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Chapter 5/6

Business Insurance for Law Firms: A Break Down of Insurance Types and Key Considerations

Law Firm Finances

16 min read

Business Insurance for Law Firms: A Break Down of Insurance Types and Key Considerations 

What if? 

As a law firm owner, the what-ifs seem to add up even faster than before. 

What if the firm fails? 

What if we aren’t able to pay our bills this month? 

What if our overworked coffee maker goes on strike and catches fire, threatening to burn the office from top to bottom?

Typically, we tend to focus on what-ifs that look like those two at the top but sometimes forget about the coffee maker fire, or the earthquake, or the lawsuit. These are the things we can’t necessarily see in our future. Thankfully, we can protect ourselves and our business from them with proper law firm insurance.

Why Should You Have Law Firm Insurance?

A lawyer in our coaching community, Lab, walked into her office one morning, only to find a pipe burst over the weekend and flooded the office. Everything was ruined. She had to relocate their entire office for months so that everything down to the drywall could be replaced. Luckily, she had a paperless office and a great commercial property insurance that covered the financial burden of the move and repairs. Many attorneys we know would’ve sunk.

Insurance isn’t “just a nice thing to have.” It’s a critical part of protecting your firm, your assets, your equipment and your personal life.

More specifically, law firm insurance:

  • Protects you from the costs of getting sued. This is the one you already know, though, right? Because it happens. One disgruntled employee or one accident inside your firm and you may be staring at a lawsuit that, without insurance, could drain your financial resources.

  • Keeps you compliant with the law. Some insurance is required by law, especially if you have employees. It’s critical to remain compliant to avoid fines, penalties, and other consequences of breaking the law.

  • Helps you bounce back after a disaster. Earthquakes, tornados, and floods, oh my. If caught without insurance after a natural disaster, you’ll be stuck picking up the pieces of your property on your own.

  • Protects your employees. Depending on your state, it may be a requirement to offer workers’ compensation, unemployment, and disability insurance. More importantly, it helps protect your employees from financial ruin. Not to mention, happy and cared-for employees are productive employees.

These benefits are just the beginning. Each insurance policy offers even more benefits that outweigh the cost of the premium. 

The bottom line is this: you can’t predict the future. Prepare, with insurance, for whatever comes your way.

Spend Money to Save Money

You may view some insurance coverages as unnecessary or luxuries you simply don’t have the cash for. Yet, malpractice insurance—a given as an attorney—just isn’t enough. You have to spend money now to save money in the future. And those savings could save your bottom line.

Ceiling repair after a leak? $700.

Drying out your commercial property after a water leak? $2,700.

Replacing your computer and other tech equipment? Thousands of dollars.

Commercial property insurance? Priceless.

Before You Do Anything Else, Find an Insurance Agent

Before you do anything, we recommend finding an insurance agent who has experience working with businesses. They’ll help you decide which policies you need, how much coverage is best for your firm, and beyond. 

Understanding the Many Types of Law Firm Insurance

Maybe you’re sold on the idea of acquiring insurance for your firm. So how do you choose the right insurance to fit your needs? There are literally thousands of insurance companies and policies out there, not to mention many types of insurance to choose from. 

By gaining a basic understanding of the insurance available to you, you’ll be able to choose a plan that properly protects your firm. As law firm business owners with some experience under our belts, we know a thing or two about business insurance.

Business Owners Policy

Most attorneys and law firms carry a basic business owner’s policy or BOP. Think about your homeowner’s policy. It’s meant to protect your home and its contents, right? Your BOP does the same with your business.

A BOP generally includes:

  • General liability insurance. This policy protects your firm in the event of property damage, bodily injury and related medical expenses, and personal and advertising injuries. For example, it protects you if someone decides to sue you after a slip-and-fall that occurs inside your office.

  • Commercial property insurance. This policy covers your office or wherever you conduct your business operations, as well as the items you use to do so: furniture, equipment, file system, etc. This includes property that is both leased and owned.

  • Business income insurance. Business income insurance  helps owners recover lost income when a covered loss causes the business to suspend or slow down operations. .

With a BOP:

You’ll have protection from lawsuits, accident liability, loss of income due to property damage, and beyond.

Without a BOP:

You’ll be responsible to pay for legal fees associated with lawsuits, will need to pay out-of-pocket for property damage, and will need to eat any lost income resulting from it.

Level of Importance

A BOP is absolutely critical for running your law firm. This isn’t something you can just ignore. Instead, it’s the basic policy every business owner should have from the outset of any business venture.

Common Questions to Ask Your Agent:

  • What are the limits to this policy? Put differently, what’s the maximum amount this insurance will cover?

  • What isn’t covered under this policy?

  • Are there any possible gaps in this policy and how can I avoid them?

Commercial Umbrella Insurance

What happens if your BOP is inadequate in covering a particular claim? That’s where commercial umbrella insurance comes in. It’s designed to protect you from significant allegations and lawsuits that exceed your underlying policy’s coverage limits.

With Umbrella Insurance:

You’ll have protection from lawsuits or allegations that exceed what your current BOP plan covers.

Without Umbrella Insurance:

You may face a lawsuit that isn’t covered under your BOP, possibly causing financial ruin within your law firm.

Level of Importance

For law firms, a commercial umbrella insurance policy is a great thing to have. After all, you’re in a service business where you work with the public on a daily basis. You have significant risk, making extra liability coverage a no-brainer.

Common Questions to Ask Your Agent

  • Does this umbrella policy cover the same time period as my BOP policy?

  • Who within the firm is insured under this policy?

  • What, if any, exclusions exist inside this umbrella policy?

Computers & Media Insurance

If you’re a client-centric and forward-facing law firm, you’ve probably already started going paperless. Computer and media coverage offers protection for your technology infrastructure. It covers the loss of data and software, physical damage to your hardware, coverage for portable equipment (laptop, tablet, phone, etc.) and damages caused by viruses and malware.

With Computers & Media Insurance:

You’ll be able to replace or repair damaged hardware as well as receive any income lost after on account of data loss.

Without Computers & Media Insurance:

You may need to pay the out-of-pocket costs for hardware repairs, virus and malware repair, etc.

Level of Importance

Computer and media insurance is a must-have for attorneys. You work with computers and software on a daily basis. Your cases often rely on the data stored within your computer and elsewhere. Although some property damage is covered under your BOP, these policies add more to further protect you from severe damages and data loss.

Common Questions to Ask Your Agent

  • Does this policy cover business interruption?

  • Does this policy cover losses caused by hacking?

  • What types of occurrences are excluded from this coverage?

Accounts Receivable General Business Insurance

Some data loss can have a direct impact on your bottom line, such as the loss of your accounts receivable records. Accounts receivable insurance protects you from this loss while providing you with extra coverage for interest accrued on a loan you needed to offset uncollected cash.

With Accounts Receivable Insurance:

You’re protected from accounts receivable data loss which protects the funds you need for your critical business operations.

Without Accounts Receivable Insurance:

You run the risk of not being able to ask for payment from clients due to record loss. Plus, you’ll be responsible to pay for interest charges, extra bookkeeping hours, and other accrued costs due to loss, out-of-pocket.

Level of Importance

Accounts receivable insurance isn’t necessarily a must-have, but it is a nice back-up plan. Some insurers may cover your accounts receivable in other policies such as your commercial property policy.

Common Questions to Ask Your Agent

  • Are accounts receivable covered under any of my other general business policies?

  • Does this policy cover the costs accrued to obtain data loss recovery assistance?

  • How are my accounts receivable losses calculated in this policy?

Valuable Papers & Records Insurance

If you’ve yet to fully convert to a paperless law firm, you may have a slew of important documents and records hidden in boxes around your office. Should a disaster happen that results in the loss of those records, how would you restore them? That’s where this insurance comes in.

With Valuable Papers & Records Insurance: 

You’ll gain protection for your valuable documents and records, helping you offset the expensive cost and time it takes to replace them.

Without Valuable Papers & Records Insurance: 

You lose your valuable records and must fit the bill for replacement on your own.

Level of Importance 

An additional valuable papers and records insurance policy isn’t necessary for law firms who have gone digital (if you can’t tell, we recommend it). Yet, if you’re still using paper, it’s a good idea. After all, most commercial property policies exclude the replacement of valuable papers and records.

Common Questions to Ask Your Agent

  • Does my commercial property policy cover valuable papers and records?
  • How does this policy define valuable papers and records?
  • What limit level should I purchase to ensure I’m covered?

Business Auto Insurance

Your personal auto insurance policy won’t cover your business driving. Unfortunately, an accident on your way to a deposition may cause you some coverage issues. Business auto insurance protects you from extra liability while traveling for work.

With Business Auto Insurance:

You’ll be covered should you have an accident while traveling for business.

Without Business Auto Insurance:

You may be responsible for overwhelming out-of-pocket costs for medical care, property damage, and more.

Level of Importance

Business auto insurance, or commercial auto insurance, is another no-brainer and is critical for your business as an attorney. You travel almost daily for business matters. Often, business auto insurance is included in your BOP.

Common Questions to Ask Your Agent

  • Does my BOP cover business auto insurance?

  • What type of coverage does this commercial auto policy include?

  • Does this commercial policy cover my employees’ vehicles when using them for business travel?

Non-Owned Auto Insurance

Speaking of employees, did you know that their personal insurance policy may not cover an accident they have on the way to the post office while on the clock? For added protection for your employees who use their personal vehicles for business matters, you need a non-owned auto policy.

With Non-Owned Auto Coverage:

Protect your employees from accidents while performing business duties in their personal vehicles.

Without Non-Owned Auto Coverage:

Your employees may be held liable for their injuries, the injuries of others, and any property damage.

Level of Importance

If you’re a solo attorney or an attorney working with contractors, there’s no need for non-owned auto insurance. Yet, if you have employees who travel for work often, this is a must-have for added protection.

Common Questions to Ask Your Agent

  • Does this policy include uninsured and underinsured motorist coverage?

  • Does this policy cover rented or borrowed vehicles?

  • Does this policy cover company-owned vehicles and personal vehicles?

Tenant’s Legal Liability Insurance

If you negligently start a fire in your trash can after igniting a picture of the hairless cat at the center of your client’s heated animal-custody dispute, you’ll look to your tenant’s legal liability insurance for coverage. These policies cover you during events occurring inside a rented space that would otherwise be excluded under your commercial property coverage.

With Tenant’s Legal Liability Insurance:

Gain protection from damages that occur during an event inside your rented space.

Without Tenant’s Legal Liability Insurance:

You’ll be responsible for paying for damages resulting from an incident, with or without the hairless cat.

Level of Importance

If you rent office space, you need this insurance. If you don’t, it’s not necessary. For damages that occur beyond the walls of your leased space, your general liability policy will cover you.

Common Questions to Ask Your Agent

  • Does this policy cover accidents caused by indirect renters such as employees?

  • What’s the coverage limit for this policy?

  • What accidents does this policy cover and exclude?

Data Breach Coverage

Data breaches are becoming more common as technology continues to evolve. As an attorney, you take in loads of data each year. Should you fall victim to a data breach, you’ll need help recovering the data and paying for data loss assistance. A data breach policy can help.

With Data Breach Coverage:

You’ll have the coverage needed to recover your data, reducing money lost from being unable to perform your duties.

Without Data Breach Coverage:

You’ll be responsible for paying for data recovery and data loss assistance, which may increase the number of days you’re out of commission. And when you can’t work, you can’t earn.

Level of Importance

You’ve heard us talk about paperless law offices a few times now because we truly believe it’s the way to go. And if you’re heeding that advice, you need data breach coverage, plain and simple. Data breaches typically cost companies anywhere from $1.25 million to $8.19 million. A little money spent now could save your law firm in the future.

Common Questions to Ask Your Agent

  • How much coverage does this policy provide in the event of a data breach?

  • What process should I take to file a claim after a breach occurs?

  • Does this policy cover data breach prep services?

Employee Dishonesty Insurance

We have every reason to believe that your employees will be awesome. Yet, if they turn out to be dishonest, there’s coverage for that. For example, if an employee commits fraud or embezzlement, employee dishonesty coverage can protect you from financial loss.

With Employee Dishonesty Insurance:

Theft of property or money due to employee dishonesty won’t have anything on you.

Without Employee Dishonesty Insurance:

You’ll need to recover any money or property lost due to employee dishonesty.

Level of Importance

If you’re a solo attorney, you can probably skip this coverage for now. Yet, if you have employees, this is a great addition to your portfolio.

Common Questions to Ask Your Agent

  • Does this policy cover current and former employees?

  • Does this policy cover temporary employees?

  • Can I add third-party endorsements to this policy for added protection?

Employee Benefits Liability General Business Insurance

This insurance doesn’t get a lot of air play, but comes in handy to prevent losses that occur from errors in the administration of your firm’s health insurance. For example: say you hire a new paralegal, offer them insurance, and then forget to actually add them to your policy. The paralegal seeks treatment and finds they aren’t covered. This insurance pay for the paralegal’s medical bills. 

With EBL Insurance:

You’ll have protection from errors or omissions in the administration of your employee benefits program.

Without EBL Insurance:

You’ll be responsible for paying any costs associated with your error, which could put a hefty dent in your finances.

Level of Importance

If you have employees and offer any employee benefits, you could consider this policy. If you’re currently a solo attorney without a team, you can skip this coverage for now. As you grow, you’ll need to consider this policy for added protection.

Common Questions to Ask Your Agent

  • Does this policy cover all aspects of my benefits package including health insurance, retirement, life insurance, etc.?

  • What errors are covered under this policy (administrative errors, clerical errors, etc.)?

  • Can I have coverage for unique additions such as vacation plans or tuition assistance?

Health Insurance

Did your pulse just jump to hyperspeed? Even though it’s a source of anxiety, health insurance is something everyone needs, regardless of profession. It’s the only way to protect yourself from the expense of medical bills resulting from routine care, emergency care, and everything in between.

With Health Insurance:

You’re protected from emergency cases such as surgeries that could cost you thousands upon thousands of dollars in care. You’re also eligible for routine physicals and care for you and your family.

Without Health Insurance:

Every type of medical care you require will require payment from you. Unfortunately, this can quickly drain your resources. One serious accident could mean the end of your financial wellbeing and perhaps even your firm.

Level of Importance

Health insurance is an absolute must-have, no questions asked. If you have employees, it’s also important to offer them a benefit plan that includes health insurance, if you’re able.

Common Questions to Ask Your Agent

  • What’s my deductible with this policy?
  • Will I be able to use my current physicians or medical team?
  • What benefits are included in this policy?

Disability Insurance

Did you know that disability claims are some of the most common claims in the entire insurance industry? Disability insurance covers you should you suffer an accident or event that leaves you unable to work.

With Disability Insurance:

Should you become disabled, you’ll have the ability to have a steady income, regardless of your ability to work.

Without Disability Insurance:

If you become disabled, you may not have the funds to cover both your business and personal expenses. You may lose your income entirely.

Level of Importance

Disability insurance is critical. If you rely on what you make through your business activities as your means to live, you must be prepared should that income go away. It’s also important to offer disability insurance to your employees, if applicable.

Common Questions to Ask Your Agent

  • What’s considered a disability under this policy?

  • What’s the elimination period (number of months for disability payout) for this policy?

  • How long would my benefits last under this policy?

Workers’ Compensation

Workers’ compensation is an insurance plan that protects your firm from financial loss should an employee get hurt while at work or sick from a work-related cause.

With Workers’ Comp:

You and your firm will have protection from the expensive damages accrued after an employee accident or illness occurs due to work-related causes.

Without Workers’ Comp:

You’ll be responsible for paying for damages due to an employee’s injury or illness. You may also be subjected to employee lawsuits or fines due to not possessing proper workers’ comp coverage as a business.

Level of Importance

If you don’t have a workers’ comp policy, call your agent now. Workers’ comp isn’t only critical, it’s mandatory in most business situations. If you’re a solo firm owner without employees, you’re technically exempt. Yet, it’s still important to have a workers’ comp plan for yourself.

Common Questions to Ask Your Agent

  • How do I file a workers’ comp claim should an event occur?

  • What types of workers’ comp benefits does this policy include?

  • How is my current workers’ comp rate determined?

Unemployment Insurance

If you unexpectedly have to close your firm, what happens to your employees? With an unemployment insurance policy, they’ll receive a partial replacement of their earnings, allowing them to get back on their feet.

Unemployment insurance is mandatory for all businesses. It’s an employer-funded program required by both state and federal law, and it’s pretty hands-off. You’ll pay taxes towards your state’s unemployment fund, which pays benefits for eligible workers.

More Money Now for Protection in the Future

After examining this list, it’s easy to think about how the cost of insurance will impact your bottom line. Just remember that spending some money on insurance now may just save your firm in the future.

Although law firm insurance costs vary per plan and carrier, we guarantee that there’s no comparison between your monthly premium and the costs associated with being caught without a plan at all.

Thankfully, you don’t have to manage the insurance maze alone. There are insurance agents out there who are ready to answer your questions and provide you with a portfolio that fits your specific needs. All you have to do now is call.

Ok, let’s move onto taxes