Purchasing disability insurance or income protection insurance is one of the most important steps one can take in completing their risk management strategy. Disability insurance for attorneys is no different. For most people, not having income from their job for an extended period can be financially catastrophic. So, whether you work for a corporation as in-house counsel or you’re a trial lawyer arguing cases in court, read on to find out how to protect your income with disability insurance.
What to Expect – Disability Insurance for Attorneys
Attorneys, like many professions, need disability insurance. Disability insurance will continue to pay you an income should you become unable to work due to sickness or injury.
Aside from the actual benefit amount, disability insurance for attorneys is priced according to your age, gender, and health. The fourth factor is your occupation. For attorneys, they hold one of the most favorable occupation classes, which allows for the lowest possible rates.
The average attorney/legal professional is a 46-year-old male. Men make up a little over 60% of the industry’s workforce. The average annual salary is $151,638.
Disability insurance for attorneys, like other professions such as accountants, are afforded the top occupation class with almost all disability insurance carriers. This allows attorneys to purchase premium coverage without breaking the bank. The challenge that some attorneys have is that traditional disability insurance doesn’t always offer enough benefit amount to cover their income.
Attorneys, judges, and other legal professionals often have income that exceeds the traditional disability insurance markets. This can leave someone underinsured and can cause financial hardship.
Most financial experts agree that someone will need about 65% of their monthly income to avoid financial hardship while they are temporarily out on disability. While that number may seem low, remember that disability insurance pays tax-free benefits (when the premiums are paid with after-tax dollars), so the amount to maintain lifestyle is often much less than actual earnings.
There are plans designed to be supplemental to your current underlying disability insurance plan. These are high income protection plans with limits of 100k per month (which covers almost two million dollars in annual earnings).
If you have no primary plan in place, we can assist you with a long-term plan, and then we can help you add a supplemental plan to get you to the level of income protection needed.
What to Look For
Disability insurance planning is complex. A lot goes into creating the right policy for your needs and goals. The good news is, if done right, you must only go through the process once, and then you’ll be protected through the rest of your working years.
Policy Design
Disability insurance for attorneys must have several key components for the coverage to be meaningful.
As we said, you must make sure 60-65% of your income is protected if you become ill or have an injury that prevents you from working for an extended period. Typically, a disability claim will last a little less than three years, so making sure you have proper income protection for that timeframe is critical.
The benefit length is also important. Although the average claim is only a few years, the earning power you have as an attorney places your net worth potential at the top of the food chain.
Because you have the perfect storm of high income, coupled with the best pricing on disability insurance, purchasing a longer benefit period makes sense. As with most professionals, you should have coverage that lasts a substantial portion of your working years. Depending on your state of residence, there are policies available that last to age 65, 67, or even age 70 and beyond.
Next, make sure you have a true own-occupation policy. This is a policy that covers you should you be able to do your actual job as an attorney. This definition may vary, depending on your business model; however, having a policy that allows you to make a claim if you can’t practice is necessary.
This type of policy will even have language allowing you to work in another profession (if you choose) and continue to receive your disability insurance benefits.
Last, residual disability is one rider that should be included on all disability insurance for attorneys. Residual disability allows you to make a claim if you’re unable to work full time, diminishing your income. Different carriers have different thresholds, but an income loss of 15% to 20% is common.
That means, if you had a medical condition that only allowed you to earn 75% of your income, you could make a claim that would make up some of that loss.
The Insurance Company
You probably don’t make major purchases in your life without shopping around and disability insurance should be no different. There is no “best disability insurance for attorneys.” The best policy covers an appropriate amount of income for a reasonable length and allows you to make a claim if you can no longer practice law.
Working with an independent agency that specializes in disability insurance (like ours) will allow you to find the best policy for your needs and goals. Pricing coverage from the top companies for attorneys, such as Guardian, Principal, and The Standard, will allow you to find the right disability insurance policy.
Group vs. Individual
There are several options for those in the legal profession who want to purchase long-term disability insurance.
American Bar Endowment Plan
One option is to purchase coverage through the American Bar Endowment. Offered through NY Life, you’re eligible to request coverage if you’re an American Bar Association member living in the U.S. (not a resident of NH, NV, OH, or VT), are under age 65, and are actively working full time.
This is a solid option, with own occupation coverage including your specialty, benefits to age 65, and a host of other optional features.
It does, however, only offer up to 12k/mo. in coverage and may not pay as much for partial/residual disability as an individual plan can. Also, it is a group policy, meaning the policy could be eliminated (unlikely) or changed to a new provider. It also wouldn’t allow for you to switch professions if you chose to later in life, since you must be an ABA member to retain coverage.
Last, mental/nervous disorders (such as depression) are a leading cause of disability claims (both new and existing). This policy only covers claims on this basis for two years.
Work Plans
Often, a large law practice will have a group policy available to most or all employees. Cover limits can normally be in the 5k-10k per month range. Their strengths and weaknesses are similar to those in the policy offered by the ABE plan.
While the coverage limits might be fine for paralegals, administrative staff, and newer attorneys, those that are more established or who are partners often have needs higher than what a typical group policy will offer.
One option is for each high earner to secure individual coverage. While this option allows for the most comprehensive and personalized protection, it also requires full underwriting and is the costliest.
A second option is to purchase a guaranteed standard issue (GSI) plan. These disability policies are offered to employee groups (normally 5 or more) and provide coverage without the stringent underwriting requirements in an individual policy.
These policies are often purchased by the higher earners in a law practice and allow for additional coverage above and beyond the group limits.
Sometimes, an attorney may have a group policy, a GSI policy, and a supplemental personal policy. Obviously, that person would be a high-income earner; however, in the legal profession, it is not uncommon.
Self Employed
For those attorneys that are self-employed, in partnerships, or members of smaller firms, their main option for comprehensive coverage is individual disability insurance customized with their own personal design.
Individual disability insurance for attorneys will be the best coverage money can buy.
That is a double-edged sword though…
Although individual disability coverage has the highest limits, best occupational definitions, and can be built to your specifications, it is expensive compared to group coverage.
Also, personal disability coverage requires underwriting, both medically and financially. That means it can be more difficult to find coverage than a group or association plan.
However, individual long-term disability insurance allows much more certainty (they can’t be canceled, and the rates can’t go up-if designed correctly) and flexibility (If you find yourself burnt out and want to go back and teach, you can take your policy with you) than any other type of income protection.
Those who are self-employed or are just starting a practice may qualify for more benefits than otherwise would be normal. Those who run their own business also have other considerations, such as overhead, succession planning, and contractual agreements.
Besides the individual disability insurance plans that our agency offers, we also have additional policies meant for the small to medium-sized law practice.
They include:
Income replacement
Excess disability (supplemental)
High limit cases
Salary continuation
Buy sell agreements
Business overhead expense (BOE)
Key person
Contract agreements
Bank loan or lease indemnification
Summary
Disability insurance for attorneys is attainable. Whether you are part of a corporation or large firm or you just hung your own shingle, we can help you secure this valuable coverage.
As with any profession, there is no such thing as the best disability insurance for attorneys. The policy that pays claims when you need it is better than everything else.
Weigh your options and find the policy that fits your needs and goals.
If you cannot get a supplemental plan due to health, age, high-risk avocation, high-risk travel or job, we can help. We can custom tailor a plan to meet your needs.
At www.highincomeprotection.com, we offer several high limit plans for personal and business use. We are an independent agency that specializes in providing expert, objective advice in helping you shop for your disability insurance.
Contact us today for a discussion about your needs. Complete the form on the left or just call. Our toll-free number is 888-636-2310.
We can help.