Many veterinarians take for granted that being insured is part of being responsible. Health, life, disability, and professional overhead expense insurance all have their place as protection plans. But insurance, when used wisely, can do more than protect against catastrophe. Insurance can also play a vital role in a veterinarian's overall personal and professional financial planning.
Kevin Payne, a Kansas insurance agent and a Life Underwriters Training Council Fellow, has worked with the AVMA Group Health & Life Insurance Trust for more than five years. One of the first products he often discusses with his clients is the Health Savings Account. The HSA combines a high-deductible medical plan, which can lower a veterinarian's premium, and serves as a vehicle to defer income into an account, making funds available for a possible catastrophic event. Contributions to the account can be deducted from gross earnings for federal tax purposes, and interest on an HSA balance accumulates tax free, which can save the veterinarian even more money.
Funds in an HSA may be used for all qualified medical expenses, including medication, dentistry, and eye examinations. Unused funds can be rolled over from year to year. In effect, the HSA provides a tax-sheltered financial tool to save for future medical expenses. If the veterinarian does not use the funds, they may accumulate tax deferred well into retirement.
"Often, if you are coming from an old, traditional indemnity plan, the reduction in your premiums saves you enough to fund your HSA," Payne said. "If you remain healthy and continue to fund your HSA through the years, it is possible that in the future, the interest on the account could help take care of your medical expenses or fund the purchase of a long-term care policy."
Life insurance is typically the second topic Payne addresses when he meets with clients.
From a personal perspective, life insurance provides a married veterinarian with no children the opportunity to make sure their surviving spouse is not burdened with undue financial pressures. For veterinarians with children, life insurance can allow the surviving spouse to raise and educate their children while maintaining the family's standard of living. In this situation, Payne believes many veterinarians are underinsured. He recommends a life insurance policy in the amount of eight to 12 times more than the veterinarian's current income to secure the family's standard of living. He also said that, while many veterinarians assume the surviving spouse can sell the practice, it is important to remember that without the veterinarian, the practice is not as valuable. He said it could also take months for the surviving spouse to sell the practice. Meanwhile, life insurance proceeds can immediately provide for the family.
Life insurance can also be a critical element of a buy-sell practice agreement. Payne described the common scenario of a veterinarian preparing to sell the practice to a younger veterinarian. Often, the owner will hold a loan that the purchasing veterinarian pays off over time. The original owner will want to protect their interests by insuring the purchasing veterinarian, who will want to hold life insurance coverage on the owner. Should the original owner die before the sale is complete, the proceeds of the coverage would allow the purchasing veterinarian to complete the transaction. By completing the purchase, the veterinarian often buys out a surviving spouse who would have retained ownership of the practice but most likely would not have contributed to its operations.
Disability insurance is another plan of protection with personal and professional implications. During a veterinarian's working years, the statistical odds of suffering a disability are higher than the odds of dying. Payne pointed out one compelling reason why a graduating veterinarian should not hold off on purchasing disability insurance.
"You have one shot, at graduation, to get disability insurance with no underwriting," Payne said, meaning that pre-existing conditions will not preclude the graduate from obtaining this vital protection. At the same time, the graduate can obtain the future purchase option, an important benefit that allows veterinarians to increase coverage as their income increases, without underwriting, so long as they work full time and are not disabled.
Another feature of the AVMA GHILT plans is the potential lifetime of benefits. Outside of the Trust, the typical disability plan would stop paying benefits when the insured reaches age 65. With the AVMA GHLIT plan, if the covered disability occurs prior to age 50, benefits could be paid for the rest of the insured's life.
The personal benefits of disability insurance are obvious. Lost income can be replaced by disability benefits to help veterinarians maintain their standard of living. Professional overhead expense insurance is another form of insurance that comes into play during a disability. POE insurance helps cover the expenses a practice incurs while the veterinarian is unable to work as a result of a covered disability. If the veterinarian's disability is severe enough to end their career, POE insurance provides the safety net that could help the disabled veterinarian sell the practice or their share without undue financial pressure.
Payne advised veterinarians to discuss insurance when the practice agreements are being written.
"You can write certain 'triggers' into a buy-sell (practice) agreement," Payne said. "For example, if one veterinarian dies, the proceeds from life insurance held by the partners are designated for buying out the interests of the surviving spouse.
"An agreement might stipulate that, in case of a disabling illness or accident, a veterinarian will draw disability and the practice would draw the POE insurance benefits. Then, at a predetermined date, the partners would buy out the veterinarian who was unable to return to work."
"Nobody wants to be the bad guy," Payne added. "No one wants to tell a disabled partner they can't keep paying them. But having an agreement in place ahead of time establishes a framework for having these difficult discussions."
AVMA GHLIT agents will work with attorneys preparing corporation documents to help structure benefits that protect the practice and its individuals. Payne advised veterinarians who have not reviewed their insurance recently to talk with their agent.
"We have more choices—better choices—today," Payne said. "Our offerings have changed, and odds are the veterinarian's circumstances have changed, too."
"The Trust is becoming more and more proactive to members' needs," Payne said. If a veterinarian has not looked at their plan for a few years, there's a chance they are paying too much, he added.
The GHLIT insurance program is underwritten by New York Life Insurance Company (New York, NY 10010). For more information on the GHLIT plans—including exclusions, limitations, rates, eligibility, and renewal provisions—or to find a GHLIT agent, call the Trust office at (800) 621-6360.