Sept. 15, 2010 – If you’re thinking about starting your own law firm or joining a small law firm it is important to review your current life, disability, and health insurance before embarking on your new endeavor. The following issues are the bare essential planning issues every attorney should consider – whether you are already solo or about to leave a firm that offers an employee benefit plan.

Employer-provided group benefits are not portable

Where do you start in your analysis of your insurance coverage? First, you will not be able to rely on the group benefits provided by your current employer. These benefits are probably not portable should you consider leaving your firm. In the case of life insurance, frequently the coverage is offered as an employee benefit and is usually one or two times your annual salary, typically excluding bonuses. This level of coverage is without a doubt insufficient life insurance coverage for the provider of a young family. Group disability insurance provided as an employee benefit also is not portable. Best advice: Line up life and disability coverage before leaving your current employer.

Supplement your employer-provided coverage

What can you do before starting your own firm to improve your insurance planning? Make an important decision to supplement your group benefits while you are still employed at the current firm.

• Consider purchasing individual long-term disability insurance (LTDI). You can purchase a supplemental policy that makes up the shortfall in your current employer coverage. If you decide to invest in an individual LTDI policy, be sure to include a future insurability option (FIO) rider. This rider comes at an additional cost but the rider’s benefit is one of the most compelling reasons to get this important coverage before starting a new firm. An FIO rider ensures that as your income goes up, you can obtain additional LTDI coverage even if your health has declined.

  Be aware that the medical underwriting for LTDI can be difficult and frustrating. Medical issues that may not seem very serious to you can make an underwriter for LTDI very nervous. An insurance medical exam is generally required and your past medical records will be carefully reviewed by the insurance company’s underwrite. The medical underwriting for LTDI coverage is more comprehensive than for life insurance. But when you consider that, according to the Society of Actuaries, a 25-year-old person has a 58 percent probability of becoming disabled for 90 days or longer at some point in his or her career; it is worth the effort and cost to have the peace of mind that your family’s income will not be lost because of a disability.

  The State Bar of Wisconsin offers a group LTDI plan. In this plan, you can obtain coverage for 70 percent of your income with a maximum monthly benefit of $10,000. However, this plan requires medical underwriting, and you can be rejected. It is wise to get the underwriting done before you depart your current employer. By determining your insurability before you leave our current employer, you can know that this insurance will be available when you are solo. The rates on the State Bar group LTDI are very attractive.

• Health insurance is at the forefront of everyone’s thoughts these days. Premiums are going up for employers, and many small businesses cannot afford to provide health insurance to their employees. This does not mean you should go without health insurance. There are many options available from individual plans to health savings accounts (HSA), and getting some coverage in place is essential. Medical bills are a leading cause of bankruptcy in the United States. Even if you have preexisting health conditions that would not be covered by an individual plan, it is important to have a policy that covers major medical expenses. The State Bar health insurance plan is an option to consider.

• The State Bar group term life plan or level term life insurance (premiums guaranteed for a specific length of time) are good products to consider when looking to supplement your current employer’s life insurance coverage. However, be certain that any term life policy you purchase is convertible to cash value life insurance, in the event of a change in your health. Determining which plan is right for you will depend on your age, health, and family history.

  Determining the appropriate amount of life insurance to obtain is not an exact science. Many financial planners recommend 10 times income, but companies such as Met Life are now allowing death benefits as high as 30 times income. There are many important issues to consider when deciding how much life insurance you need, such as: Do you have a spouse and children? Do you intend to provide for your children through their college years? How much student loan debt do you have, and who will be responsible for paying back the loans when you die?

  Even if you don’t have a spouse or children right now, getting some insurance in place is important if you are considering starting a family in the future. You never know when your health might worsen, precluding you from obtaining the insurance you then will surely need.

Planning for retirement

Retirement planning is another primary issue in your financial plan. If you are establishing a new firm and don’t intend to set up a retirement plan for all employees at your new firm, don’t let that decision stop you from planning for your own future. Setting up an individual retirement account (IRA) is hassle free, and getting in the habit early of making regular contributions can make all the difference in your financial security when you reach retirement age.

Conclusion

Adequately insuring your health and life is essential to you and your family. A good financial plan requires a team of professionals and products. Take the time to put together your plan before changing positions, and you’ll sleep easier at night knowing you are protected.

About the author

Ralph D. Bultman, CPA/PFS, CLU, ChFC, is vice president and treasurer of Bultman Financial Services. Contact him to discuss how life, disability, or long-term care insurance may help you achieve your financial goals.

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