You’re excited. You just found the perfect lease space to start your own practice, or the perfect opportunity presented itself to buy an existing practice. Reality is setting in. The dream of you owning your practice is coming into view. With it, comes a practice loan, and you’ll often need both disability income and term life insurance to close on the loan.
You’ll need both disability & life insurance to close on a practice loan, and it’s smart to start with a fresh policy for each.
You might be thinking, “I already have an individual Disability policy that I purchased during residency, and I can assign this policy to the bank.” But we’d advise against this, as the policy’s monthly benefits are designed to take care of you and your family, not the banker.
What We Recommend
Our recommendation is a separate disability income policy that’s specific to your practice loan and/or real estate. This kind of policy is often much less expensive than an individual disability policy, and this tells me why it’s the best choice to satisfy your loan requirement.
Another way to satisfy your practice loan requirement is through a secondary option called Business Overhead Expense. The maximum number of months this type of policy can pay is 24 months, and most bank loans are ten years. So why even mention this? Because in some states, disability policy practice loans are not available, so a business overhead policy is your next best option.
The primary use of a Business Overhead policy is to cover the fixed expenses of a practice above and beyond a practice loan, in the event that you’re disabled. Some insurance carriers will issue up to $50,000/mo. in coverage.*
*Quick Tip: A key rider allows you you to start with lower coverage, and increase it without medical underwriting, as your expenses increase over time.
Don’t Forget about Life Insurance
In addition to disability coverage, life insurance is also required to cover a practice loan. If you already have a life insurance policy, you could use a portion of the benefits to assign to the bank, but again, this policy serves a different purpose. The existing life insurance policy was intended to take care of your family, not the banker.
As with the disability policy, we’d suggest you look for a separate term life policy (10 or 15yr), and assign these new benefits to the bank. But you’re in luck! Term life insurance is inexpensive, and for a small additional premium, you’ll be covered by additional hundreds of thousands, should your family be in need.
After the new policies are put in place, you’ll want to let your insurance advisor know if you refinance with another bank, so the policies can be changed to reflect the new bank.
And remember, you’ll need both disability and life insurance to close on a practice loan, and it’s smart to start with a fresh policy for each.