2015 10 01 Getting the Most out of Disability Insurance

Many solo and small firm attorneys don’t start thinking about acquiring disability insurance until it’s too late. Disability insurance can quickly become essential, when a health-related setback occurs – especially one that will necessitate an extended period of leave, or the winding down of a law practice. Given that, we’re pleased to provide you with this guest post from Pete Miller, of MillBrook Benefits. If you have questions about disability insurance, Pete is available via phone, at (866) 724-0008, or email at pete@millbrookbenefits.com. Of particular interest to attorneys may be that one of Pete’s vendors, the Principal Financial Group, is offering free business valuations to law firms with at least $500,000 in annual revenue. If you qualify and are interested in engaging that process, contact Pete.

. . .

Over the years, we’ve seen some common mistakes that attorneys make with their disability insurance. These mistakes can lead to unknown gaps in coverage, that won’t reveal themselves until there is an accident or illness – and that’s the worst time to discover a problem. The following is a list of five of the most common mistakes we see, and how to avoid them.

Thoroughly Review Group Insurance Policies. Many group disability insurance plans are lacking in one or more areas. The most common area of deficiency is in policy language, specifically how ‘disability’ is defined. What defines a “disability” is the crux of the contract. Most group contracts will limit the ‘own occupation coverage’ to 24 to 36 months; and those that do extend coverage for the full duration of the disability do not often cover a specific attorney’s area(s) of specialty. Most group policies cover base salary, but neglect other important areas of compensation, like bonuses and partnership distributions. Group policies are usually not portable; sometimes a conversion provision will be included, but the converted coverage is usually fairly basic.

Review Group Insurance Pricing. Lawyers should apply due diligence, in continually reviewing pricing for group disability policies. Group disability contracts are subject to pricing changes over time. Policies with higher coverage limits and better provisions can be targeted for rate increases. Once a plan is in place, though, it’s really easy to let it renew year after year – especially if the cost doesn’t change very much. The reality is that insurance companies adjust their approaches to different industries frequently, so it’s hard to know if pricing is competitive and current, unless you conduct a market study at least every couple of years.

Insure Retirement Plan Contributions. It’s important to save for retirement; and many law firms have implemented qualified and non-qualified plans to help their lawyers and staff to do so. However, a disability can interrupt the ability to save; and the impact on account balances can be devastating. For example, an attorney that begins saving $2,000/month at the age of 30 can expect to have around $2.2 million by the time he turns 65, given a 5% return. If contributions stopped at age 40, because of a disability, the nest egg would be about $1.2 million less than planned, using the same 5% return. If a disability policy is available to cushion that blow, the policyholder can better secure retirement savings.

Acquire Sufficient Coverage. The disability of a partner, or key employee, can be difficult for law firms, particularly smaller ones. In order to determine whether your coverage is sufficient, ask yourself the following questions: If a partner is disabled, will the firm be able to pay overhead expenses? If a partner is permanently disabled, is there a funding mechanism in place for a buy-sell agreement? If a key employee, who is not a partner, is disabled, what is the impact on the firm? Better understanding the prevailing contributions of important members of the law firm allows decisionmakers to develop informed choices about disability insurance coverage.

Review Your Policy Every 2 Years. If it’s been more than two years since you’ve taken the time to review all of the facets of your disability protection, it’s probably time that you did so. My firm, and others, offer no-cost, no-obligation policy reviews, to ensure that the coverage you have in place is current, sufficient and appropriately-priced.