Disability insurance for dentists is one piece of your “what if” plan. The documents, liquidity, and instructions you leave behind are the rest.
Key Takeaways:
- What happens to my dental practice if something happens to me? Without written instructions, a funded buy-sell agreement, and an estate plan, practice value can drop fast.
- How much disability insurance do dentists need? Coverage is generally sized to your monthly spending rather than your production, with a separate policy for practice overhead.
- When should a dentist put disability insurance and other estate planning protections in place? Earlier is typically better since coverage does the most work between where you are now and financial independence.
A client of ours was out walking with her husband when an unfamiliar dog ran up and bit her hand. The injury was severe, requiring surgery and a full year of recovery away from the office.
The accident was completely unpredictable, and it had zero connection to dentistry. Fortunately, because she had personal disability coverage structured properly, she could take the time to heal without worrying about financial catastrophe.
For dentists, that kind of planning can make all the difference. Years go into building a practice, developing patient relationships, and creating financial security. All of it rests on your ability to show up and work, which is why we help you answer the question, “What happens to all of that if you suddenly can’t practice?”
The Five Ds We Plan Against
When we look at your practice from the business side, we’re protecting against five things: disagreement, divorce, disability, disease, and death.
All five can affect a practice, though the planning priorities shift depending on how your practice is structured. This article focuses specifically on disagreement, disability, and death, though we’ll be deep-diving into divorce and disease in future articles.
For solo practitioners, disability and death create the greatest immediate disruption, since there’s no partner to absorb the schedule while you’re out. For multi-doctor practices, the partnership agreement does most of the heavy lifting.
Disability: The More Common Risk
Dentistry is sneakily one of the most physical professions out there, which is why disability is the risk we look at first with practice owners. Another of our clients, a solo practitioner, got hurt heli-skiing, broke his leg, and couldn’t work for eight weeks. Eight weeks is a long stretch when you’re the main provider in the practice. He didn’t have to renegotiate his lease, delay payroll, or drain his savings while he healed because his personal coverage handled his household spending, and a separate overhead policy covered the practice’s fixed costs. What looks like good luck from the outside was a decision he’d made years before he ever got in that helicopter.
It doesn’t have to take jumping out of a helicopter to disrupt your work routine, though. Even a sprained thumb or an injured hand can stop production while the lease, payroll, and household spending all continue.
Related: What Every Dentist Should Know About Disability Insurance
Personal Disability Insurance for Dentists: Protecting Your Income
Personal long-term disability insurance is the first layer of protection we look at, and its purpose is to protect any income loss while you’re injured.
Clients push back on the cost all the time, and we understand why. Premiums depend on your coverage amount and your health history, and they can range from hundreds of dollars a month into the thousands. Our position is that your skills and your capacity to produce are among the most valuable assets your practice has, and the financial plan we’re building together rests on both of them.
We structure your personal coverage around your lifestyle and monthly spending. In the conversations we have with clients, that often lands somewhere in the range of $10,000 to $15,000 a month.
Policies also typically include a three-month waiting period (called an elimination period) before benefits begin, which is why we recommend a cash emergency fund during those first few months.
Business Overhead Insurance: Protecting the Practice
Your personal policy replaces your income, but it won’t pay your practice’s bills. That’s a separate policy, usually called business overhead expense or business interruption coverage.
It’s designed around fixed expenses, or the costs that continue whether or not you’re producing (rent, utilities, phone, and the obligations in your lease). There may also be some team expenses that can or need to continue while you are personally not working. Those are the commitments that put a practice at risk fastest, particularly on the lease side.
Business overhead insurance generally replaces about 60% of your monthly expenses. Part of that is because when the practice isn’t operating normally, the variable portion of your costs will typically decline on its own. You stop paying for lab work you aren’t sending out, supplies you aren’t using, and marketing you’ve paused, and some staffing may be reduced as well.
This coverage tends to be considerably more important for solo practitioners. In a multi-doctor office, other providers can keep the schedule moving.
Death: What Happens When You’re Gone?
Disability is one way you could unexpectedly step away from the practice. Death raises a different set of questions, particularly around your family, the value of what you’ve built, and what happens next.
For a Solo Practitioner: Protecting Your Family and Practice
With solo owners, the immediate concern is less about who takes over your practice and more about what happens to the people you love. Your patients will find another dentist and get the care they need. The financial question we spend our time on is what happens to your family.
What we see help most often is an organized continuity plan that gives your family and your team a clear roadmap. That plan addresses:
- Where your business and financial accounts are located
- How billing and patient credits should be handled
- How collections get managed and who runs them
- Who needs to be contacted, and in what order
- How your patients and the community should be informed
- Whether a temporary dentist should step in and which company to call
- Which employee in the office can guide your spouse or family
- What should happen to the practice itself
Practice value is another reason we set a goal to have a continuity plan in place. Without a plan, value can fall very quickly, and a rushed sale could bring in significantly less for your loved ones than the practice would command on the open market.
Related: Don’t Forget to Protect Your Biggest Asset
If You Have a Practice Partner: Planning for Death and Departure
Ownership doesn’t resolve on its own when one partner passes away. A buy-sell agreement, typically incorporated into your operating agreement, establishes what happens to a partner’s ownership interest, and buy-sell or key person insurance provides the liquidity to fund it.
Consider a $2 million practice split evenly between two partners. The insurance gives the surviving partner the funds to purchase the deceased partner’s half from the family, so the family receives the value of that ownership interest and the surviving partner keeps the practice running. This coverage is separate from each partner’s personal life insurance, which means the family receives both the income replacement and the buyout.
Having this agreement written in advance keeps the surviving partner and the spouse from negotiating a valuation in the weeks after a death. In most situations we’ve been part of, the spouse wants the financial value of the ownership interest rather than an ongoing role in a dental practice.
Protecting Against Disagreement in a Multi-Doctor Office
Partnerships get complicated because people change over time. You go into the partnership aligned, and ten years later you’ve each had different family and life changes and you’re in different places financially. One of you wants to grow the practice and take on debt, the other wants to pay it down, and neither position is wrong.
Without an agreement that spells out how a deadlock gets settled, the sequence tends to unfold predictably. Doc B decides he’s out and expects Doc A to buy him out, but Doc A has no obligation to do it, and any offer he makes is likely to be a low one. Doc B then looks for an outside buyer, and nobody wants to enter that situation at full valuation. It ends up in court, word gets around the community, and the practice becomes vulnerable to a buyer who’s willing to purchase you both. Until the two of you settle it, the practice holds very little value.
We’ve seen these situations happen, and we know how to prevent them. That’s all built into your plan.
Why Younger Dentists Should Pay Attention
Younger dentists are the least likely to think about disability, death, or succession. None of us believe anything will happen to us, and if it does, we assume it’ll happen decades from now.
However, the years between 25 and 40 are often the most important period for protecting the income-producing decades ahead, because that’s when you’re at your peak as a provider, holding the most debt, and holding the least accumulated wealth.
As your wealth grows, the need for certain types of business coverage decreases, and we start removing what you no longer need. The long-term goal is to become secure enough that you’re effectively self-insured. A later-career dentist with substantial assets has much less need for coverage designed to protect the family from a forced practice sale, which is why we revisit all of this with you each year as your balance sheet changes.
Let’s Plan for the Things You Can’t See Coming
Nobody plans around a dog bite on a walk or a bad landing on a ski trip, and those are the situations that put a practice at risk. A disability event asks whether your household spending and your fixed overhead can keep getting covered while you recover. Death asks whether your family and your team have any instructions to follow. Both come down to coverage that fits your numbers, agreements that are already written, and cash you can reach.
If you are a client, this is something we routinely review to help ensure proper legal documents, coverage plans, and liquidity are set correctly for your career stage. And if any questions come up between those regular calls, we encourage you to reach out.
If you aren’t a client yet, you don’t have to guess at whether your disability coverage is sized correctly or whether your operating agreement addresses a partner’s exit. Learn more about how our team works with practice owners, and what it looks like to have your practice numbers and your personal plan handled under one roof. Schedule a complimentary consultation to get started.
