Life and Disability Insurance Every Dentist Should Have

Hey, dental associates and new practice owners. Welcome to the Associates on Fire podcast, powered by Practice cfo. This is the podcast that teaches you what you never learned in dental school, the financial side of dentistry. We cover topics from planning for ownership, buying a practice, to student loans, taxes, and all things financial for the hungry to learn. Dental Associate. So let's light it up.

Welcome everybody, to a new episode of the Associates on Fire podcast. I am invited. I've invited Brian Leat on our show today. Brian Leet is a. An insurance broker primarily helping dentists place life and disability policies for protecting themselves, their family and their practice. I've, on a personal note, been working with Brian now for about three or four years, and it has just been a total pleasure working with Brian. My clients absolutely love Brian's service, his attentiveness, his responsiveness, his clarity of communication. It's an honor to have you on the show, Brian. Welcome, Wes.

Thanks for having me. It's an honor to be here.

Let me give a little bit of introduction to you, if you don't mind. Brian works a little bit more exclusively with dentists. Not exclusively, but. Brian, how much of your existing work is related to dentists?

I would say right now it's at about the 50 to 60% range. Bulk of what I do is working with dentists and dental specialists.

So safe to say, you understand what are some of the risks related to the dental profession, to the dentist and, and the right types, because there's a lot of variations of life and disability, but maybe the right types that are most appropriate for. For dentists.

Absolutely. And I think one of the things that I've always been enamored by with dentists is the unique nature in which they do their job. You know, particularly with a lot of occupations, you know, we're talking about cognitive skills, but when you, you know, add the element of dentistry into the fold, you know, we start getting into motor skills and the important role that simply holding the instruments has in their ability to do their job right.

The reason why I wanted you on the show, Brian, is so I've been working with dentists for about 12 years, and I am stunned by how many dentists that I've known personally apply for disability.

Some of those, many of those have been clients over the years. Some have been people I'm aware of just in my local area. And.

One of the greatest risks that dentists have is their inability to use their hands, their eyes, and the effect of that on. On their income stream. And most dentists are not achieving financial independence until well, these days, well into their 60s and 70s, if you're working with practice CFO, we're trying to accelerate that by a decade or two, but just the standard trends are we're looking at around, you know, mid-60s, mid-70s. And if you're not financially independent, meaning you don't have enough assets that generate income to replace your earned income, or what do you do if you can no longer use your hands? Or a client that we helped sell a practice for started to lose vision in one eye, young doctor, maybe early 50s, and was able to go on disability. That allowed him to sort of bridge out of practicing dentistry and created a huge amount of safety and comfort in his life as he did that. But I see it a lot. And so it's become a critical part of the financial planning that we do for dentists at all stages, just out of dental school, even in dental school, to approaching, you know, approaching retirement. And my philosophy on insurance is you only need it if you don't have the ability to self insure. And your ability to self insure is a function of what income you would have to replace the income that's lost from doing dentistry. Whether that's you become disabled or whether that's you, you pass away and you have dependents who are relying on that, on that income. And because disability is so, I won't say prolific, but it has just become remarkably common. And it's a lot more common than death, by the way. And a lot of people feel good, I have my life insurance, I'm set, you know, I'll pass on the disability because it's, you know, it's more expensive than life insurance. I'll take my chances. And yet the probabilities, I don't know exactly what they are, but I recall reading some time back that it's 10 to 1. 10, you're 10 times more likely to become disabled than you are to die. Whether that's fully accurate, I don't know. But I think it is true that there's a lot more disability than there is death. And I. And that probability in your own life, I think would apply as well. So it's become a fundamental part of the advice that we give to dentists when we're doing their comprehensive planning, when we're looking at everything from budgeting to their estate planning documents to education funding for their kids to an emergency reserve fund. Well, guess what, I've got disability insurance and I've got life insurance as a part of that overall equation. So a doctor can really sleep well at night. Knowing that they've got their financial plan in place. So let's, let's jump into it. Brian. Now you are a broker and you're with a company called Truluma, a brokerage firm. Tell me the difference between a broker and an agent and why you are operating as a broker.

I think the biggest way to explain the difference is to recognize that insurance products are sold and distributed by different channels. And the key advantage to being a broker is that I'm fully independent. And what that means is I don't go into an interaction with a client with a preconceived notion around which insurance company is going to be the best fit for them. Contrast that maybe with what would be an agent. And an agent is primarily paid to sell that company's policies. And so if we think about it in the context of I often associate it with, you know, borrowing money. If you go into, I don't know, let's say a large bank like a Chase bank or bank of America, and you want to borrow money from them, they're only going to show you one bank's rates, whether that's best for you or not. And the insurance marketplace is very similar. So I'm the equivalent, I guess, of a mortgage broker in the sense that I can shop the marketplace really to come back with what is the best and most appropriate fit for the client. So I think in that respect the element of independence is critical. And a lot of consumers don't know the difference going into an insurance interaction, whether or not the person they're dialoguing with is really looking out for their best interest or their clients.

You know, in my industry, there are people who.

Are, they receive what are called commissions or loads for selling a particular product, financial product that might be a mutual fund, that might be an annuity, etc. And a lot of people are sort of receive a larger commission for placing a specific product. And if you go to one of the larger brokerage houses, oftentimes that's what you'll, you'll receive from a standard broker is they're, they're paid through sort of what I call the back end, which means that the client isn't necessarily paying them directly. And I, as I merged from doing straight CPA work back in 2006 and seven at an accounting for a large accounting firm into more of the area of wealth management coupled with CPA services for dentists, I wanted to have a model that allowed me the freedom to choose without financial incentives behind the scenes, meaning that really the only, the only person who, in my case, who pays me, is going to be the client. And I'm therefore open to all sorts of options. Now, in the world of insurance, the only way that an insurance person like you is, is compensated is through a commission. But what you've done by being an agent, by, I'm sorry, by being a broker, is that you've also been able to largely remove that attachment to a given product so that you can present multiple options to, to a client. And I see that when I say, hey, Brian, I've got this client, age 41, no disability insurance, will you work a proposal? And you send me back a proposal that usually has three or four different companies out there. And it's great detail what the coverage is, what are the terms, some of the riders, what the premium is, the strength of each one of them. It's so rich in context, and it allows us to choose the policy that is most appropriate for that particular person, for that client. And I really appreciate that format that you operate in. Tell us about disability insurance at a basic level. So let's say I'm a dental student and I understand the concept that I could become disabled. And maybe, generally speaking, what disability insurance is, but as a professional in this space.

Explain exactly what disability insurance does and what it, what its purpose is.

So at its core, disability insurance serves to replace somebody's income. So whether they become disabled in the event that they're in an accident or they're unable to work because of an illness, the idea behind it, by and large, is if they can't do their job, whether it's in a total capacity or maybe there's a partial disability, which we see frequently in the dental space, the policy takes over to take care of paying that person's income for them. And you know what's always fascinated me about this product, and you spoke about this a few minutes ago, is the statistical likelihood of becoming disabled during your working years over passing away. And obviously in an occupation like dentistry, those numbers are a little skewed and skewed in the direction of seeing more disability claims, by and large, because of the aforementioned motor skills that dentists have to do their job. So simplest of terms, disability insurance is income replacement if you can't work.

And should somebody have that as early as dental school residency, as weird as.

It sounds to say that a dental student who is, who knows nothing, maybe other than accumulating debt, should take on more to protect their income, the answer is absolutely yes. You know, we have this saying that you, you can choose your disability insurance, you can't choose your disability. And some of that comes down to the timing of things. And having worked in this industry in some form or fashion since 2001, I've come across some unfortunate circumstances where somebody, whether they were in dental school or right out of dental school in practice, opted to wait a little bit, only to find that they were diagnosed with something that was soft and devastating and prevented them from doing their job. So generally speaking, the advantages of getting it when you're younger, separate from the fact that these policies are cheaper when you're younger, they do get more expensive to get as you get older. But a lot of times it makes advance, it takes, makes sense from a health perspective in the sense that the younger you are, the less likely life is caught up with you and you're able to cover more things. And not to say that everybody who applies for disability insurance doesn't have something going on in their lives, but the likelihood at a younger age that you've got less going on is just greater.

The way I would look at it is as you're nearing the end of dental school, you've put a lot of time, a lot of years into getting where you are. And now suddenly you can't use that experience and that education to go and monetize it by being a dentist. So even disability insurance, if you're a third year, fourth year dental student, whatever can help you pivot as you decide if you can do something other than dentistry, it gives you a bridge from funding, I'll say, to rethink, to recreate, to redefine what your life is without struggling to completely pay your rent. Now, disability insurance comes in different amounts and obviously the more disability insurance you want to get, the more premium you are going to pay. And for my clients, what a good financial plan is going to tell you that you should get enough disability income to meet what your budget needs are, that you are producing income to satisfy in, in your life. And how much you get depends on, on what those needs are. If you have a stay at home spouse with three kids at home, then you and your budget is $15,000 a month to cover your student loan, your, your, your mortgage payments, all of your, your life expenses, funding for your kids education, whatever those, those budget items are, then you should probably take out a policy for 15,000. Now, if I'm correct, Brian, that sort of the max you could get up to is 20,000, is that right?

That's technically correct, yeah. So the way that the disability insurance marketplace works is that you've got these numbers that are called issue limits. And to your point, that's the most that a single insurance company would want to insure somebody at. If someone's income is at a point where they could get qualified for more coverage, we can reach out to a second company. But then you have to ask the question of do we need more than $20,000 a month in benefits coming back to replace our income? And I think one of the key things to understand with at least individual disability insurance is that if somebody goes on claim, the benefits that they would receive can be paid back to them tax free. So if they do receive that $15,000 or that $20,000 per month, the nice thing about it is they are receiving that money clean and clear from any taxes.

Exactly. And one of the things we always do, Brian, you know, when we set this up is we say our personal individual disability policy, I want that paid personally, not out of their dental practice, because I don't want to take a deduction on those premiums. You take a deduction on those premiums, then when that 15,000amonth starts rolling in, that's included in taxable income. So it's not worth it to me to take the deduction on the premium. So I have all of my doctors pay that individual disability policy out of their own personal account. They don't get a tax deduction for it, but then that's tax free money that comes in continually until they're 65 or 67 or whenever the end of the term is for. So that's a long time of tax free money. For most of my clients, I'm finding it ends up the amount of disability that we recommend ends up between somewhere between 10 and 15,000. And the reason why is, A, they may have a spouse that's earning some income, B, they may be partially on their way toward financial independence and therefore have some assets to replace their earned income. And C, is that the premium you pay for disability insurance is simply a representation of how much you want to transfer the risk of your disability onto somebody else. And if your budget's $15,000 a month and you get $15,000 of disability insurance, you're essentially paying an insurance company to transfer virtually all of that risk onto them. And the more risk that they assume, the more they're going to want you to pay them to assume that risk, and the less risk they assume, then the less they're going to want you or need you to pay them to assume that risk. It's just a continuum. And I do have a few clients who just Say, Wes, I am incredibly risk tolerant in this area. I'm a great driver. I don't go bungee jumping or skydiving, and I'm careful with my life. I'm not going to get disability. Now. I'm always telling them, come on, Doc, we should have be at least doing 5% just to sort of mitigate the risk at some level. And so most of my clients are getting some level between, you know, 5,000 and all the way up to 20,000, where other doctors are just more concerned about that and they're less risk tolerant with the possibility of becoming disabled. So they go higher and they're willing to pay the premiums for transferring that risk onto somebody else. Now, if you're in dental school, I personally, I don't think you need more than maybe $5,000 a month. Brian, do you want to, do you want to comment on that?

I would tend to agree with that. And some of it also hinges upon the risk tolerance of the insurance companies themselves. So if someone, for example, is in dental school, the insurance companies have a set amount of benefit that they will offer to somebody. And most carriers, to your point, that number is $5,000. You know, I've always looked at disability insurance because I'm a consumer of these products as well. I have my own income protected with disability insurance. And to your point, I'm comfortable transferring that risk to an insurance company. Frankly, it's as weird as it sounds. When my invoice comes to pay my premiums every year, I take comfort in paying it because it means I get to work. And I know and have worked with so many people over the years that have fell on the wrong side of a diagnosis. So I take pride in paying my premiums because it gives me that reminder that I'm able to do my job and certainly within the scope of dentistry. Whether you're in dental school or in practicing, until you're at a point of financial independence, your income matters. And protecting it also matters. So I kind of look at the premiums to some extent like a tax on my income to protect my income. It's a small percentage to protect the balance.

Is there a way for a dental student or an early stage associate to get a policy? Let's say it's $5,000. They don't have maybe children yet. They're not in a, in a larger home mortgage yet. Cost of living is still, still relatively low, maybe on an IBR program or an IDR program or repay, and they are, but they also want to lock in the ability to go from 5,000 to 15,000 later on down the road? Do they simply take out a new policy later or, or.

Can they elect to change their existing policy of $5,000 of payment a month if they became disabled to a higher level?

I mean, technically they can do both. But the nice thing about disability insurance, what we oftentimes will do with a younger dentist or a dental student, is they will get that policy, let's say, for $5,000. And one of the most unique provisions that the disability insurance carriers put on the policies allow for what would be called a future purchase option. So that is a provision that lets that dentist, as their income and maybe their expenses grow, it allows them to purchase more coverage in the future. But the key with that option to purchase more coverage is they can do so without the insurance company asking any medical questions at the time of that increase. So if you find yourself in a situation where maybe you buy that policy at age 27 or age 30 and five years down the road, you need more coverage. You can tap into this option even if your health has changed to secure more benefit. So it's a great way to leverage it. In fact, personally speaking, I benefited from my own future purchase option after a car accident in 2012 left me with lower back pain.

And that's called a rider, Is that right? R I D E R that you can add on to a standard policy. Is that correct? Terminology correct?

Yep. So disability insurance policies have all sorts of additional riders that can be added that enhance the contract itself. And so future purchase options certainly at the top of the list of things to consider when looking into coverage for yourself, particularly if you're a younger dentist.

And riders come with a slightly slight increase in premiums, correct?

For the most part, yes.

Which would make sense because if you're saying, hey, insurance company, I want to be able to add another 5,000 or another 10,000, 10, 15 years down the road, regardless of my health condition at that time, then the insurance company going to say, okay, you're simply wanting to transfer more risk onto me. We're going to bump up your premium a little bit. So you're basically saying if you get that rider, then.

You come up, I don't know, with arthritis or something down the road that starts to, I don't know, affect your ability to do dentistry a little bit. Can you always purchase more insurance, or is there something that's clearly leading to near term disability that the insurance company is not going to let you exercise that purchase option?

Well, I think that the key with the insurance or the Increase option. This is one of the reasons why the insurance industry, it's a safeguard they put in place. You can't arbitrarily choose the window of time that you can exercise. You can't just randomly choose the day before you start to see a decline in your health. So by and large, a lot of the policies have specific windows of time usually tied to the policy's anniversary. So if the policy has a birthday every year, it's usually tied to that window of time that you can increase the coverage. So if you try to do it outside of that window, that's where we run into some potential challenges because it's that, that scenario where the insurance companies start to wonder if you're arbitrarily increasing your coverage because you may be running into a health risk. And so I would say that, you know, aside from the fact that the increase options do have the benefit of not having to answer any medical questions, I will say that one of the key advantages is the fact that the applications to increase coverage are short form. And by that I mean they don't take a lot of time to complete. In fact, when we've done it recently on clients, I think the extent to which the client is involved in the application of getting more coverage, it's less than a minute. It's very straightforward, which is great because a lot of times if they're in that situation where they are practicing or running their practice, you know, they don't have a lot of time. And that's the key with this, is that, you know, even as busy as dental students are, as life brings on more responsibilities, the time we have to allocate towards certain things gets smaller. And so that's the other advantage. It's very easy to increase your policy.

All right, great point. Let's talk about disability and student loans for a sec. If you're young, one of your larger payments in your budget are student loans, especially if you're starting to make a little bit of money. If you're not making a whole lot as a dentist, let's say you're making 100, I don't know, $10,000 as a dentist. Well, if you're on the, an IDR plan, an income driven repayment plan such as IBR pay and repay, which we talk a lot about in our Associates on Fire program. We have a lot of videos on those on our associatesonfire.com website.

If you, if, if you have, if you're not making that much and, well, 10% of that may be.

Not a heavy amount, but as soon as you start to get up around $200,000 of income, even 10% of that can start to feel a little bit more burdensome on your personal budget. And so disability insurance can help protect against that. However, if you have a federal student loan, meaning that you have not refinanced it through a private lender.

According to federal. According to studentaid.gov, it says a total and permanent disability discharge relieves you from having to repay a Direct loan, a fellow loan, and a Perkins loan. And are you familiar with that, Brian, that if you become disabled and you have a federal student loan, that that loan is discharged automatically, meaning you don't have to pay it back?

I am familiar with it. If I heard you correctly, you said both total and permanent. Is that correct?

A total and permanent disability? It says tpd.

Okay. I mean, the way that I explain this is twofold because obviously in working with young dentists, their student loan debt weighs heavily on their mind in terms of something that they want to address. And so with respect to how that's defined, and this is very common, the word permanent, it's a permanent word. And in the scope of disability, a lot of disabilities themselves are not permanent. People do recover, people do get better. But the other thing to keep in mind is not all disabilities are total. And I've worked with a lot of dentists in the past who maybe have aches and pains that prevent them from seeing patients a full eight hours a day. And that's where it would be deemed a partial disability. And that's where that forgiveness may not come into play. So one of the things that we do talk to young dentists about who do have that student loan debt is making sure that we do ensure it using what the. We talked earlier about riders, and these are things that can be added to the policy, is that a lot of the disability insurance carriers have a student loan protection rider such that if they do become disabled, it will help to pay off those student loans. And some of the carriers even provide coverage in the event that that disability is a partial disability. So for those that do have federal student loans outstanding and may never refinance them, there's still value in protecting those loans through disability insurance, if that's of a concern to them.

Here's an interesting note on their website. Also, if you, if it is discharged, is it taxable? Because discharged debt associates, whether that's debt that's forgiven that you have in your practice, which right now in the COVID area, we have this loan called the PPP loan The Paychecks Protection Loan. And it was a loan given to businesses to help them get through the COVID area era when their offices are shut down. And it's designed to pay paychecks for their staff to keep people on payroll that enhance the Paychecks Protection Loan program. But the IRS has come out and said if you apply for forgiveness and receive it, which virtually all of our dentists are going to receive forgiveness on the PPP loan, they often got it for 100,000, 150,000. The IRS basically said it's taxable in an inverse way, which I won't get into, but it's basically taxable income. And other debts if they're forgiven are the IRS says, hey, you no longer have to pay back that money to the bank. We're going to call that income and we're going to tax you on it. They want to get their sticky paws and everything they can. Well, normally they've done that on student loans that are discharged for disability. If that discharge occurred before January 1, 2018, if it occurs between January 1, 2018.

And before December 31, 2025, the discharged loan amount won't be considered income for federal tax purposes. So we'll have to see what happens after that. But it looks like it floats around depending on what the, maybe who's running Congress and who's in the White House and what, you know, what their, what their goals are with the student loan programs. But interesting little, little comment there. Okay, let's, let's go into when you buy a practice and you now have a large debt associated with that practice and you can't get out of that debt easily and that debt, you're the loan on that business. Let's say you took out a million dollar loan to buy a $1.5 million practice. But let's say you become disabled and you can no longer run the practice, and let's go to an extreme scenario, that practice goes under, you can't sell it, it just goes away. Well, guess what, you still owe the bank a million dollars. The bank's not going to say, okay, you're going through a hard life circumstance, we're going to be nice and forgive the loan. That's not the case. You also have, when you become disabled and you're disabled temporarily for maybe six months or 12 months, that can be a significant threat to the livelihood of your practice because you are the main producer for that practice. Do you lose? Is there a possibility of losing your practice during that temporary disability? So there's other needs or other expenses that need to be satisfied via a disability policy besides your personal budget. Brian, let's talk about those specifically. Let's talk about business loan protection disability and overhead protection disability. We've already spoken about individual disability, but let's talk about these two business ones. Tell me a little bit about those and what you recommend dentists do with these types of policies.

So, Wes, to your point, I think you bring up a good example of somebody who's buying into a practice and is taking on a large amount of debt. And that's a very common scenario that we come across. And really what we want to do is not just make sure that should something happen to the dentist who's the borrower, but we also want to protect the lender. And as weird as that sounds, that lender wants to make a good will faith offer knowing that the expectation would be that they get paid back. But certainly representing the dentist themselves, the product that we generally use when it comes to disability insurance to protect that business loan is a loan protection product. And the idea behind that is that if that dentist is unable to work, the insurance policy takes over paying the loan, pure and simple. So if they still owe, let's say to your example, they borrow that million dollars in one year, later, they're unable to do dentistry. The bank still wants to get repaid. But if they're not seeing patients, that's going to be a challenge to come up with the money every month to pay off that loan. And I think a lot of dentists at that point think, gosh, I should sell my practice. And the reality is that if they sell that practice, what they'll then have to do with the proceeds from the sale is they'll have to turn that around and pay off the bank loan, which doesn't put them in any position better than they were before because they don't have. They haven't grown it enough to achieve that financial independence that you talked about. I mean, I work with a lot of dentists and if you talk to almost all of them, they buy a practice with the hope that they can grow it and sell it one day down the road really, as a part of their retirement plan. And that retirement plan is compromised if they become disabled and have to sell the practice and then turn around and pay off the bank. So what we recommend is getting a business loan product that takes over paying off the loan for them so that when they do sell the practice, they can keep everything without having to pay back the bank.

Question on that, though, is as you pay off the loan, the balance goes down. So let's say you're six years into this thing, six, seven years, the balance is half of what it was. Now dentists, if you associates, if you've watched our associates on Fire videos, we explain the nature of these loan payments and what's called an amortization schedule. How every, every loan payment you have a certain amount go to interest and a certain amount go to pay down the principal. The interest is tax deductible, the principal isn't. And the banks want to get paid first. So the payment that has the highest amount of interest you'll ever pay is usually that very first payment. Unless they have some sort of ramp up feature in their amortization schedule. By and large that first payment you pay the most interest, the second payment, the second highest amount of interest, and then it starts to switch like a teeter totter, slowly going the other direction over time. Near the end of, let's say it's a 10 year loan, most of your payment is going toward principal at that point and just very, very little is going toward interest. So it's usually going to be somewhere around year seven or so, six or seven when you get to maybe paying down half of the loan balance on a 10 year loan because of the nature of the amortization schedule. Now some of that, it was just for education, a little bit beside the point. But let's, let's look at that example where you're seven years into this thing, you got half your loan left, but you're still paying on a premium for a disability policy. Actually, you know, this more relates to life. Do you mind if I just pivot for a second in my example to life insurance, a lot of banks will require you to have life insurance to cover that loan. And let's say you took out a million dollar life insurance and now you're six, seven years into it and you only owe 500,000 but your life insurance face amount is still a million dollars. What happens to that extra amount? And can you have a policy that becomes almost cheaper and reduces the face value over time for the life? And the second question goes back to the disability, which is, does that disability policy that protects the loan end at the point in time when the loan is paid off? Let's start off with that life question.

So I think the question was in a world where you paid off half the loan, and let's say you do pass away prematurely after seven years, and the bank at time of the loan when it was first established required that you get a million Dollars, because again, they want to make sure that if something were to happen to you, they get their money back. So there's not the equivalent of what would be called a reducing benefit amount on the life insurance. But what does happen is let's say that you do buy that million dollar policy for life insurance. And I'll just say right out of the gates, life insurance is quite a bit, it's much cheaper than disability insurance. And that goes back to some of your opening remarks with respect to just the odds of using it during that period of time. So in the event that there is a premature death, let's say at year seven, what will happen is the bank will take what is owed to them. So if you're halfway paid off that loan, the bank would take the $500,000 and then the balance, the remaining $500,000 that the bank isn't entitled to would then be paid to your beneficiaries.

Got it. Now, is the bank the beneficiary on this loan protection disability and also on the life insurance designed to protect the loan?

It depends somewhat on the insurance company, but for the most part, I'll answer generically. Most people buy a personal life insurance policy that has, let's say it's a 10 year loan. So they'll buy a 10 year term life insurance policy and what they'll do after they take ownership of that policy is they will sign a form that's called a collateral assignment form and it's just collateral to the bank that says to the bank, hey, you have access to the money that's owed to you. So they generally don't make the bank the owner of the policy. And the same is also true of the disability insurance. And one of the reasons behind that is that people do refinance their loans and if they set the policies up with the bank as the owner, it makes it really tricky to change that up if they do decide to refinance their loan down the road.

Good point. You don't want bank A, your old bank, getting your claim claims on a disability policy and bank B, your new bank, who refinanced you out of bank A, is then going to come after you personally for that. So that makes, that makes a lot of sense. And then the part two question was, what happens after the loan is paid off with your loan protection disability? Imagine you can just stop paying it, right?

Correct. Yeah. It's interesting. When I work with a lot of clients who get the business loan coverage, I tell them, and same is true of student loans. I say include Me on the short list of people that you celebrate with that you paid off this debt, whether it's a student loan or a business loan. Because what we can do is we can take the policy away and subsequently you'll get the savings. If for example, it's a 10 year loan and you 10 years down the road they made that last loan payment, what will happen is the policy itself will actually go away and subsequent in savings.

It's designed to be a 10 year disability policy which reduces the premium because it's only for 10 years from age, say 35 to 45. Insurance companies will say the chance of this person becoming disabled before age 45, pretty slim. And so it's a less expensive policy than one that would go out until age 67. Like a personal disability policy.

Got it. And then on the life insurance, tell us about that concept of a reducing, what is it called? A business reducing term policy. And how does that work? Do you recommend it?

Well, it doesn't. It used to exist more prevalently in the life insurance industry. So we don't see it like we do on the disability side. So with life insurance you generally buy a fixed term policy that matches the term of the loan. So whether it's a 10 year loan or a 15 year loan, a lot of time, that's how you structure the policy. Whereas on the disability insurance, the policies themselves, the business reducing term, or some companies call it business loan repayment, the idea behind the policy is that the it matches the terms of the loan. So it's designed to cover the loan for the specified period of time. One of the questions I do get asked is does the policy then get cheaper the longer you have it? And the reality is that it doesn't. And only in the sense that the policy itself is priced. It's a fixed price over that 10 or 15 year period of time, but it's designed to reflect the reduction in the obligation that the policy could pay out as the person pays off the loan. So that's reflected in the price, just naturally.

Got it. Talk to us about business overhead expense policy, which is different than business loan protection policies. And by the way everybody, sometimes these aren't optional. The banks often require them for you to receive the loan and they will need those to be in place sometimes if they're generous, almost be in place at the time of closing on the, on the loan. So it's really important that you start that early in the process of your, after you sign the letter of intent that you get the application in. Because we don't want the insurance policy placement be what's holding up closing on on that practice. Some banks will require business loan protection, but they don't require a life policy. Some banks require both. Some require it when the loan is above a certain amount. So you'll just have to work with, work with the bank or if you're with practice cfo, work with your CFO advisor to understand what those policies are. And then you can work with your insurance person or somebody like Brian Lee to help get those, get those in place. So tell us a little bit though, about this second policy, the business loan protection policy.

Do you mean business overhead expense?

Sorry, yes, business overhead expense. Thank you.

No worries. So business overhead expense policies are designed by and large to help cover the expenses associated with running a practice if the underlying dentist becomes disabled. So whether that's covering the salaries and wages of the hygienist or the assistant, or if they've got front office staff all the way to covering things like the utilities or the rent, it's designed to help protect the expenses associated with running the practice. And the reality is that running a dental practice in and of itself is a very expensive proposition. Expenses can run high, and that's where this policy is critical. You know, I heard a statistic a couple of years ago that if a dentist becomes disabled and does not have business overhead expense coverage, the value of the practice drops in half within two months of that dentist becoming disabled because there's no mechanism to meet those expenses. And so that's where this product is so critical. And as an occupation, you know, business overhead expense policies are relevant for anyone who owns a business. But the reality is that dentists are without a doubt the number one purchasers of these policies as an occupation, as well as the number one occupation to go on claim with business over expense policies. And I think, you know, one of the things that's the highlight of these plans is that you do get to pay for these prac. These policies, excuse me, using the practice dollars. And you do get to deduct it is a business expense.

So in all insurance policies, there's this disability policies, there's this thing called elimination period, which is the period of time from which your claim is approved to the time that you are actually receiving the disability income. It's called the elimination period. And with a standard individual policy, we're usually going to look at about three months, maybe six months. But I think three months is the most common period of time. And in a business overhead expense disability policy and even a loan protection disability policy it's usually going to be the loan protection disability policy. I don't know, Brian, maybe one month or three months, the business overhead expense policy, that one. Usually you don't want to do more than 30 days, maybe 60 days, because your expenses can be pretty large to run a dental practice. And if you want to keep your people, you want to keep your lease, you want to keep your equipment that you have loans on, if you want to keep all of this stuff in place, then you're going to need that money pretty quickly to pay for all of that. And if you have the only time, I'll say it's okay to go out to 60 days on that policy or in a personal policy to go out maybe six months, because both, the longer you go out on the elimination period, the lower the premiums for sure. But is if you have stashed away enough in an emergency reserve in your purse, in a, let's say a savings account in your business or savings account personally that you know, you could easily get through that elimination period without, without too much trouble. And so a lot of our clients, you know, that's one of the things we do in our ladder of building our financial planning and our security is we make sure we have adequate reserves, both in the practice, which I usually define as one month total outflow. And then on the personal side, which, depending on your budget, usually ends up being somewhere between 40,000 and 100,000, depending on where you live and your expenses and things like that.

And so the overhead expense policy, I'm usually recommending somewhere around 15,000, up to 30 to 40,000, depending on the size of the practice. Now, none of these policies are, with disability are cheap. Disability just isn't a cheap thing because you have an insurance company who's possibly going to pay you 10,000, $15,000 a month for 25 years. They're bearing a lot of risk. And to the extent that they're bearing risk to that same extent, are they going to charge a higher premium. Life insurance, it's like a commodity and the probabilities of using it are pretty darn low. So life insurance is, is really cheap. I think I took out my first million dollar policy back when I was 30 years old, and it cost me like 33 bucks a month for $1 million policy. Then a few years later I took it out another policy and I think it was costing me 38 bucks. And then I have 3 million total. I took some more out a little bit later and it cost me like 42 bucks a month. So I basically covered at $3 million for somewhere around $100 a month. It's really inexpensive life insurance. But disability, because the odds are a lot higher, and the amount of out of pocket could be so significant that it's a little bit higher. So, Brian, tell us, what are these ranges of costs that dentists are having to pay as dentists? Because every industry has different level of risk associated with the frequency of disability that's being paid out on by these insurance companies. What are the ranges of premiums for both an individual in overhead and a business loan protection policy?

So I think the easiest way to answer that question, let's start with the individual, is that it's all relative. Obviously, there's a lot of different factors that go into how these policies are priced. We talked earlier, for example, about riders, but certainly other aspects that can drive costs would be your age. And to your point, the younger you are, the cheaper it is. So I think, generally speaking, as an occupation, if someone were to ask me how much would it cost for me to get the most coverage that I can get individually on a robust policy, you know, kind of the generic answer is it's going to cost roughly somewhere between about 1% to 4% of what you earn. So if you use the example of somebody who's making $100,000, they could reasonably expect to spend anywhere from 1,000 to $4,000 to protect their income at a pretty substantial rate. If we're talking about maximizing their benefit overhead policies, you know, again, it's going to vary largely on how much they purchase. But I, you know, I always look at the premiums associated with overhead is really this critical product that can protect the value of the practice. So if you've got a practice that's worth a million dollars and you spend $5,000 or even $10,000 a year in premiums, that's half a percent to 1% to provide protection to an asset, which is very comparable for what people spend on maybe some other insurance products out there, whether it's car insurance or even health insurance, is obviously very expensive, but it's such an important product to protect that practice. And not to mention that it's deductible, it's a business expense on the overhead. Loan protection. That's a harder question to answer because that depends largely on how much the loan is for. But loan protection insurance, when you look at it, isn't as bad as most people. You know, a lot of people go into it thinking that disability insurance can be expensive, and certainly it can, but because the Loan protection coverage covers such a short period of time, whether it's 10 or 15 years, the premiums for that don't tend to be as bad as folks think.

Great. Yeah, just emphasizing that of those three, and you mentioned this, Brian, the business overhead expense policy that policies that is designed to pay your overhead expenses during a short term disability is, we do have our clients run that through the practice. We do take a deduction on the premiums paid for that. And the reason why is I don't mind if the income is taxable because we're going to get to use that income to pay for tax deductible expenses, which essentially washes out the taxability of that policy. But the individual policy and even the business loan protection disability policy, we don't want to take a deduction on those because I don't want you paying taxes on either of those, which includes that business loan protection because then you lose, let's say 30%, 35% of that in taxes and now you're super short on being able to pay that, that loan off. And keep in mind, when you pay debt, the debt portion of your, of your, of your loan payments is not a tax deduction. So we don't want that to be taxable, the claims proceeds on that business loan protection to be tax deductible. All right, now you mentioned in their own occupation, Brian, this is really important that policies come with own occupation or any occupation. And there's different variations of that. Maybe you can bottom line it, which is the one that's most important. What should they look out for in that, that specific language?

Bottom line is own occupation. And I think when it comes to disability insurance, I've probably seen anywhere between nine to ten different definitions of how an insurance company determines if one of their policyholders is disabled. And the most robust definition is called own occupation. And the idea behind that, certainly if you're a dentist, is that the filter through which the insurance company can evaluate you, they basically determine can you do dentistry? And if the answer to that question is no, and you can't do dentistry, then you are disabled and you are entitled to benefits. And the key with own occupation, separate from the fact that they're purely looking at you through the filter of a dentist, is that an own occupation definition of disability allows that disabled dentist to go choose to do another occupation if they want. And what's more is they can do that other occupation and still receive the benefits from their policy, which can be critical because to your point earlier, they've spent years training for this very precise occupation. And if they can't do that, they want to make sure that they're protected. But the own occupation definition of disability allows them to go do something else. And so one of the things I commonly see is an occupation that a disabled dentist engages in is they may go teach at a dental school. You know, they say those that can't teach. And I think the same very much holds true within dentistry. And so just in the course of my career in working with dentists, as they reflect back on their time in dental school, a lot of the teachers that they had were once dentists who became disabled and couldn't do dentistry, but they could teach it. And if they've got a known occupation definition of disability, not only can they earn money teaching it, but they can also receive benefits from their disability policy. So that's why that definition is so critical.

What I've seen people pivot to do and what the disability insurance has created, the ability to do this is they can, they can go into education, some have gone into the business management site of dentistry. There's somebody here in San Diego became disabled and now he's overseeing about nine or 10 dental practices through more of a centralized administrative platform of businesses, that is. But dso, basically they could. I've seen some people go work for an equipment company. I've seen some work for practice management consulting firms as well. But a lot of times, at least in the early years of that pivot, they're not making nearly as much as they were as a high producing dentist. So the disability insurance covers that, spread that difference and, and gives them so much more breathing room to go through that kind of recreation of what their life is.

Tell me about, let's see, tell me about some of the mistakes that you've seen dentists making as it relates to disability insurance. And do you have any stories where disability insurance really came into play for a dentist?

I'll start with the mistakes that I've seen in a lot, I mean, in this is. There's a lot to take on. Certainly if you're, if you're navigating through dental school and then into practice ownership, I think a lot of it comes down in my advice is when it comes to having that interaction with somebody who professes to be a disability insurance expert, make sure that you're understanding that you do work with that broker, that that person is showing you more than one option. And if they start to push too heavily on one insurance company over another, I might have, you know, some of the mistakes I see is that the dentist, you know, may not raise their flags to why that's happening. And certainly that's where we can help navigate some of those waters. So I think some of the mistakes are just not understanding that they're working with an agent even, you know, versus that broker that can be truly independent. Other things that I see, I see a lot of young dentists get that policy in dental school, and maybe they put that policy on the shelf, and maybe they only got that $5,000 per month. But years down the road, they've, you know, their income has grown, maybe they've gotten married, they've had children, and all of a sudden their exp are higher and they've not adequately made changes to their policy to better protect their income around their changing circumstances. So that's. I would encourage, you know, think of your disability coverage as fluid that should move as you move throughout life. So if your expenses and income goes up, get more. And I can speak firsthand and say that, you know, I'm married with children, and when my youngest is out of the house, the dependence on our income as a household will go down. And therefore, the need for me to have as much disability insurance as I do today is also going to go down. And so that's where you can make changes. So I think it's important to maintain a relationship with the advisor that you work with or the broker that you work with to make sure that you're constantly checking. And I don't mean, you know, multiple times a year, but maybe once a year, just check in and how about, you know, are we good? Are we. Do we have enough? Do we have too much? And as odd as it sounds, there are certainly conversations I have with folks that are on the tail end of the career. I had one this morning where I told the individual, you have more insurance than you need, and we can scale that down and take some savings. Other mistakes I see, Wes, are going back to that definition of disability. Not every insurance company uses an own occupation definition of disability. So I would advise people to be cognizant of that. And then last maybe the mistake that I see is a lot of people will look to an association for coverage. And I think a common one we see is the ada. The American Dental association does offer disability insurance. And I will say that from a pure contractual and language perspective, I guard against that. I'm sensitive to some of the language that they use in their policy because I've run into circumstances where somebody had coverage under that policy, thought they were protected, only to find out that there was language within the policy that precluded the individual from collecting. And those are devastating stories where they think they've got coverage and they don't because of a word or a series of words the insurance policy uses to avoid payment.

I've personally seen that where.

Somebody thought they had insurance through the ada. And we'll just say that the association and groups can make it difficult to pay out the claim because it's so inexpensive. It only works for them if they don't have to pay out many claims because their premiums that they're receiving are pretty low. And it goes back to that function of transferring risk and what they're willing to pay for or, you know, what they charge you for for that. And they've been able to statistically quantify their risk and kind of reduce their risk by making it rather difficult to get paid out on, on those risks. Group policies. That's why an individual policy, in my personal experience, has been so much easier to take out the claim because you've been sort of paying for that at a, at a, at a market rate or at, you know, a little bit more than an association policy. And the contractual language is just more, it's just stronger. It's stronger. It protects you better than the language in an association or group policy.

Brian, thank you so much for being on the podcast. I. The more I get into, the longer down the road, I'll say that I've been working with dentists, the more I have believed that disability insurance policies need to be just a part of the budget, they need to be a part of the financial program. Just like having, you know, just like having equipment in your office to take care of your patients and you pay, you know, a loan payment on that equipment. I think disability insurance to protect the practice, to protect you personally, to protect any individuals in your life who are dependent on your income. Also, the right type of life insurance, I think are just an absolute must in these, in the financial plan for a dentist. Any parting words for dentists related to insurance that you think might be helpful for early stage dentists as they're approaching practice ownership?

I think to your point, I mean, this is a product that is as weird as it sounds, nobody in the equation ever wants to see get used. I mean, we're talking about a product that would replace an income in the event of a disability. And obviously nobody wants to see any individual become disabled. But just having worked with as many dentists as I have over the years, it is a product that can provide absolute benefits. Peace of mind in the event that somebody's unable to work, because in that reality, if they're disabled, they can focus on things other than how they're going to replace their income or how they're going to meet the expenses associated with their loan or covering the expenses associated with running the practice. And so it is a must product for a dentist. Again, the role that the motor skills and cognitive skills play combined puts dentists in this unique position, you know, finding the need to come up with income should they become disabled.

Brian, thank you very much for being on the podcast. As we, as we, as we go down the road here. Love to have you on another time. We could get into maybe some of the nuanced language in these contracts, even educate our associates more on these policies. We covered a lot of great terms today, a lot of sort of the basic block and tackle of life and disability, particularly disability insurance. And we really appreciate you being on the show.

Wes, thanks so much for having me. I really appreciate it.