This is the second in a three part series of posts about insurance issues for lawyers in solo and small practices. I’m interviewing Michael Korn, a financial representative of National Financial Network, LLC in New York City.
Michael is a former small business owner who specializes in working with small business owners and law firms, helping owners and senior management build, protect, and manage wealth. He may be reached at [email protected] or 646/885-2843. I’ve asked Michael some questions about what lawyers, particularly those working as solos or in small firms, should be thinking about. In our last post, Michael discussed the different types of health plans available for attorneys.
ACS: What should lawyers or law firm managers consider when purchasing a health plan?
MK: There are several factors to consider. Among them are:
Firm size. Typically, health care pricing is broken down by size of company. The most expensive health insurance plans are for individuals or sole proprietors. Small groups with two to 50 employees are in the middle, and large groups with 50 or more employees get the most aggressive pricing. Pricing on individual insurance plans are based on the individual. Factors that can impact the cost include age, gender, and medical history.
Budget and access. As we already talked about in Part I of this series, access is typically tied to cost. If available budgets are low, you might want to consider an HMO or HSA with a high-deductible health plan. Consider whether you are covering yourself and your employees, and how much the company is contributing per employee. Do you want in- and out-of-network options? Are there any medical issues or specific needs of those to be covered, or are they young and healthy? This will help determine if you need a plan that provides for more services or access.
Network strength. Health insurance is typically regionally based, and in each region some networks are stronger than others. If you’re participating in an in-network plan, you’ll want to choose a carrier with a strong network of doctors and facilities.
Some carriers also have national networks, and this may be important if you or your employees travel a lot.
Outsourcing Benefits
ACS: Outsourcing is a hot topic these days. Can lawyers outsource benefits?
MK: You can outsource all of your benefits, including human resources and payroll, as well as health insurance, through professional employer organizations (PEOs). PEOs co-op many small companies and offer large group rates (lower cost than small group rates) on health care and other benefits. They also facilitate compliance and other administrative issues and allow you to focus on growing your business. PEOs typically can offer a choice of health insurance plans at a lower cost than you would be able to get on your own as a small firm.
PEOs have pros and cons; they act as a co-employer with you and can alleviate many of the HR administrative responsibilities of running a business, but they do charge fees. If this is something you want to consider, talk to different companies, compare their fees, and weigh these against the costs and headaches of managing the HR, benefits, and payroll issues on your own.
ACS: In addition to health insurance, are there other kinds of insurance lawyers should be considering in order to ensure that they are appropriately protected?
MK: Yes, there are other kinds of personal insurance to consider. The first is disability insurance.
Disability income insurance protection. Disability income insurance provides a monthly benefit if you become disabled owing to sickness or injury. If you are a solo, you are the business. If you become disabled for an extended period and are not capable of working, the bills continue coming in, and the clients still need to be serviced.
About one out of seven people between the ages of 35 and 65 can expect to become disabled for five years or longer (according to www.soundfinancialplan.com). A complete disability program can help protect you and the firm by providing you with an income and overhead expenses. Disability income insurance is available as group coverage or as individual coverage. Group coverage will be less expensive but will typically not provide as much coverage as an individual policy.
The cost and benefit of an individual disability income insurance policy will be based on your occupation and your net taxable income for the last few years. Lawyers typically receive a high rating or one of the best occupation classes.
Look for:
- A non-cancellable and guaranteed renewable policy;
- Coverage for at least 60 percent of your income (benefits are received tax free only if paid with personal funds);
- A benefit period to age 65;
- A waiting period no longer than your savings will keep you afloat (90 days is typical); and
- A policy with “true own occupation coverage.”
It is very important to read the definition of total disability in a policy. A “true own occupation” policy will pay benefits “if you are unable to perform the material and substantial duties of your own occupation owing to sickness or injury,” even if you are able to do some other kind of work. This kind of policy offers more protection, especially for lawyers who specialize in specific areas of law, because the monthly benefit will be paid if the disability prevents you from working in your own specialty even if you are able to work in another.
ACS: Are there any other disability products lawyers should know about?
MK: Overhead expense coverage could include benefits for typical business expenses and may even cover the cost of your temporary replacement if you are disabled. If you have a business partner, you may want to consider disability buyout coverage, and if you have a significant debt in the business, you may want to consider a business reducing term disability policy to cover the debt/loans. Not all companies offer all types of policies, so work with an insurance agent who knows the marketplace.
Our last and final post in the series will continue with a description of some additional insurance issues for lawyers to consider.
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