Insurance for every stage of your career — Stage 2 · Buying a practice
As a young dentist, time may be one of the things you don’t have enough of — between starting a family, trying to buy a practice and grow your career, and developing personal and professional relationships within organized dentistry. Unfortunately, according to Matt French and Kerri Seims of the Washington Dentists’ Insurance Agency (WDIA), time is one of the most important elements when it comes to buying a practice, and it’s the one thing that many new buyers don’t factor in. French explains, “It’s not just the time required to find the right practice with a good match in terms of staff, culture, and patient base. Securing financing and locking down the kind of coverage banks require to write the loan takes time, too.” Article continues below…
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Seims agrees, saying, “Buying a practice is a complex business, more so than most dentists realize. Many, for instance, assume they can just call up and order a life insurance policy.” The reality, she says, is that life insurance typically takes six to eight weeks to obtain, and that amount of time could easily derail a practice deal with both the bank and the transition company involved. And while time is important, so is knowing exactly what you need to buy. Some insurance policies will be required by your lender, and additional insurance will further protect yourself, your family, and your practice. But it’s tricky — there are many policies by myriad companies, and knowing which policy to choose can quickly get confusing. That’s why you need insurance experts.
French and Seims are the insurance experts. They will get you everything that is required and can detail the optional policies you might want to have in place in the event something goes wrong, from personal health issues to natural disasters. The WSDA News recently sat down with them to review the types of policies that people looking to buy a practice will need and to find out what pitfalls, if any, new buyers can expect.
“It’s so important to call us early,” says French. “We can set the stage for you, explain the products and timelines, and work with everyone on your transition team.” Not even sure what a transition team is? Between them, French and Seims have been working in the business for decades, and they know some of the top people in the field. “Dentists are going to need to have an insurance team, an attorney, an accountant, a banker, and then a transition company,” says French. “Some of these things they may not have. We’re fortunate enough to have worked with so many talented and reliable companies and individuals in the area that we can often give several names to interview and consider.”
New buyers’ “must haves”
As we said before, having life insurance isn’t just a good idea, it’s essential to the process of purchasing a practice. Banks require loan collateral, and one of the most common ways of obtaining enough capital to buy a practice is by collateralizing your life insurance for the amount of the loan over its term. “Typically, practice loans range from $500,000 to $1 million, and are generally written for a 10-year term, so buyers will need to have life insurance in that amount for the same term,” says French.
But banks also want to protect their investment by requiring dentists to carry disability insurance, and French says the best type of policy for that is Business Loan Protection. Should you become disabled while you still have a practice loan, it will pay the bank back directly on a monthly basis for a specific term. “Let’s say you have a $500,000 loan for a 10-year term, and you’re paying $6,000 a month,” says Seims. “The Business Loan Protection policy will pay $6,000 a month directly to the bank in the event that you’re disabled and can no longer practice.” It’s cost effective, allows you to sell the practice without having to pay off the loan, and you get to keep all the proceeds from the sale. So while the policy is in place to protect the bank’s interest, it protects yours, too. One note of caution. “Banks will sometimes offer to collateralize a dentist’s personal disability, but we never want that to happen,” says French. “That policy is for the dentists and their families and serves a different need.”
Hazards can be real
Let’s face it, every day, practices are destroyed by any number of hazards, and you want to make sure that your practice is fully covered in the event that you’re unfortunate enough to experience one of them. That’s where a Business Owner’s Policy, or BOP, comes in. “It’s much like homeowners insurance for your practice, including things like liability insurance in case someone trips and falls,” says French. BOP policies will also cover things like burglaries, fires, vandalism, and more.
Additional policies you should consider
French and Seims can walk you through what’s best for you and your practice. They will often recommend the following policies because of the extended coverage they afford a dentist.
“We generally recommend that dentists also get Business Overhead Protection, which covers overhead costs like having a locum tenens come in when they are disabled, utilities, staff salaries, and office expenses,” says Seims. This type of policy doesn’t cover associates on payroll because, in essence, they generate their own income, and it won’t cover outside lab fees. “You can get a benefit of up to $50,000 a month, and we typically write the policy for a maximum of 12 months,” says Seims.
Why does the policy have an end date? “Most dentists facing disability spend the first six months assessing their possible recovery. After that, if they’re not going to be able to return to the practice, they have six months to sell,” says French. “For many dentists in Washington, that’s generally an adequate amount of time to sell a practice.”
• Employment Practices Liability
If an employee sues for sexual harassment, wrongful termination, or anything of that nature, Employment Practices Liability (EPLI) is the policy that protects you. It’s additional coverage, but it is a smart option. As an employer, you’ll have some coverage in your BOP plan, but it’s minimal at best. French and Seims always recommend EPLI to dentists purchasing a practice — and getting it sooner rather than later. French explains, “Let’s say you buy from a dentist who was in practice for 30 years, but you choose not to keep all of the staff. It’s not uncommon for people who are released after a sale to file suit, and you want to be protected. EPLI policies cover the cost to defend the claim.” Seims also recommends purchasing a robust cyber security policy, saying, “The fallout from a cyber breach can be enormous, and the onus falls on the practice owner to mitigate. The costs can be astronomical.”
Both EPLI and cyber security policies come in $500,000 or $1 million versions, depending on the number of employees you have, the gross income of the practice, and other factors. French and Seims can break it all down for you.
• PLLC/Corporate Liability
PLLC/Corporate Liability coverage protects the practice when you have an associate who is being sued. Typically, attorneys for the plaintiff in a malpractice case will sue not only the associate, but also the practice he or she works in. This coverage incorporates your malpractice limits with your corporation, protecting you when a suit is brought against an associate working in your practice.
If you’re buying into a partnership, you’ll want to at least consider some additional coverage to protect you in the event that your partner becomes disabled, cannot work, or dies. “You’ll need a buy/sell agreement, which is a policy that all partners in the practice purchase that will pay off the part of the practice owned by the partner who died,” explains French. “As people realize the value in economies of scale that partnerships can provide, between shared overhead costs and shared staffing costs, we’ll see the need grow for policies like this.”
• Health Insurance
Lastly, as a practice owner, you may want to offer some type of medical insurance for your employees, and you will definitely need to insure yourself and your family. The experts at WDIA can break down the options and their costs, and help you determine what products make the most sense for you. “Keep in mind,” says Seims, “we’ll want to do periodic evaluations of all of your insurance policies to make sure you have the right coverage for your growing family and practice.”
Here for you
French and Seims — and new WDIA team members Heath Johnson and Tiffany Perry — know that insurance isn’t the most fascinating of subjects, and all the choices and decisions can be daunting, but getting the right mix is important. “You really can’t put a price on knowing that your family and your practice are covered in the event that something changes to impede your ability to work, whether it’s a fire, a disability, or even death,” says French. “We can help guide you and simplify the process, and we’ll be here to answer any questions you might have.”