Congratulations! You have completed this year’s income tax return, or at least reviewed your 2011 income so you could file for an extension. Don’t just put your tax return away until next year. Take a few minutes to review your own insurance planning. Several critical planning issues are right there on your return.
One of these issues is disability insurance planning. Do you have adequate long-term disability insurance (LTDI)? The goal should be to have LTDI equal to 70 or 80% of your income.
Many attorneys think that because they have group LTDI through their current employer they do not need to do any individual planning in this area. However, this could be a big mistake for several reasons, including the following:
- Most group LTDI plans cover 60 percent of the employee’s base income and have a monthly benefit cap. This often is not an adequate amount of coverage. And, if your employer is paying for the insurance and you become disabled, the benefit is taxable. It is now possible to protect 80 percent to 90 percent of your income through a combination of group LTDI and individual LTDI coverage.
- Your employer-provided group LTDI plan may require that for coverage to extend longer than 24 months, you must be determined to be disabled to the extent that you cannot perform any work, not just be unable to practice law. This is called an any occupation definition, and it is the same definition of disability the Social Security Administration uses to determine eligibility for benefits. This is an unacceptable definition of disability for an attorney. If your employer-provided coverage includes this definition, you should consider adding an individual LTDI policy that is designed to supplement this coverage.
- When you lose your income because you are disabled, you also lose the employer portion of any retirement plan contributions. Your employer-provided group LTDI will not cover your lost retirement-plan contributions. Today there are individual LTDI policies specifically designed to provide protection for this important asset by making contributions to a trust for your retirement.
- Most group LTDI plans do not include a catastrophic-disability benefit that allows you to receive additional benefits if you are so disabled that you need assistance with “activities of daily living.” This benefit is available as a rider with individual LTDI policies.
- Your current group LTDI coverage is probably not portable if you decide to join a small firm or an employer that does not currently offer group LTDI. You control an individually owned LTDI policy.
It is important to apply for disability insurance while you are in good health. Some attorneys wait too long to apply for LTDI and learn that they will not qualify for coverage because of a preexisting medical condition. At Bultman Financial Services, we have been successful in obtaining LTDI coverage for some attorneys with preexisting health problems by purchasing group LTDI for their firm if there are two or more employees. We encourage firms to at least obtain quotes for this coverage, and they are often surprised to learn that group LTDI is an affordable benefit. Group LTDI often can be obtained without any medical underwriting.
For larger firms (10 of more employees), it may be possible to get a fairly substantial group LTDI benefit with no medical underwriting. It also may be possible to get favorable underwriting for individual LTDI with 10 or more participants. The disability insurance marketplace is always evolving, and so it is important to review coverage periodically with an agent who represents multiple companies. Be sure to use an agent who works in the disability-insurance market, because this is a specialty area.
Bultman Financial Services (BFS) is the administrator for the State Bar of Wisconsin group LTDI plan through Anthem Insurance. We have seen what a good LTDI plan can do to protect an attorney’s family. We encourage all attorneys to obtain adequate LTDI while they are young and healthy. State Bar members also are eligible for a group discount on individual LTDI with Principal Life. By combining the State Bar group LTDI or your employer’s group LTDI coverage with an individual LTDI plan, you can get coverage of 70 to 90 percent of your current income.
Visit WisBar.org for information about the plans offered through Bultman Financial Services. If you have questions about your particular situation, please call Ralph or Corrine Bultman at Bultman Financial Services, (800) 344-7040.