Guardian: The Only CBA Approved True Own-Occupation Plan for Attorneys

Many law practices are small businesses run by a single producing attorney. Although most attorneys recognize the importance of protecting their income with personal disability insurance, many overlook the need for Overhead disability insurance. Think about it for a minute. If you suffer a disabling accident or illness, how will you pay your office rent, the salary of a key employee, practice and student loan payments, telephone and utility bills, equipment leases, and other fixed overhead expenses that exist whether you’re producing or not?

If you don’t carry a properly designed Business Overhead Expense (BOE) disability policy, you could be in big trouble. Even if you’re only partially disabled (the most common form of disability) and suffer a drop in production, guess what happens: your personal income drops dramatically. Look at a simple example. Lets’ say you become disabled for 6 months because of a back injury that requires surgery. Because you’re the sole producer in your practice, your gross revenue drops proportionately with your decrease in time spent at the office, but fixed overhead expenses will remain about the same. The result? Your personal income drops because of your overhead obligations. Even though you had the foresight to buy a properly structured personal policy to replace a significant percentage of your income, your overhead obligations to keep your business alive until your return will come from you own pocket without overhead coverage. Remember, as a business owner, you live with two budgets.

The BOE policy that we recommend through Guardian pays residual benefits based on the doctor’s loss of gross business revenue. You also never have to be totally disabled first in order to receive benefits. The Guardian overhead plans pay residual/partial benefits to the extent that covered expenses (the monthly maximum benefit) exceeds gross business revenue. In other words, if you’re partially disabled and your gross revenue is not adequate to pay your fixed overhead expenses, the Guardian overhead plan can fill the cash void and save your business. If you have adequate personal disability coverage in place, then you’ll still be on a stable financial footing even though your production has ceased or significantly decreased.

Many cheap group Overhead disability plans have significant limitations on their partial benefits. Some only pay a 50% benefit for a maximum of three months and will only pay this limited benefit after a period of total disability lasting 60 days. Read a sample contract carefully before you buy.

The biggest difference that you’ll find among Overhead policies from different companies is the waiting period (or elimination period) and how it relates to payment of benefits. You want to make sure your policy allows you to satisfy your waiting period with days of total and/or partial disability. You never want a policy that requires you to be totally and consecutively disabled for the entire waiting period. Even a shorter waiting period on such a policy (like a 30 or 60 day wait) is very difficult to satisfy for two reasons. First, professionals are often times never totally disabled and second, disability periods are often "scattered." With a consecutive days requirement, if you return to your office even on a partial basis for one day during the waiting period, you have to start counting them over. Look at this part of the contract very carefully. Never buy a policy that requires a period of total disability before partial benefits are payable.

When shopping for coverage, first analyze your fixed expenses to determine your true needs. Don’t count everyone’s salary at the office and don’t count variable expenses  that are contingent upon your production. Be logical so that you don’t overbuy. Remember that Overhead policies are reimbursement policies for fixed overhead expenses. They are not designed to cover Buy-Sell funding obligations or your own salary.

You can also buy an Overhead policy with a 60-day waiting period (from the right company) and save on premiums. Most attorneys have enough in accounts receivables collections to cover essential fixed expenses (excluding their own income/salaries) for the 60 days until the overhead policy kicks in.

When searching for the right BOE policy, be sure to pay special attention to the following contract features: (Policy form 4100)

Remember that any type of insurance policy is a contract between you and the insurance company. Buying the cheapest policy can be a big mistake. Many dentists buy cheap group plans for the sole purpose of saving money and then find out at a very difficult time that they didn’t have the coverage that they need. Although price is an important consideration, ask yourself why you bought the coverage in the first place. Like anything in life, you get what you pay for. If you buy cheap coverage, then you shouldn’t be surprised when you get cheap benefits. Also steer away from dangerous and expensive options like Return of Premium plans. You’ll pay extra for such policies and are merely loaning an insurance company your money and praying that you don’t become disabled for the next ten years. Simply shop for a quality contract.

For questions or comments, call Dave Richards of Guardian at (303) 770-9020 ext. 3211 or toll free at (877) 402-0485 ext. 3211. We can help you determine which fixed overhead expenses you need to cover to get the most from your insurance dollars. Contact us today for free, no obligation quotes and contractual comparisons of virtually all the plans on the market.