Medical practices may form their own insurance companies

Q: I've heard that it's possible for medical practices to establish their own insurance companies. Is this true? If so, what are the advantages of doing so?

A: In recent years many small- and medium-sized businesses, including medical practices, have decided to set up small insurance companies both for improved risk management and for the potential tax benefits that are available from forming these companies.

If a doctor owns the practice, the internal revenue code permits a family member, including a child or a child's trust, to own the insurance company. This arrangement can be a very effective means of addressing estate-planning concerns.

This is a very creative planning area and is generating a great deal of interest among physicians as they seek ways to reduce expenses and improve overall finances.

Send your money management questions to medec@advanstar.com Answer provided by Paul J. Mershon, CFP, CLU, ChFC, president of Silverhawk Financial Planning LLC in Scottsdale, Arizona.