Using Your Insurance
Insurance Closes the Sale for Arizona Dentist
When Sepideh Malekpour, DDS, graduated from Creighton Dental School in 2000, gaining experience was one of her top priorities. She joined Perfect Teeth in Phoenix and worked there until she reached her next goal: purchasing her own practice.
“I had the opportunity to buy Arrowhead Desert Dental in Glendale, Arizona, a suburb of Phoenix, and assume the owners’ practice loan,” Dr. Malekpour said. “That was great, but then the lender told me that in order to close the sale, I needed life insurance as collateral.”
Life Insurance Required
Specifically, the lender required Dr. Malekpour to purchase enough life insurance to cover the amount of the loan and temporarily assign the policy to the lender as collateral. That way, if she were to die before the loan was paid off, the lender would be reimbursed out of the policy’s proceeds for the amount owed, and the balance of the insurance would go to a personal beneficiary named by Dr. Malekpour. “Once they explained it to me, it made sense,” she said.
As a dental student, Dr. Malekpour had obtained life insurance (provided free to all American Student Dental Association [ASDA] members by the American Dental Association [ADA]) through Great-West Life & Annuity Insurance Company (Greenwood Village, CO), which underwrites and administers the ADA Insurance Plans. She dropped the coverage after graduation, but because she was still an ADA member and eligible to participate in the ADA’s group insurance program, she called Great-West for a new life insurance quote.
Saving on disability Insurance
John Ferguson, a plan specialist at Great-West, provided her with the information she requested. “I also advised Dr. Malekpour that the lender might require disability insurance as well,” he said. “When disability insurance is assigned to a lender, it guarantees that the loan payments will continue to be made even if the dentist is unable to practice because of a disabling illness or injury.” Dr. Malekpour checked with the lender, learned that this was indeed the case, and applied for disability coverage.
“I recommended that Dr. Malekpour use business overhead expense insurance, rather than disability income insurance, to satisfy the lender’s requirement,” Mr. Ferguson recalled. Business overhead expense insurance reimburses a dentist for covered expenses, such as rent, employee salaries, and business loans, if the dentist is unable to work due to total disability. Premiums are generally a fraction of the cost of a disability income policy, which makes overhead insurance very cost-effective as collateral for a practice loan. In addition, premiums may be fully tax deductible as a business expense under current law.
“Most lenders will accept business overhead expense insurance as collateral if you ask them,” Mr. Ferguson observed. “That way, you can reserve your disability income insurance for its intended use—to replace lost income if you are disabled—rather than having it encumbered with a practice loan.”
Dr. Malekpour agreed with Mr. Ferguson’s recommendations, submitted applications for the insurance she needed, and asked Great-West to expedite the underwriting process so the sale could close quickly. The company put a priority on the case, issued the policies within 30 days, and immediately provided Dr. Malekpour with collateral assignment forms, which she completed and sent back to Great-West. The company recorded the assignments, sent copies to the lender, and the sale closed.
“I didn’t expect to have to go through this process, but it worked out just fine,” Dr. Malekpour said. “My recommendation to other dentists in this situation is to call John Ferguson or one of the other knowledgeable experts at Great-West who can guide you through the technical aspects of using insurance as collateral for a loan.”
Editor’s note: Dr. Sepideh Malekpour’s statements were obtained by Great-West Life & Annuity Insurance Company, relative to her coverage under Group Policies 104TLP, 1105GDH-IPP, and 1106GDH-OEP, and reprinted here with permission. For more information on the provisions and limitations of these policies, visit www.insurance.ada.org or call 888-463-4545. This article does not constitute legal, tax, or financial advice. Please seek professional input as appropriate to your situation.