Disability Insurance to Protect Your Most Valuable Asset
Despite the common assumption that the sum of your worldly possessions and investments is your most valuable asset, for most people it is simply not true. The fact is, more than investments, possessions, and even your business, a person’s most valuable asset is usually his or her ability to earn an income.
Losing that income due to an unexpected disability could create a financial hardship for your family and force a drastic change in your standard of living.
For example, a 30-year-old currently earning an annual income of $100,000 is at risk of losing more than $11 million dollars over the course of his or her working years if affected by a total disability and unable to work. (Calculation based on an annual 6 percent increase in earnings and is a hypothetical example for illustrative purposes only.)
The good news is that preparing for a total disability by purchasing disability insurance protection is probably the best way to protect your future income and help ensure you can provide for your family if you lose your ability to work.
Who Should Consider Disability Insurance?
The risk of becoming disabled is significant. According to the most recent statistics from the 2009 edition of the National Safety Council’s Injury Facts, there are 3,000 disabling injuries in America every hour during the year. Additionally, only 30 percent of all workers in private industry are covered by long-term disability income insurance, according to the American Council of Life Insurers.
In order words, in this country the probability of becoming disabled sometime during an individual’s working years is substantial, and the unavailability of employer-provided long-term disability insurance affects 60 percent of employees.
Disability insurance helps ensure that a substantial portion of your income—typically from 50–70 percent— would continue if you were to become ill or injured and unable to work for several weeks, months, or even years. Benefit payments are made to the insured directly, providing money to help pay ongoing living expenses and keep retirement, education, and savings intact.
Types of Disability Insurance to Consider
When researching the types of disability insurance protection you may need, it is first important to consider the areas of your life that may be affected by a loss of income. There are many to consider, but as a solo or small firm practitioner, the three most significant may be: your and your family’s immediate financial need, your future financial security, and the strength of your firm or business.
Immediate Financial Need
If the primary breadwinner in your family were to lose his or her income on a long-term basis, what sacrifices would have to be made in order to compensate for that loss? All families would be affected financially and forced to make choices. Some families would be required to move or make dramatic lifestyle changes. Others would simply be unable to meet their financial obligations.
Long-term disability insurance can help safeguard you and your family against the financial pressures that accompany a total disability by providing monthly income at the coverage level you select. After the initial waiting period you choose at the time of application, payments are made directly to the insured to help cover the costs of everyday living expenses, and since you pay the premium yourself—instead of your employer paying it on your behalf—your monthly benefit payment should be tax free. Be sure to consult your tax advisor to confirm the plan you select is eligible for such tax benefit.
If you would be financially uncomfortable living without your income on a long-term basis, you should consider long-term disability insurance.
Future Financial Security
Unfortunately, along with the loss of employment and income, another consequence of total disability is the lost ability to afford contributions into retirement savings vehicles. Even if you could afford just contributions, you may not be allowed to make them, as qualified plans require that contributions be made from earned income. If you are an employee of a firm that matches contributions, you also lose the benefit to “match.” All this may impact your standard of living throughout retirement.
Retirement contribution disability insurance can help you continue funding your retirement savings in the event of a loss of income due to total disability. These plans try to mirror your existing level of contributions to qualified retirement saving accounts such as an IRA, up to a certain level. Benefits can be in addition to personal disability insurance, depending on the carrier, and are usually directed to a preselected retirement savings account until age 59½, the usual minimum age to begin withdrawals without a tax penalty.
If maintaining your retirement savings contributions could become difficult if your income was lost due to a disability, a retirement contribution disability insurance plan could help ensure your retirement financial stability.
Strength of Your Firm
As a solo or small firm practitioner, your personal efforts are directly responsible for generating the income necessary to pay the bills, maintain a staff, and remain in business. If you share a practice, what would happen to your clients if you suffered a total disability? Would your partners be able to continue until you got back to the office? Would you lose a valued staff member because you were not earning the fees needed to pay salaries?
Personal disability plans may help your family with the loss of your income, but they probably won't cover your monthly office expenses. Professional overhead expense plans will help protect your practice and your assets, to help ensure that your business will continue to operate without you.
Plans vary, but most pay you benefits in the events of a total disability to be used directly toward office expenses such as rent, nonlawyer staff salaries utilities, lease of office equipment, even accounting fees or professional memberships. Benefits are based on your current monthly financial obligation, up to a certain level, and are payable in the event of a qualifying disability, after an initial waiting period, for a specified length of time.
Three Working as One
The advantages of insuring all the financial responsibilities in your life that may be at risk in the event of a total disability are obvious. With protection for the immediate and long-term financial needs of you and your family, and your business needs, you can have the peace of mind that comes with being properly prepared for the unexpected.
The ABE Difference
The American Bar Endowment offers insurance exclusively for ABA members, with plans tailored to provide quality, affordable insurance from trusted insurers:
The ABE-sponsored Group Long-Term Disability Income Protection plan, available exclusively for ABA members, offers up to $12,000 in monthly benefits sent directly to you following a qualifying total disability, with benefits that can continue until age 65 (up to 2 years for qualified disabilities that occur on or after member age 63 or for mental illness). In addition to providing the level of coverage that meets your needs—in $100 increments—this plan provides your own occupation protection, providing full benefits for up to five years if you are completely unable to perform the material duties of your regular job (including your particular specialty of law, if applicable). You may also choose your own waiting period (60, 90, 180 or 365 days) and the optional Cost of Living Adjustment (COLA) Benefit which increases your benefit by an additional 3 percent for up to 5 years after your claim begins, to keep help pace with living costs.
The ABE-sponsored Retirement Contribution Disability Insurance plan, available exclusively for ABA members, gives you the choice of benefit amounts to mirror your current level of retirement contributions, including any matching amounts from your employer, up to $3,500 per month. Benefits for a qualifying disability may continue until age 65 (up to 2 years for qualified disabilities that occur on or after member age 63 or for mental illness), and include your own occupation protection; providing benefits for up to five years if you are disabled due to sickness or injury and are unable to perform the substantial and material duties of your regular occupation, including your specialty in the practice of law—not just “any job.”
Many disability policies set a limit on the percentage of pre-disability income that they will replace. This plan will not be counted toward that limit on other disability plans available through the ABE. Check with your disability carrier to be sure that it will do the same.
The ABE-sponsored Professional Overhead Expense Insurance plan, exclusively for ABA members, can provide monthly benefits of up to $10,000, depending on your regular operating expenses, for up to one year. Benefits can be used to pay normal business expenses such as: rent, utilities, nonattorney employees’ salaries, rental, lease or depreciation of office equipment, accounting fees, professional memberships, postage and stationery, and even interest payments on outstanding eligible business debts.
When ABA members participate in ABE-sponsored insurance plans, such as the Long-Term Disability, Retirement Disability, or Professional Overhead Expense plans, they have the unique opportunity to support the good works of the legal profession by donating any experience credits/dividends to the ABE to help support its charitable work in the field of law. Members who donate to the ABE make a difference. These funds, after administrative expenses, are the primary source of ABE’s charitable grants to fund research, education and public service in the field of law. Insured members who donate their dividends are helping to meet their professional and public responsibilities, as well as obtaining valuable coverage for their families.
For more information regarding ABE-sponsored disability insurance protection, through the Long-Term Disability Insurance plan, the Retirement Disability Insurance plan, or the Professional Overhead Expense plan, contact the ABE at 800-621-8981, or research available plans online at: www.abendowment.org/bp.asp.
Long-Term Disability Insurance and Retirement Disability Contribution Insurance plans are underwritten by The United States Life Insurance Company in the City of New York. Professional Overhead Expense insurance is underwritten by New York Life Insurance Company on policy form GRM.
Established by the American Bar Association in 1942, the American Bar Endowment is a §501(c)(3) not-for-profit organization which, among other activities, provides all ABA members the unique opportunity to get quality, affordable insurance from trusted insurers, while giving back to the good works of the legal profession.
Reneé Leskiw is the executive director of the American Bar Endowment.
© Copyright 2009, American Bar Association.