Many physicians today understand the importance of disability income as a method to protect their most valuable asset – their ability to go to work each year and earn an income. However, for physicians who are solo practitioners or partners in a closely-held business, this may not be enough!
Physician Disability Insurance Quick Facts
Disability income insurance is designed to replace a portion of income lost in the event the insured physician is too sick or hurt to go to work. These plans often kick in after a 90-day waiting period and will pay the benefits to age 65 or 67. As a percentage, the benefits are capped at approximately 50%-60% of their earnings after business expenses since it can be a tax-free benefit disability policy, if paid with after tax dollars.
This protection is critical to maintain their existing lifestyle by providing cash flow to pay fixed expenses of the insured, including mortgage obligations, auto payments, insurances, education, loans, food, clothing and the various other needs of the individual. The bottom line is that this product is intended to help you with all your personal expenses – not business expenses.
Many solo practitioners or partners in a closely-held business overlook their pratice’s overhead expenses when applying for a complete doctor’s disability insurance package. The last thing you want to happen if you become disabled is to be forced to use your personal disability insurance benefits to keep your business afloat while you’re injured, or worse, to be forced to sell your business.
Filling the Gap
A Business Overhead Expenses (BOE) policy pays a monthly benefit based on the actual current expenses of a business. It is designed for businesses that rely on a small number of people (or one person) to produce revenue. It will cover your medical office expenses including the following:
- Employee Salaries and Payroll Taxes
- Equipment Maintenance
- Rental, Lease of Equipment
- Insurance Premiums, Including Malpractice
- Accounting Fees
The bottom line is that this policy will help you keep your medical practice running in the event you become ill or injured for an extended period of time, while allowing you to use your personal disability insurance benefit for exactly what it’s intended for… you.
Business Overhead Expense policies are generally set up with a shorter elimination period (30 days) and a shorter benefit period of 24 months. Different than traditional disability insurance, benefits are reportable as income and the premiums are tax deductible as a business expense. In addition to covering the physician’s fixed expenses at their office, some contracts provide additional funds to offset the cost of hiring a physician to cover some of the patient flow, which would again keep the practice alive and healthy. Overhead disability benefits are typically capped at $50,000/month per physician in your practice.
Pricing for this product is determined in a similar way as regular physician disability insurance. The two key factors are your current age and your current health. So the younger (sooner) and healthier you are, the better the premiums are for your overhead expense protection. Everything else, however, is customizable based on your particular needs. The elimination period and benefit period, in addition to riders specific to your business needs, can be customized to address the most relevant needs of your medical practice. Additional benefits including the Automatic Increase Option (AIO), Benefit Update (BU) and Business Loan Protection will be discussed in further detail in an upcoming post.
Disability Overhead Insurance is a critical component to a comprehensive developed disability program for physicians who run their own office and have expenses they’re responsible for. Without this protection the physician would have to pay their fixed expenses out of savings, which would have a tremendous impact on their financial position.The two year benefit period would provide the needed cash flow to maintain the practice while the physician comfortably determines if he/she will be able to get back to work or if the practice needs to be sold.
Physicians: Don’t forget about Disability Overhead Insurance! If you want to discuss how this policy may benefit your practice, call or contact us today for a free review and consultation.