The more income you earn, the more opportunities you have to build wealth, invest, increase your net worth, and establish better financial stability over time.
But earning a high income comes with a caveat:
The more you earn, the more you stand to lose.
Unexpected circumstances and unplanned events can take your income from six or seven figures to nothing in an instant, and that’s a scary place to be. Fortunately, there are ways that high income earners such as physicians, attorneys, and executives can protect their income so that doesn’t happen.
From insurance protections to tax-saving strategies, here are some ways that physicians and other high income earners can protect the dollars they work so hard to earn.
Disability insurance protects your future, unearned income. Disability benefits replace lost income that may result from an illness, injury, or medical condition that prevents you from working. With the exception of those working past retirement age, every high income earner needs it.
Disability insurance carriers provide benefits up to 60% of your current salary, but whether or not you’ll be eligible to receive them depends on the policy’s definition of disability.
All insurance companies offer the any-occupation definition, which means that your condition must be so severe you cannot work in any job at all. The preferred definition for high income earners is the own-occupation definition, and only a few insurance companies offer this as a rider.
Under the own-occupation definition you can qualify for benefits if your illness or injury prevents you from doing your current job. This is especially important for physicians, as even a minor injury could make it impossible to perform your current duties.
Visit this site to learn more about disability insurance and obtain free quotes from top carriers.
Professional Liability Insurance
Professional liability insurance protects your income if someone suffers as a result of your work or business. For physicians, it’s malpractice insurance. For attorneys it’s often referred to as errors and omissions insurance. Both protect you against claims made by patients and clients.
If a client or patient is awarded damages in a lawsuit, your liability policy will cover those damages up to a specified amount. These policies also cover the costs you will incur to defend yourself against the claims. Without this protection, you could be on the hook for both the damages and defense costs, which can significantly impact your earnings and savings.
Auto and homeowners’ policies have liability limits, and sometimes the damages owed exceed them. That’s where umbrella insurance comes in.
An umbrella policy offers coverage beyond the liability limits of your personal policies. For example, let’s say a guest gets injured in your home and sues you for $2 million to cover their medical expenses. If your homeowner’s insurance has a limit of $1 million, your umbrella policy can cover the other half. Without it, you would be personally on the hook for paying that additional $1 million.
Learn About Tax-Saving Strategies
The less you pay in taxes, the more money you’ll keep in your pocket to save, spend, or invest.
There are many tax-savings strategies that you can take advantage of, including:
- Maxing out contributions to retirement accounts
- Navigating the backdoor Roth IRA
- Maximizing all business expenses
- Contributing to a health savings account
There are a multitude of legal ways that you can protect yourself and your heirs from paying more in taxes than necessary. Hire a professional tax accountant and they’ll talk you through the many ways that you can protect your income over time.
If You Own a Business, Form an LLC
A Limited Liability Corporation separates your personal finances from your business finances. Whether you own your own business or are a partner in a business, this is a way to safeguard your personal savings if the business entity gets sued for liability.
Learn more about how to set up an LLC.
Sign a Prenuptial Agreement
Prenuptial agreements protect assets you already have as well as future income you haven’t yet earned. Regardless of income level, everyone entering into marriage should sign a prenup. Many divorces involve legal battles between spouses over assets and/or custody. Legal defense costs can add up quickly, and a prenuptial agreement is a way to minimize those expenses.
You work hard for the money you earn, so take the necessary steps to protect it now. With the right insurance policies, the guidance of a tax professional, and the necessary legal agreements in place, you can have peace of mind that your income will remain your own.