Insuring Your Success
When starting your own practice one of the most daunting challenges is knowing what type of insurance to get, how much and when. This column will not be able to take you down all the twist and turns in the insurance maze but will try to address insurances a solo or small firm must consider. After that, your pocketbook and risk-tolerance will dictate what insurance you buy, and when, if ever. When seeking out insurance agents, you should always check with your local or state bar associations for recommendations. Quite often insurers will present special "group"policy coverages to get endorsements from associations.
Errors and Omissions Insurance (Malpractice Insurance): Some states require you have malpractice insurance and others don’t. In states where malpractice insurance is not required, some attorneys "go bare," meaning no malpractice insurance. They are playing the odds when first starting out that they will not be sued because they will have few clients and probably not taking on anything tremendously complicated. This is not an unreasonable assumption. In addition, if you understand how policies work you know that if you are practicing for a year, for example, and then buy a policy, you can purchase that policy with "prior acts coverage" which will be additional coverage retroactive to a designated date; the further you go back, the more costly. There is a premium for this coverage in addition to your regular insurance costs but you are deferring the bill until you hopefully have greater income. Newly minted attorneys or attorneys with part-time practices can also buy part-time insurance which is generally working (billing) twenty hours or less. You can get coverage from day one at a reduced rate because you’ve cut the malpractice risk in half. You can also finance most policies.
When determining the cost of your malpractice insurance, generally the insurer will look at full-time/part-time practicing status, years of practice, areas of practice, deductible, defense responsibilities and whether you want "prior acts coverage." It is safe to say while there might be both cheaper and more expensive policies out there, a new attorney starting out can expect to pay between $1,000 and $1,500 the first year for full time coverage.
Other coverage you should consider, especially if you have office space, is a basic liability policy for the premises. As you grow you will want valuable papers’ coverage and business interruption insurance. If you take on a paralegal or secretary, you are mandated by law to have workers’ compensation insurance. If you don’t get this and there is a valid claim you run the risk of being held personally responsible depending upon the structure of your entity.
Separately, the one insurance most solos fail to get enough of, or even at all, is disability insurance. Right now, if it is a choice between life insurance and disability insurance, as a solo you should choose disability. Disability insurance is for the living. It has become increasingly difficult to find a good policy that isn’t prohibitive, but as a solo practitioner, should you become disabled, without disability income to pay for your ongoing business and personal debts you can financially cripple both your business and yourself for years to come. For a young solo, in good health to ensure a few thousand a month in disability income, you can expect to pay about $1,000 per year. Unless the tax laws have changed, take the premium expense as a personal expense in order to receive disability payments tax free. Check with your accountant. Attorneys are considered an excellent risk for disability insurance but you must first be able to show income.
Health insurance for the solo who is not already covered under a spouse’s health plan, is also a challenge but must be gotten. Generally, a small business with less than three employees requires medical underwriting per individual. This makes health coverage more expensive. In Connecticut check with http://www.ct.gov/cid and look for companies who market "blue ribbon" policies for self-employed and small groups. Also, look at Health Reinsurance for coverage if you have a prior existing condition. It is not well known that it is mandated by a Connecticut Public Policy Act to make health insurance available to all who apply regardless of any prior existing condition, at an age-based premium, of course. Health Reinsurance offers such a health insurance program. However, income is a consideration, too. So, as a newly minted solo, your income will not generally be high and can impact your premium. In general, when applying for health insurance, if you are an individual in their late twenties in excellent health without a prior existing condition you can expect to pay around $300 a month depending upon the deductible.
Be intelligent and understand insurances and your insurance priorities when first starting out. As your business and income grows, so will your insurance needs. Eventually, you will be able to afford the various insurances needed at the correct coverage amounts.
Susan Cartier-Liebel is solo practitioner, adjunct professor at Quinnipiac University School of Law and a business consultant for solo and small firms. She can be reached at [email protected]. Copyright © Susan Cartier-Liebel (2005) All Rights Reserved. No portion of this material may be copied, transmitted, posted, duplicated or otherwise used without the express written approval of Susan Cartier-Liebel.
