Our emphasis here is on long-term planning for the well-being of your firm, your clients and those who must pick up the pieces in case of your death, disability or retirement.
We will first focus on Insurance products you should consider as you plan for the unforeseen (death or disability) and the inevitable (retirement).
(1) Plan for and purchase an Extending Reporting Endorsement or “tail policy.”
When you retire from active practice, make sure you purchase an Extended Reporting Endorsement (ERE), otherwise known as a “tail policy.” Professional liability insurance policies are “claims made and reported” policies. This means you must have a policy in effect when the claim is first made and reported to the company. If you just cancel your old policy or non-renew when you retire, and do not purchase an ERE, you will not have coverage for any claim asserted against you after your policy ends. An ERE extends the time within which covered claims may be made against you and reported to your carrier.
Here’s the long term planning aspect. Deal with “tail insurance” in your partnership agreement, if you have one. Who will pay for it? Who will pay the deductible if you are sued? Who will pay the deductible if your old firm is sued for something that you did when you were still practicing? What if your old firm takes you off the policy or switches carriers after you retire or leave the practice?
(2) Consider an Individual Disability policy.
An individual disability policy protects personal income if disability occurs. Some policies include a “Compassionate Disability Feature” that will pay the insured a monthly benefit if the insured loses income while taking time away from work to care for a loved one who has a serious health condition.
(3) Consider Business Overhead Expense insurance.
Can your solo or small firm survive if a prolonged injury occurs or illness? Business Overhead Expense coverage is disability insurance for your law practice. Despite your disability, operating expenses will continue. Besides covering the ordinary expenses, you may also include coverage that will provide a salary to an attorney who can come in and take over your cases while you are out. Business Overhead Expense insurance helps you maintain your profitability and sustain your firm until you return to work or close your practice, if you cannot return to work.
(4) Disability and Life Buy-Out insurance.
If your law partner dies or becomes permanently disabled, will you have in place a plan and a means for you to buy out your partner’s interest in the firm? These products can provide the funds to purchase a business owner’s share of the business in the event an owner becomes totally disabled and cannot work in the business, or in Life Buy-Out insurance, the owner dies.
(5) Critical Illness Insurance.
This insurance will provide a lump sum benefit if you are diagnosed with one of the critical illnesses in the policy (heart attack, cancer, stroke, coronary artery bypass surgery and many more). The benefit can help pay for the cost of care and treatment, replace lost income due to decreased earning ability or fund a change in lifestyle, just to name a few.
(6) Lifestyle Disability Policy
There is a new North Carolina Bar Association discounted disability product available through Lawyers Insurance Agency. It is a lifestyle protection product designed to help preserve your family's lifestyle in the event of your disability. Upon becoming disabled, this disability product pays tax free lump sum benefits that you can use however you see fit- payoff mortgage/ debts, fund college expenses, use for home modifications, or use as additional income replacement to invest, travel, whatever.
Consult your insurance professional about these products. Ken Hudson, AAI, with Lawyers Insurance can assist you. If you are a member of the North Carolina Bar Association, there may be additional benefits available to you.
For other risk management advice from Mark, follow him on Twitter at @MarkScruggsEsq.
*This article was originally posted on the NC Law Blog.