If you purchased or are consideringpurchasing disability insurance,there are many potentialproblems that physicians mustface, especially those involved ina private practice. The following issome advice and solutions to commondisability issues that will help protect aphysician—and their retirement planand business.
•Personal disability expenses.Typically, the total premiums you payto an insurance company for your disabilitypolicy until age 65 will still beless than the amount you will receiveif you were on disability for 1 year.Many physicians only look at the "allor nothing" aspect of disability insurance—they consider the benefits forthose who become permanently disabledor the lost investment for thosewho never become disabled. Instead,simply acknowledge the benefits of 1year of disability—a more plausiblepossibility than a lifetime—and you'llrealize disability insurance is a greatinvestment and a necessity.
•The economic impact on yourbusiness. In the event of disability,self-employed physicians will also faceeconomic losses in other areas of theirlife besides personal. Physicians, whosepractice relies on them to remain operable,will suffer the ability to pay theirongoing business expenses, such as rent,employees' salaries, malpractice insurance,and taxes. One way to deflect thatfinancial blow is to consider BusinessOverhead Expense (BOE) policies,which are designed to reimburse yourbusiness for overhead expenses duringyour disability. Unlike disability insurance,the premiums for BOE are taxdeductible. When the benefits from thepolicy are received, they are taxable,but the business expenses themselvesare a write-off. This policy will alsoafford the physician time to find areplacement or buyer for their business.
•Avoid the bank assignment ofyour coverage. If you are amongthose physicians who have been askedby a bank to collaterally assign yourpersonal disability coverage or BOEpolicy to secure a debt, this is one ofthe greatest mistakes any physician canmake. There is a better way to accomplishthe bank's requirement. There is adisability policy that is designed tosolve such a dilemma called decreasingterm disability. Without it, all yourpersonal disability benefits, and possiblyyour BOE benefits, would go to thebank, leaving you with nothing to surviveon. By simply purchasing an additionaldecreasing term disability policyfor the amount owed and the durationof the loan, and assigning the benefitsto the bank, your situation is muchmore secure.
•Your pension plan becomingdisabled. It's often overlooked commonsense that a disabled professionalwould also lose the ability to contributemoney to their pension plan. If you'renot working, money can't be put awayfor retirement—your pension plan alsobecomes disabled. Individuals are noweligible to purchase a policy that, in theevent of disability, would match theirpension contribution dollar for dollar.Pension plan disability insurance is oneway to guarantee that both you andyour pension plan are covered in theevent of disability.
•Disability buyout in a partnership.Typically, if you are in a partnership,your attorney suggests that partnersneed a buy-sell agreement in placein the event of death or disability,which establishes a predeterminedbusiness price and a buyer. This avoidsmany problems down the road, becauseit assures that funds will be availableto execute the purchase. Generally,life and disability insurance policiesare calculated based on the partner'sbusiness interest or value. These policiesbecome part of the buy-sell agreement.This is a good way to maintaineach partner's business interest andavoid partnership squabbles, whichmay include angry spouses from enteringinto the picture.
Ron Cohen has specialized in disability insurancefor physicians since 1969. He hasauthored many articles on this topic, servedas a guest speaker for insurance companiesand professional organizations, and consultedwith many companies in the design of their disabilityproducts for physicians. Mr. Cohen welcomes questionsand comments at firstname.lastname@example.org. For more information,visit www.roncohenrhu.com.