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Marshall Gifford, CLU, ChFC is a Senior Partner with North Star Resource Group in Minneapolis, Minn., specializing in consulting physicians and dentists in regards to their personal and business financial goals and concerns. Marshall is a co-author of Real Life Financial Planning for the Young Dental Professional and Real Life Financial Planning for the Residents, Fellows and Young Physicians. He has appeared on NBC's KARE 11 News and Fox News in Minneapolis as a financial expert, is a sought after industry speaker and has conducted educational discussions for residents, fellows and students. Learn more about Marshall at www.northstarfinancial.com/find_an_advisor/marshall-gifford/.
In our years working as financial advisors for dentists, we’ve seen a lot of unfortunate things happen to great people. Fortunately, with proper preparation, illness or injury does not have to end with a financially devastated family or a broken practice.
The most important questions to ask and answers to know to see if you're really prepared for a disability
In our years working as financial advisors for dentists, we’ve seen a lot of unfortunate
things happen to great people. Fortunately, with proper preparation, illness or injury does
not have to end with a financially devastated family or a broken practice. Most dentists are
aware of the risks when it comes to protecting their income, but not all take the steps to
fully protect their families and practices. If you are curious if you have covered your
financial affairs from all angles in the event of a disability, here are some of the questions
you should ask yourself as a dental practice owner when you think about protecting your
family and practice. If you haven’t reviewed your coverage for a few years, you might be
surprised by what you find.
Q: How much individual disability insurance do I need?
A: It depends. Early on in your career, you should try to obtain as much benefit as you can
because your earning potential will go up over time. You can also consider adding
additional benefit in the form of catastrophic coverage and retirement protection for the
more severe disabilities that could last a lifetime. The goal is to make sure that you don’t
have a change in your family’s lifestyle and savings goals, along with building in some
added flexibility to your finances during what surely is a difficult time both financially and
emotionally. Later on in your career as you build assets and pay down debts, you might
be able to live with a little less insurance and can try to self-insure where possible. If you
have not insured your retirement plan contribution, it is possible to acquire coverage that
funds an investment account directly while you are disabled.1 This allows you to not only
cover your monthly bills but also a portion of your savings. Catastrophic disability benefits
function similar to a long-term care policy and pay additional benefits to cover the cost of
care if you suffer a particularly severe disability.
1 The benefit is placed into an irrevocable trust with fund options to choose from, it is not
invested directly into your existing accounts.
Read more on the next page...
Q: What happens to my practice if I get disabled?
A: This is usually the first thing to get overlooked by dentists, especially solo practices or
practices with only a few partners. Protecting your personal income is a great start, but not
all disabilities last forever. When you recover, you’ll want to have a practice to return to so
you can continue earning a living. When a practice owner becomes disabled, it can put a
lot of stress on the practice. Employees begin to feel uncertain of their employment
situation, patients start to wonder if you are coming back, revenues start to drop, and
creditors start to call. A product called Business Overhead Expense insurance will
reimburse you for your fixed monthly expenses that you continue to incur every month
even when you are not producing due to a disability. This includes employee wages and
benefits, insurance premiums, lease payments, equipment loans, taxes, utilities, and even
the salary of a replacement dentist to step in and help out in your absence. This will help
you cover the tens of thousands of dollars a month spent to keep your practice operating
while you are disabled. This product, however, has a limited benefit period of at most 24
months. It’s purely meant to buy you TIME … time to recover and return to your practice,
or time to keep expenses paid and your practice running while you find a suitable buyer for
your practice at fair market value. A practice without a dentist loses value very quickly
leaving you little leverage when negotiating any sale during that time. As an added benefit,
the cost of obtaining business overhead expense insurance is tax deductible to your
Q: Can I cover loan payments on my practice if I am disabled?
A: Yes, but not always the way the bank may want you to protect it. Oftentimes, a bank
may require that you purchase some disability insurance to protect your practice loan, but
they have minimal requirements just to get the loan approved. They might ask you to
assign your personal benefits over to the bank, which is fine for the bank because it pays
for your practice loan, but not good for you if it causes you to default on your mortgage or
other loans. Your personal policy is to pay personal expenses such as student loans,
groceries, and household expenses … NOT a business loan. The bank might also ask for
Business Overhead Expense coverage to cover a loan, but this provides a limited amount
of protection (a maximum of 24 months) that doesn’t cover a practice loan when used to
buy into an existing practice. The insurance company considers that a capital investment,
not an overhead expense. The good news is insurance companies over the last few years
have created business loan protection policies that will cover practice loans and tie the
payments and the benefit period directly to the terms of the loan. This ensures the bank
gets paid the exact amount of the loan payment each month for the entire duration of the
remaining loan, if necessary. These policies are also quite inexpensive if you are buying a
practice at a young age. This is because the policy covers you only for the period of time
you will have a loan on the practice. For example, if you buy a practice at age 30, with a
seven-year loan, the policy is only inforce from age 30 to 37. This is considered a low risk
phase of your life for disability, so the cost is minimal. By contrast, your personal policy
typically covers you until you reach age 67. This means it will cost much more per dollar of
coverage since it covers you during the age of life when you are much more likely to file a
Read more on the next page.
Q: I have a business partner, what happens if either of us gets disabled?
A: If you have a business partner (or partners), you should have a buy/sell agreement in
place. This is a legal document that specifies what happens to each owner’s shares of the
business in the event of a divorce, death, disability, disagreement, or a desired exit.
Specifically when it comes to a disability, things can get complicated. The disabled person
might still have decision-making power, which can be challenging if he or she is acting
irrationally during a difficult time. Many buy/sell agreements we see don’t actually define
what a disability is, leaving it up to the owners to sort things out. Additionally, when a buyout
actually occurs, there is rarely a funding mechanism put in place to cover the cost of
the purchase. Disability Buy-Out Insurance will accomplish two very important things. It
will clearly define whether or not an owner is disabled, taking the subjectivity and emotions
out of the equation. It will also fund a buy-out in part or in whole to keep the owners from
having to touch cash flow. Since this is a reimbursement policy, the practice will still have
to fund the buy-out up front, but it’s a lot easier to walk into a bank and get a temporary
loan when you have an insurance policy with the promise to pay in hand.
Q: What other risks should I consider?
A: If you own a practice and have an associate dentist working for you with plans that he
or she will become a partner and buy-in or take over your practice someday, you may be
at risk if something happens to your associate. After years of training and relationship
building with your patients, your succession plan might be in jeopardy if the associate
becomes disabled. Finding, recruiting, hiring, and training a new associate can be very
time-consuming and expensive, not to mention the potential lost production that might
occur during their absence. For this situation, insurance companies have created Key
Person or Key Man disability insurance, which will compensate the practice in the event
the associate becomes disabled. This money can be used for whatever you need,
including making up for lost revenue, hiring a recruiter to find you a new associate, paying
a signing bonus for top talent, paying the departed dentist for any shares they may have
already purchased, building a PR campaign to ease patients’ minds, and much more.
Having an infusion of cash at the exact right moment can be the difference that keeps your
succession plans on track. Additionally, if the operation of your practice relies heavily on
your practice manager, this could be a good fit if the practice manager becomes disabled
A disabling event can cause problems for more than just your income, but too many
dentists do not go beyond protecting just their income. Having a solid action plan for you
and your practice will ensure that no matter what happens, you will be p