By: Taylor Richardson, CRPS®, AIF, Financial Advisor
The ultimate goal with respect to insurance, is to reach the point where you can self-insure, meaning that eventually you want to have the resources necessary to cover any costs that an insurance policy would have been expected to pay, thereby eliminating the expense of monthly premiums. Building up that kind of financial cushion takes time. Until then, you need to be sure you have the right kind of insurance policy to avoid financial exposure.
Having adequate insurance coverage is especially important for dentists for a couple of reasons:
- On average, dentists are required to assume a significantly higher debt burden than other professionals.
- Dentists are at greater risk for injuries or health problems that could impact their ability to earn an income.
There’s a lot to cover so we’ll break this topic into two parts. In part 1, we’ll talk about personal insurance policies dentists should have, and in part 2, we’ll look at the kinds of business insurance dentists need.
Personal Insurance Needs for Young Dentists
As a young dentist starting out, you’re at your most vulnerable financially. You’re just starting to pay off sizeable student loans, if you haven’t bought a home already, you probably plan to in the near future, and you may have even purchased a practice. Your debt is probably around the highest level it will be throughout your career. At the same time, you haven’t had a chance to build up any savings or investments. Right now, your greatest asset is the ability to earn an income, and that’s what you need to protect. To do so, the two types of insurance you’ll need are disability and life.
Disability Insurance – Dentists are at Higher Risk
You already know that being a dentist is physically demanding. You’re performing manual tasks that require precision and can sometimes be repetitive, putting a strain on your wrists, hands, neck, and shoulders. Compared to other professionals, dentists have a higher risk for occupational-health related problems such as Musculoskeletal Disorders or MSDs, which includes conditions such as carpal tunnel syndrome or tendonitis. Aside from occupational hazards, something as minor as breaking your thumb could put you out of commission for months.
Whether it’s temporary or permanent, disability insurance will protect your income should you find yourself unable to work due to a disability. I recently did a deep dive about disability insurance that provides details about what constitutes adequate coverage and how to get the best value.
Life Insurance – Make Sure You Have Enough
Most people understand the general need for life insurance, so my advice – make sure you have enough. Everyone’s situation is different so your financial planner can help you decide what’s right for you. Here are a few guidelines that might help:
- Single with student loans – Get enough life insurance to pay off your loans so you avoid the possibility of putting your family on the hook.
- Married with kids – In addition to covering student loans, you want to be sure to provide for your family. A good rule of thumb is to insure for 8 years of income. If you’re just starting, base your income off the average associate – currently around $150K/year.
- Practice owner – Many lenders will require you to have life insurance to cover the cost of the practice. Even if they don’t, you should get the insurance anyway. Just like you wouldn’t want to saddle your loved ones with student loan debt, you wouldn’t want to leave behind a $1M loan for a practice you just purchased.
One last point about life insurance – be sure to update the policy as needed to cover lifestyle creep. If you purchased life insurance based on $150K annual income, and 10 years later you’re earning $300, discretionary consumption has probably risen to match. Be sure to review your policy periodically to make sure you don’t have a gap in coverage.
If you have questions about personal insurance products, schedule a call with our team at Engage Wealth Advisors. We’ll discuss ways you can protect your income and your loved ones.