Start financial protection before opening your law firm
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TOOL 3: DISABILITY
If you’re starting a law firm, chances are you are the entire firm. So what happens to your business if you become sick, disabled or otherwise unable to work? Even if you engage in the self-insuring discussed earlier, there is a chance you’ll have nothing to come back to if a surgery or illness puts you on the sidelines beyond the time frame for which you’ve saved. Disability insurance is a cost-effective way to transfer risk when you don’t have the capital or time to self-insure via a personal savings plan. It’s then a risk-management tool that replaces lost income if you’re sidelined.
There are various kinds of disability policies you might consider depending on your situation. One specific type is disability overhead insurance, which pays your business overhead if you are unable to work as a key employee. You should consult an insurance professional to address your individual circumstance and find what is fitting for you.
When choosing a company or provider for a disability policy, keep in mind that not all companies, contracts and rates are created equal. Do your research, and enlist some help.
There’s good news for attorneys—even new ones or those finishing law school: Although most companies require proof of income to establish particular amounts of coverage, some will waive this requirement or provide lower rates for specialty-degreed professionals such as lawyers.
TOOL 4: LIFE
Life insurance is a critical personal planning tool. In the familial context, it is often the primary and largest source of funds used to care for our families when we die. Typically, it’s also most accessible and efficiently distributed upon the death of the policyholder and provides liquidity to pay expenses and debts and care for our families. When starting your own firm, life insurance might similarly be a critical tool for the continued care of your business, business partners and family should something happen to you.
If you have any form of shared debt heading into starting your firm, you will want to consider life insurance as a tool for paying that debt upon your death. Shared debt might include your law school loans if a parent or spouse co-signed on your agreement. In that case, life insurance can be used so that your co-signer is not left with the loan balance.
Shared debt also might mean a business partnership if you are starting a law firm with others. This is a topic to be explored in-depth elsewhere. But in sum, if you have a partner or partners, you want to consider a buy-sell agreement. There are many ways to structure these agreements. But the important thing to note briefly in this context is that life insurance can be used to fund buy-sell agreements and can generally be leveraged as your firm develops.
There are various types of life insurance. You might be most familiar with term life insurance, whole or permanent insurance, and universal. Opinions vary about the best type of insurance to buy. You should consult an insurance professional on what is best for you, but it likely comes down to your goals and budget.
Permanent insurance advocates argue it can be used to protect your family while you build equity in your firm, among other benefits. Northwestern Mutual, New York Life and MassMutual have a strong track record relative to the industry as it relates to permanent insurance.
But for most attorneys starting out, a term policy is an inexpensive way to protect yourself, your partners and family. Again, you should consult an insurance professional to discuss these differences and make the best choice.
FLEXIBILITY FOR THE UNEXPECTED
Additional risk-management tools include business structures that reduce or eliminate personal liability, umbrella insurance polices to cover office property in the event of damage or theft, and various insurance types for potential future employees.
If you talk to anyone who has recently set out to start a law practice, I suspect you will hear stories of trial and error and receive advice on remaining flexible as times change and your practice evolves. Changes in the delivery of legal services come to mind, such as billing strategies that are easier for clients and the use of technology. But I think flexibility also applies to our thinking about managing the unexpected or unanticipated.
Unanticipated expenses can be crippling to your new practice. Insurance such as the types discussed here are tools you can use to ensure that while you are doing all the right things—pursuing the highest-level competence in your practice, networking, using legal tech tools, marketing on social media—your hard work, dedication to your practice and commitment to your clients remain at the forefront in the presence of the unexpected.
Jessica Youngblood is of counsel at the Knight, Morris & Reddick Law Group in its Los Angeles office. She specializes in comprehensive estate and trust planning. This article appeared in the November 2017 issue of the
