You can insure against loss of key employees

Certain employees in your practice serve as keystones, but what happens if they can no longer perform their duties?

Q: The manager of our four-provider practice is a key part of our team. If she became disabled, is there a way we could replace the income she helps us produce until we could find a replacement?

A: “Key person” insurance is an effective way to provide a small- to medium-size business with funds to handle the disability or death of a key employee. A key employee is defined as someone who contributes significantly to the financial success of a business. In the case of a medical practice, the person may be a practice manager, a physician’s assistant, physician, or physician-owner.

Under this form of insurance, the employer pays the premium and owns the policy that insures the key employee. If the employee becomes totally disabled, the employer receives benefits to offset costs related to recruitment and training, temporary staffing, and short-term revenue replacement. A similar type of policy protects the practice in the event of a key employee’s premature death by providing a death benefit to the practice.

Perhaps one of the best applications of key person disability insurance is in the case of a medical practice that is owned by a husband and a wife. In this situation, traditional disability buy-out insurance normally would be unavailable. With key person disability insurance, as long as a non-majority insured (someone who owns 50% or less of the practice) meets the definition of total disability, the policy owner receives either a lump-sum payment or a combination of monthly and lump-sum payments, depending the policy’s structure. 

The answer to our reader’s question was provided by Lawrence B. Keller, CFP, CLU, founder of Physician Financial Services in Woodbury, New York. Send your money management questions to Also engage at: and



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