As mentioned above, you’ve been practicing now for a couple decades or more, your have a very clear idea of what your cash flow looks like, and you’ve probably been updating your disability policy along the way when you thought about it… But here are some of the common situations we encounter on a regular basis: you either haven’t really paid attention to how much coverage you have, or you’re paying more than you need to for that coverage. You also haven’t necessarily kept up with the expenses of your clinic/business, and if you have any business overhead expenses insurance, it is not adequate and would leave you short to cover all corporate expenses should you become disabled. For those of you who have partnered with other doctors, or into any other kind of business, the terms of the buy-sell agreements are often not backed up by a policy.
Depending on the risk you want to protect against, and the structure of your business, you should have either two, or three of the strategies listed below.
Personal Disability Insurance
As a doctor, surgeon, specialist, which in our case also means business owner, you are often key to your business. Should something happen to you (injury or illness), that would prevent you from working, you’d want to know two things:
- first, your income wouldn’t stop,
- second, you wouldn’t have to strain your business to cover for your corporate expenses.
Having a personal disability insurance allows you to achieve both results:
- you will receive a tax-free income from the insurance company once you’ve satisfied the requirements listed in your contract,
- you won’t need to draw an income from your business since you’ll receive it from the insurance company, allowing you to keep that money in the business to hire your replacement or more drastic measures.
Personal disability is a policy that is owned personally, and paid personally. There are no ways around that one… It is what it is.
But for that reason, if you ever need it, the benefit that you’d receive would not be taxed. It usually kicks in after 30, 60 or 90 days depending on how you’ve designed it, and lasts for 2 years, 5 years, or till age 65.
Business Overhead Expenses Insurance
Business Overhead Expenses insurance is a policy that is owned and paid by the company/corporation/business. So you need to be incorporated to qualify for that one.
This policy allows you to receive reimbursements for overhead costs like staff salaries, utilities, rent, loan repayments, accounting and legal fees…
This coverage offers a tax deduction to the business, so it is usually a no-brainer! It usually gets triggered after 15 or 30 days, and last for 15, 18 or 24 months, after which duration you’re pretty much expected to either have gone back to work, moved on and have been replaced by someone else, or have closed the company.
Buy-Sell Disability Insurance
Since you’re well established, secure, and have accumulated some good savings inside your corporation, you’re going to look for opportunities to “grow” that money through various strategies. And given your title, you’ll be solicited to hand your money over for all sorts of investments! Be cautious! You’re also only 10-15 years from retirement, and you probably need to be very weary to what you’ll throw you money at, as you can’t afford for it to vanish. It happens more than you think!
But if you happen to join a business with other doctors, or a brother-in-law, or a friend who has that great startup that you’ve been waiting for… getting a proper buy-sell agreement drafted by a lawyer should be your second step (first one being thorough review of the business proposal).
The Buy-Sell Disability Insurance policy allows you to buy the shares from a partner who has become disabled after a period of 12, 18 or 24 months (depending on what the shareholder’s agreement states).
This coverage requires you to have a personal disability or a group disability policy first. It pays a lump sum or a series of payouts or a mix of both, to the remaining shareholders if held personally, or to the company if the company is the owner of the policy.
That coverage is probably one of the most misunderstood policies in the market place, and is often discarded despite its significant important for a business owner. It doesn’t matter much what your shareholder agreement says, if you don’t have any money to back it up! That insurance coverage helps you ensure that you have the funds necessary to fund these shares back should something happen to one of your partners.