WCI #222: Car insurance: How much do you need?

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 is your host, Dr. Jim Dahli. This is White Coat Investor podcast 222 car insurance how much do you need? Getting quality disability and life insurance should be the first financial chore for a doctor to complete. Most docs don't have the ideal policy for their gender, specialty, state or health status, and one in seven doctors get disabled at some point during their career. Because these policies can only be purchased through brokers, we put together a list of vetted agents who are experienced with working with the specific needs of medical professionals and who have your best interest at heart. If you have questions about insurance and what kind of policies would be the best fit for you, check out our insurance recommended list@whitecoatinvestor.com insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this and the White Coat Investor can help. All right, welcome back to the podcast. It's July 15th, I think this runs August 5th and so a little bit of a lag between the two. That's so I have some time to go on a trip. We're excited to go on a rafting trip here between the time we record this and the time it runs. Our quote of the day today comes from Tim Ferriss said Retirement is a goal or a final. Redemption is flawed because it is predicated on the assumption that you dislike what you are 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 the rest of your life and actually enjoy it. 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. You know, 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's really interesting that this pandemic has gradually turned into something that's basically completely preventable, at least the severe episodes of it. So 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. 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 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 higher earners tackle and defeat their student debt. 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. Book a consult with Andrew Paulson, the lead student loan consultant and co founder of studentloanadvice.com today. All right, I got an email 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 let you flex and what limits you recommend. 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. And so I went and logged on to my auto policy and mine is with usaa. Having been a military officer, I get 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. And I think they count on that actually, and, and charge you accordingly for that. But that's okay. 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. So let's go through our coverages. The first coverage that usually pops up on a policy is, is comprehensive. And what comprehensive is, 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. Right. Flood, vandalism, theft, fire. Right. If stuff gets stolen, if the car gets stolen. Right. 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 your window glass as part of that comprehensive coverage as well. All right, so the next thing. So we've got that on all of our cars, and not that we have to have it. I mean, usually 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, it's 33 bucks every six months. On the newer one, it's 46. And on the Civic, it's about 26 bucks every six months. Then collision coverage. Right. Collision is if you get in a car wreck, your vehicle's 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. 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 is collision. And we have collision in our vehicles. I think the main reason I carry it around 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're driving all the time. In fact, I wonder if I put more miles on rental vehicles than I do 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. 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, 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 insur. This pays for it. But I already have comprehensive and collision. Right. 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. All right, the next one is a car replacement assistance. And what this is 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 loan. So you can actually still pay off the loan or to get a new vehicle if yours is totaled. Right, because your car's depreciated since you drove it off the lot. That can help you get a new one instead of, you know, your now less valuable car. I don't have that. I just have insured what we have for whatever it's worth. But that is an option that USA offers that we've declined. All right, 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 is for this coverage. 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 bucks every six months is what I pay for that. 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, right? 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 to next, which is property damage liability. And if you damage someone else's property in an auto accident, this Covers it vehicle, house, fence, whatever you run into this repairs that property. And my umbrella policy again sets how much I got to have of this. It requires me to have $100,000 of coverage and that costs me $404 every six months. But again, 100,000 is not the limit. The limit is millions because we have an umbrella policy that we stack on top of it. Okay. 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's 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, 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. Hopefully, you know, the other person's insurance would cover 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 those people, 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 who are disabled long term. So I think it's important to have the coverage. There is the minimum required by the umbrella policy, which in this case is $300,000 $500,000. It's the same for underinsured motorist bodily injury. Why they break this out into a separate policy, I have no idea. But they do. If they just don't have enough insurance coverage, then apparently this is the one that pays. We're paying $69 every six months for underinsured, $44 or sorry, $61 for uninsured and $69 for underinsured. That's just the way they've broken it out. I look at it as part of my liability coverage. And 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. So the next coverage is personal injury protection. And this is if you or your passengers are injured in a car accident, regardless 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 3500 for funeral expenses, which probably won't pay for a funeral these days, but at least it'll help. It'll cover. This one's kind of funny. It'll cover 85% of income loss due to inability to work. That sounds pretty good, except it limits it to $150 per person per week. All right. Well, I guess it's better than Nothing. Replacement services, $15 per person per day, survivors income, 85% of income lost due to inability to work up to $150 per person per week. And survivors 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 every six months for it. I think the moral of the story here is the expensive coverages are the st for people getting hurt because the medical care is so expensive, not the stuff that pays for the car getting hurt. That stuff's not nearly as expensive. We have a separate medical expenses category. They'll 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. 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 decline that option. And there's some additional personal injury protection, which again was declined because the umbrella policy is covering it. 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 an at fault accident after five years. So that's nice. 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. I suppose it could be in a certain accident and maybe you'd be without a car for a few weeks. But honestly, we can afford a 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 I was willing to pay for. 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, usa, anyway, they got an app. You basically open up the app, you type a couple of things in, you hit a button and. 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. Towing is pretty expensive. We pay 826 each car for 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, you know, more than 10 years old, that's pretty easy to do. So we gladly pay that coverage. There's a ride share gap protection. That's if you're doing Uber with your car. We're not. So we decline 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 end up paying quite a bit of money, a lot more now that we have a teenage driver than we were paying before for auto insurance. I think our total adds up to something like 1700 bucks 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. 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. 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 seven figure amount. It is interesting. Probably 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, Right. They're just amounts that have gone above your auto insurance. Only 20% is all that other stuff. But even so, it's interesting to see what's not covered, right? 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. Injury arising out of the rendering or failure to render a professional service of any nature. That's where it says, hey, we are not backing your malpractice policy. So 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. Right. So this is not covering your business issues. The next section, it's not going to cover a household employee unless the household employee is covered under the basic policy. You know your basic homeowner's policy. You can get that as a provision. It doesn't cover injury arising from activities as an officer or member of the board of directors of any organization or corporation unless it's nonprofit, and it's 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. 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. A claim or suit brought by any person that's covered by this policy. So if I sue my wife, this policy is not going to pay bodily injury or property damage caused intentionally, Right? If I go to town on your car with a sledgehammer, this policy is not going to cover it. Anything involving nuclear energy or radiation if the loss is covered by a nuclear energy liability policy. So it sounds like mine would cover. Because I don't have a nuclear energy liability policy. Hopefully I never have a need for that. With no fault, uninsured, underinsured, it basically doesn't cover it unless you have that coverage on your policy. Here's an interesting one. Injury that results from transmission of a communicable disease by you or a relative is not going to cover it. You give somebody hiv, this policy isn't going to pay out. Injury which arises directly or indirectly out of the discharge, dispersal, release of smoke vapors, soot, fumes, acids, alkalis, 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. 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. 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 not covered. Injury arising out of lead poisoning not covered. Injury arising out of the giving or serving of any alcoholic beverage must also covered by the basic policy which your homeowners probably covers. You know, 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 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 of any person. So like babysitting not covered. Injury arising out of the ownership, maintenance operation, boarding or debarking of any watercraft longer than 45ft. And my wakeboard's 24ft, so I'm good there. Or which has a maximum speed excite exceeding 50 miles an hour, not to include jet skis and waverunners. All right, so I'm good there. My boat definitely does not do 50. 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 engaged 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. Hope that's helpful. Talking about auto insurance policy, the cheapest way to get auto insurance policy, to get auto insurance is just to get liability coverage. If you got a beater that's 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. Right. It's pretty easy to run into somebody's $120,000 Tesla and total it. And if you injure them at the same time, you're going to be into the thousand dollars range pretty quickly. So I recommend you have pretty high liability insurance coverage and honestly that you have a seven figure liability insurance coverage by stacking on an umbrella policy on top of it. All right, 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 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 gain taxes. Should I sell the lots that haven't changed much in value, essentially foregoing any gains but also not generating any taxes? Or should I sell the lots that have lost value so as to be able to tax lost harvest? I'm currently mid career so my peak earnings. Assume also for piece of discussion that all lots are of the same index fund that all have been held for at least one year. Thanks.

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. In fact, you should never really have a loss sitting in your taxable account because you should harvest it every time you have one. You know, if that's all in the total stock market index fund, anytime you have a loss, Swap it over for 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 something, 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. But do make sure you've had them at least a year because then you're paying long term capital gains rates rather than your full marginal tax rates, AKA short term capital gains rates on that money. So the lowest basis that you've got or 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 anytime. You don't have to wait a year for that. Hope that's helpful and hope you enjoy whatever you need to buy liquidating your brokerage account for. All right, our next question. This one should be interesting. I think you guys will like this question. Let's take a listen.

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 Dally 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? Please don't get me wrong. I'm appreciative of the knowledge you share and 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 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 with the White Coat investor. You know, 2011, 2012, 2013. We really didn't make much money as a 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 and so that's been a really fun part of entrepreneurship is creating not only jobs, but great jobs. We think we have the world's best 401 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. 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. 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. Now remember, at that time I was still working full time clinically, but the white coat investor was starting to make money and it bought us a wakeboat 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. 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 this space for the white coat investor and fancied everything else up. We wouldn't have done that renovation without white coat investor income. 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. 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 those 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 didn't make that much in the military. Now I didn't have big student loans, but I certainly wasn't making tons and tons of money. In fact, that first seven years that it took us to become millionaires, my average income was $180,000 a year. Right? Because four years in the military, a couple of years as a pre partner before I started making the big bucks. 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 enough, 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. And so, you know, 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, so I may be six years ahead of that plan to cut back on my. On my work. And, you know, I probably would have been working night shifts a little bit longer as well. As, you know, our group subsidizes night shifts heavily, and so there's 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. 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 $2,503,000,000, something like that. It's probably where we would be net worth wise at this point, 15 years out of residency if the white coat investor had never made a dime. 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. 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. And 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, and it probably would have just taken a little bit longer. Does the plan work for the average yo 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. 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, you know, follow my path in order to be successful. 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 from Medscape, a survey they did where the average entrepreneur or the average physician side gig only paid about $35,000 a year. 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. You know, 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. All right, let's get on to the next question. Enough ranting about that. This one is going to be about HSAs. Let's take a listen.

Hi, Dr. Daly. I have a question about HSA. I will start my attending job this July and it offers an HSA that I would like to use. I would like to use the maximum contribution for a 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. 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.

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, 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 the whole 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, yeah, you can max it out for 20, 21, $7200. Get that money in there and if you're not going to spend it anytime soon, get it invested. It's a great account. All right, let's take our next question. This one is a little bit about net worths and practice owners issues.

Hello Dr. Dali, 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? As a background, I do have some disability insurance already and I'm not sure if I should add more. If I hire an optometrist today to see patients and my practice decline by 50%, I would still be making about 50k a year from the business. So even if I'm not able to work, my income does not go to zero. As for net worth, I have heard arguments for and against and including a practice into your net worth. As an owner yourself, how do you view and manage these things? Thanks for everything you do.

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 a practice and it has some value, you should include it in your net worth. Why wouldn't you? 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 it basically comes down to what somebody else would be willing to pay for your business. So sounds like you have pretty good optometry practice that somebody else would be willing to pay something for. If without you even being there, it's making $50,000 a year, well, that has some value to it. You know, basically some multiple. Let's say it's 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. 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 a valuation for the business, and so we hired somebody to come in and do a formal valuation. 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. As far as disability insurance, I mean, personal disability insurance comes down to what happens if you get disabled, right? 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 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 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. 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. 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. You might not include it in your retirement assets though, Right. 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 kind of leave those out of it. And I just look at money that I have dedicated direct retirement. Now whether that is in, you know, a taxable account or an HSA or a designated retirement account 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. Those are the money we put together for their 20s. I don't count their 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. Getting quality disability and life insurance should be the first financial chore for a doctor to complete. Most docs don't have the ideal policy for their gender, specialty, state or health status, and one in seven doctors get disabled at some point during their career. Because these policies can only be purchased through brokers, we put together a list of vetted agents who are experienced with working with the specific needs of medical professionals and who have your best interest at heart. If you have questions about insurance and what kind of policies would be the best fit for you, check out our insurance recommended list@whitecoatinvestor.com insurance and feel the peace of mind that comes with knowing you have the optimal policy in place. You can do this and the White Coat Investor can help. 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. Let a professional guide you through the process. 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 consult with Andrew Paulson, the lead student loan consultant and co founder of studentloanadvice.com today. Thanks for those of you who've left us a five star review. Told your friends about the podcast. Most recent one comes in from JD pipes 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. 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. So you can do this, though. Keep your head up, 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. My dad, your host, Dr. Dalle, is a practicing emergency physician, blogger, author and podcaster. He is not a licensed accountant, attorney, or financial advisor. So this podcast is for your entertainment and information only and should not be.

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