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What Lawyers Need to Know About Disability Income Insuranceby Steve Willis
You know how it feels when a client ignores your well founded advice. Advice that is based on years of experience. Advice that could prevent years of serious trouble or personal problems.
You possibly may be doing something similar that would greatly impact your financial security, perhaps without being aware of it! The truth is there's one invaluable precaution that you may not have taken seriously enough - that is to make sure you have the correct disability insurance coverage to protect your family and your firm. Perhaps you believe that you're fully covered by a group policy your firm has purchased. However, the truth is that while group disability insurance is often relatively inexpensive and easy to administer, it can also fall short just when you need it most leaving you in for some unpleasant surprises when it's too late to correct the situation.
Furthermore, disability may be far more common that 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 imagine.
According to a recent study, although most people believe they have only a 16% chance of becoming disabled during their working years1, the startling reality is that:
Want to be better prepared? Consider the following:
Understand the importance of policy provisions
The right disability income policy can help you keep your household going, even if you suffer a long-term disability. But before you go shopping for a disability 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 significant provisions you should look for in coverage you can count on.
Non-cancelable. To avoid the possibility of losing your coverage just when you need it most, choose a policy that's non-cancelable and guaranteed renewable to age 65 with premiums also guaranteed until age 65. With group or association 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 guaranteed renewable for life, as long as you work full time.
"Own Occupation". Own occupation coverage defines "totally disabled" and therefore eligible for benefits as "being unable to perform the material and substantial duties of your own occupation even if you are working in a different occupation." As a highly skilled professional, who has invested so much in education and training, you want to make sure you have genuine own occupation coverage, so that even if you teach, for example, in your field, but cannot practice law you will still be eligible for benefits. Group coverage is rarely true own occupation coverage.
Residual disability coverage. Through a rider, a good individual disability plan can provide you with protection against the income loss you may suffer as a result of partial (residual) disability - even if you have never suffered a period of total disability. This kind of residual coverage is not available with most group plans.
A choice of "Riders". Riders offer optional additional coverage such as annual Future Increase Options, and Cost of Living Adjustments, or "COLA".
Insurance companies are notorious to dispute many claims - including legitimate claims. I saw an example of why provisions are important when a potential customer contacted me about group coverage he had through a national association and wanted to replace it because his company had refused to pay his claim. This lawyer had a severe allergic reaction to an anti-inflammatory drug and had missed some time away from his practice.
Because he was concerned about losing clients to his competitors in his small town, he decided to try to get back to the office sooner than he probably should have. After being out for six weeks, he returned to work and attempted to make a go of it for about a week, but be he soon realized that he wasn't physically ready and took off more time. His association coverage required him to start the waiting period over again because the policy stated the waiting period had to be 90 consecutive days. Policies have waiting periods (elimination periods) before benefits are payable.
Most quality non-cancelable carriers will not require a period of consecutive days during an elimination period and will allow you extra months to accumulate, so if you have trial periods you will not be penalized. This is just one example of why it is very important to make sure the plan you have or are considering purchasing, has provisions that will be the most claim friendly when you need it the most - at the time of claim. Unfortunately, our company could not help this person because he now has a pre-existing condition making him uninsurable from another cause as well.
Protecting your firm, as well as yourself
As a lawyer, 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 disability providers that offer high-quality individual coverage, offer your firm protection while you recover from a disability.
To help meet the expenses of running the office while you're disabled, consider a separate type of disability coverage known as Professional Overhead Expense of POE. Benefits reimburse your firm for expenses such as rent for your office, electricity, heat, telephone, 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 regular business 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 any junior attorneys. 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.
Partnership Buy Out Policies
Lawyers who are partners in a group will want to consider a policy known as a Disability Buy-Out or DBO. This policy works in the same way that a life insurance benefit can be set aside to fund a buy-out by the remaining partner (or partners) if one partner dies. DBO is designed to fund the healthy partners' purchase of the disabled partner's share of the business. With the proper agreement in place before disability occurs, hard feelings and the conflicts of interest that result from a partner's disability can be avoided. Furthermore, in combination with the disabled partner's individual coverage and professional overhead policy, a buy-out policy can allow the firm to continue to generate an income for the healthy partner, while the disabled partner is supported by the benefits from his or her individual disability policy. Any continuing share of the firm's expenses is reimbursed by the disabled partner's overhead expense policy.
Group plans might not always fill in the gap
Be aware that if the firm is paying the premium on a disability policy that is offered for you, that it is most likely that the benefits are going to be a taxable event to you. It is recommended that you fill in the gap with a non-cancelable policy that will provide tax-free income for you in the event of an injury of sickness.
Make sure the agent you work with is reliable and knowledgeable
It is also important to have an agent that has some expertise or experience in the business. Just because an agent has an insurance license does not mean that agent has a thorough understanding of what provisions are important for the field of law. Excellent representation does matter!! Always alert your carrier and agent as soon as possible that you have a situation - even if it seems minor at the time - you might be leaving dollars on the table.
A couple of years ago a Missouri Bar member had a deer hunting accident. While reviewing his policy, my lawyer client mentioned his accident several months earlier. I asked why he hadn't contacted me about his accident. His response was that he examined the policy and had noted that he hadn't missed enough time to trigger benefits on a 90 day wait contract, and that the loss of income was not present because he had worked through a lot of the situation.
He mentioned in passing that he had a difficult time getting his medical insurance carrier to pay his bills from the rehabilitation therapy he had undergone after the accident. I suggested filing a claim to see if the company would consider some payments under the rehab clause in the contract, which stated that they needed written approval before entering a program. My client called me a few weeks later and couldn't believe he received a check for $5000 - money he would have never seen had he not shared his situation with me.
Now is the time to evaluate coverage
In recent years many carriers have made significant changes to the policies they offer in today's marketplace. The carriers have been experiencing losses in their disability business and the restructured policies are replacing the type of coverage that has traditionally been offered. The good news is there are carriers out there still offering the important provisions for your occupation. Your premiums are based on many factors such as age, health, and occupation. You know how valuable it is to be fully prepared in all areas of life. Having the right coverage could be vitally important to your economic future and help protect one of your most valuable assets - the ability to earn an income practicing law.
Steve Willis is a financial representative with the Guardian Life Insurance Company of America, which is the endorsed non-cancelable disability policy for The Missouri Bar. Steve has been in the industry for 15 years and is one of the companies leading disability producers in disability income for the company. Steve graduated from Kansas State University where he was a four year starter on the football team.
You can reach Steve Willis at The Guardian by calling 800/626-4873.
1 Gallup survey conducted for UNUM Corporation ( 508 respondents ages 30 to 65), reported by Best's Review.
2 "Why Disability" booklet, published by National Underwriter.
Something to Think About
Fiction: "I'll get disability insurance in a few years; I'm in perfect health right now."
Fact: No matter how young and healthy you are, disability can strike at any time through an accidental injury or an unexpected illness. And once you're unable to work, it's too late to get the protection you need. Consider the table below to see how some young policyholders benefited from having the coverage they needed, when they needed it. Consider also that many of them had not owned their policies for very long. If they had waited "a few years," they would have found themselves with no coverage when their disabilities occurred.
Fiction: "Why should I pay all that money into something I'll never use?"
Fact: If you become disabled at a relatively early age, as many of those in this table, you will receive far more money in benefits than you've paid out in premiums. And no matter when you become disabled, your peace of mind and ability to support your household while you recover will be priceless - well worth whatever you have paid for your protection.
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Paid for by The Missouri Bar Sebrina Barrett, Executive Director PO Box 119 Jefferson City, MO 65102