Why Dentists Should Consider High Limit Disability Insurance

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Rick Gundling, FHFMA, CMA—senior vice president, healthcare financial practices, Healthcare Financial Management Association, Westchester, Ill.—says an accident that befell his grandfather, a dentist, shows how high-limit disability insurance (HLDI) protects practices.

“My grandfather was in a grocery store and slipped. He was picking up a jar that had fallen in an aisle and fell broke his wrist. He was out of his practice for six weeks. His practice depends on his arm and his business suffered,” Gundling explains

Indeed, the American Dental Association (ADA), states that disability insurance protects dentists from “devastating financial loss due to disabling illness or injury.”¹ It also helps high-income earners support their family and current lifestyle, adds the ADA.

“A dental practice is, essentially, a small business. High-limit policies are insurance that covers mortgage and income,” Gundling says. “It’s like business continuity insurance [insurance that protects against organizations from disruptions in operations]. It helps support staff, equipment—those kinds of things. It’s a way to insure an individual who may have more overhead than the typical person. You add on student loans that dentists may have taken out and it’s like a whole other mortgage payment.”

HLDI and Dental School Debt

According to the American Dental Education Association, 80% of dental school students in 2019 took out loans. Dental school debt averaged $292,169 with per-month payments of about $3,390 on a 10-year, 7 percent loan.²

Petersen International Underwriters, based in Valencia, California reminds dentists that lenders require disability insurance to indemnify against loan payments. Many insurance carriers require dentists “to be in business for at least one year before obtaining a personal policy.”³

“When a practice owner becomes disabled, he or she is on the hook for business expenses,” explains Jeff Brunken, president of MGIS, a physician insurance brokerage in Salt Lake City, Utah. “When any healthcare professionals with student loan debt become disabled, they still owe their student loan payments. These [HLDI] products solve both problems,” he adds.

Grundling agrees. “If [dentists] become disabled, HLDI helps them pay off their debt. It’s similar to credit cards with insurance to pay the minimum payment. They don’t have to dip into their savings accounts. Given that they have student loans and the cost of everything going up, what was a lot of money 20 years ago is not so much anymore,” Grundling says, who notes indemnity (comprehensive compensation) or reimbursement structures can accelerate payments.

“It’s all based on premiums and how much you want to pay. You have to look at your expense basis. How much you want to be insured for, do you have student loans? It’s a support, like disability insurance. Certain employees might offer short- or long-term disability (LTD) with 60 percent of income or something like that,” he suggests.

Broad Reach Benefits, a group employee insurance broker in Parsippany, New Jersey, confirms that “Group LTD plans typically cover 60 percent of employee’s pre-disability earnings up to a predefined monthly maximum. Assuming a plan has a group LTD plan for executives with a $12,500 monthly maximum benefit, employees earning $250,000 per year would receive the maximum monthly benefit should they become disabled.”⁴

The brokerage defines HLDI as “a non-traditional policy written on top of existing group and individual disability coverage to cover very highly compensated professionals”⁴ These policies fill the gap between traditional group and individual LTD policies and the coverage they need. Purchased policies cover incomes well into the seven figures. Broad Reach Benefits states that no combination of group long term disability or individual disability policies comes close to providing needed coverage.⁴

“Very high-income earners, such as Law Firm Partners, hedge fund, financial professionals, and business owners, are extremely vulnerable should they suffer a disability. This occurs because group LTD and individual disability insurance limit participation and leave “very highly compensated professionals exposed,” Broad Reach Benefits states.⁴

What to consider when purchasing HLDI?

“High limit should be evaluated in terms of overall life and health insurance and savings account and total financial planning. A lot of people focus on life insurance, but you’re more likely to be disabled,” notes Gundling who notes the effects of the ongoing COVID-19 on HLDI.

“Coronavirus made everyone feel more vulnerable,” he continues. “If you’ve had an elderly parent who had to go into a nursing home, you start thinking, ‘Maybe I should look into long-term care insurance.’ Coronavirus makes us think about how fast life changes.”

Another factor to consider is that, while a change of career may be possible for some after they’ve become disabled, that isn’t necessarily the case for dentists, who might not be able to walk into another job, Gundling adds.

“For a dentist, that may not be the case. This ensures they have income,” he says.

Brunken agrees. “Structured indemnity benefits can be paid without the need for copious reimbursement paperwork,” he adds.

Dentists looking for HLDI should shop around and check with their benefits or insurance broker about available options, Gundling advises.

“Sometimes, you can get a loan with a low premium for a month or two if disability doesn’t kick in for a month or two. Maybe your savings helps with that. It’s a matter of balancing all these things,” he says.

“It’s important to consider how to cover yourself if you do get disabled. Maybe you have a house with a lot of equity in it. If you have a young family with small children, that’s something to consider, too,” he continues. “As you get older and your children are out and have paid your house down or off, you don’t have big expenses,” comments Gundling who lists the following considerations:

• When insurance kicks in
• The period of time
• How high the limit is?
• Does the insurance product have a good reputation? Are they highly rated and backed by a good insurance company?
• Cost of living (rent, utilities, and salaries) and whether the dental practice is in a high-rent area, such as San Francisco or New York.

References

1. Disability Income Protection Insurance Plan. American Dental Association. ada.org. https://insurance.ada.org/ada-insurance-plans/disability-insurance.aspx
2. Types of Loans. American Dental Education Association. adea.org. https://www.adea.org/GoDental/Money_Matters/Types_of_loans.aspx
3. Byrne PC. Dentist High Limit Disability Insurance. Petersen International Underwriters. piu.org. https://zone.piu.org/PDFServlet?template=Dentist%20High%20Limit%20Disability.pdf&id=59880
4. High Limit Disability Insurance. Broad Reach Benefits. broadreachbenefits.com. https://broadreachbenefits.com/disability-benefits/high-limit-disability-insurance/