Insurance Strategies for Dentists
Corporate Insured Retirement Plan
A Corporate Insured Retirement Plan (CIRP) is best-suited to dentists who can qualify for life insurance and want a way to access tax-advantaged cash in the future. Dentists can use their life insurance in various ways, including to fund a buy/sell agreement, as collateral for a loan, or to cover the costs associated with losing a key employee.
To set up a CIRP, a corporation must purchase an exempt life insurance policy. The policy covers the dentist, and the professional corporation itself is named the beneficiary. The corporation then deposits excess cash into the policy, creating cash value, which can be borrowed against during the dentist’s retirement years and repaid after the client’s death via the insurance payout.
Split Dollar Critical Illness Insurance Policy
With a split dollar critical insurance policy (sometimes referred to as a shared ownership agreement), more than one participant possesses an interest in a critical illness policy. For example, a dentist can pay premiums jointly for a critical illness policy with their corporation.
A split dollar critical insurance policy would benefit both a corporation and the dentist. If the dentist is diagnosed with a critical illness, then the corporation now has a financial cushion to tide it over while the dentist is receiving treatment. If the dentist does not develop a critical illness after a set period, the policy can be cancelled, with the dentist receiving all of the premiums back tax-free.
Immediate Financing Agreement
With an Immediate Financial Agreement (IFA), the corporation pays for a life insurance policy (with a cash surrender value) for a shareholder using lower-taxed corporate dollars. This insurance policy can then be used to obtain a loan (which will be lower than the policy’s overall value) that can then be invested back into the dental practice.
Additional benefits to an IFA include deducting loan interest charges and collateral insurance deductions associated with the insurance policy itself. You can also use an IFA to move assets tax-free from the corporation to the covered shareholder’s estate.