Pulse - November 2021 - 17

TOOLS FOR SUCCESS
Preparing for Life's Curveballs:
The Ins and Outs of Insurance
Jason Schneller
I
magine this: You own a successful
veterinary practice-you have
plenty of great clients, you've
hired the best staff, and business is
running smoothly. Everything you've
worked for has come together, and
the future is bright. Then, life happens.
Due to an injury, you're unable
to work for several months. There
are two ways this can pan out:
1. Things continue to run smoothly due to
preparedness,
2. Things go south-for everyone. Do you
know which one your future would hold?
While that may have been a pretty jarring
opener, you can take a deep breath
and let your shoulders relax. Thankfully,
there are insurance products available that
help both your practice and your family
remain in good care when life throws
a curveball.
First, the basics.
As a practice owner, some of the most
important insurance products are life, personal
disability, and business overhead
expense (BOE) policies.
* Life insurance not only protects your
family in the case of death, but it can
also be used as loan collateral and a
funding source for a succession plan.
* Personal disability insurance covers your
personal financial needs (such as mortgage,
groceries, utilities, etc.), allowing
you time to recover with ease of mind.
* BOE insurance reimburses you for business
expenses (such as rent, salaries, benefits,
etc.) while you are unable to practice,
helping the practice remain operational.
While all three products are recommended
for full coverage, some practice
owners choose to start with life and
BOE only since BOE coverage is typically
cheaper than personal disability.
PULSE
NOVEMBER 2021
Second, the numbers.
Having insurance in place is a great starting
point, but it doesn't get you very far if
you don't have the coverage you need. So,
how do you calculate the policy amount?
Follow the items below for general guidance.
Keep in mind that getting a personalized,
comprehensive audit and assessment
by a financial professional is advised.
* Life insurance
There are two main ways to calculate a
rough estimate:
1. Add 10x your annual income plus
$100,000 per dependent. If you're using
this as practice loan collateral, you'll
want to add the amount of your loan to
the total.
2. Use the DIME method. Add your debt,
income (for each year you want to provide
income replacement to your family),
mortgage, and education expenses
for each child.
Tip: Prices change based on age. The sooner
you buy this policy, the better.
* Personal disability insurance
Calculate this at 60% of your monthly
income. This number will be close to your
take-home pay since the benefit amount is
not taxed as income. If your income experiences
large increases over time, make sure
to revisit this amount for proper coverage.
* BOE insurance
Add up your ongoing monthly operating
expenses to determine your optimalcoverage
amount.
Tip: Most lenders only require the policy to
cover 60% of your monthly loan. If you go this
route, you'll want to consider adding an optional
rider to the policy so you're not underinsured.
Third, the extras.
As mentioned above, life insurance can
be used for more than protecting your
family. When it comes
to buying a practice or making sure your
succession plan wishes are carried out, life
insurance plays a central role. But how?
Buying and expanding a practice
When applying for a practice loan,
most lenders will require life insurance as
collateral which guarantees the loan can be
paid in the case of death. You'll complete a
collateral assignment form that assigns your
insurance to the lender as security for your
loan. If the policy is exercised, the lender
will receive an amount equal to the principal
balance. The remaining balance will be
paid out to secondary collateral assignees
or beneficiaries. When you've repaid the
loan, you can request the collateral assignment
be removed from the policy and use
the coverage for other purposes.
Succession planning
Most practice owners utilize a buysell
agreement for succession planning.
This agreement states that, upon the current
owner's death, the practice must be
sold to and purchased by another named
party. In this case, the owner will add the
named party as the beneficiary on the life
insurance policy to ensure funding is available
to carry out the agreement. If death
occurs, the named party is paid out a
lump sum and is able to keep the practice
running.
In summary, having the right insurance
products and coverage amounts in place
can make all the difference for both your
veterinary practice and your family. If you
don't have these policies set up (or you
haven't evaluated your coverage amounts
recently), don't wait-your future is too
important.
This article was contributed by Provide,
a leading financial platform for practice
owners. Provide offers an integrated suite
of financial products that makes starting
and running a healthcare practice faster
and easier, including practice lending, business
bank accounts, and insurance.
Interested in learning how Provide can help you?
Contact Jason Schneller at 818.561.8106 or jason.
schneller@getprovide.com.
17
Pulse - November 2021

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