What to Know About Life Insurance for Practice Loans

Posted by on Jun 27, 2022 9:00:00 AM

Starting a dental practice has many associated costs, such as rent or mortgage, purchasing equipment, and hiring employees. If you’ve started your own dental practice, you likely took out loans to cover some or all of these costs. 

In the event of your death, a life insurance policy for dental practice loans can help protect your family, practice and career legacy by covering the remaining costs of these loans. 


What Is Life Insurance for Practice Loans?

Life insurance policies for dental practice loans are very similar to personal life insurance policies, if they are not combined into a single policy based on your specific needs. In the event of your death, these policies pay off the remaining balances on the loans you used to start your dental practice.

In some situations, a lender may request life insurance as a condition of a loan. In this circumstance, you need to secure a life insurance policy for at least the amount of the loan. Since lenders seldom accept being named the primary beneficiary, you would name your own beneficiary, and the policy will be collaterally assigned to the bank. In the event of your death, the lender receives only the amount required to pay off the loan and your primary beneficiary receives the balance.

Though it is possible to use one policy with an amount sufficient to cover personal planning needs with the lender's insurance requirement, it may be a good idea to consider using a separate policy for the lender to avoid any potential delays in payment of the death benefit for the coverage earmarked for your personal planning needs.

Dental practice loan life insurance is also similar to business loan protection coverage, which covers your loan payments in the event of an injury or illness that results in a disability. 

Is Life Insurance for Practice Loans Required To Secure a Loan To Purchase a Practice?

These, and other, loan requirements vary by lender, so speak with your provider to thoroughly understand your obligations for coverage. 

Regardless, practice loan life insurance is a crucial protection option for your practice legacy and family’s future, especially if you have substantial loan amounts from opening your practice.  


Can I Combine My Practice Loan Life Insurance and Personal Life Insurance Policies? 

Depending on your specific needs, you may be able to combine your dental practice loan life insurance and personal life insurance policies. In this case, there would be no difference in the policies other than when the benefit is paid out. 

For example, if a bank requests life insurance to cover your loan, you may be able to purchase a standard life insurance policy. After the policy is in effect, the policy is collaterally assigned in favor of the loan provider first and then any listed beneficiaries second. 

For example, if a policyholder has a $1 million life insurance policy and the loan balance at the time of the client’s death is $500,000, the bank would first receive $500,000 to satisfy the loan. Once the loan is settled, the insured's primary beneficiary would receive the remaining $500,000. 

As mentioned above, it may be wise to have separate policies for each need in order to potentially mitigate any delays in payment to your primary beneficiary. If a separate policy is being used for personal planning, death proceeds are paid to the primary beneficiary without the extra step of having to determine how much is due the bank before payment to the primary beneficiary.


Potential Requirements for Dental Practice Loan Life Insurance Underwriting

There are specific requirements for the underwriting process you may need in order to purchase or combine a dental practice loan life insurance policy, including: 


  • A completed application for insurance. 
  • Medical exams or documentation. 
  • Previous life information.


By supplying your policy provider with all of the necessary information, you can create life insurance coverage that protects both your family and your dental practice. 

After the policy is in effect, collateral assignment forms must be submitted to the insurance company in order to satisfy the lender's life insurance requirement.


A Vital Aspect of Your Legacy

After building a successful career, the last thing you want to do is leave your family and dental practice with debt in the event of your death. 

By working with insurance providers who are familiar with the specific needs of dentists, you can get the coverage you need today and help protect your family in the future. Learn more about practice loan life insurance and how it can benefit the legacy you leave.  


About Treloar & Heisel

Treloar & Heisel, an EPIC Company, offers dental and medical professionals a comprehensive suite of financial products and services ranging from business and personal insurance to wealth management. We are proud to assist thousands of clients from residency to practice and through retirement. Our experienced teams deliver custom-tailored advice through an active local presence, while our strong national network ensures that clients experience the same high level of service throughout the country.

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