First off, I will always advocate for having a malpractice policy because I am a paranoid person. It is a good thing to have in most instances. But you also need to educate yourself on general asset protection. Malpractice is not 100%. No insurance policy is. Plain and simple.
Malpractice insurance companies are sneaky bastards. You better read that policy front and back. They put confusing legal verbiage in the policies to decrease the coverage they provide. THEY DO NOT WANT TO PAY SETTLEMENTS.
Insurance companies are for profit entities. Remember this.
You might find your self totally screwed one day because come to find out your policy doesn’t actually cover aesthetics. Or you didn’t have appropriate policies and procedures in place therefore you are not covered. Or you are actually practicing outside of your scope (per their definition and judgement) therefore you are not covered. Or your medical assistant made a fatal error. The list goes on…
Ensure you understand the policy. Have your lawyer read over it before you pull the trigger. And for heaven’s sake, make sure its an occurrence policy. A claims made policy holds the same value as toilet paper.
So what is a lowly nurse practitioner who is starting their own practice to do? Or what about the nurse practitioner who is coming into some serious money and really building up a successful practice?
ASSET PROTECTION. Let me say this clearly again. ASSET PROTECTION. You better learn and implement it.
A malpractice policy or just a basic general liability policy is not enough in our highly litigious times. You need to protect your assets.
When you get sued the plaintiffs lawyer is going to request that you disclose your assets. You legally have to do this during something called the debtors exam. If you lie you are committing perjury, which is a big no no. So you need to legally hide and protect your assets.
So how does one do this? There are multiple ways:
- Retirement accounts. Money in your 401k and IRA are generally protected. Some states like California can seize portions of an IRA if they determine you have adequate retirement funds, but overall retirement accounts offer solid protection if you ever run into financial trouble. I am not a fan of government backed accounts, but the asset protection and tax savings a 401k offer are hard to beat. Max your 401k out every year, its a no brainer.
- Limited Liability Companies. Own as many LLCs as you can. Put multiple assets in them. Do not hold every business asset in one LLC. If your company vehicle kills someone, now your entire business is liable. Instead, if your company vehicle was owned by a separate LLC underneath your operating (practice) LLC, then the operating LLC is protected. Own rental properties? Have each one in a separate LLC.
- Trusts. A trust is a legal entity that holds assets for the benefit of beneficiaries (you). It is managed by a trustee (another LLC, owned by you), who has all the legal obligations and control over the trust’s assets. So have a trust, put your big ticket items in this, such as your house and savings.
These are the 3 big ways to protect your assets.
You should structure your business in a way where your practice is operating under a LLC and have that operating LLC be owned by another LLC. This would be the “parent company.” So all profits are funneled up to the parent company on a weekly basis. Have this parent company be owned by another LLC which would be a “holding group.” Then have this holding group be owned by a trust and the trust be owned by a trust company. Do you see how many layers of protection you have now? It would take years and years for someone to penetrate to the top. A lawyer would not waste their time.
Lets assume your operating LLC (your practice) gets sued because granny tripped and broke her hip in the waiting room. Fine. You have general liability right? Well what if that policy didn’t cover this for some reason. Or what if the settlement was higher than the limit of the general liability policy? You are still protected. Your operating LLC has very little in terms of money and assets. It has all been funneled up the chain and now sits in your trust or one of the holding companies.
You are probably thinking to yourself that this might not apply to you. That might be true until you become successful. But I would urge everyone starting a business to open 2 LLCs, one for your operating LLC and the other as the parent company of your practice. This adds an additional layer of protection.
A malpractice policy is a must. It covers most cases. You need to ensure you are also covering your ASSets in other ways though. Do research, consult your lawyer, and put some serious thought into what I discussed above. It is to late to implement asset protection strategies once that first lawsuit notification arrives in the mail. Get it done NOW.