Bar News - June 20, 2008
NHBA Insurance Agency
Disability Income Insurance: What Every Attorney Needs to Know
By: Sue Morand
Would you ever show up in the courtroom, or at a client meeting, without properly preparing your case or researching your client’s situation? Of course not, the idea of being poorly prepared is the stuff of nightmares.
But no matter how well you prepare your cases, there is an all-too-common scenario that you may not have anticipated fully: what would happen if you were to become disabled?
Disability may be far more common than you imagine. Even if you’re young and careful, it could happen to you through an accident, an injury, or a lengthy illness. And in fact it does happen, probably much more often than you might think.
Want to be better prepared? Consider the following:
Learning to speak the lingo
The right disability income insurance (DI) policy can help you keep your household going, even if you suffer a long-term disability. But before you go shopping for a DI policy, you need to know what features to look for and the language the insurance industry uses to describe them. The following terms are part of the language describing high-quality policies, and are what you should look for to get coverage you can count on:
• Non-cancellable: To avoid the possibility of losing your coverage just when you need it most, choose a policy that’s non-cancellable and guaranteed renewable to age 65, with premiums also guaranteed until age 65. With group coverage, you run the risk of being dropped and left unprotected at a time in your life when, due to your age or a change in your health, it would be very difficult to qualify for coverage from another provider.
• Conditionally renewable for life: Although premiums may increase after age 65, your policy should be renewable for life, as long as you are at work full time.
• "Own-occupation": Own-occupation or "own-occ" coverage defines "totally disabled," and therefore eligible for benefits, as being unable due to sickness or injury to perform the material and substantial duties of your own occupation even if you are at work in another capacity. As a highly skilled professional, you want to make sure you have genuine own-occupation coverage so that even if you can teach, for example, in your field, but cannot practice law, you are still eligible for benefits. Group coverage is rarely true own-occupation coverage.
• Residual Disability coverage: Through a rider, a good individual DI policy can provide you with protection against the income loss you may suffer as a result of a partial (residual) disability, even if you have never suffered a period of total disability.
• A choice of "riders": Riders offer optional additional coverage such as Future Increase Options, Automatic Increase and Cost of Living Adjustments (COLA).
Protecting your business, as well as yourself
You must also protect the source of your income: the firm you’ve worked so hard to establish and grow. Special policies, available from the same DI providers who offer individual coverage, offer your office protection while you recover from a disability.
To help meet the expenses of running the office while you are disabled, consider a separate type of disability insurance coverage know as Overhead Expense or OE. Benefits reimburse your practice for expenses, such as office rent, electricity, heat, telephone and utilities, as well as interest on business debts and lease payments on furniture and equipment.
Overhead expense insurance specifically designed for professionals pays some additional costs not included in most overhead expense policies, including the salaries of employees, except those who are members of your profession. In an office such as yours, for example, salaries for the receptionist and staff would be covered, but not the salary of your law partners or associates. However, high-quality professional overhead policies will cover at least part of the salary of a professional temporary replacement for you, such as a lawyer retained to fill in during your total disability.
Lawyers who are partners in a group will want to consider a policy known as a Disability Buy-Out or DBO. In much the same way that life insurance benefits can be set aside to fund a buy-out by the remaining partner (or partners) if one dies, DBO is designed to fund the healthy partners’ purchase of the disabled partner’s share of the business.
In combination with the disabled partner’s individual Disability Income coverage and OE, a DBO policy can allow the business to continue to generate an income for the healthy partner, while the disabled partner is supported by the benefits from his or her individual DI policy. Any continuing share of the business expenses is reimbursed by the disabled partner’s OE policy.
In the case of DI protection, as in your legal work, a little extra planning and research in advance could prove invaluable at a later date.
If you’re interested in learning more about disability insurance, please contact Sue Morand at NHBA Insurance Agency; toll free at 866-642-2292 or via e-mail to firstname.lastname@example.org.