General Practice, Solo & Small Firm Division


Volume 15, Number 3
July/August 1999

Disability Insurance for Lawyers

By Di Mari Ricker

There are two types of people in this world: those who take a pass on disability insurance and those who wouldn’t be caught dead—or disabled—without it. Each camp is armed with the "truth." It’s too expensive; no, you can’t afford not to have it. It’s unnecessary because the odds of becoming disabled are so slim; ah, but the odds of becoming disabled at a younger age are greater than the odds of dying.

When looking at the general public, approximately 54 million Americans, or 21 percent of the population, have a disability.1 That means one in five people will become disabled at some point in her life. A survey of adults with disabilities found that 72 percent (more than 38.8 million) had become disabled before the age of 55—during their prime earning years. Plus, the Social Security Administration predicts that during the next ten years, the aging baby boomer generation workforce will spark a 37 percent increase in the incidence of disability.2

But Peter C. Katt, a fee-only life insurer in Mattawan, Michigan, counters that these statistics come from the general population, and would be vastly different if limited to just lawyers, whose work is physically much easier than that of blue-collar workers; and who have much more to lose financially and much less incentive to become disabled.3

No matter what the odds, pretty much everyone agrees that if you become completely disabled, the loss of current and future income could be substantial. A person currently earning $8,000 per month at age 30 who becomes completely disabled (cannot work in any capacity) would stand to lose $3.36 million over his lifetime. Similarly, a 40- or 50-year-old person earning that same amount monthly would lose $2.4 million or $1.44 million, respectively.4 Couple this loss of earnings with medical bills and possibly the cost of long-term or skilled nursing care, and your hard-earned savings and investments could be completely wiped out in a matter of months or years.

Lawyerly Disabilities

According to Stan Siegel, a Philadelphia solo, "It is three to four times more likely that an attorney will become disabled for a period of at least 90 days prior to age 65 than that he or she will die." The top four health problems giving rise to disability claims among lawyers are: musculoskeletal, back, cardiovascular, and psychological, according to internal UNUM Life Insurance Company of America statistics. This mirrors the results of a U.S. Bureau of Census study of all professions.5

Lawyers are increasingly filing disability claims for both physical ailments and mental disorders. For example, in Massachusetts, according to claims sources, mental health and substance abuse disorders have increased from 13 to 40 percent of all lawyers’ disability claims during the last five years.6

Gender Matters

Gender may play a role in whether or not you ever file a disability claim. While men are more likely to have disability coverage (42 percent) than women (32 percent), they are less likely statistically to experience a disability.7 According to a Department of Health and Human Services report, "in 1994, women experienced 787.0 days of disability per 100 persons due to an acute condition, compared to 594.7 for men."8

Men are more employable, even with a disability, than women, as shown in a 1994-1995 survey of employment rates. In this U.S. Bureau of Census report, the employment rate for men aged 21-64 was 89.8 percent with no disability, 85.1 percent with a non-severe disability, and 27.8 percent with a severe disability, while the rates for women were 74.5 percent, 68.4 percent and 24.7 percent, respectively.9 The World Health Organization projects that in 2020, Unipolar Major Depression, which women are twice as likely to experience as men, will be the second leading cause of global disease burden measured in terms of Disability—Adjusted Life Years.10

Policy Options

Susan Lloyd-Rees, Director of Product Development and Individual Disability at UNUM, notes that it is important that you understand your options and the terms of your contract, because for most policies and companies, "you cannot change the benefits once you buy the disability insurance."

Three types of disability insurance are available to solo and small firm practitioners, according to Lloyd-Rees: business, "buy-sell," and individual. Business disability insurance covers "overhead expenses, including your staff and rent," while buy-sell insurance is designed for "two owners in a business [in which] one partner becomes disabled. [In this scenario, buy-sell insurance helps] the non-disabled person buy out the disabled partner." Insurance may be sold via direct sales to individuals or via list bill sales to small groups, typically three or more people. Regardless of the plan chosen, however, all insured persons must be employees of the firm.

Potential purchasers should be aware of typical phrases found in most policies—words like "to age 65" and "elimination period." The term "to age 65" literally means you are covered until you turn 65—at which time Social Security and other governmental programs begin, while "elimination period" is the time between the onset of a disability and the receipt of the first monthly benefit check. The typical elimination period is 90 days. You can elect longer waiting periods—anywhere from 180 to 720 days—which will result in lower annual premiums. Although lower premiums are enticing at first, Lloyd-Rees cautions that most people who choose these longer periods typically have short-term disability insurance that covers them until their long-term disability insurance coverage begins. Thus, you should think about what elimination period you can afford when constructing your policy.

Two types of policies offer guaranteed annual renewals. A "non-cancelable" policy gives the insured the right to renew the disability policy at the guaranteed premium each year to a specific year, as long as he or she pays the premium in a timely manner. With a "guaranteed renewable" policy, the premium can be changed only if the insurer makes that change for all those in the same insured rating class.11

Certain billing discounts may apply to groups of three or more individuals and a unisex rate structure may be applied, which can lower annual premiums. (At UNUM, unisex rates are lower then gender-specific rates.) Thus, if you insure three or more people, the costs may be lower than insuring only one person—due to the unisex and billing discounts. In addition, Lloyd-Rees noted that most long-term disability policies cover no more than 60 percent of pre-tax earnings and that if you pay your premiums out-of-pocket, any benefits you receive should be tax-free.

Another option: Corporate Compensation Plans, Inc., a New York firm that sells and administers employee-benefits services, markets a plan under which people can insure future retirement benefits by purchasing a policy that continues payments to their retirement accounts or personal investments if they become disabled. So even if they haven’t earned any income for decades, when they reach age 65, they still have the same retirement funds available as if they had been working the whole time.12

Your Specific Occupation

David Schack, the head of the insurance practice group at the Los Angeles-based office of Mitchell, Silberberg & Knupp, notes a very important distinction in policies: the "level" of coverage. According to Schack, the level of your disability may affect whether or not you will be covered. Insurance companies typically offer three or four levels of disability coverage based on your ability to perform:

1. Your specialty within your specific occupation.

2. Your specific occupation.

3. Any occupation for which you are qualified.

4. Any occupation.

For the any occupation level, "if you can be a janitor, you are not disabled." In the case of the any occupation for which you are qualified level, "if you can teach law, then you are not disabled." Similarly, "if you are able to practice law [with your disability], then you are not disabled," under the your specific occupation level. For lawyers, Schack suggests purchasing disability insurance that covers you if you are unable to perform your specialty within your occupation. In this case, if you are a trial lawyer and "you cannot go to court [because of your disability], then you are disabled."

Costs

According to a quote generated by UNUM for this article, a 40-year-old lawyer who purchases coverage for 60 percent of a $100,000 income, with a 90-day elimination period to age 65 and a two-year "own occupation" definition (and an "any occupation" definition thereafter), will pay approximately $1,829 (for men) or $2,455 (for women) annually. Should the lawyer wish to buy a long-term own occupation policy, the premium would be approximately 12 percent higher than the prices listed above.

There are two possible ways to lower the costs of disability insurance. If two other employees in the firm purchase disability insurance, the cost becomes approximately $1,333 per person per year, regardless of gender, or $111 per month.

Also, according to Andrew Reidy, a partner with the Washington, D.C., office of McKenna & Cuneo, who specializes in insurance recovery and general commercial litigation, "some state bars have disability insurance programs [that discount or underwrite the premiums]."

For the CCP plan that continues payments to an insured’s retirement account or personal investments if he or she becomes disabled, discussed earlier, Steven Zeiger, a sales executive with CCP, reports that for a 30-year-old lawyer in a small or solo practice, the premium would be $25 to $35 per month for a policy that would pay $13,000 a year into a retirement plan in the event of disability. The premium is guaranteed until age 65 and would be completely portable if the policyholder changed jobs. The costs would be higher for older lawyers and lower for larger firms with more participants.13

Picking an Insurance Company

How do you pick a reliable firm and what if you actually have to file a claim? According to Reidy, you need to "make sure you get a good product." To do this, he suggests asking the following questions:

• Is the company highly rated?

• Does the company have a reputation of paying claims?

• What proofs of income are required during the application process?

Most likely, the easiest way to uncover most of this information is by talking with your insurance broker to find out how highly rated the insurance company is and whether it is known for paying its claims.

When filing a claim, Reidy suggests that insured persons: "have good records of what you said and did in the application process," maintain "a good record of your contact with the company," and remember to "communicate with the company in writing."

Coverage Traps

Even if you decide to purchase or already have disability insurance, you may still run into roadblocks. Schack notes that certain issues seem to come up in disability claims. The most common is the insured’s past medical history. According to Schack, when you purchase disability insurance, you are "asked to fill out an application [that includes questions regarding] your prior health and any illnesses you had. Insurers will go back and review your medical history when there is a problem. If you have a medical condition that was not disclosed, [the insurance company] can [nullify] the policy." Thus, you should "disclose everything" to ensure you are fully covered.

Can your policy be contested? Typically, a "policy becomes incontestable after two years. [Thus], if you fail to disclose [something] and two years passes, the company cannot revoke the policy." A common issue that arises in litigation is fraudulent versus non-fraudulent acts. According to Schack, "some companies only cover non-fraudulent acts," which means that fraudulent acts may result in the company contesting and revoking the policy. In fact, "even if it is an innocent mistake, the company can rescind the policy."

Another issue raised by Schack is that of preexisting conditions. "Generally, policies exclude preexisting conditions." So the more you disclose, the less the policy will cover. However, he noted that even though the policy may exclude preexisting conditions, "the courts have construed [preexisting condition clauses] to mean only illnesses that manifested prior to the policy [being written] can be revoked." But look out, says Schack, because "insurance companies will try to link your current disability to something in your prior medical history." Your best ammunition in these cases—"if you are disabled, make sure you are careful to pick your own physician who is qualified and [who will] support you through the process."

One lawyer found out about coverage denial the hard way. Patrice L. Goldman, a fifth-year associate at a San Francisco firm, was denied coverage by the insurance carrier recommended by the state bar association, despite perfect physical health, solely because she was in counseling. She was seeing a therapist to cope with anxiety and depression caused by her father’s failing health.14 Claudia Center, a lawyer with the Employment Law Center of San Francisco, which filed an ADA suit against the insurance company, said "In this case, the insurance company viewed anyone in counseling or diagnosed with any mental health condition to be so incapable of working that they were actually uninsurable for disability income insurance. It is ironic that the individuals who take affirmative steps to seek the services they need to stay well and to manage their work lives are the very people excluded from disability income insurance."15

Reidy notes that most "disputes in claims come from the income issue at the time of application"—the ability of the insured to prove his income. Similarly, Peter Giannini, a sole practitioner in Los Angeles, notes the problems with proving your income: "The benefits from disability coverage are illusory. In order to get the kind of coverage you need, you’ve got to prove your income. If you’re an LLP or a professional corporation, all of your expenses go out first and then your income is figured. So, when you figure it that way, the payments just aren’t enough to really get along."

A final area of contention in litigation is whether you meet all of the insurance company’s criteria for disability. According to Schack, "the real fight is whether there is total disability or not—it becomes a war of doctors."

Tempting Fate?

There certainly are instances where disability insurance is unnecessary. Lloyd-Rees says, "If you are independently wealthy, then you would not need disability insurance." As long as you can bring in a steady monthly income, regardless of whether or not you work, then you do not need disability insurance.

If you have a network of close friends and family that you can turn to in times of financial trouble, perhaps you don’t need disability insurance. Reidy recalls instances in which practitioners were in accidents and their "firm and friends have to help them raise funds" to pay for the disability—health care costs, etc—and the loss of income.

Perhaps you figure that you will be able to work despite the disability. Schack warns that such a decision can be risky. He cites a case in which a physician became disabled—"his disability prevented him from properly practicing medicine. He tried to practice, but was increasing his liability by doing this." The moral of the story for lawyers, he says, is that "If you are not fully able to practice, [but decide to anyway], you are subjecting yourself to [increased exposure to] liability and malpractice suits."

And there’s always Social Security Insurance. But Lloyd-Rees warns, "Social security has a five month waiting period and very strict definitions of disability. [In addition, typically] they only pay if they think you will be disabled for more then 12 months." CL

Notes

1. J.M. McNeil, Americans with Disabilities: 1994-95. U.S. Bureau of the Census Current Population Report P70-61. Washington, DC: U.S. Department of Commerce (1997). (The information cited in notes 1, 2, 5, 7, 8, 9, and 10 was reported on the website of UNUM Disability Lab (www.unum.com/dislab). UNUM Life Insurance Company of America is the nation’s largest provider of disability insurance.)

2. Spencer’s research reports on employee benefits, Disability Incidence Higher for Downsizing Firms; Cost Rise, But Integrating Efforts Lowers Costs, Studies Show. 323-1, August 29, 1997.

3. Jon Newberry, Decoding Disability Coverage: Purchase enough insurance to secure a comfortable retirement—and no more, ABA Journal, October 1997.

4. UNUM table, "If You Can’t Work, You Can’t Earn, appearing in "If a Disability Takes Control of Your Life, You Have a Lot to Lose," 1998.

5. J.M. McNeil, Americans with Disabilities: 1991-92. U.S. Bureau of the Census Current Population Report P70-33. Washington, DC: U.S. Government Printing Office (1993); Health Insurance Association of America. Data on Disability Income Insurance from 1995. Monitoring Attitudes of the Public (MAP).

6. Mass. Lawyers File Claims for Disability, Both Physical and Mental, Workers Comp Executive, May 27, 1998, Vol. 8, No. 10.

7. Health Insurance Association of America. Data on Disability Income Insurance from 1995. Monitoring Attitudes of the Public (MAP).

8. U.S. Department of Health and Human Services, National Center for Health Statistics, Vital and Health Statistics, Current Estimates from the National Health Interview Survey, 1994. Washington, DC: U.S. Government Printing Office (1995).

9. J.M. McNeil, Americans with Disabilities: 1994-95. U.S. Bureau of the Census Current Population Report P70-61. Washington, DC: U.S. Department of Commerce (1997).

10. C. J. L. Murray & A. D. Lopez, The Global Burden of Disease. World Health Organization. Harvard University Press (1996).

11. John Finnegan, The Ins and Outs of Long-Term Disability, New Jersey Law Journal, May 18, 1998, p. 36.

12. Jon Newberry, Decoding Disability Coverage: Purchase enough insurance to secure a comfortable retirement—and no more, ABA Journal, October 1997.

13. Jon Newberry, Decoding Disability Coverage: Purchase enough insurance to secure a comfortable retirement—and no more, ABA Journal, October 1997.

14. Jenna Ward, Lawyer Sues Insurer; High Anxiety, The National Law Journal, March 9, 1998, p. A4.

15. Suit Challenges Denial of Benefits to People Receiving Mental Health Services, Disability Compliance Bulletin, March 12, 1998, Vol. 11, No. 6.

Di Mari Ricker, a lawyer and legal affairs writer in Los Angeles, and Rebecca Gladding, a health care researcher in Los Angeles, contributed the research for this article.

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