Lawyers do a great job at protecting their clients, but who is protecting them from unnecessary risks? What would happen if a health concern catches them off guard and renders them unable to fulfill their job requirements and financial obligations, or support their family? This is why having the right amount of long-term disability coverage is essential for lawyers and law firm partners.
As an authorized representative of the Canadian Bar Insurance Association (CBIA), our team at BenefitDeck Consulting has vast experience in setting up health benefits plans for independent lawyers and law firms. We have previously introduced the topic of Individual long-term disability (LTD) for professionals; but in this article, we’re getting specific. Here are the two options and some more considerations that we generally discuss with lawyers when asked about LTD coverage.
1. Groups Plans with LTD Coverage – If the law firm has its own Group benefits plan, this usually includes long-terms disability coverage. Once a medical questionnaire or exam is completed, a lawyer would typically be eligible to receive up to 66% of their pre-disability salary in the event that an accident or health matter renders them unable to fulfill their OWN occupation. (Read more here about Group LTD Plans and the terms OWN versus ANY.)
The best aspect of Group LTD is the non-evidence maximum (NEM) clause which suggests that anyone under the plan is entitled to coverage up to a certain dollar amount, (usually anywhere between $2,500-$4,000) for boutique firms under 20 employees, without requiring a medical exam or questionnaire. This is particularly beneficial to lawyers who may have known health issues.
However, Group LTD is likely not as comprehensive as one would imagine. Generally, coverage would be valid for two years, at which point the insurance provider would assess the lawyer’s ability to complete ANY occupation. As a highly-skilled professional with years of education and experience, having to do clerical work in the law firm might not be well-received. In many cases, Group LTD is not set up properly to accommodate how lawyers are paid. More often than not, most Group LTD contracts insure only T4 salaried earnings and not dividends, draws or profit sharing.
2. Individual Long-Term Disability – Individual long-term disability coverage can be purchased by lawyers who either do not have a Group LTD plan or who want supplementary coverage. A full medical assessment is requested and paid by the insurance provider upon application. If a good bill of health is granted, then coverage of up to 66% of the pre-disability salary can be issued. In some cases, Individual long-term disability can supplement the Group LTD, so that when a claim is filed, the lawyer could receive a higher percentage of after-tax earnings in comparison to stand-alone Group or Individual contracts.
A big perk of Individual LTD is that it offers extended coverage for OWN occupation pre-disability salaries, sometimes up until the age of 71. In others words, there is no two-year limit on the coverage, nor can the insurance company suggest that a lawyer take ANY occupation such as lesser-skilled position if their condition still hinders their ability to perform their job. Other options can be added to customize the income protection further; see more about these riders below.
Another advantage of Individual LTD is the definition of income covered under the plan. Group LTD generally only insures actual T4 salaries. However, many law firm partners or owners or sole proprietors actually draw dividends from their companies as a form of income. Under the Individual LTD plan, T5 dividend income is insurable.
Important Considerations for Lawyers Considering Long-Term Disability Coverage
1. Transfer Individual LTD – In case a lawyer decides to change law firms or start their own firm, Individual LTD is transferable and portable. Once coverage is issued, it generally cannot be changed by the insurer. However, a high-earning lawyer can take their Individual disability insurance to a new firm without a change in coverage. Group disability is entirely based on their income at a new firm.
2. Consider Add-On Options – Most Individual LTD plans come with add-on options known as ‘riders’ which can be purchased for an additional premium. Some of these riders provide a cost-of-living adjustment throughout the duration of a disability or allow lawyers to purchase additional insurance as their salary or income increases, without having to provide medical evidence. Read the riders list here.
3. Budget for the Premiums – If for some reason the premium of Individual LTD is too pricey for a lawyer, our team can work with the insurance provider to establish suitable coverage for a set budget.
Rely on Expert Advice from BenefitDeck for Long-Term Disability Coverage
As an experienced benefits consultant, we advise our lawyer or law firm clients to combine both Group and Individual LTD offerings, when possible. If the firm already provides Group LTD plan coverage, great; but for high-earning lawyers or firm partners, it is important to extend your coverage and keep your livelihood protected against the unexpected with Individual LTD. If you are interested in long-term disability coverage, or want a second opinion on an existing LTD plan, please contact our team at BenefitDeckcontact our team at BenefitDeck.
Whether you are with a business, association, or owner operator, we have the solution for your needs.