B (31:11)
Okay. Wow. That covered a lot of space. Why don't we start with the two earner situation? Since this is an episode where we're focusing on insurance. Let's do the insurance first. You don't necessarily need disability insurance. What you need is a plan in case you become disabled. In this case, two earners. In case one earner becomes disabled, in case the other earner becomes disabled, in case both of you become disabled. Obviously a lower risk that you both become disabled, but it's not zero. So what is the plan in each of those cases? And if the plan is acceptable without disability insurance, great. If it isn't, then buy the disability insurance that's needed to make that plan work. Okay, so maybe your plan if one of you gets disabled is you're just going to spend less money and live off the other person's income. Fine. Works fine for the other partner as well. Doesn't work if you both get disabled. It also doesn't work if you get divorced and now you've got some medical problem that causes you to not be able to buy disability insurance. Right. That could be an issue as well. Are you going to try to go back to court and try to get more alimony or something? That might be kind of awkward. So there's certainly a case that can be made for basically three different scenarios. One, buy insurance on both of you to the hilt. I mean, you're two earners, you can afford it. Right? And presumably you'll get to fi a little bit faster and you'll be able to cancel it. You know, maybe you just get one of these graduated premium policies. You don't end up paying that much anyway. You cancel it in eight years or 10 years when you're fi and fine. You're covered for now. Right. You could do that. Another option that some people choose is they just do partial insurance. And sometimes they go, well, I'm probably going to be a stay at home mom in a couple of years, so let's just insure dad's income. Or they look at the two of them, they say, which one's a higher earner? And they go, oh, let's insure the interventional radiology income instead of the preventive medicine doc's income. Right. Or sometimes they go, well, let's just buy kind of half a policy on each of us. We'll Both get a $7,000 a month policy. So we both have a small policy. If one of us gets disabled, it keeps the family income up pretty good. And if we both got disabled, well, we'd have $14,000 a month to live off of. You know, so there's all kinds of these in between approaches, between full hilt and no insurance at all. And of course, the last option is no insurance at all. You're dependent on your spouse to be your insurance policy, and that's not crazy, but there is some risk there, and you got to be okay with running that risk. I get it that disability insurance is expensive, and obviously, you know, you get sticker shock when you go to buy it. But I think most docs probably ought to have some sort of a policy at least for the first decade of their careers. And at that point you can start going, you know, we got a few million dollars saved now maybe we're comfortable with being each other's disability insurance policy or whatever. Right. So it's an individual situation. Certainly if you're in the situation Katie and I were in where we had one income, it was my doctor income, and that was it. Right. That's the sort of situation you want to buy disability insurance and plenty of it. Okay, I think we've dealt with the first question, which is how to high earners deal with disability and disability insurance. The second part of the question also gives us a lot to talk about. You mentioned a 20s fund, right? When I talk about a 20s fund for my kids, this is money I saved up for my kids to blow in their 20s. Not to blow, but to use in their 20s. And the idea behind it was, when would an inheritance be most helpful to you? Well, it's most helpful to you in your 20s when you don't have any money. You have all kinds of great uses for money and you really can't turn your time into money at a very high rate. So if you think of a time when you could have really used some financial help, that time was probably your 20s, if you're like most of us. So given that we had more money than we needed to spend, we saved up some money for our kids to have in their 20s. That's part of their inheritance. Now the other part they don't get for quite a while because I want them to establish their own financial lives and their own careers, et cetera, but they get some money in their 20s. Part of that's a 529 fund to help pay for college. Part of that's Roth ira. You know, basically a daddy match for money that they earned as teenagers. We put into a Roth ira. Part of that is an HSA that we fund for them. Once they're financially independent of us, but still on our health insurance plan, we can actually put a family size contribution into their hsa. So we do that for a few years between the time they're 19 and 26 or so. But the main part of that is a UGMA account, right? An UGMA Uniform Gift to Minors account or an UTMA Uniform Transfer to Minor's account, basically the same thing, Slight differences there. But that's basically money that in our state, when they turn 21, is theirs. I don't even have visibility into it anymore. It was moved out of my Vanguard account into my daughter's Vanguard account within a few weeks after her turning 21. But the idea behind that money is this money that they can use for those great uses for money that you have in college or in your 20s, whether it's college or whether it's a starter home or getting married or going on a honeymoon or doing some missionary work or a summer in Europe or whatever. All that stuff you would have liked to have some money for in your 20s. You know, maybe it's buying a car or something to see you don't have to drive a $2,000 beater, whatever. But that's the idea behind a 20s fund. So how big can that get? Well, what you'll find with an UGMA is if you get it much above $100,000, even if you invest it very tax efficiently, you're going to be paying taxes on it at your tax rate due to the kiddie tax. So typically this is probably Five figure amount, maybe a low six figure amount, not a gazillion dollars. I'm not sure that's quite the same thing that this particular caller is talking about when they're talking about having enough money in their 20s fund to buy a home in cash, even if it's a starter home. Right. Homes are not cheap these days. I guess it varies by where you are geographically. But in Salt Lake right now, the average home's like $600,000. That's a heck of a 20s fund. So wonderful that your family is wealthy enough to have provided this great opportunity to you that you can buy a home in cash, that that's even a possibility. So that's great. It's a wonderful inheritance. It is a wonderful thing. Be sure to thank the people that sacrificed so that you could have that opportunity. Now what should you do with that opportunity? Right. You're basically now at the beginning of residency. The first thing a lot of people do is they want to buy a home. As a resident, it's usually probably not the right move. Right? You need to be in a home for maybe five years on average. It varies, right? Sometimes you can make money in two years, sometimes it takes 10. But you got to be in a home for like five years to come out ahead on buying. And most residencies are no longer than five years. And you're usually going to a new town when you finish. And even if you don't, you don't want to stay in that home anyway. And you don't necessarily want to turn into a rental and have it be a long distance rental. Right? So it's usually not the right move to buy a house in residency at all, whether you do it in cash or whether you do it with a mortgage. So keep that in mind that you just having money doesn't mean that that decision changes of what you should do with that money. You've got alternatives. You don't have to use it to buy a home. You can leave it invested and maybe in five years it's 50% larger or 100% larger than it is now just from investing it along the way. So don't let that money start burning a hole in your pocket and feel like you got to spend it now in a house you don't. The other thing to keep in mind is you don't have to pay in cash to avoid mortgage insurance. All you have to do to avoid private mortgage insurance is one of two things. One is put down 20%. Put down 20%, you can just get a conventional mortgage, no PMI required. Or two, you can just use a physician mortgage, right? And then you can actually put down less than 20% and still not have to pay PMI. So there's really no reason for doctors to ever pay pmi. But the substance of your question, and we'll pretend this, is maybe after your residency, although every now and then maybe it does make sense for somebody to buy a home during residency. The question is, if you have the money, do you pay cash or do you put some money down, use that leverage essentially to invest. You're really investing on margin when you're doing this right, you are borrowing money against your home and using it to fund your investments. So your alternative here is to just avoid the mortgage. And mortgages these days are like 6 to 7%. So it's not a terrible guaranteed rate of return. To save yourself 6% or 7%. Now, you probably need to adjust that for taxes. You know, some of that mortgage interest might be deductible to you. So maybe it's only 4% for you and not 6.5% or whatever. But that's what you're comparing to. And the truth is that's a guaranteed investment. So what do other guaranteed investments pay? Well, if you go over to Vanguard and look at their money market account, maybe you're making 4.5% in their money market fund or 4% or 3.5% or whatever. It's really not dramatically better. So the only way you come out ahead by, you know, borrowing the money in order to invest is if your investment makes more money than that. And you're going to have to take on some risk to do that. Whether that's investing in real estate or whether that's investing in the stock market, you're going to have to take risk. And the risk adjusted return still might not be better than what you can get paying off that mortgage. So I do think it's worth considering just paying for the house and mortgage, just paying for the house in cash. I mean, our house is paid off. I'm not going out to borrow against it. Again, I like having a paid off house. It's nice. There's a lot of benefits to that, whether they're psychological or financial. But there's also a good chance that in the long run, maybe you will beat that 4% or 6% or 7% or whatever it is with your investment. So it's not crazy to do this, especially if you have a significant need to take that risk to reach your financial goals. But that's what you ought to Be weighing as you make this decision. And you can split the difference too, right? It's not 20% or 100% on the house. You could put down 60% on the house too. You could split the difference. So there's no wrong answer there. There's only a wrong answer for you. So consider your attitude about debt. Consider your need to take risk. Consider the interest rate on the debt. Consider the available investments. Obviously, if you're able to put the money into a Roth IRA or some sort of tax protected account, that's going to be a little bit better than if you have to invest it in a taxable account. So consider all those factors and make the decision that's right for you. All right, back to insurance. Got distracted there for a minute. All right. I got this email about malpractice. It says, I'm a neurology fellow. I'm in the process of signing a contract at a community practice. One of the things I noticed on the contract was a claims based malpractice practice insurance. Given the way it was phrased, I would like your take on it. Alright, let's pause right there for a second. I want to make sure everybody out there in white coat investor land understands the difference between claims based and occurrence malpractice coverage. Okay, for occurrence, you buy an occurrence policy for the next calendar year and something happens to some patient during that calendar year while you're taking care of them and they sue you for it, whether they sue you this year or next year or the year after that, that occurrence based policy will cover the defense of that claim and the payment of any sort of settlement on that claim or any judgment on that claim, at least up to policy limits. With a claims made policy, if it just covers the next calendar year, it only covers claims that are brought during that calendar year. If you hurt somebody this year but they don't sue you until March of next year, that policy doesn't cover. Right. You have to have a different claims made policy or when you're eventually done buying these claims made policies each year you got to buy a tail coverage or get your next insurer to buy nose or your next employer to buy nose coverage for you to cover prior events. Otherwise you don't have any coverage for that claim brought after the period. So in general occurrence coverage is better. It usually costs more as well. So keep that in mind. All right, let's go on with the email. To me it sounds like it may function as an occurrence based malpractice. And yes, I'll have a lawyer look at the contract, but I wanted to hear your thoughts. Says currently coverage is provided on a claims made basis, which means it will respond to claims that are made during the policy period resulting from actions alleged or occurring after the employee's initial date of hire by the employer, provided that continuous renewals are maintained. No tails are required for physicians who are or have been scheduled on the policy for claims arising during their period of employment. While the employer cannot assure the future availability of continuous renewals, it will make every effort to obtain them. In the event continuous renewals of the current claims made policy are not obtained, the employer shall either secure coverage with the replacement carrier, purchase tail coverage or or self insure the risk of claims made against the employee all on the same terms as the then most current claims made policy for acts occurring at any time during the employee's period of employment. Okay, so he wants to know is this the same as occurrence coverage? Well, there's a lot of legalese in there, right. And so I mostly agree to him that you know, in that contract the employer is on the hook for the tail, but really only while you're working there and only while the employer actually exists. Right. The contract doesn't say anything about who's going to buy the tail if the employer goes out of business or if you quit or you're fired. That I can see. So what I would suggest when negotiating this contract is defining all those things very specifically as best you can. If they're saying, yeah, of course we're going to cover those things. Even if we fire you, even if you quit, we're still going to cover it. Well, why not just have the contract say that? Right? So you know they've got your tail covered. I just like to see that very explicitly stated. And if they're planning to actually cover that risk, why would they object to explicitly stating it if they're not going to cover that risk? You want to know about it up front so you can at least get an estimate of what that's going to cost you. You know, this was the case when I took my job with my current partnership, right. I was hired as a pre partner and the way it was written up was that they weren't going to cover my tail. It was a claims made policy that it had. And so we negotiated that if I quit I would pay the tail. If they fired me, they would pay the tail. That's what we agreed to. And as part of that process, I want to know how much the tail cost. And my negotiating partner, who's later my Managing partner at the job. He didn't know, he had no idea. He had to go to the insurance company. And it turned out in that case, back in 2010, for an emergency DOC, a tail cost about $50,000. It wasn't insignificant. This was back when I think my insurance was like $16,000 a year. So it was like three years worth of claims made. Coverage is what that tail cost. It was not insignificant. So you need to know when you sign an employment contract and the employer is providing insurance, who's got the tail, right? If it's not an occurrence based policy, who's paying for that tail and under what circumstances? Very important part of the negotiation of that particular contract. So keep that in mind. This one, I just ask them to make it a little more explicit what they're covering and what they're not because it's a little confusing to me as well. Maybe your lawyer or the person you hired to review your contract. We got a whole list of those@whitecoatinvestor.com that we recommend. Maybe they won't think it's that confusing, but I thought it was a little bit confusing. So I'd like to see it a little more clearly stated. Okay, next question I got was, are you aware of the Steward debacle with malpractice right now? Unfortunately, I am all too aware of working with Steward. My hospital was owned by Steward Steward Healthcare or whatever they're called, right? This is this hospital company that has basically gone bankrupt without having to worry about getting sued for libel. I don't want to say everything the CEO did, but a lot of it is getting a lot of scrutiny right now, let's put it that way. Way. But a lot of people are talking about this because when Steward went bankrupt, they stopped paying the malpractice carrier. And so docs are kind of getting hosed, right? The docs are being left liable for settlements, et cetera. But basically Steward kind of raided the risk retention group that was covering the stocks. And so the docs are now being made to personally cover the stuff the insurance company was supposed to. Well, well, that's fine, I guess if you don't have a lawsuit, you get away, right? You gambled and won. But if there is a lawsuit, well, you could really be hosed, right? And so in that sort of a situation, you may end up literally having to buy your own tail coverage and hopefully there's not already a lawsuit going when that happens because obviously nobody's going to sell you coverage for a lawsuit that's already in progress. So hopefully those doctors in that situation are able to find a reasonable way out of this and that that, you know, situation is taken into account when settlements are made and those lawsuits that are going on by docs covered by this. I see this article from December of 2024 about Steward by Jessica Bartlett. This is @M MellonBudwick.com talks about Steward Healthcare's in house malpractice insurer Traco is asking a bankruptcy judge to force the failed hospital company fork over tens of millions of dollars in unpaid premiums and to pay back a huge investment in a Utah hospital it sold. What may be most remarkable, though, is what the recent court filings don't say the Traco bosses now looking to recoup the missing millions are the same Steward executives responsible for the captive insurer's cash squeeze. It's a circular blame game. At stake are tens of millions of dollars for former patients and people who were injured or wronged by the company. Hundreds of doctors who rely on Traco for malpractice coverage could also be affected. Traco's newly aggressive approach is, on its face, perfectly rational for an entity trying to figure out how it's going to pay off millions of dollars in pending claims. But the filings fail to mention that the three members of Traco's board, and it names them, were also, until recently, top steward executives. Yeah, quite a debacle there. Bottom line, this is the downside to having your employer buy your malpractice coverage, right? Sometimes employers go out of business and then what? What are you supposed to do? Are you going to go out and buy your own malpractice coverage? What if there's already a lawsuit in play at the time? Are you covered? Are you not covered? These are some of the risks we think about. You think about all that money you can save by having a captive insurance company. Well, that captive insurance company is the business. Businesses go out of business all the time. So keep that in mind. And as you're negotiating contracts, please, please, please have them reviewed by somebody competent. If you go to thewhitecoatinvestor.com under our recommended tab, there's contract review services. They do this for hundreds of docs every year. It's going to cost you a few hundred dollars. It will be worth it, I promise. You're almost surely going to catch something in that policy or in that contract that you want to change. If nothing else, you'll understand the contract dramatically better. Why are we signing contracts that are worth literally millions of dollars and not even spending a few hundred dollars getting it reviewed by competent counsel doesn't seem particularly smart, right? This is a no brainer. Get your contracts reviewed and we highly recommend that here at the White Coat Investor don't be pennywise and pound foolish. All right, I think we've talked enough about insurance today, have we not? Don't forget our new Partner Rate Insurance whiteconeinvestor.com Rate-Insurance yes, it's time for you to shop around your property in casualty insurance again. You can probably save a whole bunch of money. Might be thousands of dollars you can save on that coverage every year by having a competent broker shop it around that understands your situation, that understands your need for umbrella and coverage, that understands the fact that you have a luxury home or whatever. So be sure to check that out this podcast was sponsored by Bob Bayani at Protuity. One listener sent us this review. Bob has been absolutely terrific to work with. He's always quickly and clearly communicated with me by both email or telephone, with responses to my inquiries usually coming the same day. I have somewhat of a unique situation and Bob has been able to help explain the implications and underwriting process in a clear and professional manner. Contact Bob at 973-771-9100, by email at inforatuity.com or by going to whitecoatinvestor.com protuity and get your disability insurance in place today. Thanks. For those of you leaving us five star reviews telling your friends about the podcast, it really does help to get the word out. This one comes in from Charles, who says a friend and financial advisor we all wish we had. As a physician who used my GI bill to earn an mba, I can confidently say I've learned more about personal finance I from Dr. Dali than I ever did from my own financial advisor or my professors. He has a rare gift for delivering pragmatic, actionable financial advice in terms that are easy to understand and tailored to real people's lives. He takes the time to answer individual questions thoughtfully and generously, and it's clear that he pours both his energy and his own resources into helping others succeed. Those who know him personally are incredibly fortunate, and for the rest of us, we're lucky to have such a friendly, familiar voice guiding us. His teaching is so foundational that I give his book to every high school graduate I know so they can start building financial wisdom early. His impact reaches far beyond finance. It changes lives. Thank you Dr. Dali. Please continue your great work. Five stars. Wow. That was really nice. Thanks for writing that. You know, I don't know that the White Coat Investor is the best book to hand out to high school graduates. It is certainly the best book to hand out to pre meds and med students. Highly endorse that. But you know, when I think about what I'd hand out to high school graduates, there might be a few other books on our recommended book list that you can find@whitecoatinvestor.com that I might give to those folks. Although I discovered one of our staffers did make her son read the White Coat Investor and actually had to call me up and pass a quiz from me about the book to get their hundred bucks. So every family does it a little bit differently. If you want to pay your kids to read the White Coat Investor, I think that's wonderful. I am not going to talk to all your kids and give them that quiz, but maybe you ought to give them a quiz. Make sure they're comprehending what they're reading. All right, we're having a lot of fun today. It's been a long day. I think we recorded about four podcasts today, but we've enjoyed it. It's been good to be with you. I thank you for what you're doing. It is important work. Keep your head up and your shoulders back. You deserve to be financially successful when you are financially comfortable. When you have your financial ducks in a row, you are going to be a better physician, a better partner, a better parent. You're going to be able to concentrate on those things that really matter in life because you got this financial stuff taken care of. And that's what we're here for, is to help you do that. See you next time on the White Coat Investor Podcast.
