Contributed by Shawn M. Johnson, ChFC, CLU, CLTC
Vice President, Sales, Treloar & Heisel, Inc.
You will have to manage your risk throughout your endodontic career, regardless of how your professional and personal life unfolds. In this article, we will take a brief 'risk management' journey from practice through retirement.
Right from the Start: Protect Your Most Valuable Asset
You should have health insurance for yourself and your dependents right from the start, and that will remain a constant throughout your career. Your ability to generate revenue is your greatest asset and is based on your health. If something were to happen to you, this would have a significant impact on your cash flow. One of the first things you need to do is to protect your ability to earn an income, at any stage. While health insurance will help pay to get you back to good health, an entirely different type of insurance is required to replace the income you forego while you are unable to work. This insurance is called disability income, or "DI" for short. Look for a contract that offers partial disability coverage. Many people imagine disability as losingthe complete ability to work. While total disability is certainly a possibility, it's much more likely that a partial disability will reduce the number of hours you will be able to work. Today's dental professional faces several problems when sickness or injury results in a total disability. Income ceases immediately, but personal and office expenses continue, becoming an added drain on resources. One may have even purchased disability income insurance to replace lost earnings, but how will that cover ongoing practice expenses or practice loan payments? For this reason, business overhead expense (often referred to as BOE) coverage and business loan protection (also referred to as "reducing term disability insurance") must not be overlooked.
It is important to understand that business overhead expense insurance is not income replacement coverage and is not covered under your business office package. Business overhead expense is a completely separate policy, and its purpose is to provide a mechanism for paying office overhead expenses that continue when you are disabled. Business loan protection disability insurance is designed to pay your monthly practice loan payment in the event of a total disability.
- A business owner's policy (frequently abbreviated to 'BOP') is an insurance policy you would buy to protect your business from a wide variety of property and casualty risks. A BOP typically covers you for events ranging from fire, to theft, or a general liability claim against your office.
- Within the Business Owner's Policy, there is also Employment Practice Liability Insurance (EPLI) and Data Breach protection. EPLI provides coverage against claims made by employees alleging wrongful termination, harassment or discrimination. Data Breach insurance has become a necessity since your practice handles sensitive personal and medical patient data. This insurance mitigates the costs associated with data loss or theft and protects against potential litigation.
- Workers' Compensation is also important for your practice to provide wage replacement and medical benefits to employees injured in the course of employment. It is separate from your BOP.
Protect the Ones You Love
You may have dependents-a spouse, children, and financial obligations. You would want to provide for your loved ones in the event of your death. A relatively inexpensive way to address this need is through the purchase of term life insurance. This particular type of life insurance is affordable in part because it provides coverage for a specific duration - or 'term' - after which it expires.
Protect Yourself from Lawsuits
Professional liability insurance, frequently called malpractice insurance, is an absolute necessity for your practice - as soon as you start working. Having the right type and amount of liability in place will help protect your assets and prevent you from potential insolvency in the event of a lawsuit. Research options carefully. The time to understand your malpractice insurance coverage is not during a lawsuit, when it's too late to make any changes. While most practitioners understand the need for professional liability insurance, it is also vital to maximize your liability limits on your auto and home owner's coverage, as well as obtain a personal umbrella policy. A lawsuit can occur many different ways and it is important to have these exposures covered.
Going into Practice with a Partner
All multi-professional practices should have a buy-sell agreement that addresses both death and disability. Buy-sell agreements are contracts between business owners for the purchase and sale of a practice in the event of death, disability or retirement. The buy-sell agreement will establish a pricing formula for the practice, serve to have a ready buyer and may be used to value the business interest for federal estate tax purposes. In the event of death or disability the buy-sell agreement is typically funded via insurance. In a life buy-sell arrangement, the life insurance is either owned by the business or owned by a partner. In the event of one partner's death, a lump sum is given to the owner of the policy who uses the funds to purchase the practice from the deceased's family.
A disability event is more complicated because most buy-sell arrangements suggest that a buyout is not triggered until a partner is disabled for 12 months. During those 12 months, there's the concern of the practice's expenses (which is why you should carry business owner expense insurance). At the end of 12 months, the nondisabled partner has a contractual right to purchase the other half of the practice. Here, disability buy-out insurance provides two essential functions. First, the insurance company's determination that a partner is disabled relieves the nondisabled partner from having to prove it themselves. And second, the policy can help fund the buy-out.
Think About Long-Term Care
Planning for longevity is essential in today's environment of steadily rising health care costs. It's best to develop a care plan while you are healthy. After retirement most of your living expenses can be controlled within your budget. However, an unforeseen expense may trigger the need for long-term care. Today's facilities can cost upwards of $1,000 a year. If you were to extrapolate these figures at a 5% inflationary rate, the cost would be over $1,000 per year in 30 years. This would be a prohibitive expense even for a very large estate.
How much long-term care planning is appropriate is dependent upon the region of the country in which you live. A financial service representative can review the various features of a long-term care plan and help you design an appropriate strategy.
Transitioning to Retirement? Re-Assess Your Exposure
As you plan for retirement, take the opportunity to re-assess your risk exposure. This means adjusting your professional and personal coverage to meet your needs. Insurance is an important component of estate planning, and may be used to provide for your loved ones, and causes for which you care deeply, well after you are gone.
A special kind of insurance, called survivorship insurance protects two lives - typically that of a husband and wife - under one policy and pays out to third parties, such as children and grandchildren once both survivors have passed away. It is frequently used in estate planning scenarios to cover tax and settlement expenses.
Tailor Your Coverage
There are many decision points and circumstances to consider; there is no 'one size fits all' strategy. It is important to work with an experienced professional who truly understands the business of dentistry, will help you identify your individual needs, and be able to partner with you with viable solutions throughout your career and beyond.
Shawn Johnson is Vice President of Sales at Treloar & Heisel, Inc., the premier financial services provider to dental and medical professionals across the country. He has assisted hundreds of clients from residency to practice and through retirement with a comprehensive suite of financial services, custom-tailored advice, and dedicated client service.