Mastering IFAs for Physicians (Part 2 of 5): Is This Strategy Right for Your Practice & Personal Wealth? – A Taxevity Companion to beyond MD Ep. 91

In the Beyond MD podcast, Dr. Yatin Chadha covers a range of financial topics to enhance real-world financial literacy. As featured guests in Episode 91 (Apple | Spotify | YouTube), we explored Immediate Financing Arrangements (IFAs) – a powerful insurance leveraging strategy helping physicians accelerate wealth building. This 5-part blog series expands on our discussion, providing deeper insights into how IFAs can support your goals for protection, growth, and impact.

Is an IFA Right for Your Practice & Personal Wealth Strategy? Key Considerations for Physicians

In Part 1, we introduced the Immediate Financing Arrangement (IFA) as a strategy enabling physicians to leverage their whole life insurance policies for external investments. Now, let’s consider who is best suited for this advanced financial tool and what crucial questions to ask.

An IFA isn’t a generic, one-size-fits-all solution. It requires careful consideration of your unique financial situation, your practice’s structure, and your long-term objectives.

Profile of an Ideal Physician Candidate for an IFA

While individual circumstances vary, certain characteristics often align well with an IFA strategy:

• Incorporated Medical Professionals: Physicians with Medical Professional Corporations (MPCs) can often benefit most, particularly if there are significant retained earnings. The IFA can provide a tax-efficient way to access and deploy this corporate capital.
• High-Net-Worth (HNW) Physicians: Those with substantial assets and a desire to optimize wealth growth and transfer often find IFAs appealing.
• Physicians with Clear Investment Opportunities: If you have specific investment goals in mind (e.g., expanding your practice, investing in real estate, diversifying your portfolio) and need access to capital, an IFA can provide the necessary funds.
• Long-Term Financial Horizon: IFAs are generally long-term strategies. The benefits often compound over many years, making them suitable for physicians with a patient, strategic approach to wealth management.

Strategic Opportunities & Advantages of Insurance in a Physician’s Financial Plan

For many HNW physicians, the “need” for life insurance extends beyond basic protection. It becomes a strategic tool for:

• Enhancing Wealth for Growth: As discussed in Part 1, the IFA allows you to use the life insurance policy as a lever to access capital for further wealth-generating investments. The continuing tax-sheltered growth within the policy also contributes to long-term wealth accumulation.
• Expanding Capacity for Philanthropic Impact: A larger asset base, potentially augmented by successful IFA-funded investments, can significantly increase your ability to support charitable causes that are important to you, both during your lifetime and as part of your legacy.
• Foundational Protection: While focusing on growth and impact, the underlying permanent life insurance policy continues to provide essential protection for your family, your practice (e.g., funding buy-sell agreements, covering key person risks), and your estate, ensuring liquidity to cover taxes and other obligations.
• Corporate Tax Efficiency: For incorporated physicians, holding a life insurance policy within the corporation can offer tax advantages, such as the potential for proceeds to be paid out tax-free to beneficiaries via the Capital Dividend Account (CDA).

Critical Self-Assessment for Physicians

Before pursuing an IFA, an honest self-assessment is crucial:

• Cash Flow Stability:
  • An IFA involves ongoing commitments: insurance premiums (at least for a period) and loan interest payments.
  • Physicians need to assess the stability of their income (from their practice, investments, etc.) to ensure they can comfortably meet these obligations without financial strain.
  • Consider your practice overheads, potential income variability, and personal financial commitments.
• Risk Tolerance:
  • Leveraging (borrowing to invest) inherently involves risk. The investments made with the loan proceeds might not perform as anticipated, or interest rates on the loan could rise.
  • You need to be comfortable with this level of investment risk. If the thought of market fluctuations or changing loan conditions causes significant stress, an IFA might not be the right fit.
• The “Hassle vs. Reward” Consideration:
  • IFAs are sophisticated strategies that require proper setup, ongoing monitoring, and coordination with your accountant and other advisors.
  • While Taxevity manages the insurance aspects and facilitates the process, there’s still a degree of engagement required from you, your accountant and your wealth advisor.

An IFA can be a powerful tool for the right physician. By carefully evaluating your financial profile, understanding the strategic advantages of insurance, and honestly assessing your cash flow and risk tolerance, you can determine if this approach aligns with your goals for your practice and personal wealth.

In Part 3, we’ll look at the mechanics of structuring a whole life policy for an IFA and the details of the loan process.

Stay tuned for Part 3: Policy Structure & The Loan Explained

Here’s the full series on Mastering IFAs for Physicians:

Part 1: Leveraging Life Insurance for Investment

Part 2: Is This Strategy Right for Your Practice & Personal Wealth? (this post)

Part 3: Policy Structure & The Loan Explained

Part 4: Is This Strategy Right for Your Practice & Personal Wealth?

Part 5: Policy Structure & The Loan Explained

Deepen Your Understanding & Explore Your Options

We encourage you to continue your learning by hearing our full discussion on IFAs on Beyond MD with Dr. Yatin Chadha (Episode 91). You can listen on your preferred platform: Apple | Spotify | YouTube.

Understand if an IFA aligns with your professional corporation and personal financial goals. Contact Taxevity for a personalized consultation.

Promod Sharma (FSA, FCIA) and Jeevan Sharma (CFP) YOUR FAMILY TEAM

At Taxevity Insurance, we’re passionate about bringing clarity to complex financial decisions. Let us empower you with personalized strategies to achieve your goals. We focus on life and health insurance solutions to protect your business, your family, and your legacy.