Why Do Dentists Need Overhead Expense Disability Insurance?

In 2014, a highly skilled endodontist and practice owner was walking in a mall. Slightly distracted as she was entering a store, she failed to notice the sliding door had not opened when she tripped the sensor. What more often than not would be a harmless, slightly embarrassing stumble turned into a life-changing occasion. The injury she received in that split second altered her life and career forever. She suffered a blow to the head that caused irreversible brain damage. Her health has improved through therapy and with time, but she will never again practice dentistry. This seemingly insignificant occurrence on a routine day could happen to any of us. Yet, even apparently minor accidents and unforeseeable events can have enormous consequences. Losing your ability to practice your chosen profession, for instance, would have a profound effect on you as an individual and on the business you enjoy running. If you are a dental practice owner, seeing patients drives your practice’s financial health. It is what pays your staff, keeps the lights on, and feeds your family.

Thankfully, this endodontist had developed a business continuity plan. As a business owner, this planning is essential for maintaining your practice’s operations and protecting its value should you face a career-stopping life event or have to step back due to disability. A proper continuity plan will coordinate your business savings account and savings target, office coverage agreement, personal disability insurance, and business overhead expense (BOE) disability insurance. This article will focus on BOE disability insurance.

BOE disability insurance, also known as business expense insurance, kicks in to pay for actual expenses for businesses that rely on a small number of people (or one person) to produce revenue. Unlike personal disability insurance, BOE disability insurance does not pay a flat monthly amount, but instead reimburses ongoing and usual business expenses. These types of expenses include, but are not limited to, rent, utilities, salaries and payroll, postage and stationary, equipment maintenance, and accounting costs.

BOE disability insurance is not designed to be used long-term and usually has a benefit period of less than two years. Policies are priced based on a maximum monthly benefit, but keep in mind that the insurance reimburses actual expenses as they are paid. For this reason, at my firm, Buckingham Strategic Wealth, we work with clients to calculate a practice savings target to cover an average of three months of business expenditures. BOE disability insurance also includes pricing components similar to other disability insurance, including the insured’s age, occupational duties, health status, benefit period and elimination period.

As I mentioned, BOE disability insurance reimburses your staff and operating expenses for a short duration if a disability makes it impossible for you to drive your practice’s production. When combined with an appropriate business savings account, this insurance can cover your practice’s operating costs. Adding these strategies to an office coverage agreement (usually involving members of your study club) will give your partner dentists time to support a level of production high enough for the practice to remain viable. Individual disability insurance is then used to cover your lifestyle expenses.

If you are able to return to your practice, these tools will ensure that you go back to an operational and profitable entity. If you are unable to return to the practice of dentistry, the preceding tools will allow for a smooth practice transition, keeping intact patients, staff and equipment to keep the value of your business from eroding.

It was incredibly difficult to see the endodontist and practice owner whose story I described at the beginning of this article suffer so extensively. However, it was an honor for our team to assist in implementing her practice continuity plan and help with business overhead insurance claims, keeping her staff confident in their roles while the practice went through a difficult period.

Ultimately, her disability was determined to be permanent and the practice was sold. Her existing BOE disability insurance was able to protect the practice’s value to the greatest extent possible. While insurance falls into an unusual set of expenses insofar as we hope never to use it, BOE disability insurance should be a part of your business continuity plan if you are a dental practice owner.

This commentary originally appeared August 15 on DentalTown.com

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The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Wealth. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice.

© 2018, Buckingham Strategic Wealth®

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Thomas Bodin, CFA, CFP®

As a practice integration advisor, Thomas provides comprehensive financial advisory services to dental and medical offices, including tax, pension and retirement planning. He is motivated by a passion to help medical professionals connect the hard work they put into their practices with their most deeply held values and goals, all through Buckingham’s evidence-based approach to true wealth management.

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