Editor's Note: Dental real estate insurance? What? Practice owners often know they'll need malpractice insurance, but in truth, several other insurances protect a practice and position it for success. One of those dental real estate insurance, and you'll need it regardless of whether you lease or own. In this article, our industry partners, Treloar and Heisel, walk you through the intersection of real estate and insurance.
There are so many ways in which you can find a ‘home’ for your dental practice. Some people buy a building outright, others lease a space and build it out to their needs. Others yet buy a multi-unit complex, occupy a unit, and become landlords to other professional practices, like attorneys, other doctors, etc. Others yet may locate some land and build a structure from the ground up. Whichever path you pursue, Whichever path you pursue, your lender and/or landlord will want certain assurances.
If you’re renting, your landlord will want similar peace of mind. In short, you will need to provide proof of certain kinds of insurance, including dental real estate insurance. Today, we’ll give you an overview of the commonly encountered insurance coverage and then help you identify which ones may apply to your situation. Keep in mind, every lender is different, and so is every landlord. What we will go over should only serve as a guideline; refer to your lender or landlord for the specifics in your case.
The “Big Five” of Dental Real Estate Insurance
These are the five most common types of dental real estate insurance coverage you may encounter.
- Building Coverage. Just like the name says, this is insurance to cover your building. How much you need depends on the replacement cost of the building, which can vary greatly depending on location. The replacement cost is usually not equal to the purchase price. Keep in mind that building coverage does not include anything inside the building such as equipment or furnishings.
- Business Personal Property. For lack of a better term, Business Personal Property coverage (or “BPP” for short) refers to the insurance you’ll need to replace all your “stuff.” Dental “stuff” would be, say, your waiting room furniture, all the equipment you use in your practice, from X-ray machines to computers and phones, to the hundreds of items in your supply area. If you could physically pick up your practice and shake it upside down, your business and personal property would be all the things that would fall out. The limits on this kind of coverage vary widely, depending on how much “stuff” you have in your office. Who determines how much coverage you need for BPP? It’s entirely up to you. You need to gauge what it would cost to replace everything in the event of a total loss.
- Improvements and betterments. Another term for this is “buildout.” Basically, improvements and betterments are all the things you do to improve or better an existing space. Many leases require the building owner to restore the exterior to its original condition prior to a loss, but the tenant is responsible for restoring their own space. In other words, if the building is damaged due to a fire, the tenant’s improvements and betterment coverage will help them restore their space into a functioning practice again.
- General liability. You’ll need general liability coverage whether you own the building, or you lease a space. The first thing everyone always thinks of is a slip and fall, but there are many other applications. It’s impossible to go through an exhaustive list of circumstances where general liability would apply. In essence, it protects the practice from liability associated with incidents of bodily injury, property damage, and personal injury that fall outside the scope of a worker’s compensation and malpractice policy.
- Builder’s Risk. Builder’s Risk is a little different from all the other coverages we have named so far. It’s needed if the doctor is either building a building from the ground up or doing a complete renovation of an office. During construction, the doctor wouldn’t get a business owner's policy with building coverage and BPP quite yet, because there is no fully functioning practice. Instead, they would get a builder's risk policy until then build-out or the renovations are completed. In some cases, a contractor will carry a builder’s risk policy while working on the space. This may or may not satisfy the lender and/or the landlord so it’s important to clarify before construction begins.
Which Dental Real Estate Insurances Apply to Me?
Now that you know what kinds of dental real estate insurance coverages you’re likely to encounter, let’s see which ones would apply to you…
- Are you leasing your dental real estate from a landlord?
If you are leasing the space in which you operate your practice, you will need the following coverages within your Business Owner’s Policy:- Business Personal Property Coverage
- Improvements and Betterments Coverage
- Liability Coverage
- Bank Requirements for LEASING dental real estate
The bank will require one of three Loss Payee clauses:- “Loss Payee” (this is who gets paid in the event of a loss)
- “Lender’s Loss Payee” (this provision ensures that the lender’s interest is protected, even if acts of the borrower invalidate the policy in some way: in short, it’s additional insurance for the lender)
- “Lender’s Loss Payable” (A loss payable clause is an insurance contract endorsement where an insurer pays a third party for a loss instead of the named insured or beneficiary. Source: Investopedia)
- Do you own the building?
If you own the building, you will need multiple coverages within the confines of your Business Owner’s Policy:- Building Coverage
- Business Personal Property Coverage
- Liability Coverage
- Note that if you have tenants, your liability coverage would protect the real estate entity that owns the building (if they were to be named in a lawsuit) from an incident that happened in your tenant's space as well.
- Bank Requirements for OWNING Dental Real Estate
The bank will require one of three Loss Payee clauses:- Loss Payee
- Lender’s Loss Payee
- Lender’s Loss Payable
- Note: Since you own the building (presumably financed) the bank will also require to be named in the Mortgagee clause.
- Do you own a condo within the building?
If you own a condo unit, you will need several coverages within the confines of your Business Owner’s Policy:- A Condo Unit Owner Endorsement (which is a special modification that treats the Improvements and Betterments coverage more in line with the needs of a condo owner rather than the building owner or tenant)
- Business Personal Property Coverage
- Liability Coverage
- Bank Requirements for OWNING A CONDO
The bank will require one of three Loss Payee clauses- Loss Payee
- Lender’s Loss Payee
- Lender’s Loss Payable
- Note: A Mortgagee clause would be provided through the Condo Association’s Master Policy Building the building on a vacant lot or doing a full renovation of an existing building.
- Renovating an existing space for your dental real estate?
If you’re starting from scratch, or gutting a building to do a full renovation, you will need a- Builder’s Risk policy to protect you during the buildout phase. Once the buildout is complete, you will need to make sure you have within your Business Owner’s Policy, the following coverages:
- Building Coverage
- Business Personal Property Coverage
- Liability Coverage
- Builder’s Risk policy to protect you during the buildout phase. Once the buildout is complete, you will need to make sure you have within your Business Owner’s Policy, the following coverages:
- Bank Requirements for RENOVATING
The bank will require one of three Loss Payee clauses- Loss Payee
- Lender’s Loss Payee
- Lender’s Loss Payable
- Note: Since you financed the building, the bank will also require it to be named in the Mortgagee clause.
In Summary
Your practice real estate adventure needs an experienced guide to ensure you have the dental real estate insurance to protect your clinic, however, you decide to go about it.
There you have it! It’s quite a lot to digest, but once you are familiar with the terms, you will be able to better navigate the landscape. Whether you are leasing, buying, or building from scratch, we wish you all the very best with your practice real estate venture. If you have any questions at all, our experienced team is here for you.
About Treloar & Heisel
Treloar & Heisel, an EPIC Company, is a financial services provider to dental and medical professionals across the country. We assist thousands of clients from residency through retirement and strive to deliver the highest level of service with custom-tailored advice and a strong national network.
