Is personal insurance through super funds - a good idea?

Posted by Neal Durling on 18 August 2015
Is personal insurance through super funds - a good idea?

In this post I want to talk about a topic that's vital for all of us: personal insurance. In particular, I'm going to look at trends in insurance claims on super funds, how they're affecting those funds and, possibly, your premiums.

Insurance claims are on the rise.
In Australia, insurance claims for illness, injury and disability are on the rise due to a number of long-term trends.

Firstly, more people are claiming due to:
  • Increasingly sedentary lifestyles, which see us working longer hours with little or irregular physical activity. Sedentary lifestyles can lead to back pain, depression and anxiety, diabetes, osteoporosis and cardiovascular diseases
  • Medical advances that prolong life. These reduce life cover payouts but increase insurance payouts for income protection and critical illnesses. Claim rates on these have been increasing.

Secondly, our population is ageing. This means more policy holders are reaching an age where they are likely to be claiming on their insurance policies or are leaving the pool of policy holders and taking their premium payments with them. The problem is compounded by the fact that there are also fewer young people available to enter the pool of policy holders.

Thirdly, over the last few years, insurers have broadened their definitions in a bid to win more clients, increasing the number of "defined events" that can be claimed for. Whilst this appears good for policy holders, ultimately it can lead to an unsustainable cost structure that has the potential to increase policy premiums and damage the insurance industry over the long term.

Lastly, lawyers are becoming more active in helping people make insurance claims against super funds, as a recent Sydney Morning Herald article points out. The disappointing aspect of this is many of society's more vulnerable are paying a significant portion of their claim to lawyers. Whereas, if you have a financial advisor, they will generally deal with the claim as part of the service they provide.

Insurance through super may not be so super.
Superannuation firms are obliged by law to provide insurance cover to members, and I believe the trends described will place increasing pressure on these funds. Over recent years, many premium rates have increased significantly but these often go unnoticed as the total dollar cost of the increase is often unclear. Plus premiums are collected through the super fund which is less transparent than the premium leaving your bank account.

As premiums rise, increasing numbers of educated, fit and healthy people are likely to leave insurance schemes run by super funds as they find better value insurance elsewhere. The result is a concentration of higher-risk members and ongoing premium increases as the claims experience worsens.

What does this mean for you?
You need to understand what personal insurance you have and whether a super fund is the most cost-effective way to get that insurance.

I think there's a myth that if you want to pay your insurance premiums from your super contributions, then you must have your insurance with that fund but that's not necessarily the case. It is possible to fund your insurance through your super but have your insurance provided by a different party. Also don't assume that if you have insurance cover through your super fund it will be cheap. Insurance through your super fund can often be quite expensive. You also need to review your insurance policies regularly and check any changes or premium increases.

It's always worth taking advice about your personal insurance from an independent adviser. At Medical Financial Group, we understand price is important but believe it remains only part of the value equation. We recommend the right protection strategy taking into account all of your circumstances. We review this each year to ensure that, if the worst happens, there are no surprises. This involves reviewing a client's changing needs as well as their super, insurance and estate planning arrangements to make sure they work together to deliver the required outcome. 

Please feel free to contact me with any questions you may have via:
Phone: (07) 3363 5800 or
Email: neal.durling@medicalfinancial.com.au

 

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Dream of the best - plan for the worst: starting a medical practice the right way

Posted by Mary Young on 14 July 2015
Dream of the best - plan for the worst: starting a medical practice the right way

Establishing a medical practice involves many opportunities but also many challenges. Understanding how to start a medical practice the right way can save you much heartache (and money) down the track.

As a chartered accountant advising small businesses for the past 20 years, I've gained some insights into human nature and how emotion tends to influence people's decisions when starting businesses of all kinds.

Many of my clients have approached their new business with rose-coloured glasses. They don't want to think that bad things could happen. For example, when starting out, they don't want to think about problems that could arise with business partners, employees or service providers.

They also tend to think a lot about their cash flow, and are often very concerned to control expenditure in establishing their business. This is both sensible and understandable, as fit-outs, equipment and computers can eat up a lot of money if spending isn't well managed. But it's also important not to scrimp on other important, less obvious elements that I believe every good business needs.

My advice to medicos setting up in private practice is dream of (and prepare for) the best, but also to plan for the worst. Start on a firm foundation by mitigating your risk exposure.

Four essentials to put in place when starting your practice
Four of the most important things to put in place when setting up in private practice are:

  • legal agreements
  • software programs
  • a procedures manual
  • staffing arrangements.

1. Legal agreements - Professionally prepared legal agreements will protect you when employees and partners leave, whether that is their decision or yours. These agreements should cover expectations for all parties and the how exiting the practice is to be undertaken. Without these, potential complications could be significant and costly. Don't rely on agreements prepared on the back of a napkin. You need legally binding documents prepared and reviewed by a qualified legal representative. Otherwise, agreements can be easily overturned. These agreements will protect you and your business at its outset and into the future.

2. Software programs - A good practice management software program isn't cheap but it's a vital investment. Your software program will maintain patient records, billings and receipting. Many offer extra features that can make a major difference to your practice. For example, the Genie program (which costs $10,000-15,000) will also transfer patient billings to various health funds for payment with receipts from those funds automated. These programs can save you and your staff time and help you manage debtors. You don't want to have to recover bills three years down the track.

3. Procedures manual - A good procedures manual is also an important tool. This should detail doctors' expectations: what they need and expect to happen to ensure an efficiently run practice (i.e. when they need stock reordering, billings to be delivered, receipting completed). Your procedures manual is a living document that should develop as the business grows. The main thing is to ensure that all the tasks that are essential to the business are covered. It can also be useful to help manage staff as it sets out the performance required of them.

4. Staffing arrangements - You should always keep in mind the need for a backup plan. The worst thing you can do is have one full-time person in a practice whom you depend on completely to keep things running. If that main person gets sick or leaves unexpectedly, you need to have someone else who knows how to help maintain the business. One simple strategy is to make sure your reception role is covered by at least two people. And, as your business grows, a practice manager will be essential. Make sure you recruit somebody with the right skill set for any role. After all, there's no point having someone who has only reception skills if you also want them to cover bookkeeping duties.

The best strategy for starting a medical practice the right way is to spend some of your cash flow at the outset to cover these four essential items. It's a worthwhile investment to put in place safeguards that will protect what you will spend years building.

Remember: dream of the best - plan for the worst.

 

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Working out what you want - good financial planning

Posted by Neal Durling on 24 June 2015
Working out what you want - good financial planning

You've probably heard it said that good financial planning is based purely on facts and figures, and has nothing to do with emotion, right?

Well, no, actually! In this post I'm going to turn that idea on its head, along with some other standard 'truths' you might have heard.

In my opinion, money on its own is not the secret to happiness. I've learned this over almost 30 years in the financial services industry, advising people on their financial futures.

My clients often arrive in my office for the first time thinking that my role is to help them accumulate more cash reserves, or buy a business, or own a larger home or more expensive car.I can help you to do all, or any, of those things. But, in fact, my main job is to help you achieve greater emotional satisfaction in your life. Money is just a facilitator for that.

Let me explain.

At Medical Financial Group, we spend time getting to know you and what you want out of life, so that the financial decisions you make will help you to achieve your life goals. The first time we meet with you, we explore your values, goals, and vision for your future. If you have a life partner, we encourage you to bring them along so you can both express your thoughts about your future with each other.

We start by talking to you about what's important to you right now, then in the short term and longer term. We work through a systematic questioning process designed to reveal your own personal definition of "success". We then record your thoughts on an 'advice map' that's unique to you.

What's important to you? Maybe it's the best education you can afford for your children. Maybe it's having a successful practice but also having quality time with your family. Maybe it's a good home, or regular holidays, or being able to contribute to the community through research or some charitable work. Or maybe it's a combination of all of these.

Working out what you want is the starting point for everything. For many clients, this first session is a revelation. Often they haven't really reflected on their life goals since they stepped into university at 17 or 18. They've been so busy studying, training and starting a practice that they haven't had a chance to stop and think about the bigger picture.

With our help, you get an opportunity to take a breath and spend time thinking about what will really make you feel fulfilled. You may be surprised; my clients often realise that there's a gap between their financial behaviour and what they'd actually like to achieve. And husbands and wives are often surprised by what their partner has to say. It's a great opportunity to develop a shared vision for the future that incorporates both partners' priorities.

To enhance your financial future over the long term, it's vital to work out what you want and to put plans in place to help you achieve it.

Once we all understand what you'd like to achieve in life, we can work together to help make those goals a reality.

And the sooner you do it the better. One of the major findings of our recent white paper on financial independence for medical professionals was that many medicos wished they'd sought expert financial advice earlier in their careers, before they made major financial decisions and, in some cases, mistakes.

Planning early in your career can have a major impact on your financial success and happiness.

And here's where I turn another truism on its head. We've all heard the expression that 'hindsight is a wonderful thing'. Well, I believe that foresight is better. With help from a qualified financial adviser, you can avoid pitfalls and be confident that your hard work is actually moving you closer to where you'd like to be.

We can accurately model different scenarios before you make major purchases so that you can see their implications. For example, if you buy that luxury car you've always dreamed of, what will you have to give up? If you go into private practice, how many hours will you need to work to achieve financial viability? With our help, you can go into things with your eyes open and enjoy what you spend. Sometimes you may make different decisions as a result.

The best part of what I do is helping my clients work out what they want and how to get there.

Good financial advice isn't a couple of meetings and a few emails. It's about taking the time to get to know your client and having a conversation with them over many years. It's about establishing a relationship, asking the right questions, and providing options based on a sound understanding of the financial world and a sound understanding of your client's goals and values.

Here's my final reflection for this post. Some people say you can't put an old head on young shoulders and to an extent this is true. I think, however, if you're smart enough to seek advice you can reap the benefits of more insightful decisions while you're still young enough for them to make a real difference. And that can help to put you on the path to achieving the things that you really want. 

Good financial planning - it's an emotional thing.

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2015 federal budget small business changes - will they help medical business operators?

Posted by Matt Connor on 11 June 2015
2015 federal budget small business changes - will they help medical business operators?

Released on 12 May, the Australian Government's 2015-2016 budget contains a number of changes for small business owners.

Read on to find out what those changes do - and don't - mean for medical business operators.

They aren't really changes until...
Although this year's budget provisions are a lot more palatable than last year, budget announcements don't come into force until budget bills pass through both houses of parliament. Last year, many of the government's announcements didn't make it through the Senate.

Governments will often bundle 'good' legislation with 'bad' in bills put to parliament. This is one strategy to push unpopular changes through a hostile parliament and senate.

This year, although the opposition has indicated that it will support the tax-related changes announced in the budget, it has also stated that it will not necessarily support all of the announced budget provisions. This increases uncertainty for small business operators about which of the announced changes will and won't become reality.

I expect we'll know in the next month or so which aspects of the budget will be passed. Bear in mind that, if passed, some provisions will have retrospective effect from budget night.

Definition of small business
A small business is defined as one that has a turnover of less than $2 million per year.

Bear in mind that turnover is calculated using what are called 'aggregate' rules for example, if you are part owner of a practice, your personal turnover as well as the turnover of the whole practice (not just your share) may be included to determine if you exceed the threshold.

$20,000 write-off
A key small business provision announced in the budget was the introduction of an 'instant' tax deduction for assets costing up to $20,000 for small businesses.

Be aware that this deduction applies only to tangible business assets, not to building works or fit-outs, or to a private use family car. It also applies only to assets valued up to $20,000 excluding GST, and does not apply to assets greater in value.

Reduced company tax rate
The treasurer also announced the government's intention to reduce the company tax rate to 28.5% for all companies with a turnover less than $2 million from 1 July this year. However, the 28.5% company tax rate will not affect personal services income providers (like medical professionals), as their business profit MUST be distributed and declared in the individual tax return of the individual who generated the income.

It may affect service entities that are Pty Ltd companies, but it won't affect trust entities.

$1,000 tax rebate
The budget also introduced a $1,000 tax rebate for business profits. My view is this is a very small adjustment and a drop in the ocean with respect to the tax that medical professionals pay.

Capital gains tax change
The fourth significant small business initiative is to allow businesses with an annual turnover of less than $2 million to change their legal structure without attracting a capital gains tax  liability at that point, However, a significant part of business restructure costs is stamp duty, which remains unchanged. Hence this tax concession is less appealing than it may at first appear.

So what's really in it for medical businesses?
My view? The $20,000 tax write-off is the only proposal that will have any material effect on the tax position of doctors and dentists.

Once we know for certain that it has passed into law, you can rest assured that Medical Financial Group advisers will be considering it as part of financial planning for suitable clients.2015 federal budget small business changes - will they help medical business operators?

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New white paper reveals financial challenges facing medical professionals

Posted by Neal Durling on 2 June 2015

By Neal Durling and Sean O'Kane.

Most people - including many medical professionals - believe that a medical career necessarily delivers very comfortable financial outcomes.

But the truth is more complicated than that, with doctors and other medicos facing four unique challenges that must be overcome if they are to reach true financial independence.

I explore these challenges in depth with my colleague Sean O'Kane in a new Medical Financial Group white paper: "Are you planning your journey to financial independence? A white paper for medical practitioners".

Our white paper shatters a number of myths about medicos and money, and gives you intelligent financial insights based on evidence. Sean and I dug deep into statistical data, read relevant articles from medical journals, and held a series of frank interviews with specialists themselves to put the paper together. I believe we now have a resource that is essential reading for any medical practitioner who wants to achieve long-term financial security.

Some of the fascinating findings we made in researching and writing the 12-page paper:

  • Medical practitioners often have higher earning potential than many other professionals once they start work, but they spend an average of 25% longer in training, so generally begin their careers later and often with a large debt incurred during training.
  • All practitioners interviewed said that providing a good education for their children was a top priority, and many worried that their family's wellbeing would suffer if they were unable to work due to illness or injury.
  • Many practitioners wish they'd sought financial advice from trustworthy advisers at the start of their careers.

And the four unique financial challenges for medical professionals that we uncovered? I'm happy to share them with you here:

1. Financial complacency/over-eagerness
Practitioners tend to fall into two camps either complacent that they are now earning good money so don't need to plan financially, or eager to finally enjoy the rewards of all their hard work so they want to spend now! Neither approach will set you up for long-term financial success.

2. Less time than other professionals
Medicos especially specialists are busy people, with little time to spare. And, because of your training and the nature of your work, a practitioner's earning life may actually be shorter than that of many other professionals. Both make it harder to research and implement a financial strategy.

3. Lack of financial understanding
By definition, medical practitioners are intelligent people. But finance is a whole new world. Some of our interview subjects told us of medicos who invested less than wisely, and lived to regret it.

4. Lack of trust
High-earning professional people often worry that they could be a target for financial experts. It's vital to find a credible, transparent financial adviser whom you feel you can trust.

Our full white paper gives more information about each of these challenges and how you can overcome them. The paper also contains words of wisdom from your colleagues about their own financial journeys, plus advice characteristics that most doctors value.

Download your free copy of the white paper now -  I promise that it's intelligent, relevant, and shouldn't take you longer than 15 minutes to read.

 

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The information on this site is of a general nature. It does not take your specific needs or circumstances into consideration, so you should look at your own financial position, objectives and requirements and seek financial advice before making any financial decisions.

The financial planning services are provided by Medical Financial Pty Ltd trading as Medical Financial Planning (AFSL 506557)