Key Considerations for Medical Practice Owners: A Comprehensive Guide for Brokers

Practice owners face unique disability insurance challenges that extend far beyond individual income protection. Unlike employed doctors, owner-doctors must consider business continuity, partnership obligations, and complex income structures when evaluating coverage needs. This guide explores three critical considerations brokers should discuss with practice owner clients.

Consideration 1: Business Continuity and Overhead Protection

Beyond Personal Income: Protecting Practice Operations

Practice owners face a double financial hit when disability strikes. While personal disability insurance addresses individual income needs, it ignores a critical vulnerability: the practice itself. Business expenses don’t disappear when the owner-doctor becomes disabled—they accelerate.

Fixed Expenses Continue: Rent, staff salaries, equipment leases, insurance premiums don’t pause for disability. The practice lease still demands $15,000 monthly. Staff paychecks still come due every two weeks. Medical equipment leases continue their relentless monthly drain on cash flow. These obligations persist whether the owner-doctor can work or not.

Revenue Generation Stops: When the owner-doctor can’t work, practice income plummets while expenses remain constant. A solo practitioner generating $80,000 monthly sees revenue drop to zero overnight. A group practice loses 40% of revenue when a key partner becomes disabled. Yet every expense continues at full force.

Cash Flow Crisis: Practices can face bankruptcy within months without proper overhead protection. Most medical practices carry less than 60 days of operating expenses in cash reserves. Consider Dr. Michael Torres, an ophthalmologist whose practice carries $45,000 in monthly overhead. After a stroke leaves him unable to perform surgery, his practice revenue drops 70%. Within three months, accumulated losses exceed $135,000. His personal disability coverage protects his family, but the practice—his life’s work—faces closure.

Key Expenses to Consider

Smart brokers help practice owners inventory overhead exposure systematically. The numbers often surprise doctors who focus on personal income protection while ignoring business continuity needs.

Commercial rent and utilities typically represent the largest fixed expense. Medical office space commands premium rents, often $30-60 per square foot annually. A 3,000-square-foot practice easily carries $15,000 monthly in rent and utilities—money that must flow regardless of the owner’s ability to work.

Staff compensation and benefits create ongoing obligations that extend beyond base salaries. Medical assistants, nurses, office managers, and administrative staff depend on consistent paychecks. Benefits, payroll taxes, and workers’ compensation add 30-40% to base salary costs. A practice with eight employees averaging $45,000 in total compensation faces $30,000 monthly in staff costs.

Medical equipment leases represent substantial monthly commitments. Diagnostic equipment, surgical instruments, and imaging devices often require five-year lease agreements with non-cancellation clauses. A well-equipped practice easily carries $8,000-15,000 monthly in equipment obligations.

Professional liability insurance demands annual premium payments regardless of practice activity. These premiums often exceed $50,000 annually for surgical specialists—money due whether the doctor can work or not.

Technology and software subscriptions create additional monthly drains. Electronic health records, practice management systems, telehealth platforms, and billing services typically cost $2,000-5,000 monthly for mid-sized practices.

The cumulative impact stuns most practice owners. A typical multi-doctor practice carries $60,000-100,000 in monthly overhead that continues during an owner’s disability.

Integration Strategy

Savvy brokers coordinate overhead expense coverage with personal disability benefits to create comprehensive protection. Business overhead expense (BOE) insurance fills the gap between personal coverage and business needs by covering fixed practice expenses during the owner’s disability.

Coordinate overhead expense coverage with personal disability benefits by analyzing both personal and business cash flow needs. If a practice owner needs $12,000 monthly for personal expenses and the practice requires $45,000 for overhead, total protection needs reach $57,000 monthly. Personal disability coverage alone leaves a devastating gap.

BOE policies typically provide 12-24 months of coverage, giving practices time to adjust operations, hire replacement doctors, or execute succession plans. The integration strategy also considers tax implications. Personal disability benefits may be tax-free if the owner paid premiums with after-tax dollars, while BOE benefits are typically taxable as business income.

MGIS Advantage: Disability Guard for Doctors™ coordinates with BOE coverage to provide seamless protection for both personal and business needs, ensuring practice owners receive comprehensive protection during their most vulnerable periods.

Broker Action Items

• Request detailed monthly overhead expense statements from practice owner prospects
• Ask: “If you couldn’t work for six months, how would your practice pay its $X monthly overhead?”
• Calculate total protection needs: personal income replacement + business overhead coverage
• Review existing BOE coverage limits and coordinate with personal disability benefits

Consideration 2: Ownership Income Protection Gaps

The Hidden Trap in Traditional LTD Policies

Practice owners face a devastating coverage gap that most brokers and doctors never see coming. Traditional group LTD policies contain a hidden provision that can slash disability benefits from thousands of dollars per month to nearly nothing—often without warning. This gap often isn’t discovered until claims are filed, leaving doctors financially devastated when they’re most vulnerable.

The Problem: Traditional LTD carriers factor in ownership income received during disability, potentially reducing benefits from $10,000-$15,000 to as little as $100 per month. This reduction occurs even when the disabled doctor cannot work a single hour.

Consider Dr. Sarah Chen, an orthopedic surgeon and practice partner earning $400,000 annually. Her group LTD policy promises a $15,000 monthly benefit if she becomes disabled. After a career-ending hand injury, she expects this benefit to cover her mortgage, student loans, and living expenses. Instead, she receives a shocking $100 monthly check.

Why It Happens: Ownership income often continues even when the doctor cannot work. K-1 distributions from partnership agreements, ongoing profit-sharing arrangements, and deferred compensation continue flowing to the disabled doctor. Traditional LTD carriers view this continued income as “disability earnings” and reduce benefits accordingly—dollar for dollar in many cases.

The mathematics are brutal. If Dr. Chen receives $14,000 in monthly ownership distributions while disabled, her LTD carrier reduces her $15,000 benefit to just $1,000—a 93% reduction. She loses nearly all expected disability protection precisely when she needs it most.

Real-World Impact: Practice partners may receive 50%+ of income from ownership, creating massive coverage gaps that can destroy financial security. These ownership distributions represent past work and invested capital, not current earnings capacity. Yet traditional carriers treat them identically to active work income.

This gap hits hardest in successful practices where doctors have built substantial ownership stakes. The more successful the practice, the larger the ownership income, and the more devastating the benefit reduction. Partners who spent decades building their practices find their disability coverage evaporates when they need it most.

Broker Conversation Starter

Open the door to meaningful conversations with this simple question: “How does your current LTD policy account for ownership income that you or a partner would still receive if disabled?”

Most practice owners have never considered this question. They assume their disability coverage protects their full income—including ownership distributions. This conversation starter reveals a coverage gap that demands immediate attention.

Follow up with specific scenarios: “If your practice generates $50,000 monthly in distributions to partners, and you become disabled but still receive your $12,500 share, how would that affect your LTD benefit?” Then ask: “Can you show me the exact policy language that addresses ownership income during disability?”

MGIS Solution Advantage

Disability Guard for Doctors™ addresses this gap with specialized underwriting designed specifically for practice owners. Unlike traditional carriers, MGIS understands the difference between active earnings and passive ownership distributions.

Proper evaluation of lagged vs. current earnings sets MGIS apart from traditional carriers. The MGIS claims team distinguishes between:

• Lagged earnings: Income from work performed before disability onset
• Current earnings: Income from work performed while disabled

If Dr. Chen’s ownership distributions represent profits from work she performed before her injury, MGIS treats these as lagged earnings—not disability earnings. This means her monthly benefit remains intact, providing the financial protection she expected when purchasing coverage.

This specialized approach recognizes the economic reality of medical practice ownership. Partners invest years building their practices and deserve protection that reflects their actual earning capacity, not accounting technicalities that gut their coverage when they need it most.

Broker Action Items

• Request copies of current LTD policies and highlight ownership income provisions
• Ask prospects to quantify their monthly ownership distributions (K-1, profit-sharing, etc.)
• Calculate potential benefit reductions under current coverage
• Demonstrate MGIS’s lagged earnings approach using prospect’s actual numbers

Consideration 3: Partnership Buy-Out Considerations

Protecting Partnership Agreements During Disability

Partnership disability creates legal and financial chaos that most practices handle poorly. When a partner becomes disabled, the practice faces immediate questions that partnership agreements rarely address adequately: Who owns what? How much is it worth? Who pays? When? These questions become urgent when a disabled partner needs cash and remaining partners need clarity about practice ownership and control.

Valuation Challenges: How is practice value determined when a partner becomes disabled? Dr. Jennifer Walsh and her two partners built a successful dermatology practice worth $2.4 million based on recent appraisals. When Dr. Walsh suffers a stroke that ends her career, her partnership agreement calls for buying out her one-third interest at “fair market value.” But what constitutes fair value when the practice just lost a key revenue generator?

Traditional valuation methods assume ongoing operations with all partners contributing. A disabled partner’s departure fundamentally changes practice economics. Revenue drops immediately. Patient relationships may not transfer. Referral sources might redirect business. The practice Dr. Walsh helped build for fifteen years is worth far less without her than the partnership agreement contemplated.

Funding Mechanisms: Cash flow for buying out disabled partner’s ownership stake creates immediate pressure on remaining partners. Even if Dr. Walsh’s one-third interest is valued at a reasonable $600,000, where do the remaining partners find this money? The practice faces reduced revenue from losing her productivity while simultaneously needing $600,000 for the buy-out.

Timeline Considerations: When does buy-out trigger? Immediate vs. waiting periods create tension between disabled partners who need money and remaining partners who need time to adjust operations. Dr. Walsh needs buy-out proceeds within months to maintain her financial stability. Her partners need years to rebuild practice revenue and accumulate buy-out funds.

Common Partnership Agreement Gaps

Most partnership agreements contain disability provisions that sound comprehensive but create problems when tested by actual disability. Brokers who identify these gaps before disability occurs provide invaluable service to practice owner clients.

Vague disability definitions that don’t align with insurance policies create disputes about when buy-out provisions trigger. Partnership agreements might define disability as “inability to perform substantially all duties,” while the partner’s disability insurance uses “inability to perform the material duties of your regular occupation.”

Unrealistic valuation methods during crisis periods ignore the economic reality of partnership disability. Agreements that require full fair market value appraisals assume normal business conditions. When a key partner becomes disabled, normal conditions disappear.

Insufficient funding for buy-out obligations represents the most common partnership agreement flaw. Partners negotiate buy-out terms without considering how to fund them. They assume practice cash flow will support buy-out payments, but disability reduces cash flow precisely when buy-out obligations arise.

Lack of coordination between partnership agreements and disability coverage creates gaps and inefficiencies. Partners purchase individual disability coverage for personal income protection but ignore how partnership buy-outs interact with these benefits.

Broker Advisory Role

Brokers who understand partnership dynamics become strategic advisors rather than insurance vendors. They identify problems before disability occurs and coordinate solutions that protect all partners’ interests.

Review existing partnership agreements for disability provisions as part of comprehensive disability planning. Most brokers focus solely on individual coverage while ignoring partnership agreement interactions. Smart brokers request copies of partnership agreements and identify potential conflicts with proposed insurance coverage.

Ensure buy-out funding aligns with disability benefit amounts by coordinating individual and partnership-level coverage. Partnership disability insurance can fund buy-out obligations, providing cash when partners need it most. This coverage eliminates the cash flow crisis that typically accompanies partnership disability while ensuring fair compensation for disabled partners.

Coordinate with practice attorneys on agreement updates to align legal documents with insurance coverage. Brokers should not provide legal advice but can facilitate conversations between attorneys and insurance professionals to optimize both legal and insurance protection.

MGIS Advantage

Disability Guard for Doctors™ includes specialized provisions for practice owners that coordinate seamlessly with partnership buy-out needs, ensuring disabled partners receive fair compensation while protecting remaining partners from cash flow crises.

Broker Action Items

• Request copies of partnership agreements during initial meetings
• Identify disability definition mismatches between agreements and insurance policies
• Calculate potential buy-out amounts based on current practice valuations
• Recommend partnership disability insurance to fund buy-out obligations
• Schedule joint meetings with practice attorneys to align legal and insurance protection

Conclusion: The Broker’s Value Proposition

Practice owners face disability risks that employed doctors never encounter. Brokers who understand these complexities become trusted advisors rather than product vendors. By addressing business continuity needs, ownership income gaps, and partnership obligations, brokers help practice owners build comprehensive protection strategies.

Next Steps for Brokers: Use these three considerations as conversation starters with practice owner prospects. Each topic reveals coverage gaps that traditional group LTD policies cannot address, creating opportunities to introduce specialized solutions like MGIS Disability Guard for Doctors™.