A client once sighed at the thought of discussing insurances and advised that she viewed insurance as “one of life’s administrative weeds”!
True – There is nothing “exciting” about insurance. Whilst we get caught up in discussions about policy wordings, money and premiums, insurance is in fact about choice, dignity, preservation of lifestyle and peace of mind!
The consequences of a disability, extended illness or premature death that prevents you working could be devastating to the financial security of your family……and your financial plan. Building a risk protection plan in conjunction with your savings plan allows you to be confident that your family can continue to function while you recover. Your protection plan will provide cover that is necessary, be effective and at the best price possible.
A few challenging questions?
How long could your household survive without your income?
As a health professional your ability to earn an income is likely to be your most important asset. If you could not work for 3 months, 6 months, 12 months, 5 years – what impact would this have on you and your family’s lifestyle today and in the future? All the people I meet with insure their homes and their motor cars – yet the chance of your home burning to the ground is so very remote. The chance of being disabled due to an illness such as cancer or stroke is so much higher – 1 in 3!
How would you want to spend your time if you were diagnosed with a critical illness?
In your professional capacity, you will help patients deal with this scenario. Have you reflected on how you would deal with the scenario personally? Everyone is different in terms of how they want to deal with their changed circumstances but most want to spend time with loved ones.
A lump sum of money gives you the choice as to how you deal with your situation. It can remove financial uncertainty and stress so that you can focus on your recovery. You may choose to pay off debt, take time out to “smell the roses”, seek alternative treatments – the choice is yours.
Few of us expect to die prematurely – that happens to other people? Well ….
The fact is the chance of dying young is far less likely than suffering from a critical illness or a becoming disabled for a period of time. The impact of premature death however is huge on the people you love and provide for.
You need to consider how your family would manage in the event of your death? Would they be able to live the lifestyle they enjoy today?
How would your practice manage if one of the key people was suddenly unable to work in the business?
- Could remaining doctors manage the workload?
- Would they be able to buy out the shares of the remaining spouse – and if so where would the get the money, and how easily would they get the money?
- How would your patients react?
- How would the bank react?
- How would your customers react?
NZMA FS can help you to develop a risk mitigation plan for your business.
If a business owner suffers a severe disability or dies prematurely, the proceeds from a claim can provide you with the cash to repay all or a significant part of the debt.
For example, if as business, you have borrowed $1,000,000 to buy or build a new practice, and one of the business partners dies prematurely or becomes disabled, the remaining partners will be left with all the debt. Appropriate levels of insurance with the correct ownership structure protects the business, the business owners, and their families.
If a business partner dies or suffers serious disablement, insurance can provide the funds for the remaining business partners to buy the shares from their partner or their estate.
How will this work?
It is important that you have a buy/sell agreement in place that sets the rules as to what will happen if one of the partners is taken out. We would recommend that you get legal advice when setting up a buy/sell agreement.
Who owns the policies?
Generally, the business partners will own the policy on their partners life and vice versa. It may however be prudent to have an independent trustee own the policies to ensure that the buy/sell agreement is honoured at the time the claim is paid.
Who are the key people in your business?
How do you value their contribution to the business?
If they could no longer work in the business, what would be the impact on your cash flow?
We can assist you in determining what revenue a key person brings into the business and what other costs would be associated with the loss of that key person – it may be recruitment costs – it may be the time it takes to get a new person up and running. An injection of cash at this time can cover these costs and reassure customers and creditors.