Every day may not be a sunny day. Having the right types of insurance that extend beyond business liability and malpractice will keep you prepared for the unexpected.
Are you prepared for the “what-if” scenarios? If your doctors get sick or die unexpectedly, do you have preparations in place the will allow you to protect the practice cash flow for the staff, the employees, and the other partners? When creating a financial plan for your practice, you need to consider various ‘what if’ scenarios, after all, it is not just your own paycheck you need to be looking out for, there are people who look to you for help and as the practice owner, you need to be there for your people.
Below, we’ve detailed 4 types of insurance that you should utilize in your practice. These will help you stay prepared for all-weather situations, let’s take a look.
Disability income insurance provides a supplemental income should you ever become disabled and unable to work. This benefit helps you to maintain your standard of living, pay your bills and expenses, and ultimately keep your life as normal as possible when you are faced with unforeseeable circumstances. Disability income insurance is most commonly used in short term or long term.
Short Term Disability Income Insurance: This form of insurance generally goes into effect after the user has been disabled for 7-14 days. It will pay a benefit for up to 90 days, in some cases, it can last for up to 180 days.
Long Term Disability Income Insurance: This version of LTD income insurance typically goes into effect after the user has been disabled for 90 and will generally last until the dependent is 65. In some cases, the benefits will extend beyond this age.
Hopefully, you’ve taken out the adequate amount of personal disability income insurance to continue providing income to your family if you can’t work. But as a medical practice owner, your production is also essential to cover overhead. What revenue source is going to help cover office expenses if you’re out temporarily on a personal disability? This is where personal disability insurance and business overhead expense insurance work together to protect a doctor’s family and practice.
Business overhead expense (BOE) insurance is an often-overlooked piece of protection that’s essential to help pay rent, employee salaries, and loan payments on a monthly basis if one of the key partners and income earners is unable to continue generating the same level of revenue for the practice. It’s a supplemental insurance policy that helps protect the jobs of the entire office if the doctor can’t work due to a disability. This type of insurance is important to have in conjunction with the disability income insurance because it helps cover the costs needed to keep your practice running without forcing you to deplete your long-term disability. This is more geared towards your business expenses while the other is more for you and your family to survive, however, both disability income and business overhead expense insurances overlap to give you the protection you and your practice need.
If you are in private practice this is essential!
The other key type of insurance that comprises an all-weather plan for the practice is called a buy-sell policy. This allows you to protect the revenue you bring to a business relationship in a private partnership. Only 1/10 private practice owners have this!
If there’s a prolonged disability or even a death, how will the other partners have the income to buy out the estate? What about the spouse or the heirs of the deceased doctor? With a practice, surgery center or ownership in a building, there’s some real value that is at stake for the beneficiaries of a deceased owner. How will the remaining providers have the income to buy them out?
The surviving owners may be able to take out a loan from a bank but that could prove difficult as typically the family has just lost one of their key revenue generators. A better approach to consider is the use of buy-sell disability and life insurance. This type of planning can provide an immediate flow of cash to the practice at the exact moment that things have taken a difficult turn.
It is important to get an accurate idea of how much your practice is worth. This ensures that should you or your partner pass away or become disabled, no business partners or their beneficiaries can claim more for their ownership than the practice is actually worth. By setting a strict value upfront for the practice and ownership shares, you can avoid unnecessary legal battles should the worst happen. You don’t want to worry about money hassles on top of dealing with death or disability within your practice.
A Cross-Purchase Plan mainly applies to the departing owner’s interest. Each remaining owner would agree to buy a percentage of this interest upon the departing owner’s death or prolonged disability.
With an Entity Redemption Plan, the obligation of buying out the interest of the departing owner falls to the business entity instead.
A few options for funding your buy-sell policy/agreement are listed below,
Don’t overlook this opportunity to protect the revenue you bring to your practice. If you have family and are signing them on as beneficiaries, this will ensure they receive their deserved portion in the event of your passing. This policy is worth considering.
Life Insurance, while not required, does provide assistance to those you leave behind as many of the above-mentioned disability insurances do not necessarily leave as much benefit should you actually die. There are many policies to choose from, and determining the right one for you and your practice will require you take a deep look at your personal needs, the needs of your family, and the needs of your practice. There are many different life insurance policies, but they generally fall under two categories: term (temporary) and cash value (permanent) life insurance.
Term Life Insurance (temporary) offers a cheaper option, but it is only meant to help you for a designated period of time. This policy typically covers 10, 20, or maybe 30 years.
Cash Value Life Insurance (permanent) has more expensive premiums but lasts much longer than temporary policies. With that being said, the premiums you are paying can actually help you before you die. You can use these to help pay for your student’s college or even to begin building a retirement plan.
Together, these four most overlooked components of coverage, especially in private practice: disability insurance, life insurance, business overhead expense coverage, and buy-sell planning, can really help create an all-weather scenario for the practice.
Specializing in the financial planning needs of medical professionals, our goal at Spaugh Dameron Tenny is to help you make smart financial decisions that will ultimately help you achieve your goals. Whether you are in residency, practice or retirement, we invite you to explore our services. Contact us today to learn more about how we can help you create an all-weather plan and help you navigate the insurance policies you need to ensure your practice and your loved ones are left in good hands.
*Disability income insurance policies have exclusions and limitations. For costs and complete details of coverage call 704-557-9649.
For over 50 years, Spaugh Dameron Tenny has provided comprehensive financial planning for physicians and dentists in Charlotte, NC. In addition to providing personalized advice, we walk our clients through their options to help maximize finances and maintain financial security.
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