Opening a veterinary practice can seem daunting because of all the questions that need answers. Do I want a companion, mixed or mobile clinic? Will I offer grooming and boarding services? How will I find associate veterinarians, technicians and assistants, given the tight talent market? Will I buy and remodel an existing building, construct a new one, or find and lease a retail space that fits my needs?
The list goes on. However, when does insurance enter the picture? Occasionally, the attorney assisting with the business’s formation suggests insurance, and at other times, the reminder comes from an accountant or consultant. Most often, the lender or bank tells you that your loan requires insurance.
Loans come with an assortment of insurance needs. The most common types are below.
General Liability
The bank or lender wants to make sure an insurance policy covers you if a non-veterinary professional liability claim, like a slip and fall, is filed against your practice. The standard mandate is $1 million in coverage, with the lender and the landlord (if you’re leasing) listed as “additional insured” on the policy.
For example, if your clinic rents space, the landlord might be an additional insured to cover any risks tied to the clinic’s operations. The property owner then has some protection without needing a separate policy.
Property
Your bank wants your practice to have adequate property coverage, as does any medical equipment vendor that you lease from or finance a purchase through. The policy can include the building, buildouts, and tenant improvements and betterments.
Business Personal Property
This requirement includes a “loss payee” or “lender loss payable” provision, just like the mortgage company listed on your home insurance policy. Those entities have a financial interest in your practice property and are entitled to reimbursement in the event of a loss.
Life and Disability
Certain lenders require life insurance on the practice owner, along with a collateral assignment and potentially a disability insurance policy. Such coverage protects the financial institution because, as the practice owner, you are highly skilled and a lot rides on your ability to operate the business. Should you die or become disabled before paying off the loan, your lender wants a guarantee that the insurance policies will reimburse it in full in the event of your passing or with monthly payments if you are disabled.
A collateral assignment occurs when a policyholder uses life insurance as collateral for a loan. If you should die, the lender is repaid from the death benefit before the balance goes to any beneficiaries listed on the policy.
Your lender might require a disability insurance benefit to cover 60% to 80% of the monthly loan payment.
Builders Risk and Vacant Commercial Liability
Ahead of fully opening the veterinary practice, you may be required to purchase insurance during the construction phase, whether you’re planning a free-standing building that you will own or occupying a landlord’s leased space. For that, you need specialized insurance called builder’s risk and vacant commercial liability. Your contractor or builder might offer a policy, but you are responsible for obtaining it before signing the lease, closing the loan and starting construction.
Builder’s risk insurance is a specialized property policy that protects buildings and structures under construction. It covers events such as theft, vandalism and weather damage.
Vacant commercial liability insurance, on the other hand, covers unoccupied commercial properties and addresses risks such as property damage and injuries on the premises.
These short-term policies are in effect during the building or remodeling of a new practice location and comply with lender and landlord requirements. A business owner may purchase them in three-, six-, nine- or 12-month increments.
Once the work is done and you are ready to open the clinic, you will need more traditional coverage, depending on the type of practice you run and the services offered.
INVESTIGATE NOW, NOT LATER
It’s never too soon to start the conversation about insuring a new veterinary practice. With life and disability insurance, for example, the sooner you check, the better, due to the time needed to underwrite such policies. You also might be under a time crunch to get something in place if a lender asks whether you have spoken with an insurance professional and gotten proposals. Most applications are processed within seven to 10 business days.
Most startup practice owners learn that the terminology, coverages and prices used in commercial insurance differ significantly from those in standard home and auto policies. Entrepreneurs should have at least a basic understanding of the insurance protecting their investments.
Putting together a team of professionals to assist you in all areas of your practice early in the process can provide the peace of mind that you’re starting on a solid foundation. Insurance shouldn’t be a last thought for a new business owner, but rather something that is incorporated into the planning.