Posted on: June 27, 2018 by Chuck Krugh, CFP
When a physician transitions from practicing as an employee to owning or being a partner/shareholder in his or her own private practice, the financial picture changes. A lot.
As an employee, you’re sheltered from having to protect the business entity. You just need to worry about yourself and your own family.
Once you own a private practice, though, you take on a lot of obligations and potential liability. Owning appropriate insurance coverage is a vital part of protecting this very important asset against a variety of risks.
Here are some of the most important and common types of insurance coverage you should be thinking about in private practice, that are different from what you might consider as a straight-ahead employee:
Buy-Sell Funding Life Insurance. Hopefully, you own life insurance to protect your family against the financial risk of your death. But if you have partners, or key individuals your practice can’t function without, you need to add another layer of protection: Insurance on the lives of the partners in the business, or on a key office manager, nurse practitioner or PA or anyone else it would be difficult or expensive to recruit and replace.
Sometimes every partner will own a policy on every other partner. Other times the company itself owns the life insurance policies, and the company is the beneficiary. If a key employee dies, the money can go to the employee’s family, and some can go to the costs of replacing the employee. If a partner dies, the death benefit can go to buying the deceased’s partnership interest back from his or her heirs.
This protects all the partners from having to deal with a partner who doesn’t have any medical expertise, never wanted to run a medical practice, and may bring nothing to the table other than a desire to go through the books and be paid dividends.
They’d rather have the cash, and you’d rather be able to run your partnership smoothly without outside interference or meddling from non-medical professionals.
For best results, each partner should come to an agreement about how their interest in the partnership will be valued in the event a partner should die, and agree in advance that the deceased’s estate will sell its interest in the company to surviving partners.
An attorney should draft the agreement, but it’s life insurance that ensures that the cash to buy out a deceased family’s interest is there.
Practice Overhead Insurance. Think of practice overhead insurance as disability insurance that compensates your practice, rather than you, personally, in the event of an injury or illness that keeps you out of work.
If you become disabled, your practice must continue to function. Practice overhead insurance allows you to keep paying your basic business expenses in the event of a disability.
Practice overhead insurance is an important safeguard to ensure your business survives while you’re out of action due to disability.
Worker’s Compensation Insurance. It’s the law: If you have employees, you must keep workers compensation insurance in place – not only to protect them against the financial impact of workplace injuries, but to protect you, as well. Otherwise they’ll have to come after you to pay their medical expenses, and the process can take years. Legal fees on these disputes can add up to hundreds of thousands of dollars. It’s much better to offload the risk to your state’s workers’ compensation program.
Business Interruption Coverage. If your business had to shut down for a month thanks to a natural disaster, what would that do to your cash flow? Could you keep the business going out of savings? Business interruption coverage ensures that you can still make your basic business expenses in the event of a natural disaster or other event beyond your control, until you can reopen your doors.
Employment Practices Liability Insurance. This covers you in the event an employee sues you or complains about sexual harassment, unlawful discrimination, mismanagement of benefits or violations of your fiduciary duty towards retirement plan administration. These can be very expensive claims. All employers should have employment practices liability insurance in place.
Cyber liability insurance. Your computers contain a lot of sensitive medical information. A data breach or hack could generate fines under HIPAA and lawsuits that could put your company under. Cyber liability insurance helps protect your practice against this risk.
DoctorDisability.com focuses exclusively on the financial needs of medical professionals, their families and their practices. Founder and CEO Chuck Krugh, CFP®, has been working with physicians and their families for more than two decades. Based in San Clemente, California, DoctorDisability.com works with medical professionals in all 50 states.
Click the “Request Quotes” button at the top of the site to get a preliminary quote for disability insurance coverage. Or call us today at 866-899-7318 for more details and a confidential consultation.
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