Protect Your Medical Practice from Financial Loss with Expense Disability Insurance

April 26, 2012

Overhead expense disability insurance is a cost effective way to ensure that your medical practice, especially smaller medical practices, can meet its ongoing expenses during a period of disability. Protecting your practice from financial loss is important up until the time you eventually return to work.

Just as individual disability income insurance can help you pay your living expenses while you recover from a serious injury or illness, Overhead Expense disability insurance can help you to keep your medical practice healthy.

In the event of a disability, policy physician owners are normally reimbursed for up to 100% of covered business expenses each month, up to a maximum monthly overhead expense benefit amount. Overhead Expense disability insurance provides coverage that can’t be cancelled as long as premiums are paid. And, with the true “Own-Occupation” coverage —physicians are considered totally disabled if, solely due to injury or sickness, you are not able to perform the material and substantial duties of your occupation.

Premium payments are tax-deductible as ordinary and necessary business expenses. Overhead Expense benefits received during your disability are taxable upon receipt; however, they are used to pay business-related expenses that are tax-deductible, so the net tax impact is neutral.

In the event of a total disability, once you have satisfied the elimination period, a typical policy advances ½ of the maximum first monthly overhead expense benefit before requiring proof of covered overhead expenses.

With the Professional Replacement Endorsement, a typical policy may provide a benefit up to 50% to pay the salary of a replacement, up to a monthly maximum. Supplemental coverage can be available and can be used any time during the benefit period, with the purchase of a Supplemental Overhead Expense Benefit Rider.

Disabilities aren’t always total in nature. Even if you’re at work, an illness or injury can have a negative impact on your company’s bottom line. For this reason, any policy you have or purchase should include a benefit for partial disabilities. An Overhead Expense Monthly Residual Disability Benefit should be built into the base policy to provide comprehensive protection your medical practice needs if the unexpected should occur.

If you are considering overhead disability coverage, here are some additional features you need to discuss with your agent:

  • Ability to carry forward unused monthly benefits for up to 12 months after the end of the benefit period
  • To help keep pace with rising expenses, is there a no-cost Automatic Benefit Enhancement Rider that provides up to five (5) automatic benefit increases at attained age premiums without proof of medical insurability
  • Is there an ability to apply for additional coverage without proof of medical insurability
  • Are premiums are waived during disability and for six months following recovery.
  • Are any premiums paid that are attributable to the disability period refunded
  • Is there reimbursement for up to $5,000 of legal and accounting fees associated with terminating or selling medical practice business due to disability
  • Does the policy provide for the ability to convert business coverage to an individual disability income policy up to age 55, subject to eligibility requirements
  • Is the policy non-cancellable to age 65—as long as your premiums are paid. After age 65, as long as you are working full-time 10 months per year and are responsible for business expenses, you can continue coverage under the renewal conditions
  • Choice of benefit periods—12, 18 or 24 months
  • Choice of waiting periods before benefits begin—30, 60 or 90 days

Finally, compare the cost of the policy vs. the cost to your medical practice or personal savings if you had to continue paying business expenses while you were disabled. Big decisions. If you don’t think it can happen to you, think again.

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