Disability Insurance for Lawyers: What You Need to Know

The greatest financial risk for lawyers is losing the ability to convert the education you spent nearly a decade obtaining into a huge pile of money by working in the legal industry for decades. The total value of your education is easily over $300,000 but means nothing if you aren’t able to practice law. While many things can derail a legal career, one of the most common risks is an extended or permanent disability.

Many people imagine this disability would occur in a traumatic accident, but physical or mental illness is the most common cause of disability that prevents a lawyer from working, and thousands of lawyers are sidelined each year. The most common cause of disability insurance claims, according to the insurance companies, are musculoskeletal system and connective issues (27.6%), cancer (15%), injuries (12%), mental health issues (9.3%) and pregnancy (6.8%).

Group disability insurance coverage provided by law firms is a benefit that most associates don’t seem to understand, so in this article I’m going to help you understand what coverage you have, whether you need supplemental coverage and how to buy it if you need it.

Is my firm’s plan good enough?

Most Vault 100 firms provide group disability insurance policies through a company like Unum or something similar. The most important thing to remember about disability insurance is that any disability insurance is better than no disability insurance.

If you were to become disabled without disability insurance, you are limited to the benefits paid by the Social Security Administration, which provides relatively low payouts that can be difficult to obtain. My last Social Security statement says my disability benefit would be $3,069 monthly. Living on $3,000 a month would be a dramatic decrease in our standard of living.

A typical group disability insurance policy has a cap of either (1) a monthly benefit (e.g. $15,000) or (2) a percentage of your base salary (e.g. 60%) and you get paid whichever is less. Note that I said “base salary” in the previous sentence, meaning that most disability insurance policies don’t care about your annual or special bonuses, a problem in an industry such as ours where 20%+ of your total compensation could be delivered in the form of bonuses. Since the firm provides these benefits using pre-tax dollars, the payout from any benefit is taxable to you.

The below chart contains some familiar numbers from the Biglaw Salary Scale but also includes a calculation of your group disability insurance coverage, assuming you have a policy with a monthly cap of the lesser of $15,000 or 60% of your base salary. Pay particular attention to two columns: the Group Disability Monthly Benefit and the Total Compensation Replaced.

The Group Disability Monthly Benefit column is the amount you would receive if you become disabled. Could you afford to live on the monthly benefit once you pay taxes? Would it cover basic living costs like rent/mortgage, food/groceries, and utilities? Nearly all disability insurance policies stop paying when you reach age 65, so you also need to be able to save for retirement with this monthly benefit. And, don’t forget that you’re disabled in this scenario, so could you afford to pay for extra help around the house if needed?

The Total Compensation Replaced column gives you an understanding of how much of your income you’d get replaced if you became disabled. As you can see, it’s close to 60% for a 1st year associate but starts dropping quickly as you move up the ranks. A mid-level associate would see replacement income in the mid-40%, and a senior associate would only expect to see mid-30% coverage.

Do you need supplemental disability coverage?

If you’re concerned that the group policy might not provide enough coverage for you if you become disabled, you may want to consider a supplemental policy.

The first thing you’ll want to do is figure out how much additional coverage you need. Disability insurance companies consider your entire disability insurance coverage and usually only let you buy coverage for about 60-70% of your income, so your supplemental policy will be precisely that: supplemental. You don’t have to run out and buy a full policy, which is nice because you still get to use the benefit provided by the firm.

The chart below contains the same basic information as in the chart above. The difference is that I’ve set the coverage at 70% of your income, so the Supplemental Monthly Benefit column shows the amount you’d need your supplemental policy to cover. Keep in mind that because you pay for a supplemental policy with post-tax dollars, the benefit provided to you will be tax-free.

In addition to bumping up your coverage, here’s a list of common reasons why people purchase supplemental coverage:

• Stronger definition of disability. Group disability policies usually give you a modified version of own-occupation insurance. It’ll pay for two years if you can’t practice law as you were doing previously, then after two years it will only pay you if you can’t do any job. An individual disability insurance policy should have a true, job-specific, own-occupation definition of disability, such that if you can’t practice law as you were practicing immediately prior to suffering the disability, you will get disability payments and won’t be forced to do something else law-adjacent (e.g. teaching law).
• Portability. If you leave your firm, your supplemental policy comes with you. Your group policy does not.
• Future Purchase Option. With an individual policy you can purchase a Future Purchase Option rider that will allow you to increase your monthly benefit later without having to go through medical underwriting. If you’re in a position now where your income is limited (e.g. law student) or a Biglaw associate buying a supplemental policy, this rider will give you optionality in the future. Just a heads up that sometimes this rider is called a Future Increase Option (FIO), Benefit Increase Rider (BIR), Benefit Update (BU) or Benefit Purchase Rider (BPR).
• Benefits Don’t Offset. If you’re paid Social Security or Workers Comp benefits, those are generally subtracted from the proceeds of a group disability policy. Most individual policies won’t offset other payments you might receive.
• Non-Cancelable. When an insurance agent says that policy is non-cancelable, they mean that the insurer can’t raise the annual premium and that your coverage is locked in, even if you suffer health problems later that would make you uninsurable going forward. If you want a non-cancelable policy, you’ll want an individual policy.

My supplemental policy details and cost

I bought a supplemental policy while working in Biglaw. I felt that the firm coverage offered to a senior associate represented too much risk and that I would suffer a severe decline in lifestyle if I were to become disabled. Supplemental policies aren’t expensive either, making it easier for me to decide to purchase the policy.

My supplemental policy pays a $6,000 monthly benefit (remember this is tax-free). It also includes a bunch of disability insurance riders, like the future increase option rider, an enhanced partial disability benefit rider, a cost of living adjustment rider, and an enhanced catastrophic disability benefit rider.

The total cost is around ~$2,300 a year or around $190 per month. For a senior associate making $435,000, this represents a trivial amount to take risk off the table and certainly let me sleep better at night.

How to get quotes for a supplemental policy

If you’re interested in purchasing a supplemental policy, the next step is to get quotes. Only a handful of carriers sell individual disability insurance, so you’ll want to talk to any independent insurance agent that can get you quotes from all of them.

Our insurance company Sidebar—the only one created by lawyers for lawyers—can help get you a customized quote for a supplemental disability insurance policy.

Our strategy is pretty simple: find the least expensive policy with the coverage you actually need.

If you get a quote through us, we will search for the best policy we can find and we’ll also apply any discounts that might be available to you (e.g. bar associations). If we know of a better discount available elsewhere, we’ll point you to it even if it means we don’t make anything.

I set up Sidebar as an independent agency so we can get quotes from each of the “Big 5” true own-occupation options. We’ve partnered with fellow agents Pradeep and Matt who each have more than a decade of experience writing own-occupation policies to lawyers and other high-income professionals. In fact, I bought my policy with Pradeep’s guidance!

How to get even deeper discounts

One of the reasons we set up Sidebar as an independent agency is because we know that disability insurance companies want to compete for your business.

That’s why we’re excited to say that if you bring us two colleagues from your firm who buy a supplemental policy at the same time you do, we can get the insurance companies to offer an additional discount of 20-45% off everyone’s policy.

Not only that, but the insurance company will continue offering that discount to everyone at your firm in the future. By being the pioneers for your firm, you’ll be helping current and future associates.

How can we get this 20-45% discount? Two reasons: group risk and unisex policies.

Insurance companies will offer discounts to lawyers working at the same firm (that’s the “group risk”).

The second reason is that the insurance company will offer a unisex policy.

This benefit is especially fantastic for women lawyers.

Women pay less for term life insurance but significantly more for disability insurance, based on actuarial risk tables. Therefore, an insurance company offering sex-specific policies will charge women a higher price than men for the same policy.

If we’re able to get three people from a firm (doesn’t matter whether they are men or women) to apply for supplemental disability insurance, we can convince the insurance company to write a unisex policy for the firm going forward.

A unisex policy is exactly like it sounds. The policy is priced the same regardless of sex.

The unisex policy will be significantly cheaper for women. Meanwhile, men will also typically find a unisex policies cheaper thanks to the group discount that goes along with it.

Speciality specific disability insurance policies

If you’re looking for more detail about specific specialties, check out these articles:

Doctors

Dentists

Self-Employed

Small Business Owners

Surgeons

Joshua Holt is a licensed insurance agent (License #2785989) and founder of Biglaw Investor and Sidebar Insurance LLC, an insurance agency created by lawyers, for lawyers. His insurance expertise lies in the areas of life and disability insurance, particularly covering lawyers, doctors and other high-income professionals. Prior to Biglaw Investor, Josh practiced private equity mergers & acquisition law for one of the largest law firms in the country.