In the December, 2012 issue of Dentaltown Magazine, I
wrote an article about personal disability insurance for dentists.
I spoke about personal disability coverage to protect your
most valuable asset: your ability to work through the years,
earning income working as a dentist. I also discussed my personal
journey of practicing for 23 years and the experiences I
had with my coverage, and how it led to my second career
helping other dentists for 23 years afterward.
In my years as a general dentist, it bordered on malpractice
to recommend veneers and major restorative procedures if the
underlying gums and bone were in need of treatment. It would
be building on a bad foundation, not in the patient’s interest,
and self-serving. I would hope that such practices are still
looked upon as a serious breach of patient confidence.
In my years in the financial world, I have found many
clients feel they have good financial representatives. What I
often see, however, is that some representatives are only helping
clients pick their investments while ignoring all the protection
components of financial planning. This is doing things in
the wrong order, but it is usually the case. Building on a bad
foundation, not in the client’s best interest, and self-serving—
do you see the analogy?
Forget statistics. None of them matter when it happens to
you. Not to mention that as a dentist, there are so many things
that can affect your ability to work beyond those that affect the
general population, so the general population statistics are even
less meaningful. I probably have well in excess of 100 dentists
under claim. They are all glad they didn’t try to play the percentages
and “yeah–but” game. If you want to gamble, do it in Vegas.
At least you may get a free room.
Now, I would like to share with you some information about
other types of coverage you need to be aware of.
Overhead Expense Disability Insurance
This is an essential type of coverage for any dentist with his or
her own practice and fixed monthly obligations. Remember, this
is in addition to your personal coverage that protects you and your
income long-term. With Overhead Expense Disability Income
Insurance, you are the insured and would be reimbursed for 100
percent of your actual covered business expenses each month, up
to the maximum monthly benefit. This would typically pay the
rent, utilities, taxes, employee salaries and benefits (not yours),
interest and installment payments on loans, depreciation, etc.
Why do you need this? Just look at your average monthly
business expenses. I see what they are for most offices, and they
never seem to go down. It is not unusual to have 40 to 50 thousand
dollars a month of hard expenses. Imagine if you get partially
or totally disabled and think you can rely only on your personal
coverage. Most personal coverage has a 90-day elimination period
and is for a much lower monthly benefit. If you still think you can
rely on that, remember that you would now be giving up you and
your family’s benefits to pay your business’ bills, and this benefit
wouldn’t start until the fourth month! How long will your
accounts receivable carry you? Another “yeah–but” is a mutual
support agreement with other dentists. It may seem like a good
idea, but these agreements are not legally binding. How long will
the volunteer continue without compensation, and why wouldn’t
you want both? Not smart.
By having Overhead Expense Disability Income Insurance in
place, you are doing several things at the same time. You are preserving
your personal benefits. You are protecting your personal
and practice’s balance sheet by not personally paying these business
expenses. You can return to your practice without having to layoff
and rehire employees at the worst time. Your creditors are not upset
with you. Think about this—even if you don’t recover and return,
you have preserved the value of your practice for a potential sale.
Practices have serious equity these days, but not much if it comes
with key employees gone and liens against the assets!
As with your personal coverage, this should be with a strong
company, and the policy should have own-occupation definitions,
be non-cancelable by the company and guaranteed renewable. It
should also include a residual or partial benefit so that you don’t
have to be totally disabled in order to collect benefits.
Premiums payments for this type of coverage are considered
a deductible expense by the IRS! Also, Overhead expense benefits
received during your disability are taxable upon receipt.
However, they are used to pay business-related expenses that are
tax-deductible. That is why I recommend the shortest elimination
period available (30 days). You are still greatly at risk even
with this elimination period, which is like a deductible. There
is no benefit for the first 30 days, the second month is the first
claim month, and the first check to you won’t be received until
the third month! Just imagine how much worse things will get
if those insurance checks don’t start arriving. You need this
because the debt hole gets dug fast and deep. The counterbalance
for this is that most dental practices don’t require more
than a 12-month benefit period. The reason is that by that
time, you should have returned to your practice or be putting it
on the market.
Disability Buy-Out Insurance
This type of policy is only needed if you have a business
arrangement with at least one other partner. If so, what would
happen if you or your partner(s) became disabled and could no
In the years I have been doing this, I have read many agreements
between dentists. I am not a lawyer (thank God), do not
practice law and do not give legal advice. These agreements
almost always talk about what would happen if one partner
dies, and often discuss life insurance that can either be crossowned
or payable to the practice, depending on the business
structure. What is almost always missing in the agreement is
any mention of what would happen if one of the partners
could no longer practice due to an accident or illness.
What do you really want walking through the door after a
partner can no longer practice, words or money?
The statistics of a disability occurring to one in two dentists
during their career are, of course, much greater than the
odds for just one dentist alone. The likelihood of a disability is
far greater than the death of a partner.
Disability Buy-Out Insurance reimburses the policyholder
for the purchase of the disabled partner’s interest. Disability
buy-out can create a lump sum of money that is paid by the
insurance company after one year, 18 months or 24 months of
disability. Without it, there can (and will) be disagreements
and lawsuits. Without it, a healthy partner has to do double
duty. Do you really want to be partners with a disabled dentist,
or possibly be dealing with his or her spouse? Who gets the
income? Who pays the overhead? How long can the practice
afford to pay the disabled dentist who is no longer contributing?
It is amazing how money to fund the buy-out is in everybody’s
interest. Oh, and if the practice has a loan, most of the
time the bank will not renew under these circumstances or the
loan may even be callable. This practice could be headed for
Business Reducing Term Insurance
Again, this is disability insurance on the insured (you). It is
used specifically and exclusively to cover financial obligations.
Because it is matched to an obligation for a practice loan, dental
building loan, or even a school loan, it doesn’t interfere with how
much coverage you qualify for or need for your personal benefits
or your business overhead benefits. The benefit period is usually
matched to the length of the loan. This policy has a loss payee
that is the lender. Banks love it and it doesn’t interfere with you
collecting the full personal benefits you qualify for. You don’t
have to assign personal benefits to the lender, which I see done
often and can be a catastrophe. Imagine you need to collect benefits
for you and your family’s living costs, but the first dollars
from the insurance company go to the bank for the obligated
debt. Now I know you and your banker have a great relationship,
but my guess is he or she won’t be sympathetic. Excuse my sarcasm,
but you know that’s true. This is a relatively inexpensive
type of coverage that satisfies the lender, and is easily cancelled
once the obligation is fulfilled.
Disability Waiver of Premium on Life Insurance
Did I just switch subjects on you? Not really. Life insurance
for a dentist should almost always include an extra rider
that is called disability waiver of premium. What this means is
that should you become injured or too ill to continue working,
the premiums are waived. This means they are paid by the
company, not you. The policy will not be lost because you
cannot pay it.
Imagine the scenario: You are collecting your disability
insurance. You also have permanent whole life insurance. The
life insurance is continuing to be funded as if it were you writing
the check, but the insurance company is paying it! Your
death benefit and cash values remain and the policy becomes
self-completing. You own the policy and have access to the
cash value anytime you want through loans and withdrawals.*
This article is not about the many advantages of permanent
life insurance, but I am continually amazed at how this
terrific product is often overlooked as part of protection,
retirement and estate planning due to misinformation by
In my life, I have collected benefits from all of these, and
so have many (too many) of my clients. I fully understand
that retirement planning and investing have more sexappeal.
I am glad to help with all of it. But I can tell you
that often, life events get in the way. Life can call your bluff
at any time. When it happens that day, you probably won’t
be calling to ask about other account balances. I certainly
don’t want to take the call knowing these issues weren’t
properly and fully addressed.
*Policy benefits are reduced by any outstanding loan or
loan interest and/or withdrawals. Dividends, if any, are
affected by policy loans and loan interest. Withdrawals above
the cost basis may result in taxable ordinary income.