Protecting Your Business from Disaster

by T. Spencer White, MBA

What happens if:

A physician becomes disabled
The business owner suddenly dies

Can your medical practice sustain enough income to pay all of the business overhead expenses?  Would the physician have enough in personal savings to cover their 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 some 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:

Buy-Sell Agreements 
Key Person Insurance (life Insurance, Disability)
Business Overhead Expense Insurance

Buy-Sell Agreement:
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 will own these key-person policies and receive the cash benefit.   

Each individual doctor or owner should have individual plans to protect their personal income and family. 

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
Utility Bills
Property Taxes
Accounting Fees, Legal Fees, and Professional Dues
Malpractice and Other Business Insurance Premiums
Maintenance and Janitorial Services
Depreciation
Interest on Business Debts
Office Supplies
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 or visit our quoting website.