LAW PRACTICE MANAGEMENT
DAVID M. RICHARDS, J.
Most people don’t like to think about the financial effect of a disabling injury or illness. But the risk of becoming disabled for 90 days or longer during our working years is significant—about one in eight will be disabled for five or more years during their working years. Accordingly, many financial advisors consider this a starting point in the general protection discussion of a financial plan.
This article provides an overview of the most common types of disability income (DI) insurance policies. It examines their role in a financial plan and reviews considerations for coverage depending on whether an attorney is a solo practitioner versus an associate or partner in a firm. The article also discusses business owner and partnership issues with respect to overhead expense obligations and buy–sell agreements.
Group Short-Term Disability Coverage
These DI insurance policies provide weekly benefits for short-term3 disability claims resulting from an attorney’s (or staff member’s) injury or illness. They typically replace a maximum of 60% of the insured’s taxable income (W2 salary and K1 distribution if a partner) with a benefit cap of $1,500 per week. They have much shorter waiting (elimination) periods than long-term disability policies and typically pay after only one week away from work for injury or illness. There are some contracts with zero-day waits for accidents and as long as a 14-day wait for a claim related to an illness. Benefits are typically taxable to the recipient because the employer is paying for and deducting the premium as an employee benefit. Short-term DI insurance policies are required by law in most states (including Colorado) to consider maternity leave as a qualified illness claim and pay benefits for up to six weeks for such. Many employees value these policies because they’re rarely available in the individual marketplace.
Group Long-Term Disability Coverage
Tis type of group DI insurance provides monthly benefits for long-term disability claims resulting from an attorney’s (or staf member’s) injury or illness that prevents them from working in their “own occupation.”4 They typically replace a maximum of 60% of the insured’s taxable income (W2 salary and K1 distribution...