Insurance for Lawyers and Law Practices
From the Basics to “I Didn’t Know You Could Insure That!”
by Jennifer Beale
The primary purpose of insurance is the transfer of risk from your pocketbook to the insurance company’s. 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 the very wealthy who can self-insure). My intent is that you will at least scan through the article and be reminded to review some of your policies and contact your agent if updates or additional policies might be appropriate.
We’ll break this up into two broad categories — personal insurance and business insurance even though many may apply to both.
What could be more important than protecting your ability to earn income? Insuring the items you own (home, car, jewelry, business, etc.) isn’t enough. 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. An individual long-term disability policy is an affordable way to ensure that, should you be out of work, you could still pay your bills and be able to keep your home, car, business, etc.
Tips: 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). 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 disability 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 would not 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. You can also add riders to policies, such as long term care benefits, to cover other areas of concern.
Tips: Make sure your policies are up-to-date with an appropriate beneficiary, and that your family, business partner, and/or estate/financial planner know 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.
Health insurance is something that you really should never go without. Bad things can happen to the healthiest and youngest of persons, and those bad things can cost a lot of money. Don’t risk your savings or credit ratings by going without. 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). I acknowledge that health insurance premiums are expensive, and coverage can be difficult to obtain if you have experienced health problems in the past. But 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?
Tips: Do the extra work 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 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. Know your plan — many health plans offer discounts for services you already use such as vision, dental, weight loss, nutrition, alternative care, 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 employer is expected to contribute 50 percent or more to the employee portion of the premium. A result expected from current health care reform changes to the market is movement away from employer-group plans to defined contribution plan format, where employees would be able to purchase individual plans that suit their needs.
When you reach age 65, you become eligible for Medicare, and thanks to modern technology you can register online. There are various parts to the program, 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: Special caution needs to be taken too 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 become debilitating in some form, as the aging process continues. 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 the 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! I know too many people who are retired and taking care of their parents who are in the 80s and 90s.
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.
Tips: Most professionals put off the purchase of long-term care insurance (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.
If you already have health conditions and have been turned down for health, life or disability insurance, there may still be some options available to you. Oklahoma has state and federal guaranteed-issue high risk pool plans available. Eligibility for the state high-risk pool plan is based on medical (if you’ve been diagnosed with one of the listed conditions or declined by two companies for an individual policy) or federal (such as expiration of COBRA coverage) defined conditions; whereas you have to have been uninsured for at least six months to qualify for the federal high-risk pool.
Certain guaranteed-issue life, health or accident plans may be available to you through affinity programs, such as credit unions, alumni associations, or national or state association memberships.
Tips: Always research something that sounds too good to be true. There are always discount programs and limited medical plans available that may or may not meet your needs. Make sure you understand whether you are buying an insurance product or a discount plan, and the benefit limitations and exclusions of either before you buy.
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.).
Tips: 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 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.
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 policy holder’s earnings.
Business Owners Policy
A BOP is a policy that packages 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 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 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 non-owned auto liability. I could write an entire article just on this policy.
Tips: Be sure to review your policy with your agent if you haven’t in awhile, especially if you’ve had changes in staff, equipment, amount of space leased, remodeled offices, etc. Know how replacement cost and co-insurance 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.
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 workers’ comp insurance. 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 premiums are based on the total payroll covered, with base rates per $100 of payroll. There is a wide range of base rates, determined by a company’s classification code. So an office exposure, such as law firm or accounting firm would typically have a lower base rate than a manufacturing or construction worker exposure. Other charges you may see that make up your total premium include terrorism and catastrophe, expense constant, increased employer’s liability limits and experience modifier. Workers’ comp insurance provides coverage for medical expenses as well as compensation expenses for employees who are injured while working.
Tips: 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. These are just a few things you can do — contact your agent for more information on how to make your office environment safer.
Directors & Officers (D&O)
Do not skip over this section just because you are a for-profit private company or family-owned business. Private companies, including (maybe even especially?) family-owned businesses, have 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 and directors.
Employment Practices Liability (EPLI)
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 2010, the EEOC received 1,563 charges from Oklahomans and 1,663 charges in 2011. 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 professional liability, 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?
Your next step should be to meet with an insurance counselor to determine if you and your business are adequately covered. He or she can assess your needs and determine your risk tolerance to figure out what kind of insurance products are right for you. Rough weather is unavoidable at some point in everyone’s life — your boat may get rocked, but with planning and preparation, you should stay afloat!
About The Author
Jennifer Beale joined Beale Professional Services in 1997, was made vice president in 2003 and president in 2011. She is a licensed life, health, property and casualty agent. She received her certified insurance counselor (CIC) designation in 2009 and is a Leadership Oklahoma City Class XXVIII graduate. She is currently serving on the National Council of the American Institute of Professional Association Group Insurance Administrators and on the board of Consumer Credit Counseling Service of Central Oklahoma.
Originally published in the Oklahoma Bar Journal, October 6, 2012 - Volume 83, No. 26