By Eric Tiedtke, CFP, TDA Financial Services Insurance Program
Most of you have had the familiar health, auto, and maybe home insurance for many years. However, if you’re a new dentist just getting out of school or that’s only been out a few years, transitioning out of the military, or are looking to start or buy a practice, you’ll need insurance you may not be familiar with.
The following is a relatively brief, jargon-free guide to essential types of insurance new dentists will need. It’s not meant to be all encompassing; just a starting point to a better understanding.
Insurance for you (the Dentist)
Medical Malpractice or Professional Liability
This policy covers the cost of liability claims made against you for professional services as a dentist. The policy can also assist with patient and dental board complaints, which can happen regardless of what you or your staff did or did not do. This is usually the first type of coverage obtained, because it’s usually either required to work or, as a practical matter, a necessary form of protection against alleged malpractice.
Professional liability coverage is typically offered either on an “occurrence” or “claims-made” basis.
Occurrence coverage responds to claims based on when the medical incident occurred, regardless of when the claim is actually made against you. As long as the incident occurred during the policy period, your occurrence policy will respond—even if the claim is made after the policy period expires.
Claims-made coverage, in contrast, responds to claims based on when the claim is first made against an insured filed during the policy period. Claims-made policies can be less expensive initially, but if you switch companies, they can involve additional expense and record-keeping on your behalf.
Disability Income Insurance
Disability income insurance pays if you’re unable to work because you become disabled through an accident, an injury, or an illness. This type of coverage will allow you to insure approximately 60% of your income and, if set up properly, any benefits received are tax free.
The most important feature for a dentist to have is a true specialty, own-occupation definition of total disability—for the entire benefit period of the policy. Under this definition, benefits will not be reduced or eliminated if the insured returns to work in another occupation (which could also be a different dental specialty). This means a disabled dentist is not penalized or forced to change careers because of disability.
Other important policy features are a strong residual benefits definition, future purchase options, policy renewal guarantees, and having no limitations or exclusions for mental and nervous conditions. Also important is the financial strength of the company.
There are different types of disability income insurance for different situations:
Individual Disability Income: to insure your income and for buyouts
Reducing Term Disability: for business loans
Lump Sum Disability: provides a one-time payment up to $1 million for permanent disability
Business Overhead: for fixed expenses of a practice
Retirement Protection: to insure your retirement plan contributions
Why do you need life insurance? If you have any of the following: spouse, children, house, partner, practice or equipment loan, student loan, real estate, building, buy-sell agreement—or might in the future—you’ll probably need life insurance. There are two basic forms of life insurance (group and individual), and two types of coverage (term and permanent).
Forms of Life Insurance
Group coverage is usually offered by an entity such as an employer, association, or affinity group. The entity is the owner of the group life contract, so the policy may be cancelled or non-renewed by either the entity (policyholder) or the insurance company. You may or may not be able to convert this type of coverage if you leave the entity.
Individual coverage is owned by you, and you have a contract with the insurance company. Other than in the case of insolvency by the company, you can keep the policy as long as you continue to pay the premium.
Types of Life Insurance
Term life insurance offers protection for a guaranteed amount of premium for a guaranteed amount of time. The longer the guarantee period, the higher the premium will be. The younger and healthier you are at the time of purchase, the lower the premium will be.
Term-insurance guarantee periods range from 1 year (annually renewable term) to 30 years, and the premium guarantee periods are typically offered in five-year increments. At the end of the guarantee period, you have the option to continue the coverage, but at a substantially higher premium.
Most term policies allow you to convert to a permanent life policy up to a certain age, regardless of a change in health. Term life policies do not have cash value.
Permanent insurance is designed to provide protection for life, with a guaranteed-level premium. Part of your premium goes towards building cash value, which will accumulate over time. This cash value can be used to automatically purchase additional insurance or pay future premiums; or it can be taken out as a loan.
The most common types of permanent insurance are: whole life, universal life, variable life and equity indexed life. These plans offer an assortment of options including paid-up, fixed, or flexible premiums. Permanent insurance premiums are higher than those of a term life policy because of the longer guarantees and cash value buildup.
Most life insurance policies also offer optional riders at additional cost. Some of the more common riders include: waiver of premium for disability, return of premium, accelerated death benefits, and long-term care benefits. Each of the riders is meant to address an issue that might come up over the lifetime of the policy, and should at least be considered.
Insurance for the Practice
Building and Business Personal Property/Contents
This is normally included on your Business Owner’s policy (BOP) and often called “property coverage,” because it protects against damage to the physical property you own for various causes of loss (i.e. fire, wind, hail, theft). Business income coverage is typically included in a Business Owner’s policy and applies to the loss of business income during the restoration stage following a covered claim. For example, if you have a fire, tornado, hurricane, flood, etc., at your location and are forced to close your doors for several months while your covered property is either repaired or replaced, your business-income coverage will reimburse you for normal operating expenses, such as rent and utilities. Payroll is typically covered for a 60-day period.
The following coverages can be added to your Business Owner’s policy or be purchased separately.
- Employee Practices Liability
- Hired and Non-Owned Auto Liability
- Data Protection Liability
This provides coverage for injuries or accidents at your practice; for property damage suffered by third parties resulting from your business activities and that you’re legally obligated to pay; personal injury and advertising injury for acts resulting in injury to others not of a physical nature, such as mental anguish, slander, libel, invasion of privacy, or defamation; and medical payments.
Although coverage for bodily injury is already included, medical payments coverage is a “goodwill” coverage that is paid without regard to the liability of the insured.
General liability does not cover your professional services, which are protected by a medical malpractice policy.
This is a policy specifically geared toward covering work-related injury and occupational disease. In Texas, many businesses aren’t required by law to carry Worker’s Compensation; therefore, many simply go without (non-subscriber).
One of the key benefits of Worker’s Compensation is that it’s a “sole remedy.” If you own this policy, an employee is barred from seeking damages against you for work-related injury or occupational disease.
Although these insurance options may seem overwhelming and expensive, consider the cost of not having proper coverage in place if something catastrophic happens, such as a disability or lawsuit early in your career.
Being a dentist is one of the best occupations there is. The future of dentistry is bright, and new dentists can make a great living with a successful career that lasts as long as they want. Part of that successful career is being sure you have the right type of coverage in place so that if something catastrophic happens the insurance company takes the risk rather than your practice, your professional reputation, or your pocket book.
If you would like to receive more information, or discuss insurance options available, please contact TDA Financial Services Insurance Program at 800-677-8644 or visit tdamemberinsure.com.