Short answer: if you own a practice with a partner, a buy-sell agreement is the contract that decides what happens to each owner’s share when someone dies, becomes disabled, retires, or wants out — and life and disability insurance is what funds the buyout so the surviving owners aren’t forced to find cash or take on an unwanted co-owner. Without one, a partner’s death can hand you their spouse as a business partner.
What is a buy-sell agreement?
It’s a binding contract among co-owners that spells out what happens to a departing owner’s interest and at what price. The triggering events are usually the “five Ds” — death, disability, divorce, departure, and disagreement. A good buy-sell answers, in advance, who can buy the share, how it’s valued, and how the purchase is paid for — turning a potential crisis into a defined process.
Why does a dental partnership need one?
How does insurance fund it?
The buyout needs cash exactly when it’s hardest to come by. Life insurance funds a buyout on an owner’s death; disability buyout insurance funds one when an owner becomes permanently disabled. The owners (or the entity) hold policies on each other so that, when a trigger hits, the insurance provides the lump sum to purchase the departing owner’s share — no scramble for financing, no forced sale.
Cross-purchase vs. entity-purchase
| Cross-purchase | Entity-purchase (redemption) | |
|---|---|---|
| Who buys the share | The other owners individually | The practice entity itself |
| Who owns the policies | Each owner on the others | The entity on each owner |
| Best for | Two or a few owners | Several owners (fewer policies) |
| Tax/basis effects | Can step up buyers’ basis | Different basis and tax treatment |
Which structure fits depends on the number of owners, ages, and tax goals — a decision for your attorney and CPA, coordinated with the funding. More owners can make many cross-purchase policies unwieldy, nudging toward an entity or trusteed arrangement.
Common mistakes to avoid
- No agreement at all — the most common and most dangerous gap in a partnership.
- An unfunded agreement — a promise to buy with no cash to do it.
- A stale valuation formula — revisit how the price is set as the practice grows.
- Coverage that hasn’t kept pace with the practice’s rising value.
- Forgetting the disability trigger — a disabled partner is more likely than a deceased one.
How this connects to your bigger plan
A buy-sell is both risk management and succession/transition planning — it’s how a partnership protects each family and keeps the business intact. It should be coordinated with your personal life and disability coverage and your estate plan. Educational only — the agreement itself is legal work for a qualified attorney, funded with a licensed insurance professional; we help coordinate the pieces.
Frequently asked questions
It’s a contract among co-owners that decides what happens to an owner’s share on death, disability, divorce, departure, or disagreement, and at what price. Dental partners need one so that, if a partner dies or becomes disabled, the surviving owners can buy the share cleanly rather than ending up in business with the partner’s heirs. Life and disability insurance funds the buyout.
Usually with insurance: life insurance funds a buyout on an owner’s death, and disability buyout insurance funds one if an owner becomes permanently disabled. The owners or the entity hold policies so the cash to purchase the departing owner’s share is available exactly when a trigger occurs.
Sources
Founder & Financial Planner · Investment Adviser Representative · Series 63 & 65
Ian McGinnis is the founder of Dental Wealth Partners and a fee-only financial planner dedicated to dentists. As an investment adviser representative (Series 63 and 65), he built the firm to give dentists coordinated, fiduciary advice across their practice, taxes, investments, retirement plans, and long-term goals — the whole picture in one strategy. A graduate of Belhaven University, Ian previously worked at Davis Private Wealth, MML Investors Services, and Northwestern Mutual, and is based in the Jackson, Mississippi area. He is the author of The Wealthy Dentist and hosts the Smiles & Cents podcast.
Keep reading
- Multi-entity structures for growing dental ownersAs dentists add locations, partners, or real estate, multiple coordinated entities — operating, real estate, and sometimes a management company — can help.
- Disability insurance for dentists: what to knowWhy disability insurance is essential for dentists, what “own-occupation” coverage means, and how to think about how much you need.
- Term vs. whole life insurance: what do dentists actually need?Most dentists are best served by term life insurance plus investing the difference. When whole life makes sense — and why it’s so often oversold.