Key Person Coverage for Dental and Medical Practices

Walk into most small dental or medical practices and you'll see a lot of insurance. The building. The equipment. Malpractice. Cyber, sometimes.

Now ask what protects the practice if the doctor is gone.

That's usually where it gets quiet.

In a lot of practices, almost everything runs through one person. The schedule. The production. The patient relationships. The loan for the build-out, with a personal guarantee on it. If that person can't work, the practice doesn't slow down. It can stop.

I'm Harvey Baker Jr., a licensed Texas agent in McKinney. I work with North Texas owners who run practices, shops, and crews of about 5 to 50 people. Here's how key person coverage works for a practice, in plain English.

What key person coverage does

Key person insurance is usually a life insurance policy the practice owns, on someone the practice can't easily replace. The practice pays the premium. If that person dies, the practice gets the money.

That cash can help the practice:

• Keep paying staff while you figure out what's next

• Cover rent, equipment notes, and the practice loan

• Bring in a temporary or replacement doctor

• Hold the practice together long enough to sell it for a fair price instead of a fire-sale price

It's not for your family. Your family needs its own coverage. Key person coverage is for the business you built.

Why practices are different

Most small businesses depend on the owner. Practices depend on the owner in a more literal way.

• The doctor is often the main producer. When they stop seeing patients, a big part of the revenue can stop with them.

• Patients follow people. If the doctor is gone, patients may book somewhere else, and they may not come back.

• Replacing a doctor takes time. Recruiting, credentialing, and onboarding don't happen in a week.

• The debt doesn't pause. Build-out loans, equipment financing, and leases still want their payment on the first of the month.

• The value can drop fast. A practice without a doctor seeing patients can be worth a lot less to a buyer.

That's the gap key person coverage is built to cover: the stretch between "the doctor is gone" and "the practice is stable or sold."

What about disability?

Here's the honest part. For a lot of doctors and dentists, the bigger risk isn't dying. It's being unable to work for a while. A hand injury. A back problem. A long illness.

Life-based key person coverage doesn't pay for that. Other tools can help, like disability coverage for the owner, or business overhead expense coverage that helps pay practice bills while you're out. I wrote more about that here: Disability Coverage for Owners: If You Can't Work, Who Runs It?

A good plan usually looks at both: what happens if you die, and what happens if you're alive but can't work.

How to think about the number

There's no magic formula, and anyone who gives you one without asking questions is guessing. Here's how I'd start the conversation:

1. What would it cost to keep the doors open for six to twelve months with no production from you?

2. What debt is the practice carrying, and what did you personally guarantee?

3. What would a replacement doctor cost to find and bring on?

4. What is the practice worth today, and how much of that value walks out the door with you?

Your CPA can help with the numbers. I go deeper on sizing in How Much Key Person Coverage Does Your Business Need?

Hypothetical example for illustration only: Picture a two-chair dental practice in Frisco with one owner-dentist, four staff, and a build-out loan she personally guaranteed. In this example, she and her CPA estimate what it would take to cover payroll, rent, and loan payments for nine months, plus the cost of bringing in an associate. That total becomes the starting point for the key person amount. Separately, her family coverage is sized for her family. Two different jobs, two different numbers.

Who should own the policy

Ownership matters, and it changes how the money flows and how it's taxed.

• Key person coverage is usually owned by the practice and payable to the practice.

• Buy-sell coverage (if you have partners) is set up so a partner's family gets paid and the other owners keep the practice. More here: How to Fund a Buy-Sell Agreement With Life Insurance.

• Your family coverage is usually owned by you, your spouse, or a trust.

Mixing these up is one of the most common messes I see. Talk with your CPA or attorney before you set up ownership and beneficiaries.

Questions to ask yourself

• If I couldn't see patients starting tomorrow, how long could the practice cover its bills?

• Who would see my patients?

• Which loans and leases have my personal guarantee on them?

• Does my partner, associate, or lender expect coverage to be in place?

• Does my buy-sell agreement say how a buyout gets funded?

• When did I last look at my coverage, and has the practice grown since?

If those answers make you a little nervous, good. That's the point of asking them now.

Nothing in this article is tax, legal, or financial advice. Talk with your CPA or attorney about your situation. Coverage, eligibility, and rates vary by carrier and health.

Get your Gap Map (free, 20 minutes)

If you want a clean starting point, I built a one-page Gap Map: where your home, your practice, and your exit still depend on one person. Three columns. Plain English. You keep it either way, whether you buy anything or not.

Call or text 430-373-7752 with the word MAP for a free one-page Gap Map. Or learn more at bakerlegacypartners.com.

Built by you. Protected without you.

Insurance products involve costs, limitations, exclusions, and suitability considerations. This article is educational and is not tax, legal, securities, or financial advice.

Harvey Baker Jr., Licensed Texas Life, Accident & Health Agent, TX License #3470534. Coverage, eligibility, and rates vary by carrier and health.