Business Overhead Expense
Protecting Your Practice
As a professional with a private practice, you know your presence in the
office is crucial to your clients or patients...to your family’s financial
well-being…and also to the health of your practice overall. It’s obvious that
you need to protect your income in case an accident or injury makes it
impossible for you to work – which is why most professionals do carry some
form of disability income insurance. Personal DI insurance or salary
continuation covers key living expenses while you’re disabled –mortgage
payments, tuition, automobile leases or payments and the real basics like
utilities and groceries.
But what about the many professional expenses that would need to be met
somehow during a disability? Staff salaries, office rent or mortgage payments,
utilities and other practice-related costs would still need to be paid, while
the income that normally pays those expenses would decrease or even disappear
during the time you could not work.
To deal with these obligations, you could shut down your practice
temporarily – and risk losing both your valued staff and your hard-earned
patients or clients. Or you could dip into your capital – or go into debt –
in order to meet your ongoing overhead expenses.
Clearly, these alternatives are pretty grim. However, there’s an easier
and much more cost-effective solution…a relatively inexpensive type of
disability income insurance, specifically designed to reimburse you for your
practice’s overhead expenses and keep your practice running if you should
become disabled. This type of insurance is called Overhead Expense
Insurance. And for a professional in private practice there’s an even more
customized form of that insurance known as Professional Overhead Expense
Professional vs. Standard
Overhead Expense Insurance
Quite simply, standard or business overhead expense insurance provides
reimbursement for the expenses of operating your practice if you are disabled
and cannot work. These expenses may include mortgage payments or rent,
electricity, telephone, heat, water, laundry and other fixed costs normal to
the operation of the practice.
Professional overhead expense insurance, on the other hand, pays some
additional costs – including the salaries of all regular employees except
those who are members of your professional. In a Dental partnership, for
example, salaries for the receptionist and Dental Assistant would be covered,
but not the salary of your Dentist partner or employee. However, high quality
professional overhead policies will cover at least part of the salary of a
professional temporary replacement for you, such as a Dentist retained to fill
in during your total disability.
Look for These Features in
Here are some of the extras you can find in high-quality professional
overhead expense policies:
The Carry-over Provision…
To accommodate fluctuating monthly
Overhead expense benefits reimburse the expenses incurred in keeping your
office open during your disability. However, in many practices these
expenses fluctuate, so one month they might be less than the policy benefit,
other months more.
Building a carry-over provision into the policy solves this problem.
When monthly expenses are less than the maximum monthly expense benefit, the
unused benefits are simply carried over and made available for use in months
when expenses exceed the maximum monthly benefit. Under certain conditions,
overhead expenses may actually continue to be reimbursed even beyond the
The Residual River…
To cover partial disability
If you suffer a disability that limits you to part time work, your
practice’s gross revenue may decrease to the point where you cannot meet
your office expenses. In such a case you would certainly need help to pay
your office bills, just as you would if you suffered a total disability.
Yet many overhead expense policies require you to be totally disabled to be
eligible for benefits.
To avoid this problem, look for an optional policy provision for what are
called “residual benefits” – paying the difference between current gross
revenue and current expenses if you are partially disabled. These benefits
are payable when your practice’s monthly expenses exceed gross income and
you have lost at least 20% of your prior gross monthly revenue.
Future Purchase Option…
To help benefits keep up with inflation
As your practice grows, expenses are bound to increase too – sometimes to
the point where they can no longer be handled by your POE coverage. One
very valuable optional provision to help with this is a Future Purchase
Option – giving you the right to increase coverage each year, without proof
of medical insurability, until age 55.
Coverage for all reasonable expenses
With a high-quality policy, more expenses are eligible for reimbursement
during disability than with more standard policies. When your evaluating
plans, check to make sure the following are covered:
Both principal and interest on your practice’s
Cost of equipment leased or purchased prior to
Up to 80% of salary for the qualified replacement for you – for up
to six months.
Depreciation or scheduled installment payments of
principal and interest on debts.
Professional Overhead Expense
Insurance offers several tax advantages to your practice.
Premium payments are tax-deductible as a reasonable
Overhead expense benefits received during
disability, while taxable upon receipt, are used to pay practice – related
expenses which are tax – deductible. The net tax result is a “wash.”
Affordable Protection for Your Practice
The good news is that quality Professional
Overhead Expenses coverage is both available and surprisingly
affordable…especially when compared to other monthly services you already pay
Your Practice’s Protection
You’ve devoted long hours and years to your
education and training, and to building your practice and keeping it healthy.
You’ve insured the building and contents, the lives of yourself and your key
employees, and probably protected your family’s lifestyle against the
possibility of your becoming disabled. Isn’t it time to take the next step
and ensure that your practice won’t suffer a disability just because you have?