Prospective veterinary practice buyers should understand which insurance policies they will need when buying a veterinary practice. There are bank required veterinary business insurance policies that must be obtained in order to secure financing and there are also elective insurances that are not required but probably needed.
Bank Required Insurances
Life insurance is a protection against the loss of income that would result if the insured passed away. The bank often requires life insurance be obtained in an amount that will cover the debt in the event of the borrowers death. If the prospective buyer already has sufficient life insurance, they may assign it from currently existing coverage. It can take around a month, or more, to obtain life insurance. This timetable should be taken into account when seeking to close a loan for the acquisition of a veterinary practice.
Disability insurance offers income protection to individuals who become disabled for a long period of time, and as a result can no longer work during that time period. The bank also requires that disability insurance payments should be adequate to make the note payments on the bank note for as long as the prospective buyer remains disabled. It can take around a month, or more, to obtain disability insurance. This timetable should be taken into account when seeking to close a loan for the acquisition of a veterinary practice.
If you are going to obtain disability insurance for an amount over and above the debt service for your loan, be aware that there are various kinds of disability coverage. The most often purchased, and most valuable, insures against disability regarding your “own occupation”. If you become disabled and are unable to perform the functions of veterinary medicine but can still perform functions as the President of IBM, your disability insurance would still pay you benefits because you bought insurance for the inability to continue to do your “own occupation” as a veterinarian.
Office Overhead Insurance
Office overhead insurance helps in the event of a temporary disability of a practicing veterinarian by covering employee salaries, rent, and other expenses. This is an alternative to disability insurance that sometimes satisfies bank requirements. It is much less expensive, and easier to obtain, than disability insurance.
Contents coverage is insurance that pays for damage to, or loss of, furniture, equipment, supplies, computers, files, and other items. Since the lender is loaning the money for the acquisition of the practice, they retain as their collateral what is called a security interest in the assets of the practice. The items in that practice constitute the bank’s collateral and the bank wants to make sure it is insured against loss.
Although there are insurance policies required by the bank, there are kinds of insurance that you will want for your own protection. One kind of insurance that you will want in place is malpractice insurance. Most graduates and practitioners are familiar with malpractice insurance, which covers you from liability for practice related conduct.
Liability insurance covers a broad spectrum of items for which you could be sued such as someone tripping and falling while inside your practice. It is one of the first policies you should obtain.
Workers’ Compensation Insurance
Workers' compensation is a form of insurance providing wage replacement and medical benefits to employees injured in the course of employment in exchange for mandatory relinquishment of the employee's right to sue his or her employer for the tort of negligence. The tradeoff between assured, limited coverage and lack of recourse outside the worker compensation system is known as "the compensation bargain". Since almost everyone in a practice has employees who may become injured on the job, you will need to obtain workers’ compensation insurance.
If you purchase the real estate in which the practice is located, you will also want insurance that covers the building from the walls out, as opposed to the buildings contents. This would, if you purchase replacement coverage, rebuild the office in the event it is damaged or destroyed by fire, or other covered items. With any insurance you acquire, be mindful of the fact that wind, water and earthquakes are sometimes not included in standard insurance coverage process and must be added as a rider or obtained separately.
Finally, there is umbrella insurance that serves as extra liability insurance. This protection is designed to kick in when the liability on these other policies has been exhausted. It is coverage that picks up whenever there is a gap in the type of coverage or the amount of coverage. It is a very inexpensive coverage that if needed can prove a lifesaver.
While not having the right type of insurance can be a fatal business error, it requires expertise to understand what you actually need without over buying. A veterinarian can become “insurance poor” by selecting and paying for the best of the best in an amount, or type, that is in excess of what is actually needed. Insurance sales people or insurance agents will happily present you with coverage options, but consulting a professional who understands how to get enough but not too much protection can be time well spent.
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