Cancel my practice overhead insurance?

[Dr Crusher]

Hello WCI community. I'm thinking of cancelling my practice overhead insurance and I want a sanity check.

My background finacial info: I am a family doc new in practice. My overall financial situation is good, with non-mortgage debt sitting at $40k (2.85%, interest only currently) and about $45K currently invested (ETF portfolio). I owe $480K (2.4%, 5 yr fixed, 25 yr amortization) on a home valued at approx $650K. This is my first year out (therefore figures are very ballpark) but it look like I am billing 20-27.5K monthly, of which $5K goes to professional expenses, leaving $15K+, after putting money aside for taxes. From this amount about 7K goes to our household budget and the remainder (always at least $3K) to retirement savings. My spouse brings in 5K/month after taxes. We're having some lifestyle inflation post-residency (new house, some new clothes, might even replace a 13 yo vehicle). It's great and I'm gonna roll with it as long as our savings rate can stay >30%.

My practice info: I signed on with a group of doctors at a clinic where we have a cost sharing agreement. I pay percentage of our total office expenses that is re-negotiated annually or more frequently if the number of doctors in our group changes. This amount is currently $3500 monthly. My contract states that if I were to leave (which I certainly don't plan to do) I would need to give notice of 4 months, and in case of disability or prolonged absence I would be responsible for my share of expenses for up to 12 months. There is a risk of my share increasing over time due to staff raises or if anyone leaves our group.

I am currently paying $27.55 monthly for practice overhead insurance that would provide up to $5000 per month of coverage.

My thinking is that I am better off self-insuring for this risk that could run me at the highest end $42K. I could maintain an emergency fund of 4-6 months office expenses in a HISA, and use the $27.55 a month saved to increase my disability insurance (I am currently under-insured with $5K/month coverage). For the subsequent months not covered by the EF I would be drawing down from other savings.

So I'm good to cancel this, right?

Please feel free to use this thread to discuss your own situations or thoughts on when practice overhead insurance does or does not make sense.

[Hatton]

I kept this kind of insurance for years.  It is cheap!  I was in solo practice so the overhead was totally my responsibility.  I never used disability insurance but I have used practice overhead insurance.  A tornado knocked out the electricity in my area for about a week. My office was not hit but I could not see patients.  I filed a claim and was partially reimbursed.  I no longer carry the insurance because I will retire soon.  At your age $27 per month is peanuts.

[kayli69]

For the small amount of money this is costing you I would never consider cancelling this.  My partner was age 40 when he developed sudden chest pain and needed an emergency CABG.  He was out for 8 months and this insurance saved him a ton of money.  Why are you worrying about this when it only costs you $27.55/month??  It really seems "penny wise, pound foolish"

[jfoxcpacfp]

Sanity check - don't cancel. Life is too unpredictable. Work a couple of extra hours and you've got the whole year paid for.

[Dr Crusher]

Wow. I guess I'm glad I asked!

To answer why I was looking at this, every year I go through my fixed expenses to make sure I'm not wasting money everywhere (eg. last year I cancelled comprehensive for the aforementioned 14 year old vehicle which we are planning to replace.) I was thinking the money would be better used to boost my disability insurance, since that is generally what I've heard is more important. I hadn't considered other causes of lost income eg. natural disaster, etc.

And don't worry guys, I'll still increase the disability insurance.

Thanks for all your comments.

[Scott at MD Financial Services]

You should check into your policy since if you only would be responsible for $3,500 and you have a $5k policy most of the BOE (business overhead expense) policies ONLY reimburse what you spend....if you spend $3,500 you get $3,500.  If that is the case with yours and you only have a 12 month exposure of $3,500 then you should ask your carrier to bring your benefit down to $3,500, that should cause your premium to drop by $4-6.

[VagabondMD]

Insane! Don't cancel.