [50:14]
Dr. Jim Dahle
Whole Life insurance policy are not awesome. The guaranteed returns tend to be.
- [50:18]
Dr. Michelle Lee
This is assuming you keep it till.
- [50:20]
Dr. Jim Dahle
Like your life expectancy like five decades. The guaranteed returns tend to be something like 2%. The projected returns tend to be something like 5%. And that's what you're going to get if you hold onto this thing for life. No matter what the dividend rate is. That's what the returns actually are on what you're paying in premiums. So if that's okay, because those crappy.
- [50:39]
Dr. Michelle Lee
Return years are heavily front loaded.
- [50:41]
Dr. Jim Dahle
You know, if you've had this thing for 10 or 15 or 20 years, you might just want to keep it, but probably not. If you're having to pay out $100,000 a year toward it, you're probably not going to want to keep it. And then the other blog post just explains to you how to dump it if you want to get rid of it, you know, and that's often just surrendering it. Sometimes it's exchanging it into an annuity. You can also exchange the cash value into a long term care policy if for some reason that's something you're interested in. I think most white coat investors are probably planning to self insure that risk by retiring on a multimillion dollar portfolio. But if you're one of the people that thinks a long term care policy is really attractive to you, you might want to exchange it into that. Hope that's helpful to you. I'm sorry, you're just discovering that the person you thought was a financial advisor is actually a salesperson and that you probably bought something you don't actually want to own, especially if you don't want the death benefit. I mean that is the reason people buy these things. Now anybody who's got a whole life policy thinking about getting rid of it.
- [51:38]
Dr. Michelle Lee
Make sure you put the term life.
- [51:39]
Dr. Jim Dahle
Insurance coverage you need in place before dumping the whole life policy. The most important thing when it comes to insurance is having something in place in the event that you need that coverage.
- [51:50]
Dr. Michelle Lee
And the nice thing about a whole.
- [51:51]
Dr. Jim Dahle
Life policy is that it does have a death benefit. So if you died tomorrow, it would pay your heirs something. Okay, let's move on from whole life.
- [52:02]
Dr. Michelle Lee
Let's talk a little bit about annuities.
- [52:03]
Dr. Jim Dahle
Another product that comes to us from the insurance industry.
- [52:07]
Dr. Lakshmi Khonapu
Hi, I have two questions. First is where do I find the WCI recommended financial advisor list? Second question, I have about 300,000 in tax deferred IRA. My advisor suggested individual modified single premium fixed indexed annuity policy from SILAC Insurance Company. The product name is Teton. There's a tenure with elevation plus rider. Is it a good advice? My name is Dr. Lakshmi Khonapu.
- [52:48]
Dr. Jim Dahle
Thank you for your question, Lakshmi. I get questions like this all the time from white coat investors. And questions like this bring a lot of people to the White Coat Investor.
- [52:56]
Dr. Michelle Lee
And get people started on their journey toward financial literacy.
- [52:59]
Dr. Jim Dahle
So I love these questions. Those of you who've been listening to.
- [53:02]
Dr. Michelle Lee
This podcast for years or reading the.
- [53:04]
Dr. Jim Dahle
Blog or read my books, kind of know how this answer is going to go. Lakshmi, you have made a common mistake, one I have made, one that maybe most white coat investors have made. You have mistaken a salesperson for a financial advisor. This is somebody who is selling you a product, in this case some sort of indexed annuity. And just because it has the word.
- [53:26]
Dr. Michelle Lee
Index in it and index funds have.
- [53:28]
Dr. Jim Dahle
The word index in them does not mean this is a good thing.
- [53:32]
Dr. Michelle Lee
So they are selling you a product.
- [53:34]
Dr. Jim Dahle
Not giving you unbiased advice. Almost surely this is bad advice for you. I don't have all the details of your financial situation. I guess it's possible somehow that this is appropriate for you, but I doubt it. There's almost surely a better use for your money, for your savings strategy, for your investment strategy than buying some index linked annuity like the one you're being sold by somebody who's pretending they're an unbiased financial advisor. So what should you do? Well, first of all, don't do anything right now. If you buy that annuity, you're going to end up with some sort of a surrender penalty when you try to.
- [54:15]
Dr. Michelle Lee
Get rid of it in six months.
- [54:16]
Dr. Jim Dahle
When you realize that you don't actually want this thing. So I would recommend you get a real financial advisor. Okay? If you're not educated enough yet, if you're not financially literate enough yet to.
- [54:28]
Dr. Michelle Lee
Function as your own financial advisor, or if you just want to have somebody.
- [54:32]
Dr. Jim Dahle
There to help you, I would recommend you get a real financial advisor, somebody who charges fees for their advice. These are generally registered investment advisors. They often have a certification like a certified financial planner certification, a cfp, and they work as advisors. They don't get paid for selling products.
- [54:54]
Dr. Michelle Lee
They get paid for giving you advice. And we have a list of recommended advisors, people that have been vetted by.
- [55:00]
Dr. Jim Dahle
Us initially and in an ongoing way by white coat investors. If we get a bunch of complaints about an advisor, they come off our list.
- [55:07]
Dr. Michelle Lee
We don't care that they're paying us money to be on the list.
- [55:10]
Dr. Jim Dahle
They come off the list It's a lengthy list.
- [55:13]
Dr. Michelle Lee
We've got a lot of people on.
- [55:14]
Dr. Jim Dahle
It because there's a lot of people that need advisors. And an important aspect of that is having a good fit with your advisor. But you can find these people we recommend by going to whitecoatinvestor.com and if.
- [55:27]
Dr. Michelle Lee
You look at the tab at the top, it says recommended.
- [55:29]
Dr. Jim Dahle
And as you scroll down that you will see student loan refinancing companies, insurance agent, physician mortgage loan companies, and one that's labeled financial advisors. You can also get there directly by going to whitecoatinvestor.com financial advisors and you'll.
- [55:49]
Dr. Michelle Lee
Find a whole long list of real.
- [55:51]
Dr. Jim Dahle
Financial advisors there that will give you real advice. And I think I would be willing to bet dollars to donuts that not one of them is going to tell you to go ahead and buy this thing that your current advisor and I.
- [56:05]
Dr. Michelle Lee
Put that in quotes, if you're watching.
- [56:06]
Dr. Jim Dahle
This on YouTube is proposing that you buy from them. Sounds like a bad idea. Sounds like you're being ripped off. This is not uncommon. But you need to get yourself a real advisor, get some real financial advice.
- [56:21]
Dr. Michelle Lee
And that's going to cost you, right? These folks charge thousands of dollars a.
- [56:24]
Dr. Jim Dahle
Year for advice, but it's going to cost you a whole lot less than.
- [56:28]
Dr. Michelle Lee
Doing the wrong thing, which is what.
- [56:29]
Dr. Jim Dahle
It sounds like you're about to do. Speaking of recommended people, we have, we have a new partnership with Farmers Insurance Choice that lets you compare multiple quotes.
- [56:39]
Dr. Michelle Lee
For auto, home and renters insurance from.
- [56:41]
Dr. Jim Dahle
Top rated carriers all in one place. Find the best coverage for your needs.
- [56:45]
Dr. Michelle Lee
And see how much you can save.
- [56:46]
Dr. Jim Dahle
Get your quote today@whitecoatinvestor.com save and I'm going to have a blog post coming up where I'm actually going to shop all of our insurance around for the first time in many, many years and.
- [57:00]
Dr. Michelle Lee
See what we can save.
- [57:01]
Dr. Jim Dahle
I think it's going to be pretty.
- [57:02]
Dr. Michelle Lee
Interesting as it's been quite a while.
- [57:04]
Dr. Jim Dahle
Since we did it and obviously we.
- [57:05]
Dr. Michelle Lee
Have lots of insurance between our home.
- [57:07]
Dr. Jim Dahle
And three cars and soon to have.
- [57:10]
Dr. Michelle Lee
Two teenage drivers on there.
- [57:12]
Dr. Jim Dahle
And it'd be interesting to see what we can save. But you can check that out yourself by going to whitecoatinvestor.com save. All right, lots of insurance topics today, but let's do something a little bit different. Well, we're still going to talk a little bit about insurance with this, but let's, let's talk about some mortgages.
- [57:29]
Homebuyer
Hey, Dr. Dali, I have a question about mortgages. My wife and I are looking to buy our first home. And I was wondering, is there any benefit to escrowing our home insurance as well as property tax money, or is this something we should not escrow and just pay annually? Thanks.
- [57:49]
Dr. Jim Dahle
Okay, great question. You know, the truth is, your lender is probably going to require you to.
- [57:55]
Dr. Michelle Lee
Escrow your home insurance and your property.
- [57:58]
Dr. Jim Dahle
Taxes because they want to make sure their investment is secure, right? Their investment is in this home. If you stop paying, they have to foreclose on your home in order to get their money back. So you stop paying the mortgage. They start sending you notices after a month or two saying, we're going to foreclose on you if you don't pay. And within three, four, six months, they're going to foreclose and take your home. What they don't want to happen during that process is that your home burns to the ground, right? Because if your home burns to the ground and you just walk away, they're out of luck because the home's not insured, right? So they want to force you to buy home insurance.
- [58:39]
Dr. Michelle Lee
Once it's paid off, you don't have to have home insurance. You can let your house burn to.
- [58:43]
Dr. Jim Dahle
The ground and not have any insurance at all.
- [58:45]
Dr. Michelle Lee
But while you have a loan on.
- [58:47]
Dr. Jim Dahle
It, they're probably going to require they have home insurance.
- [58:50]
Dr. Michelle Lee
And one of the ways they do.
- [58:51]
Dr. Jim Dahle
That is by requiring you to have.
- [58:54]
Dr. Michelle Lee
An escrow account, probably through them, that pays that home insurance.
- [58:57]
Dr. Jim Dahle
Same problem with property taxes. I mean, your home doesn't disappear in 20 minutes, like when it burns to the ground, but the government authority in your area can take the home. Also. Very bad for the lender who thought that home was their collateral on the.
- [59:14]
Dr. Michelle Lee
Loan they were making.
- [59:16]
Dr. Jim Dahle
To have that go to the city.
- [59:17]
Dr. Michelle Lee
Or to the county or whatever, because.
- [59:19]
Dr. Jim Dahle
Your failure to pay property taxes. So they generally require you to have an escrow account that will pay your home insurance and your property taxes. That's convenient for lots of people. They don't mind that so much. They basically put a certain amount of.
- [59:31]
Dr. Michelle Lee
Money in there every month.
- [59:32]
Dr. Jim Dahle
It just gets charged as part of their mortgage.
- [59:34]
Dr. Michelle Lee
So it feels like paying rent. It's just one big bill that comes every month, and it changes by a few dollars every year as those home.
- [59:40]
Dr. Jim Dahle
Insurance and property tax taxes change prices. But basically you kind of pay the same amount every month. And what that escrow account does is whenever the home insurance is due, once a year or twice a year, they.
- [59:54]
Dr. Michelle Lee
Pay out a big lump sum out.
- [59:56]
Dr. Jim Dahle
Of that escrow account when the property.
- [59:57]
Dr. Michelle Lee
Taxes are due once a Year they.
- [59:59]
Dr. Jim Dahle
Pay it all in a big lump sum out of that escrow account. So you might have $15,000 in the escrow account one month and the next month you only have $2,000 in there.
- [60:06]
Dr. Michelle Lee
Because they're just paid $13,000 property tax.
- [60:09]
Dr. Jim Dahle
Bill on your behalf out of there. So I don't think you have a choice. You can ask the lender, but I.
- [60:14]
Dr. Michelle Lee
Don'T think you have a choice.
- [60:15]
Dr. Jim Dahle
They're almost surely going to require you to have an escrow account until you pay off that mortgage. Now for those of you out there who are mortgage free like we are, we do not have an escrow account.
- [60:25]
Dr. Michelle Lee
We pay our home insurance directly, we pay our property taxes directly.
- [60:29]
Dr. Jim Dahle
Now obviously we have to make sure we manage our finances in a way that we have that money when those bills come up. But I much prefer that control and I don't want to be dealing with.
- [60:39]
Dr. Michelle Lee
Somebody else doing this for me.
- [60:41]
Dr. Jim Dahle
That's what an escrow account is, is paying somebody to help you budget so.
- [60:45]
Dr. Michelle Lee
You can pay your home insurance and property tax bills.
- [60:47]
Dr. Jim Dahle
Well, I don't need that. I can budget that myself. And so we don't have any sort of an escrow account. When we paid off our mortgage, we started managing this stuff ourselves. And I think that's probably what most people who are mortgage free do. But until then, you're probably stuck with an escrow account.
- [61:01]
Dr. Michelle Lee
I'm sorry.
- [61:02]
Dr. Jim Dahle
Maybe it's good for you, maybe it's not. But you're probably stuck with it either way. Hope that's helpful. As you prepare your taxes this season.
- [61:10]
Dr. Michelle Lee
You might be wondering if you're paying more than you should. Over the past decade, clients of Cerebral.
- [61:13]
Dr. Jim Dahle
Tax Advisors have seen an average return.
- [61:15]
Dr. Michelle Lee
Of 453% on their investment in Cerebral's tax planning services.
- [61:20]
Dr. Jim Dahle
As a white coat investor recommended firm trusted by physicians nationwide, Cerebral uses court tested IRS approved strategies to reduce personal and business taxes. Cerebral founder Alexis Galati comes from a family of physicians and brings over 20 years of expertise in tax strategy and multi state tax preparation.
- [61:36]
Dr. Michelle Lee
Don't let another year go by leaving money on the table.
- [61:38]
Dr. Jim Dahle
Schedule your free discovery session today@cerebraltaxadvisors.com all.
- [61:44]
Dr. Michelle Lee
Right, don't forget the WCICON 26 Ticket presale ends tonight.
- [61:49]
Dr. Jim Dahle
This is the lowest price ever. We're going to the JW Marriott in Las Vegas. This is out toward Red Rock. I'm told I'm even going to be leading at least one hike out there. So this is going to be a great place.
- [61:59]
Dr. Michelle Lee
It's one of my favorite places to go. It is not on the Strip. You can get to the Strip quickly if you want, but it is not.
- [62:05]
Dr. Jim Dahle
On the Strip in Las Vegas. But it still has all the conveniences of being able to fly direct into Las Vegas for relatively cheap prices. From all over the country, March 25th through 28th. Go to wcievents.com to get $500 off your registration today. All right, thanks. For those of you leaving us a.
- [62:24]
Dr. Michelle Lee
Five star review and telling your friends.
- [62:26]
Dr. Jim Dahle
About the podcast that does help to spread the word, a recent one came in from Rural Main Doc who said help me get on track. This podcast has a practical and pragmatic approach for high income professionals to become financially literate and achieve the financial goals.
- [62:38]
Dr. Michelle Lee
They may not have even known they had.
- [62:40]
Dr. Jim Dahle
I appreciate that so much of what is discussed here is good sense for.
- [62:43]
Dr. Michelle Lee
Everyone to live below your means and.
- [62:45]
Dr. Jim Dahle
To make a plan for the future. The variety of people at many different stages of career brings a depth of perspective. I love appreciate growing my financial literacy while feeling connected to a larger community. Thanks for all you do. Five stars. Appreciate that from way out in Maine. Maine is one of those places on.
- [63:01]
Dr. Michelle Lee
My list to spend more time in.
- [63:02]
Dr. Jim Dahle
I've been to Maine before. I need to spend more time in Maine. It's my kind of place, I think. All right, that's it. Keep your head up, shoulders back.
- [63:09]
Dr. Michelle Lee
You've got this.
- [63:10]
Dr. Jim Dahle
We'll see you next time on the White Coat Investor Podcast.
- [63:13]
The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.