By Adam Cmejla, CMFC
SYNOPSIS
What happens to your practice if something happens to you, the primary revenue-generator? Adding comprehensive disability insurance that covers you if you are unable to see patients just might save your practice.
ACTION POINTS
KNOW THE STAKES. Your income is your greatest wealth building tool. What would happen to your quality of life if it was significantly reduced or eliminated due to an unexpected injury or illness?
RECOGNIZE SIGNS OF GOOD POLICY. Should include cost-of-living adjustments and partial paycheck protection. Should include clause that it will pay whenever you can no longer function as an OD.
CREATE PRACTICE CONTINGENCY PLAN. Decide who takes over if you can’t practice and how key employees will be protected and retained.
None of us thinks we will be too injured or sick to work, but as professionals with responsibility for staff and patients, a good contingency plan is necessary. Part of that plan is finding a way to insure the practice and still have the funds to continue operating, while also ensuring that we have a paycheck coming home to provide for our family. A comprehensive disability insurance plan can provide that kind of safeguard to back you up in case you are not able to work for an extended period of time. As a financial adviser specializing in working with optometrists, and the husband of an independent OD, I know first-hand the importance of having the right disability insurance and contingency plan for your practice.
Know the Stakes
You may not realize how much an illness can get reimbursed for time off-the-job due to disability. Here is a chart to illustrate real life claims from optometrists, based on data received from the Principal Financial Group:
Signs It’s a Good Disability Insurance Policy
Protect Your Occupation. A good disability policy will protect your specific occupation as an optometrist. What this means is that you’ll want to ensure that you have protection in case you cannot practice optometry, but you could do something else. Some disability policies will only pay a benefit if you are totally disabled and not able to work anywhere. If you are able to say “Would you like fries with that?” there’s a chance that you could lose your benefit. Make sure your policy covers your specific occupation as an optometrist.
Ensure you have COLA riders. No, not the soft drink, but rather “cost of living adjustments.” This is a fancy way to ensure that your policy benefits keep pace with inflation should you become disabled. Just as the price of goods and services increase every year with inflation, you want to make sure that your policy benefits keep pace with inflation if you were ever on claim.
Protect a partial paycheck. This is typically called a “residual rider” on a policy, and will, in essence, “make your paycheck whole” should you no longer be able to work part time. An example would be a back injury that would limit you to working no more than 20 hours per week. A policy with a residual disability rider would make up the difference on the other 20 hours per week that you were missing due to your disability.
Make sure it lasts. Understand the benefit period, which is the period of time your policy will pay a benefit should you become disabled and go on claim. Benefit periods can range from as short as two years to as long as your lifetime, but typically a good long-term disability policy will protect your income through either age 65 or 67 years of age.
Protect your retirement. One area that often gets overlooked during disability planning is after the policy runs out. What happens if you are totally disabled for the rest of your life and your policy runs out at either age 65 or 67? Unless you were saving part of your disability benefit for retirement, you may only have social security disability income to draw on for the rest of your life. There are very cost-effective retirement supplement policies which will, in effect, fund a retirement plan on your behalf that you will be able to draw off of in retirement should you still be disabled.
Create Contingency Plan for Practice
As the owner of a business, you have an additional set of responsibilities that you may be responsible for covering in the event of your disability. What would happen to your staff, your patients, and your business if you weren’t able to practice? Properly structured insurance planning can help solve some of the “what if?” challenges of owning your practice.
Who takes over the business if you can’t practice? Having a proper continuity and succession plan in place is important, but it’s also important to fund that type of planning through proper buy-sell agreements. Disability and life insurance can be used to fund this type of planning and, when done properly, can turn into an asset for the business that can help increase the value of the practice to a potential buyer.
Have a BOE policy. It may be prudent to have a Business Overhead and Expense policy (BOE) in force on the practice. A BOE policy will pay a benefit to the practice and will be used to absorb the cost of keeping the doors open while finding a long-term solution to replacing the optometrist. Benefits can be used for payroll, liabilities, and other costs associated with daily business expenses. The typical benefit period on a BOE policy is two years, so it is important to understand that it is not a permanent fix, but rather, a temporary patch while a long-term solution is evaluated.
Protect a Key Employee. While it may not be completely necessary in an optometry practice, there may be other team members vital to the immediate production of the practice whose value you’d like to protect. In this case, taking out a key person policy on that team member will allow the practice to receive benefits should something happen to that key employee. The practice both owns the policy and pays the premium. Benefits can be used at the discretion of the employer, but common uses include recruitment and training costs, temporary staffing needs and short term revenue replacement.
If you’re currently wondering if you have enough coverage, if you don’t have any coverage at all, or would like to ensure that you’re getting the best value for your premium, it’s best to consult a financial advisor. Depending on your association memberships and structure of your practice, you may be able to obtain discounts on placing coverage. For instance, my firm, which specializes in working with ODs, has discounts established with multiple organizations and might be able to offer savings on disability insurance.
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Adam Cmejla, CMFC, based in Carmel, Ind.,is president of Integrated Planning & Wealth Management, LLC, a financial planning and investment management firm “focused on working with optometrists to help them achieve their true financial potential, build financial confidence and clarity, and delivering kindness and compassion to every relationship they’re privileged to serve.” To contact: 317-853-6777 or adam@integratedpwm.com.
