Assess Your Insurance Portfolio at Life’s Trigger Points
Life-changing events, whenever they occur, are trigger points that should prompt you to review your insurance coverage. When you buy a home, get married, start a family, or expand your business, your insurance needs likely will increase along with the financial responsibilities that accompany these major life changes. The key is to make insurance planning an integral part of your overall financial planning at every stage of your life. Of course, the type and amount of insurance you should carry will depend on your situation. Use the guidelines that follow to conduct your insurance review, and then consult your financial advisor for specific recommendations.
If you are just launching your career, typically your insurance needs will be substantial even though you may be pressed for discretionary cash. Most new dentists should include four basic types of coverage in their risk-management plan.
Professional Liability Insurance
Most states require you to have professional liability (malpractice) insurance before you treat your first patient. It is frequently recommended that general dentists secure at least $1 million of coverage per claim, more if high-risk procedures or certain types of sedation are used. Also be aware that professional liability policies do not provide renewal guarantees, so be sure to buy from a company that has demonstrated a long-term commitment to the marketplace and is experienced in the dental profession.
This is one of the most important types of insurance that you should have for a very practical reason: You rely on your ability to earn an income as a dentist, yet you face the very real threat that an illness or injury could prevent you from working. In fact, dentists have a 30% chance of becoming disabled at some point during their years in clinical practice, based on an analysis of disability claims of American Dental Association (ADA) members covered by the ADA Income Protection Plan. Disability income insurance, which replaces your income if you cannot work because of a disability, can help protect you from this risk financially.
To manage the cost of disability insurance, you can select a policy with a longer waiting period (such as 90 or 180 days) or postpone coverage options (such as a cost-of-living benefit adjustment) that you might be able to add later. The most important thing is to get at least a basic level of insurance in place while you are healthy, because disability coverage is especially difficult and/or costly to obtain if your health deteriorates.
Just one uninsured illness or accident can be financially disastrous, which is why major medical insurance is a must. Coverage can be costly if you do not have access to a group plan or if you have had medical problems in the past.
One way to manage costs is to buy a plan with a higher co-pay or deductible. If you choose a high-deductible plan, consider setting up a health savings account (HSA) to pay out-of-pocket healthcare costs with pre-tax dollars.
Think of life insurance as a way to meet most of your financial responsibilities, even in your absence. For example, if you have a young family, student loans, or a mortgage, life insurance could be the one source of cash that could support your family financially and/or repay your debts in the event of your death. Life insurance can be a valuable tool while you are living as well, as it can serve as collateral for a loan or to fund a business succession plan.
Most experts recommend life insurance protection that equals 8 to 12 times your annual income. Where you fall within that range depends on your individual situation, including the size of your family, the amount of your mortgage, your other assets, and whether you have a working spouse. If you cannot afford that much insurance right now, consider a policy that allows you to increase your coverage later. Term life insurance can be an inexpensive and practical solution for dentists just starting their careers and is especially useful to cover temporary debts like student loans or to provide collateral for practice financing.
OWNING A PRACTICE
Starting a practice or buying into an established one is another critical time to reassess your insurance portfolio. For example, practice lenders often require dentists to provide life and disability insurance as collateral for a loan. You and your partner may decide to purchase life insurance on each other to provide the funds to carry out a business succession plan if one of you should die.
As your income increases, consider increasing the personal life insurance you own to protect your family’s standard of living. You also may decide to add a universal life insurance policy, which offers insurance protection plus the ability to save money (tax-deferred) for goals like a college fund or retirement. In addition, you will likely need to purchase more disability insurance as your income grows to help replace that income if you become disabled and can no longer practice dentistry.
With business ownership come other insurance needs. For example, cover the risk of property damage or theft with adequate property and casualty insurance. Also consider business interruption insurance, which replaces lost revenue if a fire or storm makes it impossible to run your business.
In addition, supplement your individual disability insurance with business overhead insurance, which will reimburse you for rent, payroll, practice loans, a replacement dentist’s salary, and other business expenses if you are disabled and cannot work for several months. Now is also a good time to bolster your basic health insurance with supplemental medical coverage, which can pay a guaranteed dollar amount if you or a family member are hospitalized, visit the emergency room, or are diagnosed with a life-threatening illness.
LOOKING TO RETIRE
As you near retirement, your insurance portfolio will again require adjustment. For example, when you pay off loans or accumulate sufficient assets to self-insure certain risks, you may decide to reduce some of your insurance coverages. You may wish to add protection, such as long-term care insurance, to address other present and future financial risks.
Think of a properly constructed insurance portfolio as the foundation of your financial well-being—it protects you, your family, and your practice against the financial risks of sickness, injury, disability, loss of life, property damage, and lawsuits. And just as good dental health requires regular check-ups, your insurance also requires periodic review.
Editor’s note: This article does not constitute legal, tax, or financial advice. Please seek professional input as appropriate to your situation. Great-West underwrites and administers the ADA Insurance Plans and is the exclusive provider of ADA-sponsored life and disability insurance to ADA members and their families. For more information, call 1-888-463-4545 or go to www.insurance.ada.org.
|Jim Biesterfelt |
Vice President of Group Special Accounts
Great-West Life & Annuity
Greenwood Village, Colorado