![\"law](\"https:\/\/i0.wp.com\/www.attorneyatwork.com\/wp-content\/uploads\/2025\/04\/law-firm-disability-insurance.jpg?resize=770%2C495&ssl=1\" "\\"\\"")
Table of contents<\/h2>\n\n- It\u2019s Not Personal: Disability Insurance for Your Law Practice<\/a><\/li>\n
- Three Risks to Your Law Practice<\/a>\n
\n- 1. Risk: What if a key employee or associate couldn\u2019t work because of a disability?<\/a><\/li>\n
- 2. Risk: If I became disabled, how would my partner(s) buy my share of the practice?<\/a><\/li>\n
- 3. Risk: How would I pay my business expenses if I was temporarily disabled?\u00a0<\/a><\/li>\n<\/ul>\n<\/li>\n
- Risk Management Reminder<\/a><\/li>\n<\/ul>\n<\/div>\n
It\u2019s Not Personal: Disability Insurance for Your Law Practice<\/h2>\n
Most attorneys are familiar with personal disability insurance. It\u2019s most commonly used to protect income by paying a monthly benefit if a covered individual is disabled. Disability insurance can be purchased individually or as a group benefit that covers full-time partners, associates and other employees.<\/p>\n
Did you know that you can insure your practice<\/em> with disability insurance? The following is a quick summary of three sometimes overlooked risks to your business and how to mitigate them with law firm disability insurance.<\/p>\nThree Risks to Your Law Practice<\/h2>\n1. Risk: What if a key employee or associate couldn\u2019t work because of a disability?<\/h3>\n
Who is your most important employee? While every employee is important, most partners or owners can easily point to those that are absolutely critical. Whether it\u2019s a practice manager, an associate who\u2019s in line to become a partner or a paralegal with a great deal of experience, almost every law firm that\u2019s not a true solo practice has a key team member.<\/p>\n
Take a minute to identify that employee or those employees in your practice.\u00a0Then think about what would happen to your practice if that person became sick or injured. If they are critical to the firm\u2019s success, their absence could create a significant financial strain.\u00a0Here are some examples:<\/p>\n
\n- The cost to conduct a thorough search for a replacement<\/li>\n
- The cost to hire a temporary person to fill the role<\/li>\n
- The loss of revenue if the employee was billing for legal work<\/li>\n<\/ul>\n
The good news is there is a solution to this problem \u2014 key person disability insurance<\/strong>. Here is a quick summary of how these policies work:<\/p>\n\n- The firm is the owner of the policy.<\/li>\n
- The key employee is the insured person.<\/li>\n
- The firm, not the employee, is the recipient of benefits.<\/li>\n
- Benefits can be paid monthly or in a lump sum.<\/li>\n
- The waiting period before benefits begin usually ranges from 90 to 730 days.<\/li>\n<\/ul>\n
An example might be helpful:<\/p>\n
\n- ABC Law has a practice manager, Susan, who supervises all operations.<\/li>\n
- They purchase a key person disability insurance policy on Susan with a lump sum benefit of $100,000<\/strong>.<\/li>\n
- If Susan is disabled for 180 days, the firm will file a claim with the insurance company. Once the claim is approved, $100,000 will be paid to the firm. This money could be used to fund a search for a replacement, cover the cost of a temporary person, and\/or to offer a signing bonus to sweeten a job offer.<\/li>\n<\/ul>\n
2. Risk: If I became disabled, how would my partner(s) buy my share of the practice?<\/h3>\n
Buy-sell agreements between partners often include provisions that address both the death and the disability of a partner. Life insurance is a common tool used to fund the agreement if a partner dies.<\/p>\n
Formal funding for the disability portion of the buy-sell agreement is less common, but potentially more important because the likelihood of a disability during the working years is higher than that of premature death.<\/p>\n
Disability buyout insurance<\/strong> is designed specifically for this purpose. Here are some details:<\/p>\n\n- The buy-sell agreement determines the policy owner. The owner could be the practice itself with an entity purchase agreement, or the partners can own policies on each other with a cross-purchase agreement.<\/li>\n
- Each partner is insured.<\/li>\n
- The beneficiary of the policy is the same as the owner.<\/li>\n
- Benefits can be paid monthly or in a lump sum.<\/li>\n
- The waiting period for benefits is longer than a typical disability policy.\u00a0One carrier offers options of 365, 540 and 730 days.<\/li>\n<\/ul>\n
An example follows:<\/p>\n
\n- Bill and Peggy each own 50% of Smith and Jones, PC.\u00a0<\/li>\n
- They have a cross-purchase buy-sell agreement that addresses both the death and disability of one of the partners.<\/li>\n
- At the end of 2024, a formal business valuation pegged the value of the firm at $800,000.<\/li>\n
- Bill and Peggy could purchase disability buyout policies to fund the purchase of the practice if one of them became disabled.<\/li>\n
- Bill would own the policy covering Peggy, and Peggy would own the policy covering Bill.<\/li>\n
- The policy would pay $400,000 in a lump sum to the healthy partner if the benefit is triggered after 365 days.<\/li>\n<\/ul>\n
It is important to know the value of your practice when drafting a buy-sell agreement.\u00a0One of our insurance company partners offers free informal business valuations for law firms (and other businesses) with more than $500,000 in annual revenue<\/a>.\u00a0The same company will also review existing buy-sell agreements, helping firms keep their documents current.<\/p>\n3. Risk: How would I pay my business expenses if I was temporarily disabled?\u00a0<\/h3>\n
- \n
- 1. Risk: What if a key employee or associate couldn\u2019t work because of a disability?<\/a><\/li>\n
- 2. Risk: If I became disabled, how would my partner(s) buy my share of the practice?<\/a><\/li>\n
- 3. Risk: How would I pay my business expenses if I was temporarily disabled?\u00a0<\/a><\/li>\n<\/ul>\n<\/li>\n
- Risk Management Reminder<\/a><\/li>\n<\/ul>\n<\/div>\n
It\u2019s Not Personal: Disability Insurance for Your Law Practice<\/h2>\n
Most attorneys are familiar with personal disability insurance. It\u2019s most commonly used to protect income by paying a monthly benefit if a covered individual is disabled. Disability insurance can be purchased individually or as a group benefit that covers full-time partners, associates and other employees.<\/p>\n
Did you know that you can insure your practice<\/em> with disability insurance? The following is a quick summary of three sometimes overlooked risks to your business and how to mitigate them with law firm disability insurance.<\/p>\n
Three Risks to Your Law Practice<\/h2>\n
1. Risk: What if a key employee or associate couldn\u2019t work because of a disability?<\/h3>\n
Who is your most important employee? While every employee is important, most partners or owners can easily point to those that are absolutely critical. Whether it\u2019s a practice manager, an associate who\u2019s in line to become a partner or a paralegal with a great deal of experience, almost every law firm that\u2019s not a true solo practice has a key team member.<\/p>\n
Take a minute to identify that employee or those employees in your practice.\u00a0Then think about what would happen to your practice if that person became sick or injured. If they are critical to the firm\u2019s success, their absence could create a significant financial strain.\u00a0Here are some examples:<\/p>\n
- \n
- The cost to conduct a thorough search for a replacement<\/li>\n
- The cost to hire a temporary person to fill the role<\/li>\n
- The loss of revenue if the employee was billing for legal work<\/li>\n<\/ul>\n
The good news is there is a solution to this problem \u2014 key person disability insurance<\/strong>. Here is a quick summary of how these policies work:<\/p>\n
- \n
- The firm is the owner of the policy.<\/li>\n
- The key employee is the insured person.<\/li>\n
- The firm, not the employee, is the recipient of benefits.<\/li>\n
- Benefits can be paid monthly or in a lump sum.<\/li>\n
- The waiting period before benefits begin usually ranges from 90 to 730 days.<\/li>\n<\/ul>\n
An example might be helpful:<\/p>\n
- \n
- ABC Law has a practice manager, Susan, who supervises all operations.<\/li>\n
- They purchase a key person disability insurance policy on Susan with a lump sum benefit of $100,000<\/strong>.<\/li>\n
- If Susan is disabled for 180 days, the firm will file a claim with the insurance company. Once the claim is approved, $100,000 will be paid to the firm. This money could be used to fund a search for a replacement, cover the cost of a temporary person, and\/or to offer a signing bonus to sweeten a job offer.<\/li>\n<\/ul>\n
2. Risk: If I became disabled, how would my partner(s) buy my share of the practice?<\/h3>\n
Buy-sell agreements between partners often include provisions that address both the death and the disability of a partner. Life insurance is a common tool used to fund the agreement if a partner dies.<\/p>\n
Formal funding for the disability portion of the buy-sell agreement is less common, but potentially more important because the likelihood of a disability during the working years is higher than that of premature death.<\/p>\n
Disability buyout insurance<\/strong> is designed specifically for this purpose. Here are some details:<\/p>\n
- \n
- The buy-sell agreement determines the policy owner. The owner could be the practice itself with an entity purchase agreement, or the partners can own policies on each other with a cross-purchase agreement.<\/li>\n
- Each partner is insured.<\/li>\n
- The beneficiary of the policy is the same as the owner.<\/li>\n
- Benefits can be paid monthly or in a lump sum.<\/li>\n
- The waiting period for benefits is longer than a typical disability policy.\u00a0One carrier offers options of 365, 540 and 730 days.<\/li>\n<\/ul>\n
An example follows:<\/p>\n
- \n
- Bill and Peggy each own 50% of Smith and Jones, PC.\u00a0<\/li>\n
- They have a cross-purchase buy-sell agreement that addresses both the death and disability of one of the partners.<\/li>\n
- At the end of 2024, a formal business valuation pegged the value of the firm at $800,000.<\/li>\n
- Bill and Peggy could purchase disability buyout policies to fund the purchase of the practice if one of them became disabled.<\/li>\n
- Bill would own the policy covering Peggy, and Peggy would own the policy covering Bill.<\/li>\n
- The policy would pay $400,000 in a lump sum to the healthy partner if the benefit is triggered after 365 days.<\/li>\n<\/ul>\n
It is important to know the value of your practice when drafting a buy-sell agreement.\u00a0One of our insurance company partners offers free informal business valuations for law firms (and other businesses) with more than $500,000 in annual revenue<\/a>.\u00a0The same company will also review existing buy-sell agreements, helping firms keep their documents current.<\/p>\n
3. Risk: How would I pay my business expenses if I was temporarily disabled?\u00a0<\/h3>\n
- If Susan is disabled for 180 days, the firm will file a claim with the insurance company. Once the claim is approved, $100,000 will be paid to the firm. This money could be used to fund a search for a replacement, cover the cost of a temporary person, and\/or to offer a signing bonus to sweeten a job offer.<\/li>\n<\/ul>\n
- 2. Risk: If I became disabled, how would my partner(s) buy my share of the practice?<\/a><\/li>\n
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