Building Your Own Dental Office? How to Insure the Building LLC and the Practice Separately

A lot of independent dentists I work with are making a move I love to see. They are leaving leased suites and building offices of their own.

Usually the land and the building go into a separate real estate LLC that the dentist owns, and the practice signs a lease with that LLC. That is smart planning. It can keep the building separate from the risks of the practice, and it builds long term equity in real estate instead of a landlord’s.

It also means you now run two businesses, and each one needs the right insurance. The building is one exposure. The practice is another. When the two get blended onto one policy, or left off a policy entirely, that is where problems show up after a loss.

Here is how I walk dentists through it. For the broader picture, our dental practice insurance guide covers the full lineup of coverages a practice should carry.

During Construction: Builder’s Risk

While the building is going up, the project itself needs its own property coverage, usually called builder’s risk insurance. It covers the structure during construction, along with materials on site and often materials in transit.

Who buys it depends on your construction contract. Sometimes the general contractor carries it. Sometimes the owner does. Read the contract before anyone breaks ground so you know which it is, and so there is no gap where each party assumed the other was covered.

If you are financing the build, your lender will likely have requirements too. Make sure the real estate LLC is named correctly as the insured or loss payee, and add the lender if the loan documents call for it. A policy written to the wrong name can create headaches exactly when you need the money most.

The Building Policy Belongs to the Building LLC

Once construction is complete, the property policy should be written in the name of the real estate LLC, because that is the entity that owns the building. Not you personally, and not the practice.

The LLC also needs its own general liability coverage as a landlord. If a patient slips on the parking lot or the walkway on the way in, the claim usually lands on the entity that owns the property. Landlord liability coverage protects the LLC for those incidents.

What the Practice Insures

The practice is a tenant now, and tenants have their own list.

Tenant improvements and build out. The chairs, cabinetry, plumbing, and finishes that make the space a dental office usually belong to the practice under the lease, and who insures them should match who owns them. Some leases put improvements on the tenant. Others leave structural parts with the landlord. Match the policy to the lease.

Equipment and contents. Your imaging equipment, handpieces, computers, instruments, and supplies need property coverage written in the practice’s name.

Professional liability. The malpractice exposure does not change because the address did.

The practice’s own general liability. The building LLC’s landlord policy is not a substitute for the practice’s own liability coverage for what happens inside the operatories.

Cyber. Patient records and practice management systems need protection wherever the office sits. Our cyber coverage for your practice article explains what to look for.

Write the Lease Between Your Own Two LLCs Like It Matters

It can feel odd to negotiate with yourself, but the lease between your practice LLC and your real estate LLC is a real contract with real consequences after a loss.

At minimum, address:

• The insurance each party must carry and the limits each must meet
• Additional insured status, so each entity is protected under the other’s policy where appropriate
• A waiver of subrogation, so an insurer that pays a loss does not turn around and pursue the other LLC
• Who rebuilds what after a major loss, including the build out and any landlord supplied improvements

Please review the lease with your attorney. I can tell you what insurers expect to see, and your attorney can make sure the document holds up. Check with your agent and attorney before you sign anything.

If a Fire Shuts the Office Down

Picture a fire that closes the office for several months. Money keeps leaving both entities the whole time.

The practice needs business income coverage that pays for continuing expenses, and rent is one of them. Because the practice really does pay rent under the lease, that rent keeps flowing to the building LLC even while the practice has no revenue coming in.

The building LLC needs loss of rents coverage, sometimes called rental value coverage. If the building is unrentable, the LLC still owes the loan payment. Loss of rents is what keeps the bank paid while the building is being repaired.

Both coverages should sit inside their own entity’s policy. Do not count on one policy to take care of both businesses.

Umbrella and Named Insureds

If you carry an umbrella policy, look closely at the named insureds and the schedule underneath it. An umbrella should sit over both entities, the LLC that owns the building and the LLC that runs the practice. If only one is listed, a serious claim against the other can fall to the underlying policy limits with no umbrella above them.

The same thinking applies to auto, workers compensation, and any other line of coverage. Each entity should appear where it has exposure.

The Bottom Line

The best time to sort all of this out is before construction starts, when names, limits, and lease terms are still easy to change. After the certificates are issued and the loan closes, changes get slower and more expensive.

If you are planning a build, I would be glad to review the insurance plan for both entities with you, alongside your attorney and contractor, before the first load of concrete arrives. And for a refresher on what a practice should carry overall, our dental practice insurance page is a good place to start.

This article is for general informational purposes only. It is not legal, tax, or insurance coverage advice, and it does not describe any specific policy. Requirements vary by state, carrier, and contract. Check with your agent and attorney regarding your specific circumstances.