Manage Risk Through Proper Insurance Coverage
Dr. Jones was out running errands one Saturday. He went to enter a store not realizing the door was shut, ran into it and fell over backwards. When he fell, he hit his head on a parking block. From then on, he had tremors in his hand. As a dentist, I’m sure you already know that such an affliction will prohibit you from practicing dentistry. He was 50.
Dr. Williams owned his dental practice as well as his office building. He closed up shop for the weekend and headed home. Later in the evening, he received a call from the fire department. His office was engulfed in flames. The fire destroyed his entire office and everything inside. He was now looking at having to build a brand new building from the ground up.
These are just two, real-life examples of clients who experienced a dramatic life event that affected their ability to earn a living for their family. Financially, what would have happened to either Dr. Jones or Dr. Williams had they not had the appropriate insurance to cover these catastrophes?
A solid financial plan includes insurance coverage as one of its key components. While no one likes paying premiums on something they hope they will never use, insurance is protection that everyone needs. Owning a dental practice adds a layer of complexity to the equation and likely will require additional polices to address diverse risks. Let’s take a high-level look at the five main categories of insurance coverage you should have.
Life insurance is the first category. We look to life insurance as an income replacement tool available for your family in the event of your passing. Most of the time, once you have reached the point of financial freedom, the need to carry life insurance diminishes or disappears. Consider working with a fiduciary wealth advisor and/or insurance agent to determine how much life insurance you need. We recommend our clients typically obtain enough term coverage to wrap up their estate, pay off all outstanding debt, set aside dollars for future college expenses and provide their spouse or partner income to last through their retirement.
The second category is disability insurance. You will need personal disability insurance as well as office overhead disability insurance. As the name implies, this coverage protects your income in the event you become disabled. Could you imagine the financial hardship Dr. Jones’ family would have had to endure had he not purchased personal disability coverage? As a dental practice owner, you’ll also want to think about office overhead disability insurance. This will provide a monthly benefit to help you cover practice-related expenses.
Personal insurance is the third category. This will include home, auto and personal umbrella coverage. You’ll typically work with your insurance agent to determine liability amounts and deductibles. You will want to make sure that your homeowner’s insurance policy also covers all of your personal belongings. Some dentists may need to add flood insurance or hurricane coverage to their personal insurance, depending on where they live.
As a dentist, there are some additional policies that, as a group, you’ll likely require. This is our fourth category, and these policies involve general liability, malpractice and workers’ compensation insurance. General liability includes your liability coverage for the practice as well as insuring the contents of your office. Could you imagine if Dr. Williams didn’t have the proper contents insurance for his practice? What if he experienced the total loss of his practice and equipment, but had only insured the contents of his office for $200,000? Do you think that you could completely outfit your entire practice for $200,000?
The last category we’ll cover today is health insurance. I’ll keep this brief because the landscape in this space is ever-changing. As our clients renew their health insurance each year, they often reexamine whether switching to a high deductible health plan makes sense. High deductible health plans can make participants eligible for health savings account (HSA) contributions. This is a pre-tax contribution of up to $6,750 a year for a family. It’s also a deduction on the front page of your tax Form 1040, so there is no income limit on who can make this contribution. These dollars can then be used for eligible medical expenses or can roll over from year to year in your HSA account. High deductible health plans don’t make sense for everyone, so be sure to talk with your insurance agent and advisor about whether they are right for your family.
Granted, this a very high-level review of various types of insurance. And insurance coverage is specific to each individual and their unique circumstances. But if you aren’t confident you’re adequately covered, we are more than happy to work with you to provide an independent, third-party analysis of what you have, what you may need, and then help you in determining steps forward.
This commentary originally appeared December 13 on DentalTown.com
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