While it’s easy to get wrapped up in the daily tasks involved with running a law practice and neglect the “what if” questions that could derail all of your hard work, ensuring the success of your practice should be top of mind. If there was an insurance that could protect your income, family and your legal practice, would you sign-up?
Sole-practitioners or owners of both small and large law practices have unique financial considerations compared to business owners in other industries. A law firm thrives on a lawyer’s ability to sell his or her time, knowledge and legal expertise. Often, attorneys are in the trenches with contracts and lawsuits, perhaps even working on cases related to illnesses or injuries, but many do not anticipate something serious occurring in their own lives that may prevent them from carrying on this work. If you or a business partner experience an illness or injury that keeps you out of work for an extended period of time, how would you continue to keep the practice running smoothly, generate revenue, income and ensure your personal finances remain on track? Disability insurance can be a key strategy to ensure that no matter what the future brings, practice owners stay on a positive financial path, so their firms can continue doing business.
One of the most common misconceptions about disability income insurance is that it solely protects from injuries related to accidents. In reality, 90% of disabilities are caused by illnesses like cancer, depression, multiple sclerosis, or a debilitating heart attack or stroke.[1] Given the commonality of these illnesses, practice owners should consider scenarios in which they or a partner have to miss work for an extended period of time. Exploring disability insurance options can protect your practice, your family and essentially your livelihood by providing guaranteed income. For many firm owners and lawyers, their families rely on the practice’s success and would need a safety net if the practice owner was unable to return to work.
An in-person meeting with a financial professional can provide in-depth information on the best options based on your practice, financial obligations and risk factors. Many may feel that they have enough money saved to get by for a couple of weeks, but without knowing how long you may be able to earn a paycheck it’s prudent to explore disability income insurance. Many disability income insurance policies have options that allow the insured to select coverage that in addition to providing income can also help make necessary mortgage and student loan payments. Reviewing several policies with a financial professional is the best way to mitigate loss and risk in the future. Here are a few reasons why law firm owners can benefit from disability protection:
Protecting Personal Income
As an attorney, you already know that a lawyer’s most important asset is their legal knowledge and the ability to sell his or her time. If a practice owner is unable to work due to illness or injury, it not only puts the firm’s operations in jeopardy, but it can also mean there is one less attorney in the firm generating revenue. Disability income insurance can help replace a portion of a lawyer’s paycheck and help ensure they maintain their lifestyle and not rush back to work in fear of falling behind on financial obligations. Disability income insurance may provide that sense of ease that will help them focus on the healing process.
In order to get the maximum benefit, it’s best to apply for disability insurance while healthy, to get the best protection at an affordable price. An important benefit of having disability income protection is that should a disability occur, the income received from the insurance policy can be used towards anything, such as paying the mortgage, gas, medical bills, groceries, and even a vacation. Disability income replacement sends the benefit payment directly to the policy owner to be used at his or her discretion. It’s protection that can help the insured maintain his or her personal financial objectives.
Covering Your Business Expenses and Protecting Your Employees
If an unexpected disability, illness or injury arose, your law firm would still need to meet its routine, day-to-day expenses, such as rent, utilities, and your employee salaries and benefits. Overhead Expense (OE) Disability insurance can assist with these payments if either the practice owner or a business partner is unable to come to work. Additionally, disability insurance, specifically disability buy-out (DBO) insurance can help the healthy partner buy the other partner’s share of the business. In the event of a disability or injury, you’ll need to consider if the firm can continue without the talents of any one co-owner, if clients will continue to view the business the same way, and how employees will feel. All these factors should play a role in why and how you invest in coverage as a firm owner.
Some practice owners may also want to explore options for a Qualified Sick Pay Plan (QSPP) funded with disability income insurance to help pay wages to a disabled employee in a tax-efficient manner. It helps protect a disabled employee’s and your business’ financial well-being, while also providing your business with a tax deduction. Working with a financial advisor can help evaluate if this business protection tool is right for you.
Safeguarding Your Ability to Pay Loans
Disability protection can help protect the practice’s ability to pay business loans and other contractual financial obligations, such as business purchase loans, equipment purchases or lease agreements, and business expansion loans. There are many ways lawyers can customize their protection, such as options that allow increased coverage as an individual’s income grows to help keep pace with the cost of living. There is also coverage that helps replace retirement plan contributions or protects the ability to repay student loans during a period that someone can’t work due to sickness or injury. What’s more, younger or up-and-coming lawyers can apply for disability insurance before law school graduation, with options to increase their coverage as his or her income grows and as they look to pay off student loans.
While it can feel discouraging to consider the “what ifs,” law firm owners can leverage disability insurance to their advantage in the worst-case scenario. From everyday payments to practice expenses and personal income needs, this coverage can provide an essential safety net for business partners, employees and families, making it one of the most forward-thinking and valuable investments to make as both a legal professional and a business owner.
[1] Gen Re, U.S. Individual DI Risk Management Survey 2011, based on claims closed in 2010.
