Professional Insurance: Life, Disability and Critical Illness Insurance for Doctors in Canada

As a doctor or physician, you are automatically self-employed and need to look after all your own affairs. Doctors in Canada have access to some insurance coverage through the Alberta Medical Association (AMA plan). Like all group insurance plans, the Alberta Medical Association coverage is limited. The group Alberta Medical Association policy has rising premiums as you age, lack or features and benefits that could be included into a personal insurance plan, and no permanent life insurance options.

This article will help you look at options for personally owning your insurance policies, and using your professional corporation to structure your insurance in the most tax efficient manner.

Life Insurance for Doctors

As a physician, you have a lot to protect. You probably have an above average income, could have large business debts or loans for setting up a practice, a mortgage, and probably a family to support. Your income from the business is luckily very stable, as the Government of Alberta is a guaranteed payor of your medical invoices, and there is no lack of patients to treat.

If you were to die prematurely, your family and possibly business partners would be left holding a very large debt load and/or loss of a great future income potential (future income potential provides ongoing lifestyle and financial planning options). For the early years of a doctor’s career a large amount of term life insurance is a definite must. This term insurance can be laddered, or structured to have different term lengths. As one term comes due, instead of renewing it you can just drop it away, as certain loans, obligations and other financial risks have decreased over time. For example, the loan to set up your practice is planned to be repaid in 10 years, so you only need a 10 year Term policy to cover this debt. Your children will be grown and financially independent in 20 years, so protection for them can be put on a 20 year Term insurance policy.

Permanent insurance, like universal life insurance or whole life insurance, is also very important. As a high income earner, you will probably amass a large estate throughout your life. Your heirs – children and grandchildren, will probably be left with a hefty Capital Gains Tax to be paid to the Canadian Revenue Agency. A permanent life insurance policy is your most cost effective option to protect your estate from tax erosion and to create a greater legacy for the next generation.

Permanent life insurance, especially Universal Life Insurance, can also be used as an investment vehicle for your professional corporation to shelter taxable retained earnings into a tax sheltered insured investment policy. Most commonly used would be either a Corporate Insured Retirement Plan or a Corporate Insured Annuity to not only create tax efficient cash flows for your business but provide life insurance and excess tax credits for your estate.

Disability Insurance for Doctors

Doctors are self employed. You have no group insurance plan provided by an employer. Even if you did have a group insurance policy (like the AMA plan you can opt-in for), your disability insurance definition of “Regular” occupation would only be covered for 24 months and then you could be reassessed as “Any” occupation. After you have put in 10 to 15 years of study and specialization, would you want an insurance company telling you to re-enter the workforce as a computer technician, for instance? No! If you can’t perform your job as a doctor you probably don’t want to be forced to do anything else. You need proper disability insurance coverage right through to age 65.

Doctors are also a specialized professional who are able to upgrade their occupational definition from “Regular” occupation to “Own” occupation. The definition is subtle but powerful. Defined as Regular occupation:

• you are totally disabled from doing your career as a doctor
• under a physician’s care
•  and NOT gainfully employed in any other type of job.

If you are classified as “Own” occupation, the last definition point is dropped, allowing you to re-enter the workforce, if YOU choose, in any unrelated field. If you are bored sitting home and you, for instance, become a teacher or professor, you can do it and not lose one dollar of your disability income. There is a famous disability insurance story of a surgeon who lost a hand with this type of coverage. He could never be a surgeon again but re-entered the workforce as a stock-broker. His disability payments never stopped; even when he was earning more money selling stocks and bonds than he had ever made as a surgeon.

Finally there is Business Overhead Expense disability insurance for doctors. This excellent coverage gives you 15 to 24 months of coverage for you office expenses if you became disabled. You rent, utilities, administrative costs, wages, and even the cost of hiring a locum (if you can find one) to replace you in the practice would all be covered. If you still can’t return to work in 24 months, you probably have had enough time to think about selling the practice or winding it down, as your disability might be permanent. The best news is this type of disability insurance is TAX DEDUCTIBLE to you professional corporation. An additional layer of disability insurance protection which is cost effective and tax efficient. Can’t ask for better insurance.

Critical Illness Insurance for Doctors

Finally, the last type of insurance you can consider is Critical Illness Insurance. As a doctor, you see the affects of disease every day. Cancer, heart attack, by-pass surgery, stroke, MS, Parkinson’s, Motor Neuron Disease and many more conditions can not only leave your patients in a critical health situation, they can often devastate their finances.

As a physician, you have a high income to protect, debts like mortgages and business loans to pay, and a family who relies on you for your income and lifestyle. If your situation changed dramatically and over-night due to the diagnosis of a critical illness would you benefit from $100,000, $250.000 or $500,000 of tax free money paid out of a critical illness insurance policy, 30 days after diagnosis? Most people would.

If you are in good health today (and many doctors are as they know the risk factors and long-term effects of unhealthy living) and don’t smoke you can easily afford critical illness protection. Coverage to pay off or pay down major debts would allow your disability insurance cash flow to go much further than if you were still saddled with those debts.

Critical Illness Insurance for doctors is a very wise investment in your finances – because everyone’s health is often a gamble. You could even structure the critical illness insurance plan to have Return of Premium on Surrender, allowing you to get your entire premium back if you live a healthy life and never get a critical illness. Think of it this way – critical illness insurance is to protect your finances from a major health risk, while return of premium ensures you never waste your money.

Summary

As a doctor in Canada, you need to make sure your risks are all covered. If you had to prioritize risk, life insurance is always the most important because death is an end-game scenario. With disability and critical illness, there is a good possibility of recovery, allowing you to get back into the game and recoup what you have lost due to the illness or injury. I would classify disability insurance as a higher priority than buying permanent life insurance, as you are still exposed to a lot of risk without disability insurance, while permanent life insurance is more of an investment plan.

Cover your risks first – lots of term life insurance, probably laddered for different lengths of time. Maximize your disability insurance and get as much Business Overhead Expense disability insurance as you can qualify for. Finally get Critical Illness Insurance as a cash-flow top up for the first 2 years if you suffered a life altering illness or injury. If you do all these things, you will be well insured from what every risks life can throw at you.

At Life Guard Insurance, we can help you design this comprehensive risk management plan, and make sure it is structure properly with you personally or your professional corporation owning the correct policies. Contact us to find out more how Life Guard Insurance can help doctors in Canada protect themselves.

Related posts:

1. BMO Insurance Term 20 Critical Illness Insurance is Best In Class
2. 10 Reasons To Buy Disability Insurance

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