Do Young Lawyers Need Disability Insurance?

Disability insurance does not sound necessary to most young lawyers. But did you know that a Social Security report states that a 20 year old has a 25% chance of becoming disabled before reaching 67? Lawyers have worked so hard for the career they have, but so many are leaving the future earnings of their careers unprotected. Disability insurance won't protect all of your future earnings, but is there a reason why you wouldn't protect at least some of it?

Are you earning a high income as a lawyer? Do you expect your future income to be even higher than your current income? Would a disability that impairs your ability to work for a year or more affect your personal and professional life? If you answered "yes" to these questions, you are a young lawyer who should consider disability insurance.

Disability insurance may sound unnecessary like the travel insurance offered when buying a flight, but disability insurance is different. It protects something quite valuable to a young law professional: future earnings.

As a young lawyer, you are likely building up your net worth now. Now consider what would happen if you become disabled and unable to work as a lawyer for a year or longer. Could you continue to afford your current lifestyle? Would this gap in working as a lawyer affect your future earning potential?

Even if you believe the chance of becoming disabled is low, the financial consequences of a disability may be too great to ignore. Disability insurance is not for everyone, but every lawyer should consider it as a part of their financial plan.

What does insurance do?

Insurance allows you to transfer the risk of financial loss to another party for a fee. If one of the insured risks causes monetary damage to you, the insurance company will pay you an agreed-upon amount. Insurable risks are unlikely to happen but will cost a lot of money if they do happen.

What does disability insurance cover?

Disability insurance covers all or a portion of your future earnings if you cannot work due to a disability. As expenses rise, the need for disability insurance rises too. An emergency fund may cover a few months of being unable to work, but disabilities can last years or even a whole lifetime.

Disabilities are more common than you think

According to the Social Security Administration, a 20-year-old person has a 25% chance of becoming disabled before they reach 67 years old. Note that this definition of disability is more stringent than the definition used by private disability policies, meaning it may be even more likely than a 25% chance for a lawyer to have a qualifying disability.

Should young lawyers consider disability insurance?

Young lawyers should consider adding disability insurance because lawyers can benefit from it more than other professionals: the skills and knowledge developed at law firms and law school are highly valued, student loans and other debt still need to be paid even during a disability, and lawyers have high earning potential worth protecting.

Things to know about disability insurance

Long-term vs. short-term. Short-term disability insurance usually pays benefits for less than one year, typically 3-6 months, and is often available through employer benefit plans. Long-term disability is for benefit periods of a year or longer, up to age 65, 67, or 70.

Elimination period. This is the amount of time an insured must be disabled before receiving an insurance payout — as short as 30 days or longer than one year for long-term policies. The longer the elimination period, the lower the monthly premium.

Any Occupation vs. Own Occupation. Own occupation means a disability impairs someone from working in their specific field. Any occupation means a disability impairs someone from any kind of work they're capable of performing. Since it's more likely a disability would impair your own occupation and not any occupation, an own occupation policy is generally more expensive but often a better choice for lawyers.

Considerations

Line up your emergency fund and elimination periods so payments continue without interruption. Consider your student loans and other long-term debt when choosing a benefit period. Long-term disability insurance typically covers only 40-60% of your income, so don't assume your expenses will decrease due to a disability.

Why you might not need disability insurance

If your employer offers adequate short-term and long-term disability insurance, additional coverage may not be necessary. Disability insurance typically costs between 1-4% of your annual income — weigh the current cost against future benefits. If you have enough saved to comfortably live the rest of your life, the loss of future income would not substantially affect your ability to afford your future lifestyle.

Conclusion

"I won't get disabled" is not a good reason to avoid considering disability insurance. Nearly 78% of people who filed for bankruptcy from 2013-2016 cited loss of income as a contributing factor. Disability insurance is one tool to protect yourself from the loss of future income.

The Developing Financial Process analyzes your current financial situation and your future earning potential to determine if disability insurance is right for you. Developing Financial does not receive commissions or kickbacks if you do purchase a disability insurance policy, reducing conflicts of interest when recommending insurance products.