In the old days, you would purchase your first life insurance policy soon after your first child is born. That policy would sit, collecting dust until it is found at claim time only to realize that, while significant at time of purchase, it is not an accurate reflection of the changing value of the dollar.
The insurance industry has responded to the dynamic changes of the professional market by developing and refining products to address specific needs. Your advisory team should have a keen understanding of the issues near and dear to you and be able to match the right products to the specific stages of your career, lifestyle, retirement and legacy to the next generation.
What is inevitable is that over time people change, incomes change, priorities change and clients shift from building wealth to spending and protecting that wealth. As such, this Protect Lifecycle Guide not only informs you what your insurance portfolio should look like now but how to manage expectations for the future.
Phase I – Recent GradThis is largely a project in “getting started”. The biggest challenge in this increasingly difficult underwriting environment is to ensure that, while the new professional’s current income is not a reflection of future earning potential, long term insurability is protected. To do so, the focus should be on maximizing your ability to secure insurance in the future, without any medical evidence, as your income increases. No matter what may happen to your health, you are assured that you can protect your earning power throughout your career.
On a timely note, the market is currently changing and down-grading the risk category amongst general practice dentists. In order to strategically maximize this phase, it is vital that you speak to your advisor about the implementation of any new coverage before the summer of 2013.
Phase II – Purchasing/Opening a PracticeIn addition to Phase I, you will need to add a few more blocks to the set. Purchasing/Opening a practice is commonly met with large financing obligations. Not only will the lender expect an insurance policy that matches the debt but they will also make it a requirement. This relatively small premium expense, less than $1,000 per year, can get in the way of closing the deal on a Million Dollar practice. Our advice, start the process as early as possible. Sometimes underwriting can take months often for benign, insignificant medical issues. Do not make insurance the deal killer.
In addition, you will want to include a Business Overhead Expense policy. In the event of disability, your portion of the eligible operating expenses will be covered. This protection is designed to give you time to either maintain the business at full, fair market value while you rehabilitate or prepare for sale.
If there is a business partner, there will be a shareholders’ agreement. This lays out, for the purposes of insurance, what happens in the event of death, disability and retirement. Your advisor will match products, volumes and durations to the various expectations laid out in the agreement. Beware of clauses that are unrealistic to be satisfied with insurance products. Your advisor should be well versed on the subject and can assist your lawyer in making appropriate modifications.
Phase III – Raising a FamilyThis is largely about managing life’s detours. At this stage you earn, pay bills, fund lifestyles, put your kids through school and fund retirement. Even if your income stops due to pre-mature death or disability, financial obligations still continue.
The objective at this phase of the lifecycle is to replace lost future earnings. We do this through regular reviews of income, maximization of disability insurance coverage and we use combinations of term and permanent life insurance to ensure ample capital reserves are available to ensure financial objectives of your family are achieved.
Phase IV – The Road to RetirementWe now move out of traditional risk and needs based products and move to what we call “efficiencies”. By definition, you don’t “need” these products because your retirement is within reach due to Phase IIIplanning.
Insurance products can serve as a valuable retirement tool because of its tax free advantages. You can achieve long term double digit returns with the low volatility of a GIC (Guaranteed Investment Certificate).
Permanent insurance products can be funded with corporate retained earnings, grow tax free and most importantly create a tax free capital dividend for your corporation.
Professionals start these strategies in their mid to late 40’s to take advantage of low cost of insurance, favourable health status and the advantage of giving the strategy time to grow.
Phase V – The Next GenerationLeaving money to the kids, charity, etc., is often part of the plan but never implemented. Why? Because professionals underestimate the cost of retirement and minimal estate is ever left over. The best strategy is to lock down the legacy with an insurance policy so you can literally spend the rest and bounce the cheque to the mortician.
SummaryNeedless to say, the actual plan depends on your own personal circumstances. If there is any lesson to be learned here, it is that being aware of the lifecycle enables you to not only implement products in the early phases that can evolve into the requirements of the latter phases but that with the right forethought and planning, you can strategically avoid obstacles like health issues and significant pricing changes that can seriously block your family, business and retirement plans. PASimon Kay – www.protect-ins.comSimon Kay is a Life, Estate and Private Underwriting Specialist who has joined with Dr. Ian Wexler and Protect Insurance Agencies Inc. They are a leading authority on insurance issues for dentists and provide specialized expertise in life, disability, critical illness, long term care and other insurance products and services to over 900 dentists across Ontario for the past 17 years. They can be reached for questions or other enquiries at (416) 391-3764 or email@example.com.