Financial planning is a term that gets thrown around a lot, to the point that the meaning could be all but lost. At my firm, we believe that financial planning involves not only investments, but also risk management.
There isn’t much I can do to make risk management sound exciting, so in an attempt to at least entertain my dental professional readers, I'll try a Spinal-Tap-meets-Moses approach. After all, 11 commandments is one better, right?
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Here are the first 5 of 11 commandments for risk management:
1. Thou shalt have your legal documents created.
The team at Slate, Disharoon, Parrish and Associates, LLC, never ceases to be amazed at the number of folks that do not have even the most basic legal documents in place to protect their families. The next largest segment of people has not had their legal documents updated in a timely manner.
Having a well-designed legal document portfolio customized to your family’s needs and your state’s laws is the most basic of planning strategies. In some states, you could inadvertently disinherit your spouse from at least a portion of your estate if you die without a will. At the very least, the lack of a will creates an unnecessary hassle for a surviving spouse to deal with at a time when he or she is vulnerable.
Having legal documents specific to your needs is “cheap insurance” and a relatively easy step in creating a comprehensive financial plan. In addition to a will, an attorney could discuss medical power of attorney, durable power of attorney, and statutory power of attorney, depending on your state.
Other legal documents that an attorney might mention based on your personal circumstances include prenuptial agreements, business covenants and employment agreements, non-compete agreements, and any other legal document that could increase your level of protection.
2. Thou shalt NOT be a sole proprietor.
If you are just getting started in your practice and personal life, your attorney might discuss how your practice is incorporated. Having the right corporate structure for your practice could provide an additional level of protection. In general, it is safe to say that being a sole proprietor in dental practice exposes you to the maximum personal liability possible.
“But I have insurance for that!” Of course you have medical malpractice and possibly umbrella liability insurance, but these insurances perform best when married to the right corporate structure. Coordinate with your attorney and CPA to design the best corporate structure for you.
3. Thou shalt have a thoughtful insurance plan.
Speaking of insurance… Many of the dentists we work with consume a great deal of insurance. The laundry list is enough to make your head spin — homeowners, auto, property, professional liability, medical, life, personal liability, disability, business overhead expense disability, and long-term care, just to name a few.
You may or may not have many of these insurances, but I’m betting you’ve at least heard of them. The primary issue is not whether or not you have these insurances, but the reason you do or do not have them. Many docs look at insurance as a commodity.
For example, in your final year of school or residency, you were likely approached by an insurance salesperson who presented some form of disability and term life insurance to you. Since you knew you’d need the insurance, you probably went ahead and purchased. You were likely educated on why the insurance was good, but let’s face it, if it was affordable, you were pleased.
Fast-forward 10 years. Your practice is highly productive, generating a comfortable six-figure personal income. You have a large staff and growing patient base. You’re married and have two children, a nice home, cars, and private school tuition. Then the unplanned happens and you die unexpectedly, leaving your family with the same term insurance you bought when all you had was energy and a mountain of debt. I hope this example drives home my point and that you make a change.
A thoughtful insurance plan will include planning for future changes not only in life insurance, but in all of your insurances.
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4. Thou shalt have quality disability insurance.
In addition to term life insurance, many docs view their disability insurance as either having it or not. However, there is a great deal of difference among the various companies, and the devil is in the details. In short, just having it does not mean you’re all set. Consider the following:
* When you purchased your disability policy early on, it was likely a “base” policy with a predetermined income level. While you probably have the right to increase your coverage, we often see doctors who are underinsured because their personal income has far outpaced the level of coverage they purchased in residency.
* What was affordable then might leave you unprotected today. If you specialize, you might need a policy with an “own occupation” feature. Otherwise, you might not have a claim to file if you can do anything other than your specific specialty.
Add to those examples the fact that companies underwrite risks that dentists face differently, and deny claims for ailments for different reasons, and suddenly it’s easy to see that choosing the right company is vitally important.
5. Thou shalt have a personal emergency fund.
Unexpected expenses pop up all the time. Many Americans deal with these surprises by using credit cards. Sometimes using a credit card to initially fund an unexpected expense is an OK strategy. But underwriting an emergency for more than 30 days using revolving credit can be downright expensive.
Enter the time-tested emergency fund. There is a lot of discussion on how much a person should have in cash for emergencies. However, the only correct answer is, “It’s different for everyone.”
One strategy is to add up all your current deductibles from your insurances to come up with a catastrophic out of pocket exposure. Others suggest a general number such as six months of personal income. The bottom line is that anything is better than nothing.
There is one last point. Keep your emergency funds in a stable account. They should be considered cash reserves, and immediate accessibility is more important than rate of return.
An article is not the best place to address everything people should consider for their own risk management plans. Hopefully these ideas will act as a launch pad for you to create your own plan. Nothing can compare to having a team of advisors that work together and understand the dental industry. Having a good relationship with an attorney, CPA, financial advisor, lending specialist, and business coach will help you meet your goals.
If you would like assistance assembling your team, feel free to contact me at [email protected], and watch for the next six commandments!
Will Parrish is a founding partner of Slate, Disharoon, Parrish and Associates, LLC, located in Knoxville, Tenn., and specializing in services for medical professionals, business owners, and corporate executives. Contact Mr. Parrish at [email protected] or at (865) 357-7373. Visit www.sdp-planning.com.
Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a Broker/Dealer, Member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisers, Inc., a Registered Investment Advisor. Slate, Disharoon, Parrish & Associates, LLC and Cambridge are not affiliated.