Dental Practice Key Person Insurance: Coverage Review

Dental practice key person insurance is a life insurance policy the practice owns on a clinician whose work drives its income. If that dentist or physician dies, the proceeds go to the practice. The practice can then use them to help cover payroll, rent, and loan payments. This page explains how the coverage works in dental and medical offices, and how a coverage review with NR CPAs & Business Advisors can help you decide.

What key person insurance is and who it fits

Key person insurance is a policy a business buys on someone whose work it depends on. The Insurance Information Institute describes it as a way to offset financial losses from the death or disability of a key employee. In a dental or medical office, that person is often the owner-dentist or lead physician. Their patient base, license, and daily clinical work are hard to replace quickly.

This coverage often fits three kinds of practices:

• A solo owner who employs associate dentists or physicians.
• A group practice with several owners who rely on each other’s work.
• A practice that carries a practice loan or equipment financing.

The practice, not the clinician, is usually the policy owner, premium payer, and beneficiary. That structure drives the tax and cash flow questions covered below.

What a dental or medical practice policy covers

The proceeds are paid to the practice, and the practice decides how to use them. Common business costs include:

• Payroll for staff while the practice plans for the loss.
• Rent or lease payments.
• Loan and equipment payments.
• Recruiting and training a replacement clinician.

Most key person policies pay a death benefit. Disability-related cover may be available, but the options depend on what the carrier offers. Term life insurance covers a set period. Whole life insurance lasts for the insured’s lifetime and has cash value. The NAIC Life Insurance Buyer’s Guide explains these differences. In each review, guaranteed and non-guaranteed values are shown separately. Nischay Rawal is the licensed insurance agent for this coverage. Each policy is issued by a named insurer, and the review identifies that insurer.

How the practice owns, pays for, and receives the policy

The practice applies for, owns, and pays for the policy, and it receives the proceeds. The insured clinician must agree in writing. Florida law requires that a business get written consent from the key person before buying coverage on that person’s life. The same statute bars the business from retaliating against someone who says no. See the Florida insurable interest statute.

Premiums are a monthly cash cost the practice must plan for. The practice should record each premium in its books in line with how the policy is set up.

When a death claim is paid, the proceeds go to the practice. The practice can then apply them to overhead, debt, or a buyout, if its business agreements allow it.

Tax and cash flow questions a CPA reviews

Federal tax rules affect both the premiums and the proceeds. Under 26 U.S.C. 264, no deduction is allowed for life insurance premiums if the taxpayer is directly or indirectly a beneficiary. A practice that names itself beneficiary should not expect to deduct those premiums.

Proceeds paid by reason of death are generally excluded from gross income, but exceptions apply.

If the insured owned the policy at death, the proceeds can count in the gross estate.

Insurance is offered by the licensed agent, separately from the accounting practice. If the firm accepts a commission on a sale, Florida law requires written disclosure to the client.

How a coverage review works, step by step

A coverage review moves through five steps, from the practice’s structure to the application.

1. Initial review. We discuss the practice’s structure, its owners, and the clinicians whose work drives revenue.
2. Gather the numbers. List monthly payroll, rent or lease, loan and equipment payments, and the estimated cost to hire a replacement.
3. Health questions. Health questions are required as part of underwriting. Issue may depend on insurability, and the review explains what the carrier will ask.
4. Compare options. Each option shows its premiums next to the coverage it buys.
5. Application and review period. After a policy is delivered, take time to read it carefully and ask your licensed agent to explain its terms in plain words.

Coverage for partners: linking key person and buy-sell insurance

Key person coverage supports the practice’s operations after a loss. Buy-sell coverage funds a transfer of an owner’s share under a buy-sell agreement. A dental or medical partnership may need both.

Florida’s partnership law requires the partnership to buy the interest of a partner who leaves without ending the partnership. The price is set under the statute. See Florida’s dissociated partner statute.

Review the partnership agreement and the policy ownership together. Who owns each policy shapes what the proceeds can fund.

Why NR CPAs for this coverage review

NR CPAs & Business Advisors is a Miami CPA firm. It helps families, professionals, and business owners across the United States choose and buy life insurance. That includes Indian-American households and business owners.

Our team looks at the tax and cash flow side alongside the policy. The practice’s numbers and the coverage are reviewed together. Insurance is offered through the licensed agent, Nischay Rawal, separately from the accounting practice. We serve clients in Florida, including Miami, Fort Lauderdale, West Palm Beach, Orlando, Tampa, and Jacksonville, and in other states.

Frequently asked questions

Talk with NR CPAs about your practice’s coverage review

Protecting a practice starts with knowing what it would need if a key clinician were lost. If payroll, rent, and loan payments have no clear source, the next step is a review of the numbers and the coverage. Contact NR CPAs to set up your coverage review.