I was just conducting a live CLE with my friend, Mark Bassingthwaite over at ALPS and a funny thing happened. With all the great content on starting a 21st century law practice, the topic that generated the most questions was disability insurance. Now you may think this is odd but not really.
In the course of discussing opening a solo practice, naturally we got on the topic of insurance. Clearly, much was discussed about errors and omissions insurance, the pros and cons. But when I suggested if money was tight that a new solo was wiser to buy disability insurance instead of life insurance, that’s when the questions started to roll.
Let’s discuss it. (I take it for granted at this point but realize it remains a seldom discussed but very important topic.) When I started practicing, my local bar association offered a unique product at the time, discounted disability insurance which was gender neutral. This meant it was the same price for men and women, it was very inexpensive and the annual cost was fixed (level) for all my working years. I immediately signed up for it even though the ink was still drying on my new license and I didn’t have any income to ‘protect’. That was twenty years ago. I still have the policy.
My thinking was this: If I die tomorrow, I really don’t have any expenses or responsibilities to others. Proceeds from a life insurance policy would be just a gift to whomever was the beneficiary. However, if I got injured or incapacitated in some way I would have no way to pay my debts, sustain myself during my incapacity, or keep my practice afloat without some monthly income. It made more sense for me to buy an insurance policy that would replace a small portion of my income so my solo/small firm practice would not go under.
I had a very good insurance agent who was just starting out and was very aggressive. He explained to me that lawyers, for the most part, were good risks for disability insurance because it takes a lot for them to not be able to practice law for an extended period of time. Think about what lawyers do in contrast to firemen, policemen, carpenters, or any other type of work which involves a lot of physical labor. We could have a broken arm, etc. and still perform our job if necessary. We are/were considered A+ risk. And the premium reflected the fact we were A+ risk meaning we were low risk for payout. (Not sure if this is the language anymore, but it was then.)
The first question that came in during the CLE was, ‘If lawyers are such low risk for payout, why bother getting the insurance? If we can continue to work under most conditions and be unable to collect why spend the money on the premiums?’ Fair question and it makes sense. Well, I don’t disagree. But I also lived through a perfect example of how disability insurance can help keep your practice afloat should you become incapacitated. When I was pregnant I developed hyperemesis gravidarum. Fancy word for morning, noon, and night sickness. Basically, I couldn’t function in any responsible manner during the majority of my pregnancy. It took some arguing by my agent on my behalf. However, when he was done, I collected my contracted monthly disability amount for nearly six months. The insurance paid for itself many times over and kept my practice afloat.
Disability insurance has increased like all insurances. The restrictions on claims are greater and there is usually a three month waiting period before you can claim any income (this keeps the premium down to a manageable level) unless you want to pay a much higher premium. There are also many more accident and illness products out there to investigate such as Combined Insurance and Aflac. The point of this post, however, is that you SHOULD investigate the benefits of a disability-type policy for accident or illness. The traditional policy I have had for 20 years is becoming harder to find and more difficult to qualify for but if you are younger, just starting out and appreciate the value of supplemental income should you become incapacitated, you do want explore what options might be right for you.