Business of Law
Get a Plan B: Disability Insurance Needs to Be in Your Insurance Plan
Posted Jun 1, 2011 12:00 AM CST
By Susan A. Berson
Accident, illness and injury can strike anyone, even busy attorneys. So, from solo to BigLaw to in-house practitioner, everyone should have a financial backup plan that includes disability insurance.
Illness or disability affects 40 percent of U.S. workers in the 30- to 50-year-old group, according to the U.S. Centers for Disease Control and Prevention. But if you have the “it will never happen to me” syndrome, consider Nancy Lindholm’s story.
In 2000 Lindholm was a Boston tax lawyer with Goodwin Procter. “I was working crazy hours like many do, not eating or sleeping well,” she recalls. “I felt more tired than in law school when I pulled all-nighters, but still basically healthy.”
With the pressures of client work occupying her mind, she says, “I kept pushing myself until one day I felt a searing pain while going to work. It was so intense I collapsed on the subway. I left the train thinking I’d walk it off.”
Eventually, the pain brought her to an emergency room.
“A scan of my abdomen revealed that my liver was full of tumors.” The doctor’s terminal prognosis was advanced liver cancer.
“I was a busy 30-year-old lawyer who hadn’t planned for something as life-changing as being diagnosed with a terminal illness, especially when I had no clinical symptoms. Complicating things was that the initial diagnosis was wrong.”
Finding the correct diagnosis took time and money. And even then, the condition was so rare at the time that there was no known cure or successful treatment.
“Today, while 60 to 70 percent of my liver is taken up by carcinoid tumors, various drug treatment combinations help me control certain symptoms of the disease.”
In fact, today’s carcinoid tumor treatments are a testament to Lindholm’s persistence. Eleven years since collapsing on the subway, Lindholm and her Caring for Carcinoid Foundation have awarded more than $6 million in scientific research grants.
“I used my legal skills to create a foundation focused on making sense of a rare disease few scientists knew about, let alone how to treat it, when I was diagnosed.”
No longer physically strong enough to practice law, Lindholm cautions, “If your backup plan is savings, that will be depleted faster than you think. Become knowledgeable about health and disability insurance plans your employer offers. If you’re on your own, develop a plan, both for a short-term and long-term illness.”
To the 20- to 30-somethings who feel healthy and dismiss Lindholm’s story as rare, “consider that I was out of law school for just four years when I learned of my condition, and it’s just as easy to be in a car accident that knocks you out of commission at any time in your career.”
Having disability insurance buffers the impact that injury or illness inflicts on savings.
“Consider a scenario where an individual earns $250,000 annually and invests 10 percent of their income each year for retirement beginning at age 40,” explains John Black, a wealth management adviser for Northwestern Mutual Financial Network. “New analysis ... found that a two-year disability at the age of 50 will reduce their total investment accumulation by 30 percent at the retirement age of 65, which amounts to more than a $1 million loss. For an investor with similar income and investment assumptions who chooses to purchase an individual [disability insurance] policy, the investment portfolio is reduced by only about $230,000, or 8 percent.”
Determine how much savings you can risk. For example, if you’re a 47-year-old who plans to retire at 67, scrutinize whether enough savings exist to cover expenses before retirement in 20 years if permanent disability occurred. The AARP’s online disability insurance calculator can help.
A policy with the “own occupation” disability definition is best. It pays benefits if you cannot perform the duties of your own occupation, versus any job. Include accidental injury and illness, partial benefits for part-time work, and aim for companies with excellent financial ratings—A+ or A++. Ask about group discounts.
And consider whether to purchase supplemental coverage if your employer’s policy lacks the above features.
Susan A. Berson is a partner with the Banking & Tax Law Group of Leawood, Kan. An author of several finance and tax books for lawyers, she may be reached at email@example.com.