Get out your car insurance policy and let's go over it to make sure you have the important things covered. Do you need comprehensive or just collision coverage? How much coverage do you need for bodily injury liability? What options should you pass on? How does your umbrella policy work with your car insurance policy? Most doctors should have an umbrella policy in a seven-figure amount. 80% of umbrella claims are auto-related. To get an umbrella policy you will be required to carry certain limits in car insurance. We dive into all these details in this episode to make certain you are appropriately insured to protect your finances.

Like other episodes, after this deep dive, we answer listener questions about liquidating your brokerage account, HSAs, calculating your net worth as a practice owner, and whether practice owners need disability insurance.

A reader asked about auto insurance, wanting to discuss what options aren’t worth it and what limits you should have on the necessary options. As a previous military officer, I have a pretty decent deal with USAA. It may not be the lowest priced insurance available but with the claims I've had over the years, I've had pretty awesome service. So, I'm probably not leaving anytime soon. In this episode, we go through our car insurance policy and discuss what we are doing for auto insurance and what we recommend you do.

 

What Is Comprehensive Car Insurance?

The first coverage that usually pops up on a policy is comprehensive. It covers all the damage to your vehicle that is caused by anything except a car crash. So, if a tree falls on it, that's comprehensive. Hail damage, that's comprehensive. A flood, vandalism, theft, fire. If the car gets stolen, that's covered by it. If stuff gets stolen out of your car, you actually claim that on your homeowner’s insurance, which is kind of a unique little aspect to that, or your renter's insurance. You can also get to your window glass, as part of that comprehensive coverage as well. We have that on all our cars. You don’t have to have it unless you have a loan on the car. But just to keep things easy in the event of a car wreck, we go ahead and pay for that. On my old Sequoia, its $33 every six months. On the newer one, it's $46. On Whitney’s Civic, it's about $26 every six months.

 

What Is Collision Coverage?

Collision is if you get in a car wreck and your vehicle is damaged. It will pay regardless of who is at fault, but they'll go after the other guy's company if it's their fault. It basically pays to repair or replace your vehicle. It's a pretty good way to replace your vehicle. I've found several times that they paid me quite a bit more than I thought the car was worth after it had been totaled. We have collision on our vehicles. The main reason I carry it is not necessarily just to cover our vehicles. Obviously, at least two of ours aren't worth all that much money and we can clearly afford to replace them out of pocket, but it is really nice because it covers the rental vehicles we are driving all the time. It is really nice to not pay that terribly overpriced rental car insurance. Collision is quite a bit more expensive than comprehensive as one of the more expensive parts of the policy. On our new Sequoia, it's $152 every six months. $94 on the old Sequoia. And about $155 every six months on that teen driver.

 

Do You Need Uninsured Motorist Property Damage?

There is actually no real point to having this if you have comprehensive and collision. This is basically if your vehicle is damaged in a car accident where the other driver is at fault, but they don't have insurance. This pays for it, but I already have comprehensive and collision. So, if they crash into me, my policy is going to pay no matter who is at fault. So, this one is not worth buying. I do not have this coverage on any of our vehicles.

 

Do You Need Car Replacement Assistance?

This is in event of a total loss. This coverage pays an additional 20% of your vehicle’s actual cash value. That can help you if you're underwater on your loan; you can actually still pay off the loan or get a new vehicle if yours is totaled. Because your car has depreciated since you drove it off the lot, it can help you get a new one instead for your now less valuable car. I don't have that. I have just insured what we have for whatever it's worth. But that was an option that USAA offered that we've declined.

 

How Much Coverage Do You Need for Bodily Injury Liability?

The next coverage is what I consider to be the most important coverage. It is the bodily injury liability. If you're in a car accident and you're legally responsible for the injury or death of another person, this coverage pays for their medical bills, their lost income, their pain and suffering. It can pay your legal fees if they come after you in a lawsuit. This is the reason why I have auto insurance. It’s for this coverage.

Obviously, this is a big deal, and I have high limits on it. The limits I have on it are precisely the required limits that my umbrella personal liability policy requires in order to cover me for these risks. That amount is $300,000 per person, $500,000 per accident. This is the most important coverage I see on the policy. It is not an insignificant premium. It’s $556 every six months. That is just the beginning because we have more than $300,000, $500,000 in bodily injury liability coverage. We stack an umbrella policy on top of that for millions more. This is a big risk.

 

How Much Coverage Do You Need for Property Damage Liability?

If you damage someone else's property in an accident, this covers vehicle, house, fence. Whatever you run into, this repairs that property. My umbrella policy, again, sets how much I have to have in this. It requires me to have $100,000 of coverage and that costs me $404 every six months. But again, a hundred thousand is not the limit. The limit is millions because we have an umbrella policy that we stack on top of it.

 

How Much Coverage Do You Need for Uninsured Motorist Bodily Injury?

As we turn to injury coverage, the next section of our policy is uninsured motorist bodily injury. This pays for a car accident where the other driver is at fault but they don’t have insurance. This pays for the people in your car since they don't have enough insurance to pay for them. This pays for the people in your car to get medical care and to cover their injuries and long-term care or whatever it might take. I thought this was important to have because I transport other people all the time. In order for my umbrella liability policy to cover this risk, I had to have this coverage.

Hopefully, the other person's insurance would cover it. The other part of my policy would cover if it was my fault. But if they don't have enough, if they're running around with some minimal coverage, at least I know those people in my car are going to be taken care of by the insurance company. Obviously, bad injuries can be really expensive, especially people that are disabled long-term. The minimum required by the umbrella policy is $300,000 – $500,000.

It's the same for under-insured motorist bodily injury. Why do they break this out into a separate policy? I have no idea, but they do. If they just don't have enough insurance then apparently this is the one that pays. We're paying $61 every six months for uninsured and $69 for under-insured. I look at it as part of my liability coverage.

 

What Is Personal Injury Protection?

This is if you or your passengers are injured in a car accident. Regardless of who's at fault, this coverage pays for disability, lost income, and funeral expenses. Our policy covers up to $30,000 medical, $30,000 rehab, $3,500 for funeral expenses. It probably won't pay for a funeral these days. It will cover 85% of income loss due to the inability to work. That sounds pretty good, except it limits it to $150 per person per week.
Replacement services, $15 per person per day. Survivor's income, 85% of income loss due to inability to work up to $150 per person per week, and a survivor's replacement services, $15 per person per day is what that personal injury protection covers. I can't remember if that was required by the umbrella policy or not. We pay $44 every six months for it.

The moral of the story is that the expensive coverage is the stuff that pays for people getting hurt, because medical care is so expensive, not the stuff that pays for the car getting hurt. That stuff is not nearly as expensive. We have a separate medical expenses category that will help pay up to $3,000. I don't think that's something we can even decline. It's just what they throw into the policy.

We have a work loss benefit. They'll pay up to $250 per person per week, if you or your passengers lose income as a result of an auto accident. There is an option to exclude the work loss for the named insured and spouse. We declined that option. There is some additional personal injury protection, which again was declined because the umbrella policy is covering it.

 

Additional Car Insurance Features

We also have an accident forgiveness feature. We pay a little bit for that. Then our rates don't go up if there is an our-fault accident after five years. We can buy a rental reimbursement feature. We declined that coverage. That one just covers a rental vehicle while your car is being repaired. In my experience, that's not a very long time period. We can afford the rental car for a few weeks.

We did pay for the towing and labor. That's nice to have if you've ever had to get your car towed. Towing is pretty expensive. We pay $8.26 each car per six-month term. You only need to get towed like once every five years for that to pay for itself. With three cars, two of which are more than 10 years old, that's pretty easy to do. So, we gladly pay that coverage.

There is a rideshare gap protection. That's if you're doing Uber with your car. We're not, so we declined that coverage.

For auto insurance, I think our total adds up to something like $1,700 every six months. Could we get cheaper coverage? Probably, but again, I've enjoyed the service I've had with this company. So, I'm not really shopping around right now.

 

Why You Should Have an Umbrella Policy

Most doctors should have an umbrella policy in a seven-figure amount. You want it to be like malpractice, enough money that if you settle for policy limits, the person you injured is going to be able to walk away and feel like they got a lot of money. Whether that's $1 million, $2 million, $5 million, I'll leave it up to you. But it ought to be a seven-figure amount.

The most important part of that policy to read through is what it does not cover so you understand what your umbrella policy won't cover. Remember, 80% of umbrella claims are auto-related. They're just amounts that have gone above your auto insurance. Only 20% is all that other stuff.

It is interesting to see what's not covered:

  • Injury arising out of business pursuits, not covered. If this is a business issue, you need to get business liability.
  • Injury arising out of failure to render a professional service of any nature. It doesn't cover malpractice.
  • Aircraft. Injury arising out of the ownership, maintenance, or operation of an aircraft, not covered.
  • An obligation you or anyone else has to provide benefits to employees under workers' comp, occupational disease, unemployment compensation, disability benefits, law, etc. So, this is not covering your business issues.
  • A household employee unless the household employee is covered under the basic homeowner's policy. You can get that as a provision.
  • It doesn't cover injury arising from activities as an officer or a member of the board of directors of any organization or corporation unless it's nonprofit and is covered under basic policy. So, if it's not covered under your homeowner’s policy, it's not going to be covered
  • A claim or suit brought by any person that's covered by this policy. So, if I sue my wife, the policy is not going to pay.
  • Bodily injury or property damage caused intentionally.
  • Anything involving nuclear energy or radiation, unless the loss is covered by a nuclear energy liability policy.
  • With no-fault uninsured, under insured, it basically doesn't cover it unless you have that coverage on your policy.
  • Injury that results from transmission of a communicable disease by you or a relative, it’s not going to cover it.
  • Injury which arises directly or indirectly out of the dispersal release of smoke, vapors, suet, fumes, acids, alkalize, toxic chemicals, liquids or gases, waste materials, contaminants, or pollutants.
  • Injury arising out of any physical or sexual abuse or sexual behavior.
  • Injury arising out of a race of your automobile or watercraft, not going to be covered.
  • Injury caused directly or indirectly by war, not covered. Including discharge of a nuclear weapon, even if it's accidental.
  • Injury arising out of discrimination on the grounds of race, sex, color, national origin, age, creed, or sexual preference, or the allegation of any of these acts.
  • Injury arising out of lead poisoning.
  • Injury arising out of the giving or serving of any alcoholic beverage. Your homeowners probably covers you passing beers out at a party.
  • Injury arising from the premises of rental properties, owned by anyone covered by this policy, unless also covered by valid and collectible insurance under a homeowner's comprehensive personal liability policy. So, make sure you have a separate policy on each of those rental properties or your umbrella isn't going to cover it.
  • Injury arising out of the entrustment by anyone covered by this policy to any person, negligent supervision of anyone covered by this policy, by any person. Like babysitting, not covered.
  • Injury arising out of the ownership, maintenance, operation, boarding, or debarking of any watercraft longer than 45 feet. Or which has a maximum speed exceeding 50 miles an hour, not to include jet skis and wave runners.
  • Actual or alleged injury caused by the exposure, inhalation, ingestion, or absorption of mold, mildew, fungus, or decaying substance.

Read through your liability policies. Make sure you know what they cover and don't cover. If you're engaging in any of that stuff that's not covered, make sure you buy a separate policy for it. Especially if there's significant risk there.

Recommended Reading:

Umbrella Insurance for Doctors

 

Don't Go Cheap with Liability Insurance Coverage

The cheapest way to get auto insurance is just to get liability coverage. If you have a beater that is worth just a couple thousand dollars and you hardly ever rent another car and you can certainly afford to replace that beater, maybe you can get by with just liability coverage, but don't get the minimum liability coverage. It is pretty easy to run into someone's $120,000 Tesla and total it. If you injure them at the same time, you're going to be in the several hundred-thousand-dollar range pretty quickly.

I recommend you have pretty high liability insurance coverage, and that you have a seven-figure liability insurance coverage by stacking an umbrella policy on top of it.

 

Reader and Listener Q&As

What Is the Best Way to Liquidate Your Brokerage Account?

“If I need to liquidate some of my brokerage account, which is the best way to do so? Should I sell the lots that have grown the most, thereby locking in my gains and ensuring that I've bought low and sold high? Of course, this would create the most capital gains taxes. 

Should I sell the lots that haven't changed much in value, essentially for going into gains, but also not generating any taxes? Or should I sell the lots that have lost value? As to be able to tax loss harvest.

I'm currently in my mid-career so I’m at my peak earnings. Assume also, for ease of discussion, that all lots are of the same index fund and that all have been held for at least one year.”

No, you definitely don't want to sell the ones with the lowest basis. You sell the ones with the highest basis, even better if they have a loss. That is great because not only do you get the money you need to spend, but you also get to book that loss.

In fact, you should never really have a loss sitting in your taxable account because you should harvest it every time you have one. If that's all in the total stock market index fund, anytime you have a loss, swap it over for a 500-index fund, for instance, and you can book that loss.

So, you really should never have those losses. But if you need to liquidate some, if you're going to use it for a down payment or use it for another investment or something, and you have to sell it, hopefully you have enough losses saved up from past tax-loss harvesting that you don't have to pay any capital gains on it at all.

But if you do then, yes, sell the ones with the highest basis. Probably the ones you bought most recently. Make sure you have them for at least a year, because then you're paying long-term capital gains rates rather than your full marginal tax rates (A.K.A. short-term capital gains rates) on that money.

 

Where Would the WCI Be Without the White Coat Investor?

“This is sort of a thought experiment. I'm curious where you would be financially if you didn't have the added income from your non-physician work. If you had just stuck to your day job of being an emergency physician, lived frugally and followed your original written financial plan, would you have been able to meet all your financial goals by this time?

Almost like a parallel universe Jim Dahle, essentially, you'd have to go back to 2011 and calculate how much you would have earned if you stayed on as a full-time physician and also remove any additional income you've received by running the White Coat Investor.

The reason I'm asking this is that for someone like me, a physician still early on in my career without another source of income, is it realistic for me to expect to meet my goals based on the principles you've laid out?”

This is something I've thought about a lot, actually. It's been a fun ride as the White Coat Investor. 2011, 2012, 2013, we really didn't make much money at the White Coat Investor. It was not worth the time I was putting into it from a financial perspective by any means. I liked the trend I was seeing then. But the actual amount of money was not very much.

But after that, we started making more and more money with it. We now have about 12 people working for us here at the White Coat Investor. That has been a really fun part of entrepreneurship, creating not only jobs, but great jobs.

But there is no doubt that we make a lot more money than we would make if the White Coat Investor had never been financially successful. I've written about that a number of times. We would still eventually have bought a wake boat. Maybe it would have been a used wake boat. Maybe we would have bought it a couple of years later, but that wake boat I bought in 2015, that was probably paid for by the White Coat Investor.

This home renovation we completed about a year ago, I would have never done that on my clinical income. Maybe we would have done some little tiny home renovation, something like that, but we would have never done this massive renovation where we took excavators to the walls and built all the space for the White Coat Investor offices.

Those are probably the two main differences in our lifestyle as far as how the White Coat Investor has changed how we live. But remember that I was five years out of residency before we even started the White Coat Investor and really eight or nine years out of residency before it ever started making any significant amount of money.

We were already millionaires from my clinical income before the White Coat Investor really took off. So, that first million was all just brute force saving from clinical income. Remember my clinical income my first four years out of residency was not very much. It was about $120,000 – $130,000 because I was a military doc. I didn't have big student loans, but I certainly wasn't making tons of money.

In fact, in the first seven years that it took us to become millionaires, my average income was $180,000 a year. When we drafted up our original financial plan, back when I was in residency, we drafted it up assuming that I would have an income of about $225,000 a year going forward. We drafted up a plan that would allow me to basically cut back to part-time work in my 50s and then probably work until I was about 60. That was the plan.

I wouldn't have cut back quite as quickly from my work without the White Coat Investor, because I'm already down to about where I didn't think I'd be until my early 50s and I'm only 46. Maybe six years ahead of that plan to cut back on my work. I probably would have been working night shifts a little bit longer as well.

As you know our group subsidized night shifts heavily. There is a real financial incentive to work a few night shifts. I dropped my night shifts a few years ago partly because I had the White Coat Investor income. Would I have done that eventually? Yes, but it probably would have been a few more years.

What would my net worth be today 15 years out of residency if the White Coat Investor had never come along? I ended up making more money clinically than I had expected when we originally drafted that plan. I would guess our net worth at this point would probably be $2.5 million – $3 million. Something like that is probably where we'd be net worth wise at this point 15 years out of residency if the White Coat Investor had never made a dime.

We're obviously well ahead of where we would be despite the ability we've had to help other people and give a lot more to charity than we'd ever planned to be able to do.

But there's no doubt the success of the White Coat Investor has affected our financial lives in a lot of ways and given us a lot of dilemmas, asset protection dilemmas, estate planning dilemmas, how we raise our kids dilemmas, charitable giving dilemmas. They're fun to struggle with but it's definitely not quite the life I expected to have financially when I laid out that financial plan back in 2004, 2005.

Would we still have been successful, had more money than we needed, been able to cut back on clinical work and have financial freedom and be able to buy the things we wanted to buy? Yes, for the most part we would have, it probably would have just taken a little longer.

Does the plan work for the average physician? Absolutely, this plan works. If you will live like a resident for two to five years coming out of residency, like we did, and pay off your student loans or your student time debt, whichever you may have, save up a down payment for your dream house, max out those retirement accounts. Then after you get done with the live like a resident period, continue to put 20% of your money toward good investments in retirement accounts as much as able, you are going to retire very comfortably as a multimillionaire.

This absolutely does work. You do not have to start the next White Coat Investor in order to be financially successful. I do not feel like docs have to have a side gig to reach their financial goals.

 

Can You Max Out Your HSA When You Have Not Worked All 12 Months?

“I was at my attending job this July, and it offers an HSA that I would like to use. I would like to use the maximum contribution per family for this year. I heard about the last month of the year rule and I read that it can come with some complexities. But my understanding is that if I keep the HSA for the next year, it shouldn't be a problem. So, I was just curious, what do you think about that? And if you recommend using and maxing out that HSA or not?”

HSAs are great. I think if you have an HSA, you should use it. It’s triple-tax-free money. You get a tax break when the money goes in. The money grows tax-protected. When it comes out, as long as you spend it on health care, it comes out tax-free.

So, I think it's a great account to use. It’s the first thing we max out every year. The limit for 2021 is $7,200 for a family. It's half that for an individual. Remember a family doesn't have to be you and a spouse. It can be you and a child.

Truthfully, you only have to be using an HDHP – High Deductible Health Plan in December in order to max out an HSA for the entire year. But there is the rule that you have to keep using it the next year. If you don't use it though next year, then that contribution gets prorated a little bit.

But as long as you are only covered by an HDHP in December and you have an HDHP for the next year, yes, you can max it out for 2021, $7,200. Get that money in there. And if you're not going to spend anytime soon, get it invested. It's a great account.

Recommended Reading:

7 Reasons an HSA Should Be Your Favorite Investing Account

 

How Do You Calculate Practice Ownership into Net Worth?

“I'm an optometrist and own my own practice. How do you calculate practice ownership into net worth? I have heard arguments for and against including a practice in your net worth. As an owner yourself, how do you view and manage these things?”

Net worth is everything you own minus everything you owe. So, if you own the practice, and it has some value, you should include it in your net worth. How you value it is a lot trickier. Most businesses are valued according to some multiple of sales or multiple of earnings, but basically it comes down to what someone else would be willing to pay for your business. It sounds like you have a pretty good optometry practice that someone else would be willing to pay something for, if without you even being in there, it's making $50,000 a year. That has some value to it. Basically, some multiple. Let's say, the multiple is five. If the multiple is five and that's the profit of the practice, then the practice is worth $250,000. I would add that to your net worth.

But there may be a better way to value your business. A lot of times you even need to hire a professional to value your business. Expect to spend a few thousand dollars to do that.

You might not include it in your retirement assets, though. When I look at the money I have for retirement on my spreadsheet, I don't include the value of the White Coat Investor. I don't include the value of several other businesses that I'm a part owner of, either. I would leave those out of it and just look at the money that I have dedicated to retirement.

Now, whether that is in a taxable account or an HSA or a designated retirement account, it doesn't matter to me. If it's designated for retirement, I count it toward retirement. But I don't count my kids' 529s toward my retirement. I don't count their UTMAs. But everything else goes toward retirement. Your retirement nest egg and your net worth don't necessarily have to be the same figure, but net worth is pretty easily defined. It's everything you own minus everything you owe.

Recommended Reading:

Tracking Your Financial Goals with These Four Measures

 

How Does Owning Your Own Practice Affect Your Disability Insurance?

“I do have some disability insurance already, and I'm not sure if I should add more. If I hired an optometrist today to see patients and my practice declined by 50%, I would still be making about $50,000 a year from the business. So, even if I'm not able to work, my income does not go to zero.”

As far as personal disability insurance, it comes down to what happens if you get disabled? If you get disabled, if you have enough money to live on due to other sources of income or other assets, then you don't have to have disability insurance. You can cancel it and save that money.

But keep in mind, if you're a practice owner, you might need something above and beyond disability insurance. You might need some sort of business continuation insurance. For example, if you get disabled, now all of a sudden, not only does your income go away, but if you have four or five people working for you, and the business income goes away too, that's a problem. You need to insure against that if you're a practice owner.

Now, it sounds like in your practice that may not be an issue, due to other people working for you. It sounds like, in fact, not only will you be able to cover all the expenses in the event you were disabled, but you'll still be getting profit. So, you may not need that business continuation insurance.

Disability insurance for the most part is something you buy and pay for until you become financially independent. Then you discontinue it and save the premiums.

Recommended Reading:

What You Need to Know About Disability Insurance

 

By lowering out-of-pocket medication costs, GoodRx estimates it has helped patients get at least 78 million prescriptions they otherwise may not have been able to afford. Hand out GoodRx savings cards to your patients or recommend the GoodRx app, and you could be saving them up to 80% on prescriptions. Helping patients afford their prescriptions makes it more likely they will adhere to their treatment. GoodRx is accepted at over 70,000 U.S. pharmacy locations, no insurance needed, and all patients have to do is show the card or app to the pharmacist to save. Learn more at goodrx.com/WCI

 

Quote of the Day

Our quote of the day comes from Tim Ferriss who said,

“Retirement as a goal or a final redemption is flawed because it is predicated on the assumption that you dislike what you were doing during the most physically capable years of your life. This is a non-starter. Nothing can justify that sacrifice.”

I certainly agree with that. Retirement is a backup plan, if you can't figure out what you want to do for the rest of your life and actually enjoy it.

 

Milestones to Millionaire Episode

#25 Psychiatrist Millionaire


Sponsored by 37th Parallel Properties

This psychiatrist has a net worth of 2 million dollars, seven years out of training, despite living paycheck to paycheck with her six-figure income until a friend encouraged her financial education as an attending.

Recommended Reading:

Why Many Doctors Live Paycheck to Paycheck

 

Full Transcription

Transcription – WCI – 222

Intro:
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. Here's your host, Dr. Jim Dahle.

Dr. Jim Dahle:
This is White Coat Investor podcast number 222 – Car insurance. How much do you need?

Dr. Jim Dahle:

Did you know that since 2011, GoodRX has helped Americans save approximately $30 billion on the prescription cost? That's a lot of money saved. GoodRX is about much more than saving people money. GoodRX also helps people afford the treatment plans their doctors prescribed.

Dr. Jim Dahle:
In fact, by lowering out-of-pocket medication costs, GoodRX estimated it has helped patients get at least 78 million prescriptions they otherwise may not have been able to afford. That increased level of adherence thanks to GoodRX leads directly to better health outcomes.

Dr. Jim Dahle:
I recommend GoodRX to help your patients save up to 80% of their prescriptions so they can afford, start and stay on their treatment. Learn more at goodrx.com/wci.

Dr. Jim Dahle:
All right, welcome back to the podcast. It's July 15th. This runs on August 5th and so there is a little bit of a lag between the two. That is so I have some time to go on a trip. I'm excited to go on a rafting trip here between the time we record this and the time it runs.

Dr. Jim Dahle:
Our quote of the day today comes from Tim Ferriss who said “Retirement as a goal or a final redemption is flawed because it is predicated on the assumption that you dislike what you were doing during the most physically capable years of your life. This is a non-starter. Nothing can justify that sacrifice”. And I certainly agree with that. Retirement is a backup plan. If you can't figure out what you want to do for the rest of your life and actually enjoy it.

Dr. Jim Dahle:
All right, those of you who have been battling the Delta variant lately, thanks for what you're doing out there. The good news is it's not nearly as dangerous. It's not nearly as fatal, even though it seems to be more contagious.

Dr. Jim Dahle:
It's interesting. I was looking at a statistic the other day, every single person admitted in LA County with COVID was unvaccinated. So, it is really interesting that this pandemic has gradually turned into something that's basically completely preventable, at least the severe episodes of it. That makes me feel a little bit better being vaccinated myself and having all but the youngest member of my family vaccinated. But it certainly is sad that there's still a lot of people out there fighting this illness when there are free vaccinations waiting for them.

Dr. Jim Dahle:
At any rate, those of you working on the front lines, thanks for what you're doing. I know this pandemic keeps going and going and going and going. It's like the Energizer Bunny sometimes.

Dr. Jim Dahle:
You may not know about studentloanadvice.com. This is a White Coat Investor company. We created this in partnership with Andrew Paulson to help doctors, dentists and other high earners tackle and defeat their student debt.

Dr. Jim Dahle:
If you let a professional guide you through the best options to manage your loans, it'll save you hours of research and stress and potentially save hundreds to thousands, even tens of thousands, maybe hundreds of thousands of dollars with your custom student loan plan.

Dr. Jim Dahle:
Book a consult with Andrew Paulson, the lead student loan consultant and co-founder of studentloanadvice.com today.

Dr. Jim Dahle:
All right, I got an email who says “One boring, but I think useful podcast would be on auto insurance. It would be good to go over every single option that they'd let you flex and what limits you recommend”.

Dr. Jim Dahle:
All right. Well, that sounds fun. So, I thought what I would do today is pull up my auto policy and talk about it for a minute. I went and logged on to my auto policy and mine is with USAA. Having been a military officer, I got a pretty decent deal there. It may not be the lowest price insurance available out there, but with the claims I've had over the years, I've had pretty awesome service. So, I'm probably not leaving anytime soon. I think they count on that actually, and charge you accordingly for that, but that's okay.

Dr. Jim Dahle:
But let's go through what we've got on our policy. Now we have three vehicles on it, right? My wife drives a 2016 Toyota Sequoia. I'm driving a 2005 Toyota Sequoia. That's right. We're trying to ruin the planet single-handedly. And then of course, my 17-year-old daughter is driving a 2009 Honda Civic. I think we wrote about that on the blog a while back.

Dr. Jim Dahle:
So, let's go through our coverages. The first coverage it usually pops up on a policy is comprehensive. And what comprehensive is, it covers all the damage to your vehicle that is caused by anything except a car crash. So, if a tree falls on it, that's comprehensive. Hail damage, that's comprehensive. A flood, vandalism, theft, fire. If stuff gets stolen, if the car gets stolen, that's covered by it. If stuff gets stolen out of your car, you actually claim that on your homeowner’s insurance, which is kind of a unique little aspect to that or your renter's insurance. You can also get to your window glass, as part of that comprehensive coverage as well.

Dr. Jim Dahle:
The next thing, we've got that on all of our cars. And not that we have to have it. Usually, you have to have it if you have a loan on the cars, but just to keep things easy in the event of a car wreck, we go ahead and pay for that. It looks like our premiums on it, on my old Sequoia, is $33 every six months. On the newer one, it's $46. And on the Civic, it's about $26 every six months.

Dr. Jim Dahle:
Then collision coverage. Collision is if you get in a car wreck, your vehicle is damaged. It's your fault. Actually, it'll pay regardless of who's at fault, but then they'll go after the other guy's company, if it's their fault. But it basically pays to repair or replace your vehicle.

Dr. Jim Dahle:
It's a pretty good way actually to replace your vehicle. I've found several times that they paid me quite a bit more than I thought the car was worth after it had been totaled. But at any rate, that's what that covers, as collision. We have collisions in our vehicles. I think the main reason I carry it around is not necessarily just to cover our vehicles.

Dr. Jim Dahle:
Obviously, at least two of ours aren't worth all that much money and we can clearly afford to replace them out of pocket, but it is really nice because it covers the rental vehicles we're driving all the time.

Dr. Jim Dahle:
In fact, I wonder if I put more miles on rental vehicles than I do on my own vehicle every year. And it's really nice to not pay that terribly overpriced rental car insurance, and just be able to walk up and say, “No, I've got it. We're covered”.

Dr. Jim Dahle:
That's quite a bit more expensive than comprehensive. It's one of the more expensive parts of the policy. On our new Sequoia, it's $152 every six months. $94 on the old Sequoia. And it's about $155 every six months on that teen driver.

Dr. Jim Dahle:
Uninsured motorist property damage. There's actually no real point to having this if you have comprehensive and collision. This is basically if your vehicle is damaged in a car accident where the other driver is at fault, but they don't have insurance. This pays for it, but I already have comprehensive and collision. So, if they crash into me, my policy is going to pay no matter who's at fault. So, this one is not worth buying. I do not have this coverage on any of our vehicles.

Dr. Jim Dahle:
The next one is car replacement assistance. And what this is, it's in the event of a total loss, the coverage pays an additional 20% of your vehicle’s actual cash value. So that can help you if you're underwater on your loans, you can actually still pay off the loan or to get a new vehicle if yours is totaled. Because your car has depreciated since you drove it off the lot, it can help you get a new one instead of your now less valuable car. I don't have that. I just have insured what we have for whatever it's worth. But that was an option that USAA offered that we've declined.

Dr. Jim Dahle:
The next coverage is what I consider to be the most important coverage. It is the bodily injury liability. And what bodily injury liability pays for is if you're in a car accident and you're legally responsible for the injury or death of another person, this coverage pays for their medical bills, their lost income, their pain and suffering. It can pay your legal fees if they come after you in a lawsuit. This is the reason why I have auto insurance. It’s for this coverage.

Dr. Jim Dahle:
And so, obviously this is a big deal and I have high limits on it. The limits I have on it are precisely the required limits that my umbrella personal liability policy requires in order to cover me for these risks. And that amount is $300,000 per person, $500,000 per accident. And that's the most important coverage I see on the policy. It is not an insignificant premium. It’s $556 every six months is what I pay for that.

Dr. Jim Dahle:
But you know what? That's just the beginning because I've got more than $300,000, $500,000 in bodily injury liability coverage. Because we've stacked an umbrella policy on top of that for millions more. Because this is a big risk. If you run over a CEO that's making $2 million a year, guess what? That's not going to be a cheap claim and a little $50,000 or whatever the minimum your state requires is not going to cover it. Heck that's not even going to cover his car, which we'll get next, which is property damage liability.

Dr. Jim Dahle:
And if you damage someone else's property in an accident, this covers vehicle, house, fence. Whatever you run into, this repairs that property. And my umbrella policy, again, sets how much I got to have in this. It requires me to have $100,000 of coverage and that costs me $404 every six months. But again, a hundred thousand is not the limit. The limit is millions because we have an umbrella policy that we stack on top of it.

Dr. Jim Dahle:
As we turn to injury coverage, the next section of our policy, the next part is uninsured motorist bodily injury. And what this pays for is, this pays for a car accident where the other driver is at fault. This pays for the people in your car. If they don't have enough insurance to pay for them, this pays for the people in your car to get medical care and to cover their injuries and long-term care or whatever it might take. And I thought this was important to have because I transport other people all the time. And in order for my umbrella liability policy to cover this risk, I had to have this coverage. And so, that's why we have it.

Dr. Jim Dahle:
Hopefully, the other person's insurance would cover it. The other part of my policy would cover if it was my fault. But if they don't have enough, if they're running around with some minimal coverage, at least I know those people in my car are going to be taken care of by the insurance company. And obviously bad injuries can be really expensive, especially people that are disabled long-term. So, I think it's important to have the coverage there as the minimum required by the umbrella policy, which in this case is $300,000 – $500,000.

Dr. Jim Dahle:
It's the same for under-insured motorist bodily injury. Why do they break this out into a separate policy? I have no idea but they do. If they just don't have enough insurance covers then apparently this is the one that pays. We're paying $61 every six months for uninsured and $69 for under-insured. That's just the way they've broken it out. I look at it as part of my liability coverage. And if I'm not going to run around without liability coverage, that's a pretty significant risk, and I don't want to pay for it out of pocket.

Dr. Jim Dahle:
The next coverage is personal injury protection. And this is if you or your passengers are injured in a car accident. Regardless of who's at fault, this coverage pays for disability medical lost income and funeral expenses. And our policy covers up to $30,000, medical, $30,000 rehab, $3,500 for funeral expenses. It probably won't pay for a funeral these days, but at least it'll cover this, and this one's kind of funny. It'll cover 85% of income loss due to inability to work. Well, that sounds pretty good, except it limits it to $150 per person per week. All right. Well, I guess it's better than nothing.

Dr. Jim Dahle:
Replacement services, $15 per person per day. Survivor's income, 85% of income loss due to inability to work up to $150 per person per week, and a survivor's replacement services, $15 per person per day is what that personal injury protection covers. I can't remember if that was required by the umbrella policy or not. I don't recall. We pay $44 bucks every six months for it.

Dr. Jim Dahle:
I think the moral of the story here is that expensive coverage is the stuff that pays for people getting hurt because the medical care is so expensive, not the stuff that pays for the car getting hurt. That stuff is not nearly as expensive. We have a separate medical expenses category that will help pay up to $3,000. I don't think that's something we can even decline. It's just what they throw into the policy.

Dr. Jim Dahle:
We have a work loss benefit. They'll pay up to $250 per person per week, if you or your passengers lose income as a result of an auto accident. I guess it's better than nothing, but I don't think it's going to move the needle for me. There is an option to exclude the work loss for the named insured and spouse. And we declined that option. And there's some additional personal injury protection, which again was declined because the umbrella policy is covering it.

Dr. Jim Dahle:
We also have an accident forgiveness feature. We pay a little bit for that. And then our rates don't go up if there's at our fault accident after five years. So that's nice. We can buy a rental reimbursement feature. We declined that coverage.

Dr. Jim Dahle:
That one just covers a rental vehicle while your car is being repaired. In my experience, that's not a very long time period. I suppose it could be in certain accident and maybe you'll be without a car for a few weeks, but honestly, we can afford the rental car for a few weeks. It's not that big a deal. In fact, what we'd probably do is make Whitney ride with a friend or ride the bus and we'd just drive her car. So, easily covered, not something that I was willing to pay for.

Dr. Jim Dahle:
We did pay for the towing and labor. That's nice to have. If you've ever had to get your car towed, a lot of insurance companies, USAA anyway, they got an app. You basically open up the app, you type a couple of things in, you hit a button and all your communication is through the app with the tow truck company. It's really handy. It works pretty well and it's great not to get a bill for it.

Dr. Jim Dahle:
Towing is pretty expensive. We pay $8.26 each car per six-month term. Boy, you only got to get towed like once every five years for that to pay for itself. And with three cars, two of which are more than 10 years old, that's pretty easy to do. So, we gladly pay that coverage.

Dr. Jim Dahle:
There's a rideshare gap protection. That's if you're doing Uber with your car, we're not so we declined that coverage. And that gives us our total. We get a bunch of discounts and so on and so forth for various stuff. But we ended up paying quite a bit of money. A lot more now that we have a teenage driver than we were paying before.

Dr. Jim Dahle:
For auto insurance, I think our total adds up to something like $1,700 every six months. So, could we get cheaper coverage? Probably, but again, I've enjoyed the service I've had with this company. So, I'm not really shopping around right now.

Dr. Jim Dahle:
This might be a good time to talk a little bit about umbrella policies. Most doctors should have an umbrella policy and the amount should be a seven-figure amount. You want it to be like malpractice and enough money that if you settle for policy limits, the person you injured is going to be able to walk away and feel like they got a lot of money. Whether that's $1 million, $2 million, $5 million, whatever, I'll leave up to you. But I think they ought to be a seven-figure amount.

Dr. Jim Dahle:
It is interesting, probably the most important part of that policy is to read through what it does not cover and understand what your umbrella policy won't cover. Remember, 80% of umbrella claims are auto-related. They're just amounts that have gone above your auto insurance. Only 20% is all that other stuff.

Dr. Jim Dahle:
But even so, it's interesting to see what's not covered. Injury arising out of business pursuits, not covered. If this is a business issue, you need to get business liability. So, that's an important thing to keep in mind.

Dr. Jim Dahle:
Injury arising out of the rendering or failure to render a professional service of any nature. That's where it says, “Hey, we're not backing your malpractice policy”. So, it doesn't cover malpractice.

Dr. Jim Dahle:
Aircraft. Injury arising out of the ownership, maintenance or operation of an aircraft, not covered. An obligation you or anyone else has to provide benefits to employees under workers' comp, occupational disease, unemployment compensation, disability benefits, law, et cetera. So, this is not covering your business issues.

Dr. Jim Dahle:
The next section, it's not going to cover a household employee unless the household employee is covered under the basic policy. Your basic homeowner's policy, you can get that as a provision. It doesn't cover injury arising from activities as an officer or a member of the board of directors of any organization or corporation, unless it's nonprofit and is covered under basic policy. So, if it's not covered under your homeowner’s policy, it's not going to be covered. And that's an issue. You may want to look into that.

Dr. Jim Dahle:
Physician on FIRE tells a story where his hospital got sued, including all of the board of directors that he was on. And that lasted for a number of years in which he was dealing with that. After it was all over, he wrote a blog post about it. If you're interested in reading about that, you can find it on his website.

Dr. Jim Dahle:
A claim or suit brought by any person that's covered by this policy. So, if I sue my wife's policy is not going to pay. Bodily injury or property damage caused intentionally. If I go to town on your car with a sledgehammer, this policy is not going to cover it.

Dr. Jim Dahle:
Anything involving nuclear energy or radiation, if the loss is covered by a nuclear energy liability policy. So, it sounds like mine would cover. I don't have a nuclear energy liability policy. Hopefully, I never have a need for that. With no fault uninsured, under insured. It basically doesn't cover it unless you have that coverage on your policy.

Dr. Jim Dahle:
Here's an interesting one. Injury that results from transmission of a communicable disease by you or a relative, it’s not going to cover it. You give somebody HIV this policy isn't going to pay out.

Dr. Jim Dahle:
Injury which arises directly or indirectly out of the discharge dispersal release of smoke, vapors, suet, fumes, acids, alkalize, toxic chemicals, liquids or gases, waste materials, contaminants, or pollutants. So, keep that in mind, if you work with anything hazardous, you might need a separate policy.

Dr. Jim Dahle:
Injury arising out of any physical or sexual abuse or sexual behavior, not covered. Injury arising out of a race of your automobile or watercraft, not going to be covered. Injury caused directly or indirectly by war, not covered. Including discharge of a nuclear weapon, even if it's accidental.

Dr. Jim Dahle:
Injury arising out of discrimination on the grounds of race, sex, color, national origin, age, creed, or sexual preference, or the allegation of any of these acts. So, discrimination is not covered.

Dr. Jim Dahle:
Injury arising out of lead poisoning, not covered. Injury arising out of the giving or serving of any alcoholic beverage. That’s also covered by the basic policy, which your homeowners probably covers, you passing beers out at a party.

Dr. Jim Dahle:
Injury arising from the premises of rental properties, owned by anyone covered by this policy, unless also covered by valid and collectible insurance under a homeowner's comprehensive personal liability policy. So, make sure you have a separate policy on each of those rental properties or your umbrella isn't going to cover it.

Dr. Jim Dahle:
Injury arising out of the entrustment by anyone covered by this policy to any person, negligent supervision of anyone covered by this policy, by any person. Like babysitting, not covered.

Dr. Jim Dahle:
Injury arising out of the ownership, maintenance, operation, boarding, or debarking of any watercraft longer than 45 feet. My wake boat is 24 feet so I'm good there. Or which has a maximum speed exceeding 50 miles an hour, not to include jet skis and wave runners. All right. So, I'm good there. My boat definitely does not do 50.

Dr. Jim Dahle:
And finally, actual or alleged injury caused by the exposure, inhalation, ingestion or absorption of mold, mildew, fungus, or decaying substance. So read through your liability policies. Make sure you know what they cover and don't cover. And if you're engaging in any of that stuff that's not covered, make sure you buy a separate policy for it. Especially if there's significant risk there.

Dr. Jim Dahle:
I hope that's helpful talking about auto insurance policy. The cheapest way to get auto insurance is just to get liability coverage. If you got a beater, this is just a couple thousand dollars and you hardly ever rent another car and you can certainly afford to replace that beater. Maybe you can get by with just liability coverage, but don't get the minimum liability coverage. It's pretty easy to run into somebody who's $120,000 Tesla and total it. And if you injure them at the same time, you're going to be in the several hundred-thousand-dollar range pretty quickly.

Dr. Jim Dahle:
So, I recommend you have pretty high liability insurance coverage, and honestly that you have a seven-figure liability insurance coverage by stacking an umbrella policy on top of it.

Dr. Jim Dahle:
All right. So, let's get into some of your questions. Our first Speak Pipe comes in. I think we're going to be talking about liquidating brokerage accounts with it. Let's take a listen to it.

Speaker:
If I need to liquidate some of my brokerage account, which is the best way to do so? Should I sell the lots that have grown the most there by locking in my gains and ensuring that I've bought low and sold high? Of course, this would create the most capital gain taxes.

Speaker:
Should I sell the lots that haven't changed much in value, essentially for going into gains, but also not generating any taxes? Or should I sell the lots that have lost value? As to be able to tax loss harvest.

Speaker:
I'm currently in my mid-career so I’m at my peak earnings. Assume also for ease of discussion, that all lots are of the same index fund and that all have been held for at least one year. Thanks.

Dr. Jim Dahle:
All right. Great question. No, you definitely don't want to sell the ones with the lowest basis. You sell the ones with the highest basis, even better if they have a loss. I mean, that's great because not only do you get the money you need to spend, but you also get to book that loss.

Dr. Jim Dahle:
In fact, you should never really have a loss sitting in your taxable account because you should harvest it every time you have one. If that's all in the total stock market index fund, anytime you have a loss, swap it over for a 500-index fund, for instance, and you can book that loss.

Dr. Jim Dahle:
So, you really should never have those losses. But if you need to liquidate some, if you're going to use it for a down payment or use it for another investment or something, and you have to sell it, hopefully you have enough losses saved up from past tax loss harvesting that you don't have to pay any capital gains on it at all.

Dr. Jim Dahle:
But if you do then yes, sell the ones with the highest basis. Probably the ones you bought most recently. But do make sure you have them for at least a year, because then you're paying long-term capital gains rates rather than your full marginal tax rates A.K.A. short-term capital gains rates on that money.

Dr. Jim Dahle:
So, the highest basis that you've got that you've had for at least a year, I think is probably the guideline. But if you've got a loss, you can sell that at any time. You don't have to wait a year for that. I hope that's helpful and hope you enjoy whatever you need to buy liquidating your brokerage account for.

Dr. Jim Dahle:
All right. Our next question, this one should be interesting. I think you guys will like this question. Let's take a listen.

Speaker 2:
Where would the WCI be without the White Coat Investor? This is sort of a thought experiment. I'm curious where you would be financially if you didn't have the added income from your non-physician work.

Speaker 2:
If you had just stuck to your day job of being an emergency physician, lived frugally and followed your original written financial plan, would you have been able to meet all your financial goals by this time?

Speaker 2:
Almost like a parallel universe Jim Dahle, essentially, you'd have to go back to 2011 and calculate how much you would have earned if you stayed on as a full-time physician and also remove any additional income you've received by running the White Coat Investor.

Speaker 2:
The reason I'm asking this is that for someone like me, a physician still early on in my career without another source of income, is it realistic for me to expect to meet my goals based on the principles you've laid out?

Speaker 2:
Please don't get me wrong. I'm appreciative of the knowledge you share and I know you must put in a tremendous amount of work to make the White Coat Investor work and you deserve the success you've created, but your financial path is not like the rest of us.

Dr. Jim Dahle:
Well, this is a fun question to talk about. I bet you didn't think I was actually going to put this one on the podcast, did you? This is something I've thought about a lot actually. It's been a fun ride as the White Coat Investor.

Dr. Jim Dahle:
2011, 2012, 2013, we really didn't make much money at the White Coat Investor. It was not worth the time I was putting into it from a financial perspective by any means. I liked the trend I was seeing then. But the actual amount of money was not very much.

Dr. Jim Dahle:
But after that we started making more and more money with it. We now have about 12 people working for us here at the White Coat Investor. And so, that has been our really fun part of entrepreneurship. It’s creating not only jobs, but great jobs.

Dr. Jim Dahle:
We think we have the world's best 401(k). And we have a lot of very happy employees who've been able to work from home on their own time and make a lot more money than they thought they would be able to make with whatever they were doing before they came to work for the White Coat Investors.

Dr. Jim Dahle:
So, we think it's a great place to work and we've really enjoyed that aspect of it. But there's no doubt that we make a lot more money than we would make if the White Coat Investor had never been financially successful. I've written about that a number of times. And there's a lot of truth to it.

Dr. Jim Dahle:
We would still eventually have bought a wake boat. Maybe it would have been a used wake boat. Maybe we would have bought it a couple of years later, but that wake boat I bought in 2015, that was probably paid for by the White Coat Investor.

Dr. Jim Dahle:
I remember that time I was still working full-time clinically. But the White Coat Investor was starting to make money and it bought us a wake boat that year. And so, maybe it would have been a couple more years before we upgraded from our old beater boat to our wake boat. That probably would have been one difference.

Dr. Jim Dahle:
This home renovation we completed about a year ago, I would have never done that. Never would I have done that on my clinical income. Maybe we would have done some little tiny home renovation, something like that, but we would have never done this massive renovation where we took excavators to the walls and built all the space for the White Coat Investor and fancied everything else up. We wouldn't have done that renovation without White Coat Investor income.

Dr. Jim Dahle:
Those are probably the two main differences in our lifestyle as far as how the White Coat Investor has changed how we live. But remember that I was five years out of residency before we even started the White Coat Investor and really eight or nine years out of residency before it ever started making any significant amount of money.

Dr. Jim Dahle:
And so, we were already millionaires from my clinical income before the White Coat Investor really took off. So, that first million was all just brute force saving from clinical income. And remember my clinical income my first four years out of residency was not very much. It was about $120,000 – $130,000 because I was in the military as a military doc and I didn't make that much in the military. I didn't have big student loans, but I certainly wasn't making tons and tons of money.

Dr. Jim Dahle:
In fact, in the first seven years that it took us to become millionaires, my average income was $180,000 a year. Because I was four years in the military, a couple of years as a pre-partner before I started making the big bucks.

Dr. Jim Dahle:
But when we drafted up our original financial plan back when I was in residency, we drafted it up assuming that I would have an income of about $225,000 a year going forward. And we drafted up a plan that would allow me to basically cut back to part-time work in my 50s and then probably work until I was about 60. That was kind of the plan.

Dr. Jim Dahle:
And so, I wouldn't have cut back quite as quickly from my work without the White Coat Investor, because I'm already down to about where I didn't think I'd be until my early 50 and I'm only 46. So, I'm maybe six years ahead of that plan to cut back on my work. And I probably would have been working night shifts a little bit longer as well.

Dr. Jim Dahle:
As you know our group subsidized night shifts heavily. And so, there is a real financial incentive to work a few night shifts. And I dropped my night shifts a few years ago partly because I had the White Coat Investor income. Would I have done that eventually? Yes, but it probably would have been a few more years. So, those would be the main differences.

Dr. Jim Dahle:
So, what would my net worth be today 15 years out of residency if the White Coat Investor had never come along? I think we would probably be at this point because I ended up making more money clinically than I had expected when we originally drafted that plan. I would guess our net worth at this point would probably be $2.5 million – $3 million. Something like that is probably where we'd be net worth wise at this point 15 years out of residency if the White Coat Investor had never made a dime.

Dr. Jim Dahle:
Now our net worth is quite a bit higher than that, but that's mostly because we own a valuable business. And that's where most of our net worth is tied up. But even aside from that, we're obviously well ahead of where we would be despite the ability, we've had to help other people, despite the fact that we've been able to give a lot more to charity than we've ever planned to be able to do.

Dr. Jim Dahle:
But there's no doubt the success of the White Coat Investor has affected our financial lives in a lot of ways and given us a lot of dilemmas, asset protection dilemmas, estate planning dilemmas, how we raise our kids’ dilemmas, charitable giving dilemmas. They're fun to struggle with but it's definitely not quite the life I expected to have financially when I laid out that financial plan back in 2004, 2005.

Dr. Jim Dahle:
Would we still have been successful, had more money than we needed, been able to cut back on clinical work and have financial freedom and be able to buy the things we wanted to buy? Yes, for the most part we would have, and it probably would have just taken a little longer.

Dr. Jim Dahle:
Does the plan work for the average physician? Absolutely, this plan works. If you will live like a resident for two to five years coming out of residency, like we did and pay off your student loans or your student time debt, whichever you may have, save up a down payment for your dream house, max out those retirement accounts. And then after you get done with the live like a resident period, continue to put 20% of your money toward good investments in retirement accounts as much as able, you are going to retire very comfortably as a multimillionaire.

Dr. Jim Dahle:
This absolutely does work. You do not have to start the next White Coat Investor in order to be financially successful. So, I would not feel like just because my path has been a little bit differently than most of my readers, most of my listeners, I would not feel like you have to follow my path in order to be successful.

Dr. Jim Dahle:
Certainly, if you have an entrepreneurial interest, I would encourage you to pursue it. Take reasonable risks in that regard, but I do not feel like docs have to have a side gig. It was really interesting. I saw this paper out for Medscape, a survey they did where the average entrepreneur or the average physician side gig only paid about $35,000 a year.

Dr. Jim Dahle:
And if the White Coat Investor only ever made $35,000 a year, it wouldn't have moved the needle on my financial life in any significant way. Maybe we could have cut off one year before retirement or something like that. So, I wouldn't feel like the answer is to get a side gig. I think the answer is to manage your money well and do what you want to do with your life.

Dr. Jim Dahle:
All right, let's get onto the next question, enough ranting about that. This one is going to be about HSAs. Let's take a listen.

Speaker 3:
Hi, Dr. Dahle. I have a question about the HSA. I was at my attending job this July and it offers an HSA that I would like to use. I would like to use the maximum contribution per family for this year. I heard about the last month of the year rule and I read that it can come with some complexities. It can be a complex rule to follow.

Speaker 3:
But my understanding is that if I keep the HSA for the next year, it shouldn't be a problem. So, I was just curious, what do you think about that? And if you recommend using and maxing out that HSA or not. Thank you.

Dr. Jim Dahle:
Yeah, HSAs are great. I think if you have an HSA, you should use it. It’s triple tax free, right? You get a tax break when the money goes in, money grows tax protected. When it comes out, as long as you spend it on health care, it comes out tax-free.

Dr. Jim Dahle:
So, I think it's a great account to use. It’s the first thing we max out every year. The limit for 2021 is $7,200 for a family. It's half that for an individual. Remember a family doesn't have to be you and a spouse. It can be you and a child.

Dr. Jim Dahle:
Truthfully, you only have to be using an HDHP – High Deductible Health Plan in December in order to max out an HSA for the entire year. But there is the rule that you have to keep using it the next year. If you don't use it though next year, then that contribution gets prorated a little bit.

Dr. Jim Dahle:
But as long as you are only covered by an HDHP in December and you have an HDHP for the next year, yeah, you can max it out for 2021, $7,200. Get that money in there. And if you're not going to spend anytime soon, get it invested. It's a great account.

Dr. Jim Dahle:
All right, let's take our next question. This one is a little bit about net worth’s and practice owners’ issues.

Speaker 4:
Hello, Dr. Dahle. I'm an optometrist and own my own practice. How does owning your own practice affect your disability insurance and how do you calculate practice ownership into net worth?

Speaker 4:
As a background, I do have some disability insurance already, and I'm not sure if I should add more. If I hired an optometrist today to see patients and my practice declined by 50%, I would still be making about $50,000 a year from the business. So, even if I'm not able to work, my income does not go to zero.

Speaker 4:
As for net worth, I have heard arguments for and against, including practice into your net worth. As an owner yourself, how do you view and manage these things? Thanks for everything you do.

Dr. Jim Dahle:
All right, great question. Let's start with the net worth issue. Yes, a net worth is everything you own minus everything you owe. So, if you own the practice and it has some value, you should include it in your net worth. Why wouldn't you?

Dr. Jim Dahle:
Now, how you value it is a lot trickier, right? Most businesses are valued according to some multiple of sales or multiple of earnings, but basically it comes down to what somebody else would be willing to pay for your business. It sounds like you have a pretty good optometry practice that somebody else would be willing to pay something for, if without you even being in there, it's making $50,000 a year. Well, that has some value to it. Basically, some multiple. Let's say, the multiple is five. If the multiple is five and that's the profit of the practice, then the practice is worth $250,000. And I would add that to your net worth.

Dr. Jim Dahle:
But there may be a better way to value your business. A lot of times you even need to hire a professional to value your business. We actually had to do that a year or two ago for the White Coat Investor for some various contracts we had with some of our key employees, we needed evaluation for the business. And so, we hired somebody to come in and do a formal valuation.

Dr. Jim Dahle:
Expect to spend a few thousand dollars to do that. And then you can use that. It's not like there's a Zillow for your business, that you can just Zillow your address and it'll spit out some reasonably accurate value. You're going to have to pay somebody to do it if you don't know how to value your own business.

Dr. Jim Dahle:
As far as disability insurance, personal disability insurance comes down to what happens if you get disabled? If you get disabled, if you have enough money to live on due to other sources of income or other assets, then you don't have to have disability insurance. You can cancel it and save that money.

Dr. Jim Dahle:
But keep in mind, if you're a practice owner, you might need something above and beyond disability insurance. You might need some sort of business continuation insurance. For example, if you get disabled, now all of a sudden, not only does your income go away, but if you've got four or five people working for you and the business income goes away too, that's a problem. You need to insure against that if you're a practice owner.

Dr. Jim Dahle:
Now, it sounds like in your practice that may not be an issue, due to other people working for you. It sounds like in fact, not only will you be able to cover all the expenses in the event you were disabled, but you'll still be getting profit. So, you may not need that business continuation insurance. You may be able to get away without that.

Dr. Jim Dahle:
But disability insurance just comes down to whether you have enough income or assets coming in, that income coming in or assets with which to build an income that you need, that additional coverage.

Dr. Jim Dahle:
Disability insurance for the most part is something you buy and pay for until you become financially independent. And then you discontinue it and save the premiums. So, I hope that's helpful. Yeah, I don't see why you would leave that out of your net worth.

Dr. Jim Dahle:
You might not include it in your retirement assets though. When I look at the money I have for retirement on my spreadsheet, I don't include the value of the White Coat Investor. I don't include the value of several other businesses that I'm a part owner of either. I would kind of leave those out of it and I just look at the money that I have dedicated to retirement.

Dr. Jim Dahle:
Now, whether that is in a taxable account or an HSA or a designated retirement account, it doesn't matter to me. If it's designated for retirement, I count it toward retirement. But I don't count my kids 529s toward my retirement. I don't count their UTMs. Those are the money we put together for their 20s. I don't count the Roth IRAs toward my retirement. But everything else goes toward retirement. And so, those don't necessarily have to be the same figure, your retirement nest egg and your net worth. But net worth is pretty easily defined. It's everything you own minus everything you owe.

Dr. Jim Dahle:
Do you know how many of your patients can actually afford their prescriptions? It might be fewer than you think. The recent poll revealed that 3 in 10 adults in the U.S. reported not taking their medications as prescribed because of cost.

Dr. Jim Dahle:
GoodRX can help bring those numbers down with your help. Order a free savings kit for your office. It's filled with savings cards that work at over 70,000 U.S. pharmacy locations and never expire.

Dr. Jim Dahle:
Using these cars can help your patients save up to 80% on their prescriptions. And when your patients can afford their prescriptions, they're more likely to stick with the medication regimen you've prescribed for them. To get your GoodRX savings kit, visit goodrx.com/wci.

Dr. Jim Dahle:
Don't forget about studentloanadvice.com. This is a White Coat Investor company created to help doctors, dentists and other high earners tackle and defeat their student debt. Letting a professional guide you through the best options to manage your loans will save you hours of research and stress and potentially save hundreds to thousands of dollars with your custom student loan plan. Book a consultation with Andrew Paulson, a student loan consultant and co-founder of studentloanadvice.com today.

Dr. Jim Dahle:
Thanks to those of you who have left us a five-star review, and told your friends about the podcast. Most recent one comes in from JDPIPES who said, “Thanks. Been following WCI for about 5 years now, very grateful for Jim and this podcast for the education over that time. I can’t imagine where I would be on my financial journey had I not invested early on when I came to WCI to set my financial compass in the right direction. The journey continues, the education continues, and this resource is essential. Thanks, Jim, for all your time and commitment to your fellow White Coat Investors!”

Dr. Jim Dahle:
Thanks for that nice review. I appreciate those kind words. They keep me going on days when I'm feeling a little burned out. And sometimes, we all have those.

Dr. Jim Dahle:
You can do this though. Keep your head up and your shoulders back. You've got this and we can help. Thanks for being a member of the White Coat Investor community and we'll see you next week on the White Coat Investor podcast.

Disclaimer:
My dad, your host, Dr. Dahle, is a practicing emergency physician, blogger, author, and podcaster. He’s not a licensed accountant, attorney or financial advisor. So, this podcast is for your entertainment and information only and should not be considered official personalized financial advice.