Risk Management and Insurance
Risk Management & Insurance:
In managing risk, one must first assess risks they can afford to retain and risks that would be too expensive to retain. The easiest way to do this is to determine which assets you can afford to replace with cash (emergency reserve) and which assets, if lost, would be disastrous to your financial well being.
For many physicians, their largest asset is the income they have not earned yet. Many physicians neglect to view income as a tangible asset because it comes in small increments over a very long period of time. Income is a measurable, tangible asset that represents the funding of your current AND future financial obligations. Think of it this way. If you make $350,000 per year and work 30 years, you are sitting on a $10,500,000 asset. If you had a home worth $10,500,000, it would go without saying that you would buy homeowners insurance so you wouldn’t have to write a check to replace the home should it burn down or be damaged. Income is no different. If you were to lose your ability to produce income due to death or disability, having the proper insurances in place will replace that income so your family or business can continue to meet their current and future financial needs.
For those that do a good job of saving and planning, at some point one’s “nest egg” becomes a larger asset than your future income. At this point disability (loss of income) becomes less of a concern than long term care planning (loss of nest egg).