Do you have your fixed business costs covered?
The majority of medical professionals are aware of the importance of Income Protection (IP) and have the relevant policy in force, however; there is only a small portion that have their fixed business costs covered.
Business Expense Insurance (BEX) is a policy designed to replace up to 100% of eligible fixed business expenses such as rent, medical leasing equipment, interest on business loans, administration staff, medical professional fees etc.
The policy works similar to IP in that it provides a monthly benefit to cover ongoing costs, however with IP you are insuring up to 75% of your gross income and with BEX you are insuring up to 100% of eligible fixed costs. You are able to have both polices and in the event of a claim they do not offset each other.
BEX policies are generally a lot cheaper compared to IP policies but that is because the benefit period is shorter and there is generally less bells and whistles in the policy. The waiting periods are similar in that you can have 14, 30, 60 and sometimes 90 day waiting period options but with all BEX policies they will only pay for up to 12 months benefit for any one ongoing claim. This is opposed to IP policies where you can have up to “age 70” benefit periods. The theory behind only being covered for 12 months is due to the fact that from a practical sense after 12 months you would either be well enough to go back to work or you would sell/exit the business as an ongoing concern. Also, a lot of fixed business expenses are worked on a 12 month basis hence the policy is designed to cover them for this period.
If you are self-employed or in an arrangement where you are responsible for a percentage of fixed ongoing service fees, it is important to consider BEX so that in the event of a claim you are not using your IP benefit to try and cover your personal living needs in addition to ongoing business needs.
The majority of retail insurers offer BEX cover but not all of them meet our recommending from a product, definition and features perspective. One of the biggest issues with some BEX policies is that some insurers include a sneaky clause which offsets any ongoing profit to the monthly benefit. Hence, if you have a practice with other doctors and there is an ongoing profit, this profit can reduce your monthly benefit. These policies do not meet our recommended list and being a medical professional you also need a flexible policy that covers both total and partial disability along with specific wording relating to blood borne diseases.
BEX policies are tax deductible like IP but they should generally be paid and claimed by the operating business entity. From a structuring perspective BEX cannot be held or paid from a superannuation environment.
If you would like any further information or would like to arrange a quote please contact Hayden White and Poole Group Accountants & Investment Advisers on 07 5437 9900 or hwhite@poolegroup.com.au