RPF0340-Friday_QA
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00:00:31.700 | Today on Radical Personal Finance, we do a live Q&A and my pre-conference discussion here to find out what we're going to talk about
00:00:39.600 | tells me that it's going to be disability insurance intensive today on RPF.
00:01:01.800 | Welcome to the Radical Personal Finance podcast.
00:01:03.800 | My name is Joshua Sheets and I'm your host.
00:01:05.400 | Thanks for being with me.
00:01:06.500 | This is the show where we work hard every day to talk about living a rich life now while also building a plan for financial freedom or less in 10 years or less.
00:01:15.200 | Did a show, started a series on disability insurance and evidently I've beat a few out of the bushes and you're saying,
00:01:22.300 | "Hey, Joshua, we need to pay attention and figure out what to do."
00:01:34.100 | Most Fridays here on Radical Personal Finance, I try to do a live Q&A call.
00:01:37.300 | This live Q&A call is open to patrons of the show.
00:01:40.400 | If you're interested in that program, if you're interested in speaking to me on a call like this, you can go to RadicalPersonalFinance.com/patron.
00:01:47.100 | Sign up to be a patron of the show, RadicalPersonalFinance.com/patron.
00:01:50.400 | So the way it works is I show up to a phone line and I pop the microphone open and I say hello.
00:01:55.200 | And usually before I play the music, I do a quick just ask people what they want to talk about.
00:02:00.700 | And today it seems like we're going to be talking about disability insurance.
00:02:04.600 | So this ought to be fun.
00:02:05.400 | Let's kick it off.
00:02:06.500 | Let's see here.
00:02:07.500 | Dustin, let's go to you first.
00:02:09.000 | Go ahead and ask your question.
00:02:10.400 | Let me see how I can serve you today.
00:02:11.500 | Yes, sir.
00:02:13.400 | All right.
00:02:13.800 | So I will try and be brief with my background information.
00:02:17.900 | I am a physical therapist, full-time physical therapist.
00:02:21.700 | I'm married to a lovely woman that is a physician.
00:02:25.400 | She is a resident physician about to finish up her emergency medicine residency in about three or four weeks.
00:02:31.700 | So this week's topics have been very pertinent to us.
00:02:35.600 | It has honestly been a terrible struggle for her and both of us, honestly.
00:02:41.600 | Just if anyone listened to that previous episode with the happy philosopher, a lot of things that he said is definitely the experience of my wife and, you know, many of her colleagues.
00:02:51.400 | So the result of that is that she plans on working two years full-time, which, you know, will be a lot of money in terms of income is what we're used to.
00:03:02.100 | But after that two-year commitment, she may stop working.
00:03:06.800 | She may, you know, go down to part-time.
00:03:09.100 | Not real clear, but we are -- it is pretty clear that she is not finding fulfillment in her work and is not enjoying it.
00:03:17.100 | And I don't want her to feel stuck in this position.
00:03:20.500 | So I'll have to say a lot of people, you know, recommending, you know, disability income insurance and we're kind of going down that route.
00:03:28.500 | And most of what we're hearing is, you know, to get these pretty large monthly benefits, you know, for us, you know, $6,500 to $10,000 a month, which some people may be laughing.
00:03:39.800 | But for us, I mean, that just seems like a lot of money.
00:03:43.000 | We're spending about $3,000 a month right now on our expenses and, you know, just saving as much as we can.
00:03:48.800 | I'd say we try and follow a lot of what you talk about and would probably be considered mustachians to some.
00:03:56.100 | But I'm having a tough time of just figuring out what is an appropriate amount of coverage that we should get based on our lifestyle, our expenses,
00:04:05.600 | and the fact that my wife will more than likely not be earning a lot of money as an emergency room physician in the long run.
00:04:13.800 | Because she – more than likely she will not be earning a lot of money because she intends to stop working or to pull back to some kind of part-time system or is there another reason?
00:04:24.800 | Correct.
00:04:25.300 | Okay.
00:04:26.800 | Yeah, that's why we want to start a family and yeah, so that's right.
00:04:31.800 | Yeah. I'm sorry that she's not enjoying it.
00:04:33.300 | It's funny. I have a friend of mine who just gone into that work of – he's in medical school right now.
00:04:39.800 | And I think it will be a perfect fit.
00:04:41.800 | I may have mentioned it on the interview with Happy Philosopher where we were talking about –
00:04:48.800 | Yeah, you did.
00:04:49.800 | I did. Okay. I thought I did.
00:04:51.800 | Sometimes – because I don't do the interviews on the same day that I release them and so I get them confused sometimes.
00:04:56.800 | But yeah, emergency room medicine has always seemed like an interesting area to me.
00:05:02.800 | I guess it's my love of blood and gore and saving lives.
00:05:06.800 | I always thought it would be fun to work in that industry where you can help people right at that point of most critical need.
00:05:12.800 | But let me – I have too weak of a stomach probably to handle it.
00:05:16.800 | So let me actually answer your question here.
00:05:19.800 | It's a difficult question.
00:05:21.800 | So let me give you a couple of ways to think about it.
00:05:24.800 | The major mindset in general of someone like me, a traditional financial planner, the major mindset of most of us is going to be to protect the absolute maximum because most people have as their number one goal to maximize their financial earning capacity.
00:05:44.800 | And so my mind immediately goes to giving you the recommendation, buy as much disability insurance as you can get.
00:05:51.800 | Because most people, once they have it, they usually don't want to get rid of it.
00:05:58.800 | And if the worst-case scenario happens, it's a lot easier to be disabled with a lot of money coming in than it is to be disabled with only a little bit of money or no money coming in.
00:06:09.800 | I think of a couple of disabled people that I interacted with.
00:06:13.800 | One was a cardiologist and he had – I forget the circumstances of his disability.
00:06:19.800 | But it was one of these things that disabled him from working as a cardiologist but didn't result in his being in his bed flat on his back 24 hours a day.
00:06:28.800 | He was, to the casual observer, not disabled.
00:06:32.800 | But he was disabled from his ability to function in his specialty.
00:06:37.800 | And so he had $15,000 a month coming in on his disability insurance policy and he was able to – he had maxed it out.
00:06:46.800 | Generally, $15,000 a month is the max with many companies.
00:06:50.800 | Sometimes you can get up to $25,000 a month is where you max out on disability insurance.
00:06:55.800 | But his lifestyle – he had younger children.
00:06:59.800 | His lifestyle was pretty good because he had $15,000 a month coming in and he could – he was essentially retired off of his disability policy.
00:07:07.800 | So you get someone like me who's interacted with guys like him and I want, in the worst-case scenario, to make sure that your family would be in the same situation.
00:07:15.800 | So our first bent is to go toward saying get as much as you can.
00:07:20.800 | Now, from a strictly needs-based perspective, that's not necessarily the appropriate way to plan.
00:07:27.800 | If we were just focusing on needs and had the goal of minimizing cost, then we would say go ahead and get the minimum level of disability insurance necessary in order to provide the basic level.
00:07:42.800 | Now, of course, as an insurance agent, I probably have a conflict of interest wanting you to buy a lot more.
00:07:49.800 | When I was an insurance agent, I'm no longer an insurance agent.
00:07:52.800 | But if I were an insurance agent, I want you to buy a big policy.
00:07:55.800 | So is that what's affecting me to want to get the most?
00:07:58.800 | It's hard to say. I don't think so, but I certainly concede that it's a reality.
00:08:03.800 | So if your expenses are $3,000 a month, maybe you should just get a basic $3,000 a month cost.
00:08:12.800 | Now, the other side though is as a financial planner, what I have seen again and again is that people's plans change.
00:08:20.800 | So for example, right now, you might be able and comfortable and desirous of living on $3,000 a month.
00:08:27.800 | You might be committed very wholeheartedly toward early retirement, not intending to go through lifestyle inflation.
00:08:34.800 | But practically, something might change.
00:08:37.800 | You might desire to have a bigger house.
00:08:40.800 | You might have five kids.
00:08:43.800 | You might have a situation where you contract some expensive medical illness or you start taking up a hobby that's important to you.
00:08:52.800 | But all of a sudden, now your expenses go up, and now your expenses go from $3,000 to $5,000 a month.
00:08:57.800 | And this is a danger point with those who are very focused on hardcore early retirement.
00:09:03.800 | "I'm going to live on $1,000 a month forever."
00:09:05.800 | Well, maybe, but maybe not.
00:09:07.800 | A lot of us change, and we mellow a little bit as time goes on.
00:09:11.800 | Maybe you don't hate your job so much and you find that I actually do have a really flexible work environment.
00:09:15.800 | So those are some different ways of looking at it.
00:09:18.800 | And you can even look at it and say, "Well, listen, if she's just going to work for two years and your income is sufficient to pay your bills because that's what you've been doing during the course of – while she's in school, then I'll just pay my bills and we'll just run the risk without it."
00:09:36.800 | I don't know how to make the answer for you.
00:09:38.800 | I'll tell you what I think I would do in this situation.
00:09:41.800 | I think what I would do in your situation is I would account for the unknown by purchasing a large policy now that would be the maximum that she could get based upon her income, which would be about 60%.
00:09:55.800 | Depending if she has any group coverage or not, it would be anywhere from 60% to 80%.
00:10:00.800 | Do you know what you expect her income to be when she starts practicing for the first two years?
00:10:05.800 | Yeah, I believe she's a contract employee and it will be an hourly rate, but it will come out to be 320 to 340.
00:10:14.800 | Okay. So at 320 to 340, she should be able to get anywhere from about 60% of her salary to 60 to 70%.
00:10:21.800 | So that will be a benefit of – let's just see here. $320,000. Let's just do 60% divided by 12.
00:10:29.800 | So we're talking a monthly benefit of about $16,000 a month under that situation.
00:10:35.800 | So it would probably be a little under that.
00:10:37.800 | The reason why I'm hemming and hawing is because the higher your income goes, the more the total benefit that an insurance company is willing to offer you, but the lower the percentage of your income.
00:10:48.800 | If you were making $40,000 a year, you could cover practically all of your after-tax income with a disability insurance policy.
00:10:57.800 | But if you're making $400,000 a year, the percentage that they'll cover goes down a lot, but the dollar amount is much higher.
00:11:05.800 | But I would look at the costs and I would consider buying a big policy knowing that she is working in the next couple of years, and I would do it for a couple of reasons.
00:11:15.800 | Number one, if she were to become disabled in the next year or two by some unfortunate event, then at least you would have the higher cost policy there.
00:11:29.800 | Number two, you said that you were hopeful of starting a family and so – of her becoming pregnant.
00:11:37.800 | So in that situation, disability insurance policies do pay out under pregnancy if pregnancy results in a disability.
00:11:45.800 | So if she had a difficult pregnancy or something like that and she were put on bed rest during the course of the pregnancy, then you would have at least the higher benefit and that would be helpful.
00:11:55.800 | And I would just look at it and say it's possible that you or she might change your minds and it would be nice to have the insurance, recognizing that you can always drop it or go down.
00:12:07.800 | And so if she started with a policy that were, say, $15,000 a month or $10,000 a month, you have to run the premium cost on that.
00:12:15.800 | And then she decides, "You know what? I don't want to do this," or, "I want to just work part-time," you can always just call them up and you can drop it from $10,000 to $3,500 a month of benefit to cover your expenses.
00:12:28.800 | And there's no underwriting involved in that situation, but you can't do the opposite.
00:12:33.800 | So you can't have her getting a $3,500 policy now and then wanting in the future to increase it without her still be working full-time.
00:12:41.800 | Now, what I would also do in order to help you make the decision is I would calculate what the difference in the premiums is.
00:12:48.800 | So let's say she's getting a quote and it's $1,400 a month for one policy and it's $700 a month for another.
00:12:54.800 | I'm making numbers up.
00:12:56.800 | And now you've got to say, "Well, how valuable to us is this $700 of savings versus the potential benefit?"
00:13:02.800 | But those are the factors that I would weigh.
00:13:05.800 | It's a tough question, a tough question to answer, and I'm sorry that I can't make the decision for you.
00:13:10.800 | Oh, no, that is helpful just to have your perspective.
00:13:15.800 | We have a financial advisor as well, and he's on the same mindset.
00:13:21.800 | I mean, that is helpful.
00:13:23.800 | And I think it's, for me, not going through the situation before, and I'm only 30 years old, she's 29, and just our lack of experience in life.
00:13:33.800 | It's so easy for us to think that those bad things won't happen.
00:13:37.800 | And to see that money going out every month for the premium, but then to hear, just to think of the worst-case scenarios and prepare for them is helpful.
00:13:46.800 | So, yeah, I appreciate that.
00:13:48.800 | It's tough. Insurance is one of those things that is just very difficult, but especially with someone like an emergency room physician.
00:13:54.800 | I mean, what always, and some of it sometimes is a little bit overly sensational sales language, and some of it is actually practical situation.
00:14:02.800 | She's an emergency room physician.
00:14:04.800 | Something happens, she hurts her hand.
00:14:07.800 | That's going to impact and dramatically affect her.
00:14:10.800 | Surgeons are very, very sensitive to that.
00:14:13.800 | And when we get into the world of what's appropriate insurance for physicians, it's a very specialized world.
00:14:20.800 | You need to make sure she's careful, work with your financial advisor, make sure you're working with someone who does a lot of business in the disability insurance for physicians world so you can get the best policy to cover her.
00:14:30.800 | But a hand injury that for other people would not be disabling to her would take her out of the ability to practice.
00:14:37.800 | So that's one of the reasons why it's so important.
00:14:41.800 | You've invested – the other thing I would encourage you is consider she has thus far invested many, many hours and many, many dollars in her education to develop her earning ability.
00:14:51.800 | I think that's an investment worth protecting with disability insurance, recognizing that things can change and recognizing that if she chooses to in two years stop working outside the house, then she can go ahead and just dump it at that point in time.
00:15:07.800 | There's no requirement that you keep it for any period of time.
00:15:10.800 | Yeah, okay.
00:15:12.800 | All right, next question.
00:15:13.800 | I was going to ask if you wanted some social proof.
00:15:18.800 | Sure, sure.
00:15:19.800 | Yeah, I just wanted to share.
00:15:24.800 | I mean, I've been listening to you since the beginning, since you're crouched on your bed, in your bedroom.
00:15:30.800 | My guest bedroom.
00:15:31.800 | Yeah, but I do home health.
00:15:34.800 | So I'm driving two to three hours a day.
00:15:38.800 | So every day that you release, I'm listening to that episode that day and just try to act on as much as I can.
00:15:45.800 | And then, you know what, almost two years now, you've been podcasting, I believe.
00:15:50.800 | In that period, my wife and I, based on her tough situation, we paid off over $90,000 in her student loan debt over an 18-month period just with the emotional component that a lot of people didn't get or calculate.
00:16:06.800 | And you really helped us view that.
00:16:09.800 | But then also just the career advice.
00:16:11.800 | I started a podcast of my own and just the fruit of that has been crazy in terms of being able to speak, go to potential conferences and whatnot down the road.
00:16:21.800 | So any new listeners, Joshua Sheets knows this stuff.
00:16:25.800 | If you act on his advice, good things will happen.
00:16:28.800 | And I feel like I've definitely been a testimony to that.
00:16:31.800 | So I just want to take that opportunity just to thank you for what you're doing and encourage you that you're making an impact.
00:16:36.800 | I appreciate it, Dustin.
00:16:37.800 | Your check's in the mail.
00:16:38.800 | Don't worry.
00:16:39.800 | I'll get it to you soon.
00:16:41.800 | Thank you.
00:16:42.800 | Thank you very much.
00:16:43.800 | All right.
00:16:44.800 | Next caller here.
00:16:45.800 | Hlawe, go ahead.
00:16:46.800 | All right.
00:16:47.800 | Thanks for taking my call.
00:16:49.800 | So I really enjoyed your disability insurance episode as well.
00:16:53.800 | I had no idea how important it was until I heard all your logical points.
00:16:58.800 | And I want to thank you for enlightening us on that.
00:17:01.800 | My second what Dustin said about your consultation and the advice that you give on your podcast as well.
00:17:13.800 | Thank you.
00:17:14.800 | I appreciate that.
00:17:15.800 | Yeah.
00:17:16.800 | So I'm considering strongly going full time in my business in January and moving on from my day job.
00:17:24.800 | You told me during our awesome consult that I should consider getting disability insurance before then.
00:17:31.800 | My wife works full time as well, and I project that my salary will be cut by 60% or so when I go full time.
00:17:40.800 | But it will probably increase over the next year.
00:17:45.800 | So I have three or five questions.
00:17:50.800 | So will my coverage change or the insurance insurer treat me differently once I go full time into my business?
00:17:57.800 | Or is it something like they don't have to know kind of situation?
00:18:01.800 | You stated in your episode that it's impossible for you to get disability insurance now that you're full time in your business.
00:18:10.800 | Do you want me to go through all the questions at once?
00:18:12.800 | Let me go ahead and answer just the first one, and then we'll go on to the next one.
00:18:16.800 | So I'll answer it.
00:18:17.800 | And it's kind of a two-parter there.
00:18:19.800 | The short answer is when you get the coverage, you will purchase it under your current W-2 income and your salary.
00:18:29.800 | And then if you also want to apply for it based upon your business income, they will factor that in.
00:18:35.800 | When you apply for disability insurance, the underwriting process involves your releasing an up-to-date income statement of your income for the past three years.
00:18:44.800 | And this is generally across the board.
00:18:46.800 | There can be exceptions depending on different companies.
00:18:49.800 | There are always exceptions to these things.
00:18:50.800 | I'm just talking about industry norms.
00:18:52.800 | But you'll put in three years of income.
00:18:55.800 | For W-2 employees, it's simple.
00:18:57.800 | You just list out your W-2 wages.
00:19:00.800 | You'll also put in your past few years of income that's associated with your business.
00:19:06.800 | So if you have a profitable business, you'll go ahead and submit sometimes tax returns and sometimes you'll submit income statements, things like that.
00:19:16.800 | The bigger the numbers involved, the more extensive the financial underwriting.
00:19:20.800 | So disability insurance policies are always underwritten on a medical basis and also on in-depth financial underwriting.
00:19:27.800 | So submitting a year or a couple years of tax returns is not uncommon.
00:19:31.800 | In order to figure out the appropriate amount of insurance that they will offer, they'll never offer you 100 percent of your income because you have no incentive.
00:19:42.800 | It results in an adverse selection against the company where you're incentivized to be disabled rather than to go back to work.
00:19:49.800 | But they'll calculate that information together and they'll calculate usually an average of the three years or they'll look at extenuating circumstances.
00:19:56.800 | If you've had, for example, a significant increase in salary in the last year, the underwriters will look at that.
00:20:02.800 | They'll ask questions about the circumstances and if they expect it going forward, they may issue a higher amount.
00:20:09.800 | But they'll issue the policy at a certain amount.
00:20:11.800 | Now, once you have that policy, you're going to have a policy that's guaranteed renewable.
00:20:16.800 | And as we record this call, I've just released the podcast which was yesterday's podcast which goes over some of these disability insurance terms.
00:20:26.800 | But the guaranteed renewable contract means that as long as you pay the insurance premium, the company can't take it away from you.
00:20:33.800 | Now, at the time of application, they will give you application questions.
00:20:37.800 | And one of those questions will be, "Do you intend to change jobs, change positions or otherwise in the coming –" insert period of time.
00:20:47.800 | That period of time and the specific wording of that question will vary among companies.
00:20:52.800 | So if it's something like 24 months and if you have a period of time in which you intend to actually change jobs, let's say that you said, "No.
00:21:01.800 | In this month, I'm changing jobs," then you need to say, "Yes, I do.
00:21:04.800 | I'm going to be starting my own business."
00:21:06.800 | They'll take that into account and they'll go ahead and underwrite it based upon that expectation.
00:21:12.800 | They'll ask about the nature of the business, et cetera, and sometimes it can be no problem.
00:21:16.800 | Sometimes it can be a problem.
00:21:18.800 | The simplest thing to do is when you don't – is to apply for it before you know of any specific changes that are happening.
00:21:25.800 | That's always the cleanest because then you don't have to worry, "Well, what's going to happen?"
00:21:29.800 | So sometimes you can look at that and you can ethically say, "Well, in the future, I know I want to do this, but I haven't submitted a resignation letter.
00:21:39.800 | I haven't written down that at this point in time, I'm going to make this certain change."
00:21:45.800 | So it's just cleaner if you can answer that question and say, "No, I don't intend to change jobs."
00:21:51.800 | One of the reasons – one thing on that and I'm – in here, I'm not specifically speaking to you.
00:21:57.800 | I'm speaking in general.
00:21:59.800 | It's very important to always answer questions on insurance applications truthfully and accurately because if you – the only thing that you risk that you face is if you lie on an application, on an insurance application, and you get to the point and you say, "OK, well, I'm not changing jobs," and then one month later, you change jobs and then you get disabled.
00:22:25.800 | Well, if they go back and they're looking at that, if they could prove that you committed fraud, for example, you had already signed a letter of intent with a company where you were transferring.
00:22:35.800 | If they could prove that you committed fraud, they have the right to not pay the claim, and thus you lose the benefit of the coverage.
00:22:41.800 | So you always need to answer things exactly accurately and exactly truthfully so that you don't have any problems down the road.
00:22:50.800 | But it is always more convenient if you can answer things accurately and truthfully before you have intentions.
00:22:57.800 | Let me give you an example from my own life.
00:22:59.800 | One of the reasons why I have as much life insurance as I have, which is probably more than I need, is simply because I know the value of having it when you're young and healthy and free of any dangerous hobbies.
00:23:13.800 | When I was purchasing my first couple of life insurance policies, I hadn't gone scuba diving in many years, so I didn't have to deal with answering scuba questions.
00:23:22.800 | I don't have a pilot's license.
00:23:24.800 | I don't race cars or snowmobiles or motorcycles or boats or go-karts on the weekend.
00:23:29.800 | But all of those things are things that I like to do or that I would like to do, but I don't have any plans to do it.
00:23:36.800 | Thus, when filling out my life insurance application, I can honestly and truthfully answer that, "No, in the past two years, I haven't raced cars or boats or go-karts.
00:23:44.800 | I haven't gone scuba diving, and I don't go skydiving, and I don't fly airplanes."
00:23:48.800 | Now, with the insurance in force, that's not to say that I'll never do those things.
00:23:52.800 | But in the coming years – and I still have not done any of those things since buying insurance – but in the future, I bet that at some point I'll probably get a pilot's license.
00:24:00.800 | I bet that at some point I'll probably go and race cars around a racetrack.
00:24:04.800 | But now I've got my insurance locked in where I don't have to deal with that.
00:24:09.800 | So that's what I mean is that it's not – you take the action when the underwriting is simple and you can answer truthfully and honestly.
00:24:18.800 | And that way, if in the future something changes, you're in a good situation.
00:24:22.800 | So assume for a moment that you get the coverage.
00:24:25.800 | The answer is if you were to leave your job and go start a business, that coverage would not generally change.
00:24:31.800 | As long as you've purchased a policy that would be guaranteed renewable to a certain age, most commonly guaranteed renewable to 65.
00:24:39.800 | Now, when you make that change, you don't have to report that to the insurance company.
00:24:43.800 | You don't have to report anything about what happened at the job.
00:24:47.800 | You don't have to report that you're in the new business.
00:24:50.800 | The coverage is guaranteed renewable.
00:24:52.800 | It's in force on your life, and you've got the coverage.
00:24:55.800 | If you were disabled from the business, then at that point in time, that's when they would look at it and they would figure out, OK, he's disabled from this business.
00:25:03.800 | And the contract, as long as you're getting the appropriate contract, is not written based upon the job you're doing at the time of application.
00:25:10.800 | It's based upon the job that you're doing at the time of disability.
00:25:13.800 | And that's why it can be very, very helpful.
00:25:15.800 | Now, with regard to business, the reason I said that I can't get disability insurance right now is because my income for the past almost two years has been extremely low as I've been starting this business.
00:25:28.800 | My expenses have been high.
00:25:29.800 | My income has been low.
00:25:30.800 | Thus, my income has been below the minimums for me to be able to get a disability insurance contract.
00:25:37.800 | And when I was a disability insurance agent, I was not permitted under that other business, which was very much an entrepreneurial business.
00:25:47.800 | I was not permitted to get a policy that was guaranteed renewable until age 65 based upon the nature of the business.
00:25:54.800 | So some types of occupation such as the job I was in as a financial advisor and insurance salesperson, that job was not amenable to – they wouldn't issue a policy in the early years of that business that was guaranteed renewable to 65.
00:26:11.800 | Rather, they only issued a policy that was renewable for up to five years.
00:26:14.800 | And so when I left Northwestern Mutual, I was able to keep that policy for – I can't remember – a little while into my entrepreneurship endeavor.
00:26:26.800 | But then I reached the maximum term of that policy.
00:26:28.800 | It was five years and that policy lapsed.
00:26:30.800 | And because there are also some other extenuating factors, I work from home, which is difficult for underwriting classifications.
00:26:37.800 | Disability insurance underwriters don't necessarily like people who work from home.
00:26:40.800 | It's not impossible to get, but it's more difficult to get.
00:26:43.800 | And the reason it's more difficult to get is because what if I file a claim?
00:26:46.800 | How do they prove that I'm disabled?
00:26:48.800 | How do they actually know?
00:26:49.800 | How can they honestly answer whether, yes, he's disabled or no, he's not disabled and deny the claim?
00:26:55.800 | It's difficult when people work from home.
00:26:57.800 | So I have a few factors that make it difficult for me to get disability insurance right now.
00:27:02.800 | I intend to in the future and I'll work through that, but I have a few factors that make it difficult.
00:27:07.800 | So long-winded way to say, no, your coverage doesn't change and that's the backstory of why I recommend to people like you who have a job, who have a business on the side, go ahead and get the coverage now while it's easy.
00:27:21.800 | A W-2 salary is the easiest thing to get disability insurance on and it's the easiest thing to get a mortgage on.
00:27:27.800 | So those are two considerations for W-2 salaries, two valuable benefits.
00:27:31.800 | Go ahead and get it now and then if in the future you decide to leave the company or if in the future you decide to start a business, then you're covered under those circumstances.
00:27:39.800 | Go ahead with your next question.
00:27:41.800 | Thank you.
00:27:43.800 | So the next one is do you have any resources for getting disability insurance?
00:27:50.800 | I was looking at insure.com and then do you also recommend short-term disabilities or just long-term or both?
00:27:58.800 | I'm going to not answer the short-term versus long-term because I've just recorded immediately before we're recording this Q&A call.
00:28:04.800 | I've just finished a call – excuse me, a standalone podcast which goes into that in depth and any listener who's interested can listen to yesterday's episode and they'll get that answer there in depth.
00:28:15.800 | With regard to specific resources, I'm so torn because this is why I've got to figure out a way to either find an insurance, a large insurance agency that I can trust with competent, knowledgeable insurance agents or I got to start one or something because the short answer is it's very difficult to know how to do it.
00:28:38.800 | I would not with disability insurance – I would not buy disability insurance over the internet and the reason I wouldn't, especially if I were just a consumer, but knowing what I know, there are so many options in disability insurance that I want to make sure that I'm working with someone who actually knows what they're talking about and who actually has a clue about the policy benefits and they can design the policy that's appropriate for me.
00:29:03.800 | It might work fine for some people to buy 10- or 20-year level term insurance over the internet.
00:29:08.800 | Fine.
00:29:09.800 | But I would not be confident in buying disability insurance as a layperson in that situation and I don't know anybody that I can recommend.
00:29:18.800 | It's possible that speaking with somebody that you find on a website – I don't have any relationships with anybody.
00:29:26.800 | I don't have any – I used to use a broker that's online, but they don't work with individuals, so I can't help you there.
00:29:31.800 | It's possible that you could call up to some of those places and get somebody who would know about it, but I would be very skeptical myself.
00:29:42.800 | What you need to do is you need to find an insurance agent who's – the license is the life and health license is a life insurance agent who does a lot of work in disability.
00:29:53.800 | Most insurance agents that you'll meet, for example, who are at a property and casualty company and do a little life insurance on the side, they're not going to know anything about disability insurance.
00:30:03.800 | Many financial advisors don't know anything about disability insurance.
00:30:07.800 | They don't like selling it.
00:30:09.800 | And so the best thing that I would do and is – would be to call up one of the big three mutual companies, and this is the best recommendation.
00:30:19.800 | I've got to figure out a way to get paid for this.
00:30:21.800 | I would call up the local Northwestern Mutual, New York Life, or Mass Mutual office, and the way I would find an agent is I would call up.
00:30:29.800 | I would speak to a managing director or whoever's in charge of an office, and I would tell them what you're looking for and ask them for a recommendation to one of their reps and tell them, "Here's what I need.
00:30:39.800 | I'm interested in purchasing this type of product."
00:30:41.800 | They'll either do the work with you or they'll recommend you to one of their more senior seasoned reps.
00:30:45.800 | And this was an area where many – those large mutual life insurance companies do a lot of business in disability insurance.
00:30:55.800 | And the reps in that, they'll either know a rep who specializes in disability insurance or they will have a background in that area because those reps – because it's a traditional life insurance job, they have a depth and a background.
00:31:10.800 | That was where I learned so much about disability insurance.
00:31:13.800 | That would be how I would approach it.
00:31:15.800 | >> Awesome.
00:31:16.800 | And last question.
00:31:17.800 | Do they require blood work and medical records?
00:31:20.800 | >> Yeah.
00:31:21.800 | All insurance underwriting will have different requirements depending on the amount of the policy.
00:31:26.800 | So usually they'll have a very basic level – and this is applicable to both life insurance and disability insurance – a very basic level from – that's available with no medical – with no blood work, no urine test, no EKG, just simply some medical questions and they'll check your medical records.
00:31:46.800 | Then as you go up, they'll go ahead and they'll order blood work.
00:31:49.800 | They'll do urine analysis.
00:31:50.800 | You go up, they'll do an EKG.
00:31:53.800 | When you go up the amounts, they'll go ahead and sometimes they'll do a physician exam.
00:31:58.800 | As you go up to the very high amounts of insurance underwriting, they'll do comprehensive medical exams on you.
00:32:04.800 | So it all depends on the amount and the requirements of that company.
00:32:08.800 | The biggest thing that they rely on is medical records, but they will also do some combination of those exams depending on, again, how much insurance.
00:32:18.800 | >> Awesome.
00:32:21.800 | Thank you so much, Joshua.
00:32:23.800 | >> You're welcome.
00:32:24.800 | All right, I've got another caller here, 614 number.
00:32:26.800 | Go ahead with your question, please.
00:32:31.800 | >> Hi, Joshua.
00:32:32.800 | Tom here.
00:32:33.800 | I've just got a question about whenever my daughter was born, I opened up a savings account for her and I'm just looking to know what your recommendations would be for investments over the long term.
00:32:51.800 | >> What do you hope that she spends or uses the money for?
00:32:58.800 | >> I would like her to use the money for maybe a deposit for a house or something like that.
00:33:08.800 | >> Okay.
00:33:09.800 | And how old is your daughter?
00:33:11.800 | >> She's only nine months.
00:33:13.800 | She's not that old.
00:33:15.800 | >> Okay.
00:33:16.800 | And you're living in the United States here?
00:33:19.800 | >> No, I'm in Australia.
00:33:21.800 | >> Okay.
00:33:23.800 | So when thinking about this, I don't know much about the specific types of accounts and things that would be available in Australia.
00:33:31.800 | But where I go always first and foremost is not to a specific investment product but rather to education.
00:33:39.800 | And I do that just based upon the old axiom of give a man a fish and he'll eat for a day, teach a man to fish and he'll eat for a lifetime.
00:33:47.800 | So I think especially with our kids, the first opportunity that we have is to teach them to fish.
00:33:54.800 | And depending on the amount of money that we're talking with, how much money have you saved or how much money do you intend to save into this account for her?
00:34:03.800 | >> I've got just over $1,000 at the minute.
00:34:08.800 | I'm planning on it being considerable.
00:34:12.800 | >> Okay.
00:34:17.800 | So I think that first and foremost you should look at what are the opportunities for her education.
00:34:25.800 | Now, at nine months, this is largely theoretical and it's much more about just setting the money aside and allocating it for her.
00:34:32.800 | But I see so many opportunities to help people build wealth and to help people gain an understanding of how finance works that are much more effective than saving for specific things.
00:34:48.800 | Many households are in a situation where they'll happily spend and put aside $150 a month into a college savings account for their kid's college education.
00:34:59.800 | But then when their sixth grader comes in and wants to take a trip to meet a certain famous person or wants to go and start a business, they don't have any money to help fund and seed – they don't have any seed capital to help their sixth grader start a business.
00:35:14.800 | I'd much rather see money loosed from the restraints of things like college savings accounts or certain types of investments and be freed up for the education of the child.
00:35:27.800 | Whether that's simply put into books, whether that's put into classes, whether it's put into educational seminars, whatever it looks like within your local context, I'd first go there and I'd make sure that those types of things are fully funded.
00:35:43.800 | Buying a house is pretty easy to do.
00:35:46.800 | People do it all the time.
00:35:47.800 | In fact, buying a house with no money out of your own pocket is not that difficult.
00:35:53.800 | People do that all the time.
00:35:54.800 | And there are opportunities and ways to learn how that is.
00:35:57.800 | So if I were looking at a goal like helping my kid buy a house, then what I would look at is I would look at saying, "How can I teach them the skill so that they can do that themselves?"
00:36:09.800 | Because once – rather than just giving them the house, if I can teach my daughter to buy the house herself and I can teach her and at 16 years old, she's going to go ahead and buy her first rental house.
00:36:21.800 | If I can teach her how to do that, then she can buy as many houses as she wants and needs throughout the rest of her life and she's not dependent on me to be the source of funds.
00:36:30.800 | I think that's a far more powerful place to start rather than to just simply save it for the gift of a thing.
00:36:41.800 | If you give kids a thing, they're less likely to appreciate it than if they've worked and gotten the thing for themselves.
00:36:48.800 | And I think it can be a real handicap to give kids things if we haven't also taught them how to get the things for themselves.
00:36:58.800 | So that's my first answer.
00:36:59.800 | Second answer, OK, let's assume that those things are done because if you're going to put more considerable – more money into it, those things are done.
00:37:07.800 | I would look and say, "What are the contexts of how – this is the question you're asking.
00:37:14.800 | What's the sensible way to do it?"
00:37:16.800 | First, I would just – $1,000 in my mind is primarily worthwhile as an investment if you are going to use it as a tool for teaching investment principles.
00:37:29.800 | So I did a show recently called How I Teach My 8-Year-Old to Earn Income, something like that.
00:37:35.800 | You can find it in the archives.
00:37:37.800 | But in that show, I laid out three different areas.
00:37:39.800 | I talked about helping them build employment skills, helping them build business skills, and helping them build investment skills.
00:37:47.800 | I think all three of those are important.
00:37:50.800 | With $1,000 of seed money, I wouldn't do much unless I were using it as a teaching tool.
00:37:55.800 | So one useful way to do that would be to do something like buying a stock from a company that she's likely to have a personal association with.
00:38:06.800 | In the US, parents inculcate the love of Disney in their kids and so they buy their kids Disney stock.
00:38:12.800 | Or if it's a local company that's near you that has a big presence in your town, buy the stock and then use that as a teaching tool to teach the ownership of business assets.
00:38:22.800 | So I would look at something like that and say, "How can we put the money in there?"
00:38:26.800 | And then I would use that as a way of showing how you can do something like live off of dividends and using it as – again, I'm still in the teaching tool.
00:38:34.800 | Rather than here's the specific thing to buy.
00:38:37.800 | Those types of ideas I think can have a transformative effect on the child to where then the opportunity will present itself to where they'll have options.
00:38:46.800 | You've got to look at – when it comes down to specific investments to make, in your country, there may or may not be options available to you for things like accounts that would work.
00:39:03.800 | Most of the accounts in the United States don't work because they're geared toward college.
00:39:10.800 | But there may be something available to you in Australia that would work for you.
00:39:14.800 | So look to see if there's any kind of tax-deferred account.
00:39:18.800 | If not, you may just do something as simple as put it into an index fund.
00:39:22.800 | You may put it into just a mutual fund and have it well-managed because if you're talking about her buying a house to live in, we're talking 20 years from now and there's plenty of time just to let it sit and grow.
00:39:32.800 | The final thought and idea I have for you is if I were in your shoes – and this is what I intend to do with my kids.
00:39:39.800 | I would go ahead and buy the house as part of a real estate investment portfolio with the goal of transitioning that to them.
00:39:47.800 | So if you say I've got $1,000 of seed capital and I'm going to use this $1,000 of seed capital as the basis for a future down payment, well, go ahead and accumulate it.
00:39:59.800 | Maybe it may take you five or six or eight years to build up – I don't know how – depending on your savings, $20,000 or $30,000.
00:40:08.800 | Well, involve your kid in the whole process of going out and finding a house, finding a rental house and let them know that it's going to be their house.
00:40:14.800 | It's going to be their house to have and to rent someday in the future.
00:40:18.800 | Go ahead and buy the real estate at an earlier stage.
00:40:21.800 | Use that money as a down payment but involve her in the process.
00:40:24.800 | If you were going to do something like that, then I wouldn't tie it up in another investment.
00:40:29.800 | I just get accumulated in a savings account for that future use.
00:40:33.800 | That's what I intend to do with my kids.
00:40:35.800 | Any of that helpful, Tom?
00:40:36.800 | I know I kind of took the roundabout way to it but what do you think?
00:40:39.800 | Tom: Yeah, I'm thinking a lot along the same lines as you and yeah, that's all I've got.
00:40:46.800 | Thanks, Josh.
00:40:47.800 | Josh: Okay. Awesome.
00:40:48.800 | Thanks for calling in, man.
00:40:49.800 | I really appreciate hearing from you.
00:40:50.800 | It's pretty cool.
00:40:51.800 | I've had a few of you, Australian listeners, correspond with me but it's pretty humbling to think that there you are on the other side of the world listening to me.
00:41:00.800 | So thank you for calling in.
00:41:03.800 | Next question here.
00:41:05.800 | Go ahead, Tom.
00:41:06.800 | [inaudible]
00:41:17.800 | I'm glad that you're here.
00:41:18.800 | Next question here, I got an Oregon number.
00:41:21.800 | Go ahead with your question or comment, please.
00:41:23.800 | Hey, Josh.
00:41:28.800 | This is Mohamed.
00:41:29.800 | I have a quick question about pension plans.
00:41:31.800 | For my job, I would need to work almost another three years to invest into the pension and I'm sort of trying to figure out what your thought process is on whether it's worth it to stick around another three years or whether to just forego the pension.
00:41:45.800 | What kind of dollar amounts are we talking about?
00:41:48.800 | I'm a physician and so it would be about 20% starting at age 65 of my highest three consecutive years average salary.
00:42:00.800 | So it would be about 20% of 300,000.
00:42:03.800 | So at age 65, it probably would be about 60,000 a year.
00:42:07.800 | Okay.
00:42:10.800 | So – and you need to work three more years to vest into that account?
00:42:15.800 | Yeah.
00:42:16.800 | Okay.
00:42:17.800 | So let's run – let's see if I can – this is going to be a challenge.
00:42:19.800 | Let's see if I can do this live on the air.
00:42:21.800 | So let's try to figure out some kind of present value of that account.
00:42:26.800 | And so the first thing that we can do is we need to ask about inflation.
00:42:31.800 | Is that $60,000 in inflation-adjusted terms or is it just a straight $60,000?
00:42:38.800 | No.
00:42:39.800 | Unfortunately, it's just a straight 60,000.
00:42:42.800 | Okay.
00:42:43.800 | So that will be simpler math.
00:42:45.800 | But if we just do this, let's just – okay.
00:42:48.800 | So let's pretend that you live from 65 to 95.
00:42:53.800 | I'm going to give it a long lifespan.
00:42:55.800 | Of course, if you live until 66, it's less important.
00:42:58.800 | But let's just get this to 65 to 95.
00:43:01.800 | We expect life expectancy to continue increasing with increases in medical technology.
00:43:07.800 | You're a physician.
00:43:08.800 | You're probably in good shape.
00:43:09.800 | Okay.
00:43:10.800 | So 30 years.
00:43:12.800 | Let's do $60,000 of income.
00:43:19.800 | Let's try to discount this.
00:43:20.800 | So $60,000 of payments coming in, coming in.
00:43:26.800 | Future value is zero.
00:43:28.800 | And then we're going to put a zero in for the interest rate.
00:43:32.800 | So the present value at 65 would be $1.8 million.
00:43:37.800 | That would be – given those assumptions at your age 65, that would be $1.8 million.
00:43:42.800 | Now, the question is – how old are you now?
00:43:50.800 | 38.
00:43:51.800 | Okay.
00:43:52.800 | So I don't want to slow the show down too much to do this in inflation-adjusted terms.
00:43:58.800 | But it would be important to do that.
00:44:00.800 | And so we could just for now – we could kind of just discount that for inflation to get somewhat of an accurate number today.
00:44:10.800 | And what we would actually need to do is run the calculation from 65 to 95 and work in the inflation calculation.
00:44:20.800 | But just for the sake of doing a live recording here, let's do $1.8 million is the future value.
00:44:27.800 | And let's put this in as future value.
00:44:33.800 | 38, so 65 would be 25, 27 years.
00:44:40.800 | And let's discount it at a 3% rate and let's put in no payments.
00:44:45.800 | And so the present value of that fund would be $810,000.
00:44:49.800 | Okay.
00:44:50.800 | So you got to ask yourself the question.
00:44:52.800 | Let's just say it's about value in today's dollars of about $800,000.
00:44:58.800 | You got to ask yourself the question.
00:44:59.800 | Is it worth it to you to work for another three years in order to have an extra $800,000 of compensation, be a little bit lower by the time we discount for inflation in the future?
00:45:10.800 | Or would you rather just simply bail now and walk away from the $800,000?
00:45:16.800 | That's the question that you have to answer.
00:45:19.800 | That's pretty good.
00:45:21.800 | Okay.
00:45:22.800 | Yeah, I really couldn't think of it in terms of numbers.
00:45:24.800 | So that's really helpful.
00:45:26.800 | Yeah.
00:45:27.800 | That's the way to do it.
00:45:29.800 | And if you want, sign up for a consulting call and I can help you with the math of actually doing it in a proper inflation adjusted terms.
00:45:42.800 | But that's the way to do it.
00:45:44.800 | And then the answer is going to depend on you.
00:45:46.800 | I walked away from my pension before it vested.
00:45:48.800 | I walked away from two pensions before they vested to start radical personal finance.
00:45:53.800 | But when I looked at it, I said I've got a compelling timing thing for me.
00:45:59.800 | I was looking at the market timing of my business and I was saying I've got a compelling reason to go now.
00:46:05.800 | I believe that this will lead me in a direction when I looked at the vesting schedule.
00:46:10.800 | I looked at the money I was walking away with.
00:46:12.800 | I made the decision to walk away from some unvested money.
00:46:16.800 | But I had something compelling that was leading me to it.
00:46:19.800 | If I hadn't had something compelling, I mean the pension statements were pretty sweet to start looking at.
00:46:24.800 | And so I didn't – it would have been foolish.
00:46:27.800 | Sometimes in a situation, you might just simply consider an adjustment of your work scenario.
00:46:34.800 | So for example, maybe under the terms of your employment, you can – if you're planning on quitting and doing early retirement anyway, maybe you can just simply go down to a minimum number of working hours or arrange some kind of arrangement that still keeps you employed.
00:46:48.800 | It still keeps you employed in the vesting schedule but minimizes some of the things of the job that you don't like.
00:46:54.800 | I would approach it and think through all those different angles.
00:46:57.800 | But basically, it's a $700,000 to $800,000 decision.
00:47:02.800 | Sounds good. Thank you, Josh. That's pretty helpful.
00:47:05.800 | Great. Awesome. Thanks for calling in.
00:47:07.800 | Fun questions today.
00:47:09.800 | Kind of all over the board.
00:47:11.800 | I thought they were going to be all disability but they were all over the board.
00:47:14.800 | So thank you guys for calling in.
00:47:15.800 | I love when these Q&A calls have lots of you to call in.
00:47:18.800 | I think they're really interesting.
00:47:20.800 | It keeps me on my toes.
00:47:22.800 | We're sitting here struggling off the top of my head for how to do that inflation calculation and figuring out how to do it on my calculator.
00:47:30.800 | I could do it but I was grasping at the exact – I was grasping at the exact details to use and how to do it live.
00:47:39.800 | So I like that.
00:47:40.800 | It keeps me on my toes, makes sure that I'm doing my homework and that my skills are not getting rusty.
00:47:45.800 | So thank you to those of you who called in.
00:47:47.800 | I hope these calls are useful to you.
00:47:49.800 | If you would like to have access to a future call like this in the future, this is a pretty cheap way to talk to me, get my advice on something.
00:47:56.800 | Go to RadicalPersonalFinance.com/patron.
00:47:58.800 | Become a patron of the show.
00:47:59.800 | I think I've got it set at $7 a month.
00:48:03.800 | If you contribute at least $7 a month to the show, RadicalPersonalFinance.com/patron, $7 a month gets you access to these Q&A calls.
00:48:12.800 | Also in excess of that, if you'd like to join the other – we've got a great Facebook group if you want to join at $14 a month as well.
00:48:20.800 | Or again, I'm available to you if you'd like to talk with me personally about any challenge or situation that you've been facing, RadicalPersonalFinance.com/phonecall.
00:48:28.800 | I've had some great phone calls.
00:48:29.800 | I think I've done something like 15 or 16 in the last week.
00:48:33.800 | I've learned a lot and I think it's been a really, really good fit.
00:48:36.800 | So I'm very excited about that program.
00:48:38.800 | I've enjoyed getting to talk to many of you who are listening.
00:48:43.800 | I think that's it for my announcements.
00:48:45.800 | I'm out.
00:48:46.800 | Y'all have a great week.
00:48:47.800 | [Music]