DENTAL PROTECTION PLAN
Own Your Own Protection Plan
Give Proper Care To Patients While Building A Successful Warranty Program
In today’s ever changing environment, it’s important for any successful business to develop a competitive advantage in the marketplace and mitigate the risks that come along with day to day practice operations. The dental industry is no different. Over the years, increasing overhead costs and reduction of health benefits has eroded profits. Customers are also looking for added benefits when choosing a dental practice and, with the amount of competition in the marketplace, customer retention is becoming increasingly difficult. The Dental Protection Plan (DPP) was created with these things in mind.
Protect Your Patient’s Dental Investment While Increasing Customer Loyalty.
What is Dental Protection?
The DPP is a limited warranty program, modeled after those used in other industries, and applied to specific dental products. There are several warranty programs currently being utilized by dental practices today, however, these programs tend be costly and time consuming for a practice to implement effectively.
The DPP is a Turnkey program that minimizes practice disruption because the framework is already in place with a defined warranty, comprehensive agreements, and a trained administration staff to handle the DPP implementation and claims that may arise. The dentist is also given the ability to choose the length of the warranty and how the warranty costs will be administered. Essentially, you’re replacing 3rd party options with your own, and streamlining the process for your patients.
SLDG (Dental Office) was established in 2007, and is located in the state of Nevada just outside of Reno. The company operates a medium sized dental practice specializing in general family dentistry with three practicing dentists.
- SLDG has been a highly profitable company, looking to expand in the next few years, but is concerned about the recent erosion of their market share due to an increase of competition in the area.
- Customer loyalty has also declined over recent years due to a reduction of healthcare benefits and to “low price” competitors.
- SLDG is the top rated and most trusted dental practice in their area and has maintained their market share for this reason.
- SLDG is currently working on implementing a warranty program in order to differentiate the services they offer.
- The directors lack the resources to seamlessly integrate this program in a timely manner without affecting day to day operations.
- The directors are unaware of claim rates that will rise once the warranty program is implemented.
- SLDG contacted outside firms to implement a warranty plan, however, the exorbitant prices and restrictive stipulations in the warranty deterred the directors from moving forward until they were referred to SRA.
Find out how the Dental Protection Plan helped SLDG streamline their warranty program while providing superior protection for their patients.
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Stop marketing products at the benefit of 3rd party insurance companies and take control of your own warranty program.
Reinsurance is insurance for insurance companies. It is the transfer of part of the hazards, or risks, that a direct writer assumes, by way of an insurance contract or legal provision on behalf of an insured, to an additional insurance company, the reinsurer, that has no direct contractual relationship with the insured.
A direct writer is an insurance company that initially underwrites the risk, and then, may transfer the insurance it has written to another insurance company or reinsurance company.
An operating company would be known as the insured. The operating company transfers its risk to the direct writer for a premium. This process is the same as the operating company transferring their risk using a general liability or worker’s compensation policy.
SRA believes each producing company has risks that are unique. This risk needs to be assessed by SRA and the owners of the operating company. Once the risk is determined, the premium would be assessed by the underwriting direct writer.
Multiple risks may be transferred to the direct writer including: professional liability, non-merchantable warranty, supply chain interruption, data breach, food borne illness, brand protection, contingent business interruption & dispute resolution. The risk must be fortuitous and not considered to be a business risk.
In order for this to be a legitimate tax deduction there must be actual risk shifting and risk distribution. SRA utilizes risk shifting through the direct writer. The risk distribution is handled in the reinsurance agreement made between the direct writer and the reinsurance company. The reinsurance company will have 50% affiliated risk under a facultative clause and 50% unaffiliated risk is shared on a pro-rata basis across all reinsurance companies which have reinsured the same risk under a treaty clause.
This deduction would be a line item 162 deduction. This deduction would be treated no differently than the premium paid on a general liability or worker’s compensation policy.
SRA relies on several IRS ruling and private letter rulings. To find more detail, visit our Tax Resources page at strategicriskalternatives.com/tax-resources.
The direct writer will cede at least 90% of the premium. The administrator of the direct writer does not charge any other fees for: ceding premium, handling claims, handling loan documents, or any other quarterly processing requirements.
The administrator of the direct writer charges $5,000 to form a reinsurance company. This charge will go toward the chartering fees and legal documents for the formation of the reinsurance company. Stock certificates will be provided for the individuals or entities that will own the reinsurance company. The filing for the reinsurance company will be handled by the administrator of the direct writer as well. The ongoing fees to maintain a reinsurance company are typically $5,000 annually; this fee is paid to the administrator of the direct writer. Out of that fee the reinsurance company’s annual charter renewal fees are paid, and an 1120PC tax return is completed.
To take advantage of owning a reinsurance company the minimum premium that would need to be ceded into the reinsurance company is $80,000 annually. The maximum you can cede into a reinsurance company, for tax purposes, is limited to $2.2 million annually. The premium ceded into the reinsurance company has to be appropriate for the amount of risk being insured.
The reinsurance company is structured as a C-Corp and is domiciled in the Modoc Tribe’s sovereign reservation land in the state of Kansas. The administrator applies for the C-Corp’s Employer Identification Number and is subject to U.S. federal taxation. It files a U.S. Federal 1120PC tax return.
The IRS Code Section 831-B effectively allows a small casualty insurance company to receive up to $2.2 million per year in premiums without paying income taxes on the ceded premium. Taxes are only paid when the profits are distributed to shareholders. Under this structure the significant advantage is that a reinsurance company is able to accumulate a surplus from underwriting profits whereas non-insurance entities must pay tax in the year it receives the income.
Underwriting profit is exclusive to the insurance industry. Underwriting profit consists of the earned premium remaining after losses have been paid and administrative expenses have been deducted. It does not include any investment income earned on the held premiums. Investment income from the premium reserves will be taxed at C-Corp tax rates.
Access to reserves can occur in three ways:
- Declare a dividend, and distribute the reserve at a reduced tax rate.
- Upon liquidation, distribution may be taxed as a long term capital gain, reduced tax rate.
- Make loans to shareholders. No tax event occurs, but the note must be a performing loan and be documented under a loan agreement