Insurance for Lawyers and Law Practices
By Jennifer Beale
There’s a lot of ground to cover when opening and running a law firm, and insurance and the costs related thereto are often an afterthought or even overlooked altogether. This article will cover a number of insurance policies available to businesses and individuals to transfer risk for a variety of exposures. Everyone has their own risk tolerance, so some of the insurance policies mentioned may be of little interest or concern to the very tolerant or to the very wealthy who can self-insure. In addition to the list, I’ve included tips to help you do a self-evaluation or discussion with your agent to help determine whether updates or additional policies might be appropriate.
PART 1: PERSONAL
Most people buy life insurance to replace their income when they die, before they buy disability to replace their income while they’re alive. In fact, most people insure items they own (home, car, jewelry, business, etc) without insuring the paychecks that pay for those items. An individual disability policy is an affordable way to ensure that, should you be unable to work due to an illness or accident, you could still pay your bills and keep your home, car, insurance, etc. People who have advanced degrees, skills or certifications especially need to protect against a disability that could keep them out of work for months or even years. Attorneys often think that only death could keep them away from work, but that is simply not true.
There are many illnesses or accidents that result in a lengthy recovery and rehabilitation period, as well as irrecoverable cognitive impairments.
• Make sure you’ve elected options available to you, such as future purchase (allows you to increase your monthly benefit at future dates without providing evidence of insurability) and residual or partial disability (pays a portion of the monthly benefit if you are only able to work part-time and suffering a loss of income) and cost of living adjustments (benefit amount increases according to inflation index).
• Make sure you know and understand your policy’s definition of disability (some plans recognize your specialty, and others simply refer to any gainful employment). The best definition of disability for professionals is an unqualified inability to perform the substantial and material duties of your occupation (at time of disability).
• Maintain an individual policy even if your employer provides coverage — in case you go out on your own or your employer cancels the group plan, and also because many individual policies won’t reduce benefits if you are also eligible for or receiving Social Security or Workers’ Compensation disa-bility benefits and the benefits are taxable if the premium is employer paid.
• Pay your disability premiums with personal, after-tax dollars — that way your monthly benefit won’t be taxable.
• Obtain a policy when you are young and healthy, because it is one of the most stringently underwritten insurance plans due to the likelihood of illness-related disability.
Life insurance is probably the most versatile type of insurance, as it is useful for many reasons in one’s personal and business affairs, and it is available in many forms. Not only can you provide burial expenses and security for your loved ones, but you can also use life insurance policies to secure part of a business loan, pay estate taxes, supplement your retirement income, contribute to a charity or finance the succession of your business.
Term life, while extremely affordable, is designed to meet short-term or temporary needs, such as when you have young children at home or lots of debt. It is an affordable way to secure a large death benefit to leave your family financially secure in the event of your untimely death. Term insurance typically is renewable for a set term, such as 10, 15 or 20 years, or to a specified age, such as 65, 70 or 75. Some plans also include return of premium feature if you don’t die.
Permanent insurance is available as whole life, variable life, universal life or combinations thereof and is renewable for your entire life. Permanent policies usually include savings or investment features in addition to a death benefit, as well as flexibility with premium payment. The cash value of a permanent life policy accumulates on a tax-deferred basis and you can borrow it as needed at relatively low rates. Borrowing against the cash value could result in a reduced death benefit should you die before paying it back. In many cases, you can also add riders to policies, such as long-term care benefits, to cover other areas of concern.
• Make sure your policies are up-to-date with an appropriate beneficiary, and that your family, business partner and/or estate/financial planner knows what policies you have, where you keep them, etc.
• Evaluate the amounts and types of life insurance you have in place now, and take appropriate action.
• Life insurance is medically underwritten, so the younger and healthier you are when you obtain it, the better rate you are likely to receive. If you’ve quit smoking, lost weight or have otherwise become healthier since you last purchased coverage, you may want to see if you can qualify for a better rate now.
Effective Jan. 1, 2014, the Affordable Care Act (ACA) included an individual mandate requiring everyone to maintain minimum essential coverage (MEC). If you don’t have MEC, you must claim a coverage exemption or pay a fee. For 2015, exemptions include but aren’t limited to these: if the lowest-priced plan available to you costs more than 8.05 percent of your household income, you don’t file a tax return because your income is below the level requiring you file, you were uninsured for no more than two consecutive months of the year, you would have qualified for Medicaid if your state had expanded its program, you’re a member of a federally recognized tribe or you qualify for a hardship exemption. In 2015 the penalty is the higher of the flat fee penalty ($325 per adult and $162.50 per child under age 18, subject to a maximum of $975) or the percentage penalty (2 percent of household income, subject to a maximum equal to the national average premium for a bronze plan). The fee increases in 2016 to $695 per person and $347.50 per child or 2.5 percent of household income.
Individual coverage is now guaranteed-issue and can only be purchased or changed during the annual open enrollment period (Nov. 1, 2015 to Jan. 31, 2016), unless you qualify for a special enrollment period (SEP). Events that may qualify you for a SEP include getting married, having a baby or adopting, losing other coverage, moving to a new coverage area, gaining citizenship or having a change in income or household status that affects eligibility for premium tax credits.
While premiums can be expensive and the penalty fee not terribly painful, self-insuring is a dangerous option, since a long-term illness such as heart disease or cancer, or a serious accident can require years of expensive treatments, specialist visits, surgeries and medications. Even if you have significant savings built up, do you want to spend it on medical bills? If you spend it on medical bills, will you still have enough for its intended use? There’s simply no way to predict, plan for or avoid some emergencies or complications, such as breaking a bone ($10,402) or developing appendicitis ($15,850).
• Be sure to stay in-network (don’t assume your physician is doing this for you and don’t assume the facility is in-network because the physician is or vice versa) — going outside your plan’s network can result in much higher out of pocket costs to you, even if you have met your deductible.
• Consider a qualified high deductible health plan so you’ll be eligible to open a health savings account (HSA). An HSA is a tax-advantaged account into which individuals can annually contribute up to $3,350, or $6,650 for families. Persons age 55 and older can make an additional $1,000 catch-up contribution. Contributions are 100 percent tax deductible from gross income and can be used for qualified medical, dental and vision expenses, as well as qualified long-term care insurance, COBRA and medicare premiums.
• Know your plan — many health plans offer discounts for services you already use such as vision, dental, weight loss, nutrition, alternative care, etc.
• Consider purchasing a separate travel medical policy if you plan to travel outside of the country — this will provide assistance with locating a provider, translation services, medical evacuation, etc.
• For groups: Employer group plans are guaranteed issue and might be an option even if you only have one employee. Typically, a minimum of 75 percent participation is required, and the employer is expected to contribute 50 percent or more to the employee portion of the premium.
When you reach age 65, you become eligible for Medicare, a health benefits program for seniors with many pieces, labeled confusingly enough by letters of the alphabet. Part A is hospital coverage and is provided at no cost to a beneficiary. Part B includes outpatient coverage and doctors visits and there is a premium charged by Medicare. Part C is known as the Medicare Advantage Plan, where you contract with a private insurer who is paid directly by the government. Part D is the Medicare drug coverage and you are required to purchase private insurance or face premium penalties. You also have the opportunity to stay on your group health plan where you work, until such time as you retire.
Keep in mind that Medicare pays 80 percent of the Medicare determined charges. You will need to purchase a supplement to pay the additional 20 percent plus Medicare deductibles on Parts A and B. Make sure you pick a good stable company, as you will not be able to change plans without providing evidence of insurability.
Tips and Talking Points: Special caution needs to be taken to if you are on a group plan that provides a health savings account (HSA). HSA rules state that if you have any other health plan, including Medicare Part A, you will not be eligible to make any further contributions to your HSA. In addition high-earning members will face the government surcharges for Parts B and D in the form of an income-related Medicare adjustment (IRMA).
When looking at a Medicare Advantage Plan, you need to be aware that these plans may have limited physician and hospital networks and many have gatekeepers that require a referral to a network specialist.
Long-term care is increasingly a sign of our times. Thanks to modern medicine, we are living longer lives, and many of us can expect to break the century mark. With that also comes the fact that a high percentage of those living longer will do so with a chronic illness which will be become debilitating in some form, as the aging process continues. Long-term care insurance (LTCI) is designed to provide home care to help you manage illness at home and provides nursing home coverage, as necessary. Statistics prove that women are the caretakers, and many hours are lost for working women who must quit their jobs or alter their schedules to take care of a sick parent or spouse. If you have parents who are in their 50s, have this conversation with them now!
Everyone’s biggest fear is suffering from some form of dementia or cognitive impairment. You can have a healthy body and live many years with Alzheimer’s, yet require around-the-clock services. None of us wants to be a burden to our children or grandchildren and LTCI relieves that concern.
• Most professionals put off the purchase of LTCI until their 60s and 70s when they discover they may not have enough resources to cover this type of risk. By then it may be too late due to high premiums and/or health issues that increase the cost or prevent the purchase of coverage. The best way to buy LTCI is to purchase it during your working years (45-55) and accelerate the premiums to fully pay the policy prior to retirement. Peace of mind is a great thing when you are in your 70s and 80s and makes it easier to manage your retirement resources. You also avoid probable premium increases later in life.
Home/Auto and Personal Umbrella
Review your homeowners policy if you haven’t in a while and make sure you’ve remembered to advise your agent/carrier of significant home improvements, such as a room addition, new pool, new structure or new purchases of firearms, furs, jewelry, antiques, fine art, etc you’ve made. Make sure your toys are covered (boats, motorcycles, four-wheelers, etc).
• Highly regarded and compensated professionals, such as attorneys, are especially at risk for large claims. That risk is multiplied if you have teenage drivers, a pool or pond, a boat, trampoline or a pet. Purchase an umbrella policy if you haven’t already, and make sure it’s one like the OBA-sponsored umbrella that includes excess uninsured/underinsured motorists’ coverage (most carriers do not offer this in Oklahoma). With 24 percent of Oklahoma drivers uninsured, the risk is substantial.
• Coverage for earthquake and flood damage is not automatically included in homeowners policies, so it must be added by endorsement or purchased separately.
PART 2: BUSINESS
Business Overhead Expense
Business overhead expense (BOE) is a disability contract that pays office overhead expense, such as rent, utilities, employee (non-professional) salaries, health insurance, supplies, professional dues, malpractice insurance and others. It is designed to keep your doors open while you are recovering from an illness or injury which prevents you from performing the duties of your occupation. Generally, these polices have shorter waiting periods (30 days) before benefits begin to accrue and shorter benefit periods, up to two years. This coverage is extremely valuable to a solo practitioner, partnership or office sharing arrangement. Keep in mind, that unlike a disability income policy that pays you directly to protect your income, the BOE policy is a reimbursement policy only for overhead expenses and does not cover the policyholder’s earnings.
Business Owners Policy
A business owners policy (BOP) is a policy that combines commercial property and commercial general liability insurance, along with many other property and liability coverages either bundled into the package or offered as options. If you own your office building, you would insure your building at its replacement cost in addition to your contents, or business personal property (BPP).
Especially in a state like Oklahoma, where one’s business could be shut down for a period of time due to various weather issues, loss of business income and extra expense are key coverage provisions in this type of policy. The extras you may see bundled into the package or offered as options include coverage for sewer back-up and water damage, signs, accounts receivables, computers/media, valuable papers, property in-transit, fine arts, employee dishonesty and ERISA, employment practices liability, employee benefits liability, identity theft, business income and extra expense and hired and nonowned auto liability.
• Be sure to review your policy with your agent if you haven’t in a while, especially if you’ve had changes in staff, revenues, equipment, amount of space leased, remodeled offices, etc. Know how replacement cost and coinsurance works with your policy and make sure you are always insured at adequate limits.
• Consider increasing the limits or purchasing separate policies for some of the “extras” mentioned above.
• Coverage for earthquakes and flood are typically not included but can be added or issued as a separate policy.
• Know what items you are responsible for maintaining, repairing and replacing according to your lease and make sure you have adequate coverage for those items.
If only I had a nickel for every time an attorney or law firm administrator has said, “I can’t believe we’re required to carry workers’ compensation insurance… how could someone possibly get hurt…” The fact is that workplace injuries do occur, and to protect both the employer and employee, Title 85 requires that all companies with employees carry WC insurance unless they have qualified for self-insured status or opted out using an approved benefit plan. In Oklahoma, partners, sole proprietors and LLC members or stockholders owning 10 percent or more of the company’s stock are automatically excluded from coverage, but can elect to be included. Workers’ Comp insurance provides coverage for medical expenses as well as compensation expenses for employees who are injured while working.
• Don’t take this exposure lightly. Make sure your employees have ergonomic workstations and are properly trained to move boxes, carry heavy files, and that hallway and office floors are clear of obstacles such as files, boxes, rugs or cords that may cause tripping. Have snowy or icy walkways and parking lots cleared and/or salted for traction, place mats inside doors so people can wipe moisture from the bottoms of their shoes to lessen risk of slipping on floors that can become slick when wet.
Directors and Officers
Private companies, including (maybe even especially?) family-owned businesses, have directors and officers (D&O) exposure. Where do D&O suits come from? Shareholders could sue you for making poor business decisions or not being profitable enough; your competitors could sue you for making disparaging comments about their services or copyright infringement; your customers, employees, lenders, suppliers and regulatory agencies could also sue your company’s officers & directors.
Employment Practices Liability
Employment practices liability (EPLI) policies protect employers from suits alleging discrimination, sexual harassment, failure to make partner, wrongful termination and other employment-related claims. Think these types of claims don’t occur here? In 2013, the EEOC received 1,360 charges from Oklahomans and 1,294 charges in 2014. If you’re still skeptical about insuring against an EPLI claim, keep in mind that EPLI policies tend to provide non-insurance benefits that could be very useful to companies of all sizes, such as employee handbook audits, sample handbooks and employment-related forms, hotlines providing free access to employment lawyers, other human resource training tools and risk management courses. The tools alone could cost hundreds to thousands of dollars, making the cost of the policy well worth it.
Employee theft is a fast-growing crime in America and could result in corporate bankruptcy. Whether a rogue employee or partner is stealing from you or from your clients, you need to be aware of what coverage you do or do not have for this event. Unfortunately, there are many different what-if scenarios that one should run through to explore whether adequate coverage is included in your business owners or ERISA liability policies.
Network Liability aka Data Breach Liability aka Cyber Liability
Cyber liability policies are fairly new and coverage can differ quite a bit. You may be able to add some form of cyber liability coverage to your business owners or malpractice policy, but a standalone policy may be the best way to ensure you have adequate limits and broad coverage that could include privacy breach (loss or inadvertent disclosure of confidential information of your clients or employees), privacy breach notification expenses (including credit monitoring), public relations expenses, computer viruses or other types of damage to your network such as from hacking (first party covers your clients and third party extends to your clients’ clients), or theft of private information. If you have clients in multiple states, coverage for privacy breach notification expenses could prove extremely valuable, because the requirements differ from state to state — do you know what you’re required to do in the event of a breach in each state?
Believe it or not, this list is not all-inclusive! Needless to say, there’s a lot to think about and keep up with. Take the time to be proactive about personal and business insurance decisions you make or need to make and work with reputable agents and companies who have your best interests in mind.
ABOUT THE AUTHOR
Jennifer Beale, CIC is president of Beale Professional Services and a managing member of 3000 Insurance Group LLC. She is a graduate of the University of Central Oklahoma, is a licensed insurance agent and holds a Certified Insurance Counselor designation. She is a graduate of Leadership Oklahoma City Class XXVIII and serves on the boards of the American Institute of Professional Association Group Insurance Administrators, Impact Oklahoma, Consumer Credit Counseling Service of Central Oklahoma and Oklahoma Society of Association Executives. She is a member of the Business Women’s Golf Association, Professional Insurance Marketing Association and Executive Women’s Forum.