Selling or transferring a Residential Care Facility for the Elderly (RCFE) can bring new life to both the buyer and the seller.
The party selling gets to liquidate their investment in the facility, enabling them to pursue retirement or another venture. And the buyer gets to take over a facility that’s already functioning, helping to eliminate the many uncertainties that come with building something new.
That said, transferring ownership isn’t without its risks. Specifically, both parties need to work together to make sure they don’t leave themselves exposed with a gap in insurance coverage.
For Both Parties: Preventing Gaps
The seller’s insurance policies need to extend all the way up to the point when the buyer’s takes effect.
In some cases, this is fairly easy. Some insurers can transfer key policies like the facility’s general liability insurance from the seller to the buyer. This way, the party to whom the policy is assigned simply gets changed over on a certain day.
Not every insurance company offers this option, though, so it’s important to look into it — and soon. Many insurers need advance notice to reassign a policy. You’ll usually want to start exploring this at least 30 days before ownership will change hands.
If the insurer can’t reassign the policy to the new owner, the buyer can explore getting a new policy from that same insurer or working with a different insurance provider.
Here, it’s important to align dates. If you know the sale will be completed at the end of the month, the buyer needs to make sure their coverage kicks in on the first day of the following month. At the same time, the seller should keep their policy in place through the month’s end.
Even a single-day gap in coverage leaves both parties exposed. And the last thing you want is to have to assign liability for an incident when you’re already in the middle of hammering out final details on the sale or transfer.
Plus, in some states (including California), RCFEs need continuous coverage. A gap could leave you exposed to fines or even the revocation of the facility’s state license.
For Sellers: Tail Coverage
If you’re selling or transferring ownership of your RCFE, check what type of policy you have. If your is a claims-made policy (as opposed to an occurrence one), take an extra step to protect yourself.
With a claims-made policy, the coverage applies to incidents that get reported while your policy is active — regardless of when the incident took place. So you could, theoretically, sell, then face a liability claim for something that happened shortly before the sale. Assuming you’ve cancelled your claims-made policy or transferred it to the buyer, you would be without protection.
Fortunately, insurers offer a product specifically for cases like this. Tail coverage protects you against claims made after your coverage ends.
Talk with your insurer about the right amount of tail coverage for you. Some people choose to keep it for a shorter period (like 90 days), while others get tail coverage that extends for years.
Our team is here to help you navigate all of this. Whether you’re an RCFE buyer or seller, we can work with you to avoid gaps in coverage. Contact our team at InsureMyRCFE at (805) 413-5668.
