What happens if:
A physician becomes disabled
The business owner suddenly dies
Can the medical practice or business sustain enough income to pay all of the business overhead expenses? Would the physician have enough in personal savings to cover the business’ fixed expenses and provide for themselves and their family? If one of the owners dies, will the business die with it? What about all of the associated estate taxes, ownership, and business disruption issues?
These are certainly some challenging issues. However, with diligent planning and thought you can manage these risks.
There are policy and procedures designed exclusively to mitigate some of the risks mentioned above. These include:
Key Person Insurance (life Insurance, Disability)
Business Overhead Expense Insurance
This is an agreement between partners (or potential owners) on the terms and procedures of a change-in-ownership. It includes a transaction valuation (current and ongoing), names all involved parties, and enactment triggers (which typically include the death or disability of one or more of the partners). This agreement is a binding contract. In most scenarios, specialized life insurance and disability protection policies are used to fund the agreement.
Key-Person Insurance (Life & Disability):
Key Person Insurance plans protect your business from the untimely death or disability of one of your key employees, owners, or doctors. In most scenarios, the business own these key-person policies and receive the cash benefit.
Each individual doctor or owner should have individual Life and Disability Insurance Plans to protect their personal income and family as well.
Business Overhead Expense Insurance (BOE):
A practice or business that relies on a small number of people (or one person) to produce revenue is economically vulnerable if one of those individuals becomes disabled. A Business Overhead Expense disability policy will cover the ongoing operating expenses of your practice or business. It ensures that you do not have to use personal assets to pay for business expenses if you become disabled.
If the insured does become disabled, a BOE policy pays a monthly benefit based on business expenses, not anticipated profits. The following are some business overhead expenses that are covered by a BOE policy:
Rent or Mortgage Payments
Employee Salaries and Benefits
Accounting Fees, Legal Fees, and Professional Dues
Malpractice and Other Business Insurance Premiums
Maintenance and Janitorial Services
Interest on Business Debts
Other Fixed Expenses that are Ordinary, Necessary, and Tax Deductible
Every business is uniquely different in some form. However, managing risks certainly should be a consideration of any business especially if the business heavily relies on the efforts of few people.
Protect your business and you’ll protect yourself.
**If you’d like several quotes for a key person life insurance policy, business overhead expense protection, or disability insurance please contact us .
Please note, all concepts, strategies, and products mentioned may not be suitable for you or your company. Information provided is not intended to be legal or tax advice. Please consult with your tax and legal advisor for specific questions.