Physicians and dentists often need to take out a business loan to purchase a practice. The loan typically ranges from $300,000 to $500,000. A lot of banks will not issue the loan unless there is a disability insurance policy in place to cover the loan in case the physician or dentist becomes disabled and cannot pay the loan.
A lot of physicians and dentists cover this expense by adding it to their business overhead expense policy. However, business overhead expense policies usually only pay up to 18 months which would not cover the full duration needed. If they were to add it to their individual policy, it could be expensive adding $3-$5000/month in benefit.
The best solution is to take out a separate policy specifically designed to cover the business loans. These are offered through Principal Financial Group and Guardian. It is important to look at both policies as their rates can vary depending on your medical or dental specialty.
This is well illustrated by a client I was working with this week. I’ll call him Dr. Ortho. He is an orthodontist in Texas who is in the process of purchasing a practice. The loan amount is $300,000 and the term of the loan is 10 years. His bank was requiring him to secure a policy before it would issue him a loan to purchase his practice.
After further analysis, Dr. Ortho purchased a policy that would have a start date of February 1st to coincide with the term of the loan. If he becomes disabled, the policy pay the will pay the bank directly for the remaining 10 years. For example, if he becomes disabled in year 5, the policy would pay the bank the remaining 5 years.
Since the policy is to pay for a business expense, he can deduct the premiums. As such, if he becomes disabled, the benefits are taxable, but that is washed out by the fact it is paying a deductible expense.
Dr. Ortho was happy he was able to secure the loan and we were able to seamlessly work with his bank to ensure everything went through without a hitch.
For more information about disability insurance for physicians and dentists to cover a business loan, contact Set for Life Insurance today!