As a lawyer, you spend your days (and nights) looking after the legal needs of your clients. That’s what makes you so successful. You are singularly focused on achieving the best results for them. You should protect your income with the same passion.
You’ve worked hard to perfect your talents and abilities, and it has paid off. You have a big house, cars and assets. While you live the epitome of the American Dream, chances are you have overlooked one of the most important components to maintaining the lifestyle you created for yourself and your family: income protection. Don’t let your focus on your clients prevent you from paying attention to protecting the financial future of your family and yourself.
Unless you are independently wealthy, your lifestyle depends upon your ability to continue to work and generate billable hours to earn an income. Ask yourself this question: Could you maintain your lifestyle if you couldn’t work? If you are like most people, the honest answer is no. In my experience, the one insurance that people have too little of is disability insurance. To ensure that your income would be protected in the event of long-term disability, do a review of what you have in place. We can help.
The risks of being disabled are staggering:
- You are three times more likely to become disabled than you are to die before the age of 65
- One in three working Americans will become disabled for 90 days or more before the age of 65
- Average individual claims last longer than 30 months
- Medical problems contributed to 62% of all personal bankruptcies filed in the United States
Your future income earning potential is one of your most valuable assets. If you earn $200,000 per year and are 45 years old, the loss of your income could result in a financial loss of over $6 million (assuming you work to age 67 and have 3% annual income increases).
The sad truth is that most lawyers do not have adequate income protection. Many Americans walk around without any disability coverage at all, leaving their incomes completely exposed. Even those who are fortunate enough to have group coverage through their firms are often underinsured.
Generally speaking there are two ways to determine the right amount of income protection coverage.
Example 1: Numbers-Based Insurance
Assume for a moment that you are an executive making $200,000 per year. After taxes, you bring home approximately $150,000. Because health insurance is subsidized by the employer you may pay $500 per month for health care. That leaves you with a net income of $144,000.
Fast forward to that fateful date when you become disabled. Assume you have a group policy with 60% coverage and a benefit cap of $10,000 per month (which is a generous amount, most policies are capped at $5,000 per month) through your firm. Assume the coverage is paid with after tax dollars. (Many firms pay for this type of coverage, which would make it taxable. This would create an even larger gap. But presume you are receiving tax-free benefits for now.) That would equate to disability payments of $120,000 per year.
Plus, you now have to pay for healthcare. Assuming the cost for health insurance is $15,000 per year, it creates a post-disability income of $105,000, a total reduction in compensation of approximately 30%. Would you still be able to manage to set aside funds for retirement and other monthly expenses with a reduction of 30% in your income?
The higher the earnings, the larger the gaps! Protect yourself and your family by insuring 60% to 80% of your income.
Example 2: Needs-Based Insurance
The second method for determining the right amount of coverage is based on a needs only approach. Evaluate your post disability income and match it up against your monthly expenses. Start by reviewing and understanding how your current disability income coverage (if any) works and how much this coverage through your firm or organization will pay. Also, look at your spouse’s monthly income. Now, subtract any monthly expenses and retirement savings needed to fund an adequate retirement plan. Is there a shortfall? If so, get coverage to make up the difference.
Read Part 2, which discusses Group Income Protection.
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Don’t leave your financial future to chance. We are well-positioned to review your current income protection plan and help you develop a plan that works for you and your family. We insure Attorneys and all manner of other executives. There is no limit to the amount of income we can insure. Please reach out to Chris Cahill with any questions at: Chris@TwelvePointsWealth.com or 978-318-9504.
