Beyond Malpractice Insurance

December 1, 2016

Say the word “insurance,” and most doctors im­mediately think “malpractice.” But if the only thing your group or individual medical practice is insured against is a lawsuit, you may be in for a financial squeeze if you or one of your doctors becomes sick or worse, dies.

Because accidents do happen

Sickness and accidents are not pleasant topics, but they become even less pleasant when combined with the burden of financial worry.

The threat of disability is such a specter for physicians and practices that I recommend insuring twice — for the individual and the practice. Consider the following:

Personal disability insurance. Never adopt “it-can’t-happen-to-me” thinking when it comes to a disability. Therefore, having a personal disability policy in place is a must.

If a physician is a member of a group practice and is underinsured, the spouse would most likely look to the group for money, and you don’t want that to happen. I believe that it should be in every physician’s employment agreement that the physician must have disability insurance. You don’t want a doctor or his family looking at the practice for more money because he didn’t protect himself.

Many physicians allow their individual or group medical practice to pay for disability insurance with pre-tax dollars, but I strongly believe this is a bad idea because when there’s a disability and the insurance pays the policy amount, that money is taxable.

If there’s a disability and the physician is the breadwinner, the family is going to need every nickel for the family, so they will want the full amount of the proceeds on a tax-free basis. While you might save a little money paying for the premium before taxes, that’s not looking down the road.

On a side note, don’t forget about life insurance. Are you adequately insured in case of one of those “it can’t happen to me” moments?

Practice overhead disability insurance. This policy covers a doctor’s share of the practice overhead in the event of long-term illness or disability. Does your practice have it in place, especially if you are a solo practice?

To save money, I find many practices sign up for policies that kick in after a doctor has been disabled for three months. By that time, the doctor may be back in practice. That means there’s no overhead subsidy and now the doctors who are still practicing may be taking on an inordinate share of overhead.

Yes, it’s more expensive to buy an overhead disability policy that kicks in immediately or after four to six weeks, but paying more money now could save you from feeling a significant pinch when you’re forced to pay your bills without the disabled physician’s income.

Disability buy-out insurance. I’ve seen a general surgery practice that had a young general surgeon shareholder with breast cancer who was forced to retire when chemotherapy left her hands numb, thus not able to practice anymore. Disability buy-out insurance could cover the buy-out price for the physician.

If you don’t want to invest in this kind of insurance, keep in mind that you can either pay the buy-out out of current cash flow or go to the bank and borrow the money.

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