RPF0354-Disability_Insurance_Policy_Provisions
00:00:00.000 | Today on Radical Personal Finance, we continue our disability income insurance series with
00:00:05.480 | a discussion of disability insurance needs analyses, how to figure out the appropriate
00:00:10.360 | benefit amounts and what benefit amounts are available.
00:00:12.560 | We're going to talk about group insurance and individual insurance.
00:00:16.000 | We discuss the definitions of disability within an individual disability insurance policy.
00:00:21.600 | If we have time, we'll get into specific provisions of policies that you may or may not want.
00:00:28.320 | In theory, we might have time to talk about taxation of premiums and benefits.
00:00:35.320 | Yes, Joshua Sheets, the ever optimistic show host, thinking that we're going to get to
00:00:55.320 | all that in the course of today's show.
00:00:56.320 | Welcome to the show.
00:00:57.320 | My name is Joshua Sheets.
00:00:58.320 | This is the Radical Personal Finance Podcast.
00:00:59.320 | Thank you for being with me today.
00:01:00.320 | This is the show where we work hard to talk about everything you need to know to live
00:01:05.320 | a rich and meaningful life now while also building a plan for financial freedom in 10
00:01:09.320 | years or less.
00:01:10.320 | And we continue our risk management disability income insurance series right now.
00:01:22.400 | With the first episode of this series, episode number 337, I gave you my sales pitch for
00:01:27.840 | why I think you should buy disability income insurance with a special emphasis on the value
00:01:32.280 | of long-term disability insurance.
00:01:34.840 | In episode 339, we continued the series talking about why it's so hard to compare disability
00:01:40.600 | insurance policies to one another.
00:01:42.360 | We talked about the differences and how you should decide whether to buy long-term disability
00:01:46.320 | insurance or short-term disability insurance.
00:01:49.200 | We discussed available benefit periods, two years, five years, to age 65, to age 70, etc.
00:01:54.320 | We talked about the elimination periods, two weeks, 45 days, 90 days, six months, one year,
00:01:59.040 | and how to think through those options.
00:02:00.840 | And then we talked about the different continuance provisions in a disability insurance policy.
00:02:05.000 | We talked about the word and the definition of non-cancelable, guaranteed renewable, conditionally
00:02:09.680 | renewable.
00:02:10.680 | I explained what those policy terms mean.
00:02:13.160 | And today, we continue with the nuts and bolts here of talking about how you can make good
00:02:19.400 | disability income insurance decisions by, again, talking about those things that I mentioned
00:02:23.480 | in the beginning.
00:02:24.480 | I'm going to do this show here for about 45 minutes to an hour.
00:02:27.240 | We'll see how many of these things I get through.
00:02:29.240 | If not, I might need to wrap up and go on to another show.
00:02:32.560 | But let's start first with a needs analysis.
00:02:35.240 | One of the things that I haven't talked about is how to figure out the appropriate amount
00:02:38.800 | of disability insurance that you need.
00:02:42.280 | There are different benefit amounts that are available to you.
00:02:46.040 | And in general, my suggestions and advice to you are simply to get as much as you can
00:02:52.960 | get, especially at an early age.
00:02:56.120 | If you are young in your career, young in your life cycle, and here I'm thinking of
00:03:02.740 | somebody in their 20s, 30s, maybe somebody with a young family, this type of profile
00:03:09.320 | of a young family just kind of getting things started off, this is where disability income
00:03:13.160 | insurance is the most important because statistically speaking, it's likely that you have higher
00:03:17.800 | expenses and lower assets and savings at this stage of life.
00:03:22.320 | This is when disability income insurance is the most important because this is the stage
00:03:26.040 | of life that your income is your biggest asset.
00:03:31.080 | As you advance through your expected working life, and there's no hard and fast line to
00:03:37.360 | this, a 60-year-old can be just as broke as a 30-year-old and a 30-year-old can have twice
00:03:41.960 | or three times as much money as a 60-year-old.
00:03:44.400 | But in general, as you are working throughout your lifetime, you will have the opportunity
00:03:48.960 | to earn more money and accumulate more wealth as you continue through your working lifetime.
00:03:55.740 | So later in life, you should be able to accumulate more assets.
00:03:59.660 | You will reach a point in time at which your assets are more important than your income.
00:04:04.480 | You'll also reach a point in time where you know what your expenses are and they're more
00:04:11.400 | likely to be relatively stable.
00:04:14.000 | A 55-year-old empty nesting couple has a much better idea of what their expenses are than
00:04:21.080 | a young family looking at, "Okay, how much is my 12-year-old going to need of high school
00:04:26.900 | expenses and what am I going to do about college and what am I going to do about private school
00:04:31.320 | and all these other things?"
00:04:32.720 | So when figuring out the appropriate amount of insurance to have in the beginning, the
00:04:36.720 | answer is pretty simple.
00:04:37.720 | Get as much as you can get.
00:04:40.320 | It's that simple.
00:04:41.320 | Get as much as you can get.
00:04:43.040 | However, you will have the restraint or the constraint that there's a certain amount that
00:04:50.560 | you'll be able to get.
00:04:52.120 | We'll talk about that and then I'll explain to you how you do a needs analysis.
00:04:56.040 | The insurance companies are not going to let you have an unlimited amount of disability
00:04:59.960 | income insurance because they are on the hook if you become disabled.
00:05:05.720 | Same thing with life insurance.
00:05:07.640 | Because disability and life insurance policies are not reimbursement policies but rather
00:05:14.520 | are indemnity policies, there's a risk to the insurance company if they overinsure you.
00:05:20.680 | The difference between a reimbursement policy and an indemnity policy is simple.
00:05:24.400 | A reimbursement policy reimburses you for any specific charges incurred, for any specific
00:05:31.400 | costs incurred.
00:05:33.880 | And so the risk to an insurance company is less under a reimbursement policy because
00:05:39.040 | there's a simple way of identifying the amount and you don't have any extra motivation to
00:05:46.680 | somehow put yourself in a situation where you're going to get more compensation.
00:05:52.240 | An indemnity policy is one which pays you out a certain amount of money that is not
00:05:58.560 | necessarily due to any amount of loss.
00:06:03.120 | So life insurance policies and disability income insurance policies are indemnity policies
00:06:07.400 | where the amount of your reimbursement is pre-negotiated.
00:06:11.260 | The risk here is simplest to explain within the context of life insurance.
00:06:15.720 | Pretend that you make $10,000 a year and you go out and you're able to buy a $10 million
00:06:21.680 | life insurance policy and you're feeling thoughts of depression, you're experiencing suicidal
00:06:27.880 | thoughts, you're just looking at your family and your situation, you're saying, "You know
00:06:31.360 | what?
00:06:32.360 | I'm a failure as a father.
00:06:33.360 | I want to make sure that my family is taken care of.
00:06:34.920 | I've got this $10 million policy and I'm only making $10,000 a year.
00:06:39.160 | I think it'll help my family more if I commit suicide and give them $10 million than if
00:06:44.080 | I stick around and only give them $10,000 a year."
00:06:48.520 | This would be a very clear example of how with an indemnity policy, which is what a
00:06:53.880 | life insurance policy is, if this event happens, in this case death, then the beneficiaries
00:06:59.920 | will be indemnified $10 million.
00:07:03.240 | You can see the risk that puts on the insurance company.
00:07:05.680 | So the way they handle this with life insurance is that if you were making $10,000 a year,
00:07:10.120 | you could not go out and get a $10 million life insurance policy.
00:07:13.800 | You would need to be making a lot of money.
00:07:15.480 | Maybe you could get a $50,000 life insurance policy and now you're simply saying – well,
00:07:19.360 | actually, it would be more than that.
00:07:20.360 | It would probably be about 10 times.
00:07:21.600 | You could get up to about a couple hundred thousand dollar life insurance policy, but
00:07:27.280 | you wouldn't be able to get a $10 million policy.
00:07:29.560 | So now you can imagine that same person depressed, feeling suicidal, wondering what to do and
00:07:34.280 | they're saying, "Well, I've only got $100,000.
00:07:37.160 | Whether I make $10,000 a year or they get $100,000 of life insurance, that's not going
00:07:40.440 | to change their life.
00:07:41.680 | Maybe I'll just keep on working and see if I can make things better."
00:07:45.040 | So the same thing applies with disability insurance.
00:07:47.320 | If you're making $10,000 a year – and I'm just using extreme numbers to illustrate
00:07:51.600 | the concept.
00:07:52.660 | If you're making $10,000 a year but you're able to get a disability insurance policy
00:07:57.040 | that will pay you if you're disabled $10,000 a month, well, now all of a sudden you might
00:08:03.240 | be looking at your mountain bike and thinking, "Hmm.
00:08:05.800 | If I could figure out how to ride that off the side of a cliff in such a way that it
00:08:09.040 | didn't kill me and it didn't hurt me too badly but it made me disabled, maybe that
00:08:14.000 | would be better to be somewhat disabled but get $10,000 a month because right now I'm
00:08:19.240 | only making $10,000 a year," or whatever scenario that you want to come up with.
00:08:25.240 | And so that's the risk that the insurance company has to face.
00:08:28.880 | So you're always going to be limited based upon the amount of insurance you can get by
00:08:35.320 | the insurance company.
00:08:37.280 | Now the first thing to recognize is generally here where we're talking about individual
00:08:42.000 | disability insurance policies, without getting into the taxation, you do need to know that
00:08:46.240 | generally with individual disability insurance policies, you're going to be paying the policy
00:08:51.960 | premiums without taking a tax deduction.
00:08:54.960 | So you're going to be using after income tax dollars to pay for the premiums.
00:08:59.760 | But your benefit on an individual disability income insurance policy will generally be
00:09:04.280 | received free of income taxes.
00:09:07.600 | So there can be a significant benefit there for you.
00:09:11.440 | If you're making $3,000 in normal employment, well, remember the first thing off your $3,000
00:09:18.760 | is going to come off your Medicare and employment taxes.
00:09:22.720 | So you're going to lose right off the bat 7.65% of that money which will be $230 coming
00:09:29.400 | off of a $3,000 payment.
00:09:32.040 | You're going to lose 7.65% if you're employed to your employment taxes and your Medicare
00:09:38.440 | taxes.
00:09:39.480 | So that's going to be a significant decrease.
00:09:41.600 | If you were self-employed, you'd lose 15.3% right off the bat.
00:09:45.200 | Plus you're also going to lose your income taxes.
00:09:48.200 | Depending on your income tax rate, those may or may not be a lot of money.
00:09:51.720 | So generally when you're at a lower rate of earnings, you can basically get as much insurance
00:09:58.240 | as you would get if you were working.
00:10:01.840 | It will sometimes almost cover 100% of your working after tax income.
00:10:08.000 | So some simple examples would be if you were earning $3,000 a month, you could probably
00:10:13.840 | get $2,400 of – maybe $2,200 to $2,400 of disability insurance benefit which would practically
00:10:21.800 | be equivalent to what you're making on an after tax basis if you were earning $3,000
00:10:27.400 | a month as your salary.
00:10:29.900 | Now as your income goes up, you'll be able to get more disability income insurance measured
00:10:36.600 | in dollar terms but you'll be able to get less disability income insurance measured
00:10:42.080 | in percentage terms.
00:10:44.200 | So somebody making $30,000 a month, there's no possibility that they're going to be able
00:10:48.920 | to reach the same percentage of their income replaced.
00:10:52.280 | The $3,000 a month earner might be able to cover 100% of their current after tax income
00:10:57.200 | with a disability policy.
00:10:59.000 | The $30,000 a month earner would probably only be able to cover maybe 50% of their after
00:11:04.520 | tax income.
00:11:06.060 | But the dollar amount of course, 50% of $30,000 after tax would be what?
00:11:10.840 | About $13,000, $12,000 to $14,000 depending on how we ran the math.
00:11:14.360 | So the dollar amount of $12,000 to $14,000 a month of disability benefit would be much
00:11:19.000 | higher than the $2,200 a month but the percentage is lower.
00:11:23.840 | So there's no way that you are going to know this without asking the insurance agent
00:11:28.600 | to calculate what's available to you and what options you have available to you.
00:11:33.600 | So that's the simplest way to know how much you can get.
00:11:36.320 | The insurance agent will have a program of some sort where it would be relatively simple.
00:11:42.360 | If you're an employee, they'll just plug in, "Hey, I'm making $72,000 a year as an employee."
00:11:46.440 | You just pop that in the computer and you have the answer right there.
00:11:49.700 | If you are self-employed, if you're a business owner or if your financial situation is more
00:11:54.140 | complicated, then the agent themselves will probably not be able to tell you.
00:11:59.940 | What you'll have to do is go through what's called financial underwriting.
00:12:02.960 | So financial underwriting for – so all disability insurance policies when you buy them are underwritten
00:12:08.440 | on a financial basis and also on a health basis.
00:12:12.600 | The health basis is relatively simple.
00:12:15.220 | Just like life insurance, when you go to apply for life insurance, the health underwriting
00:12:19.240 | requirements vary depending on the amount of insurance that you're buying.
00:12:22.880 | If you're buying a very small amount of insurance, I don't remember any numbers,
00:12:25.880 | but let's just say a few hundred dollars a month, you may just simply have to answer
00:12:29.160 | some medical questions and they'll pull your doctor records to check your medical
00:12:32.920 | history with your doctor.
00:12:33.920 | You go up a little bit higher, you may do a tongue swab.
00:12:37.320 | The tongue swab is where they check for nicotine and different things.
00:12:40.200 | The insurance agent usually will do that.
00:12:42.200 | You go up a little bit more and any normally employed amounts of disability insurance,
00:12:48.880 | you're going to do – a nurse will come out to your house and they'll do a blood
00:12:51.560 | draw, they'll do a urine sample and they'll check your height and your weight and your
00:12:55.240 | blood pressure and things like that.
00:12:57.200 | As you go up the ranks in terms of higher and higher amounts of insurance, then the
00:13:01.920 | medical underwriting requirements get to become more and more and more.
00:13:07.000 | So at the higher levels, if you're a practicing physician earning half a million dollars a
00:13:10.640 | year, you'll be visited by a physician, you'll have a physician health review,
00:13:16.680 | they'll do an EKG, they'll do comprehensive tests on you, etc.
00:13:22.120 | So the more insurance you apply for, the more stringent the medical underwriting requirements
00:13:27.960 | will be.
00:13:28.960 | But you'll also always go through financial underwriting requirements and it will be the
00:13:31.640 | same thing.
00:13:32.640 | If you're a simple employee at say earning $60,000 a year, all you need to submit is
00:13:36.680 | a pay stub and make a statement of what your income has been the last couple of years.
00:13:41.840 | However, if you're applying for a much higher amount of insurance, it would not be unusual
00:13:46.360 | for the underwriters to require three years of tax returns including all of your supporting
00:13:51.380 | schedules and other information or to require current financial statements.
00:13:57.920 | In some cases, those financial statements could be required to be audited or signed
00:14:00.940 | off on by your accountant.
00:14:03.060 | So as you go up, the financial underwriting requirements become more.
00:14:08.200 | When you are trying to do financial underwriting on a disability case, it can be very tricky
00:14:13.440 | for some people in certain occupations.
00:14:15.640 | So for business owners, it can be very challenging because some things are coverable and some
00:14:21.360 | things aren't.
00:14:22.920 | One of the challenges is that many business owners need much more disability insurance
00:14:26.600 | than they can get, especially if your business is not showing a high profit on paper.
00:14:32.060 | When you're running a business and when you're investing in the initial stages, often there's
00:14:36.160 | a difference between what your profit is on paper versus what your profit could be and
00:14:42.440 | actually is because you're reinvesting heavily into the business.
00:14:45.840 | Well, that's great from a tax savings perspective, but it's not great for the perspective of
00:14:50.160 | getting disability income insurance.
00:14:52.120 | It's also not great for applying for a mortgage.
00:14:54.200 | Those are the two places where you really get hurt when you're a business owner and
00:14:57.560 | you're not paying a lot of taxes because you're not showing a lot of income.
00:15:01.160 | So you've always got to be careful with that.
00:15:02.480 | If you have other forms of income, so let's say that you've built a portfolio of real
00:15:07.640 | estate and you're receiving rental incomes from your real estate or you have a large
00:15:12.220 | amount of dividend paying stocks, the underwriter will take those things into account as well
00:15:17.120 | and they will count against the amount of disability insurance that you're able to get.
00:15:21.680 | Another reason why in general if you're just getting started and you have a job, get as
00:15:25.720 | much disability insurance as you can get because if you were to fast forward down the road
00:15:30.480 | and have say five rental houses all paying you money every month, you wouldn't be able
00:15:34.240 | to get as much disability insurance as you can get in the beginning.
00:15:37.800 | Obviously you wouldn't need it as much, but you wouldn't be able to get as much.
00:15:42.040 | So that's how – those are the major ways the benefit amount is determined, just simply
00:15:46.040 | by the underwriter.
00:15:47.580 | You can do a needs analysis.
00:15:50.520 | This is simple with computer software.
00:15:53.400 | What you essentially do is you put it into a financial planning software package.
00:15:57.100 | You put in your income.
00:15:58.320 | You put in your expenses.
00:15:59.500 | You mark out which of those expenses need to be paid during a time of disability and
00:16:03.600 | which don't.
00:16:05.000 | For example, you might say I want to pull back on some discretionary amounts of expenses
00:16:12.560 | but I would keep these other essential expenses.
00:16:14.760 | Those things are all possible.
00:16:16.520 | In general, all of the computer programs do it.
00:16:20.560 | Most people that are buying disability insurance, it's just not all that relevant.
00:16:24.360 | It's really not all that relevant, which is why I don't spend a lot of time on it.
00:16:29.200 | Essentially what a disability insurance needs analysis will demonstrate is that you have
00:16:33.680 | a need for disability insurance and even if you put in as much insurance as you could
00:16:39.240 | get, most people still won't be fully covered for as much as they really need.
00:16:46.640 | The only time that the disability insurance needs analysis would be very, very helpful
00:16:50.880 | would be if you have a large nest egg of money and you're trying to figure out, "Okay,
00:16:58.480 | can this get me through?
00:16:59.480 | If I have this lump sum of money, if I were disabled, let's say I had a disability insurance
00:17:03.640 | policy that was going to cover me for the next 20 years, would I then be okay with this
00:17:07.600 | pot of money for the rest of my life?"
00:17:10.320 | That is where I like disability insurance needs analysis because in the software packages,
00:17:15.960 | it's relatively simple to figure out what do I do with retirement and how do we achieve
00:17:21.560 | retirement.
00:17:22.680 | One of the major costs of disability for those who become disabled is the current cost of
00:17:28.320 | disability.
00:17:29.960 | But the other major cost is the future cost of disability.
00:17:33.560 | What I mean is if I became disabled for a period of say five to ten years, and here
00:17:37.920 | we're talking about a significant disability.
00:17:40.280 | This is unlikely statistically speaking, but it does happen from time to time.
00:17:44.880 | If I became disabled for say five years, I would have all of my current expenses for
00:17:49.560 | those five years, but I also have the cost of retirement or the fact that I haven't been
00:17:54.280 | able to save and compound money for those five years towards that retirement.
00:18:00.040 | People who become disabled, even if it's for a relatively short amount of time, often find
00:18:04.120 | their financial plan significantly disrupted.
00:18:06.920 | If they don't have insurance, then all of a sudden they start tapping their assets much
00:18:10.760 | more quickly than someone else does.
00:18:14.300 | This results in bad effects.
00:18:16.920 | That's where the needs analysis software can be simple and it can be helpful as it demonstrates
00:18:22.600 | that need.
00:18:23.600 | I've done that many times in sales situations where somebody says, "I don't need disability
00:18:27.360 | income insurance.
00:18:28.360 | I have a million dollars."
00:18:29.360 | I say, "Okay, that's fine, but let's run the scenario of today with your million dollars.
00:18:34.200 | If you keep working, yeah, you're going to be rich, but let's run the scenario if you're
00:18:37.400 | disabled for five years and let's see what happens to the million dollars."
00:18:41.120 | All of a sudden, you find the million dollars is not quite as comforting as you thought
00:18:44.720 | it was because now you're pulling out $5,000 a month for the next five years and your retirement
00:18:50.520 | shortfall becomes huge.
00:18:54.680 | That's what the needs analysis can show that to you.
00:18:58.440 | Finally, you can choose amount of disability insurance based upon a certain thing that
00:19:02.920 | you want to cover.
00:19:03.920 | For example, you have a certain obligation, a certain debt, a certain stream of payments
00:19:08.920 | that you're desiring to cover.
00:19:10.560 | I will try to do a – I might do in the future a show on just all the different types of
00:19:15.040 | disability insurance because there are many different kinds, but you can choose some of
00:19:20.880 | these based upon that amount.
00:19:22.600 | For example, if you were purchasing a disability overhead expense insurance policy as a business
00:19:27.920 | owner, these policies function to cover the expenses of your business.
00:19:32.360 | You might just simply look down and say, "Hey, I've got $6,000 a month of business expenses,"
00:19:36.760 | and you just choose the amount of insurance based upon that.
00:19:40.240 | Simple.
00:19:41.240 | We're going to cover $6,000 a month for 12 months and you're covered.
00:19:44.840 | That's how you choose the amount.
00:19:46.080 | Now, let's talk about group insurance merged with individual insurance.
00:19:51.040 | Most people who are working in mainstream jobs at large companies have access to some
00:19:57.000 | kind of group disability insurance program.
00:20:00.720 | The challenge here is that many workers in the United States of America work in smaller
00:20:04.800 | firms.
00:20:05.800 | It's much less likely that this type of program will be open to you in a smaller firm than
00:20:08.680 | if you're working in a larger firm.
00:20:10.000 | How do you figure out what to do with the benefits between them?
00:20:14.200 | The way to do it perfectly is to first look and understand what are the benefits that
00:20:19.880 | are actually provided by the group disability insurance policy.
00:20:24.960 | Here we would want to get into the actual questions for the policy of how do we actually
00:20:32.440 | get paid if we're disabled?
00:20:33.560 | What are the policy provisions?
00:20:36.440 | This is difficult information to get, especially without an insurance agent because most people
00:20:41.880 | just don't know.
00:20:42.880 | Your human resources person is not going to know.
00:20:44.840 | They'll have to call the insurance company and get the questions answered.
00:20:48.200 | I'll go ahead and tell you what the questions are that I would always send a client.
00:20:52.440 | I always had a written statement.
00:20:54.000 | I'll put this on the site in some way.
00:20:56.880 | But I always had a written statement prepared for my clients.
00:20:59.920 | The first stage of financial planning is I would send them this list of questions and
00:21:03.840 | try to get all the details of their group benefits.
00:21:07.240 | So the group long-term disability, the group life insurance, any group long-term care,
00:21:11.600 | questions about the 401(k), questions about the pensions, et cetera.
00:21:14.840 | The questions about the disability policy are the most important.
00:21:17.000 | I'll read them to you and explain why they are important.
00:21:21.160 | The first question is, "Does our company provide any long-term disability insurance?"
00:21:26.000 | That one is pretty simple.
00:21:28.420 | But many of you do not know if you have something available to you or not.
00:21:32.680 | Next question, "Am I enrolled?"
00:21:36.400 | Seems silly but it's a huge deal because most people have some kind of disability insurance
00:21:42.760 | available to them.
00:21:44.240 | But many of them are simply not enrolled.
00:21:46.520 | So you have to be enrolled in order for it to work.
00:21:50.160 | Next, "When does the long-term disability benefit begin?"
00:21:55.880 | And I have little options.
00:21:57.200 | Usually it's either 90 or 180 days after being disabled, usually 90.
00:22:01.000 | "What percentage of my income does it cover?"
00:22:04.840 | Group disability insurance policies will often put that number in there and it'll be usually
00:22:09.880 | 60%, sometimes 67% or a different number, but sometimes 50%, but often 60%.
00:22:16.280 | Next question, "How is income defined?"
00:22:20.880 | Big question here is, "Is it base salary only or is it my total compensation?"
00:22:26.040 | For example, base and bonus.
00:22:28.320 | Some disability insurance policies will cover you based upon your base salary.
00:22:32.200 | And for some of you, that's all you earn.
00:22:34.240 | But many people, especially high-income earners, have their compensation decided as a formula
00:22:39.240 | between a base and a bonus.
00:22:41.760 | And if your disability insurance policy does not reflect that bonus, you might be significantly
00:22:47.880 | underinsured.
00:22:48.880 | This can be a real challenge.
00:22:51.720 | Now, some disability policies do cover bonus.
00:22:55.920 | There's no reason why they can't.
00:22:57.920 | But many times, these benefits that are provided in a group long-term disability contract are
00:23:04.440 | not quite as comprehensive as you might like because often your employer is picking up
00:23:10.120 | the tab for this.
00:23:11.120 | But most people are not aware of what's in their disability insurance policy.
00:23:16.240 | People are quick to criticize and lobby their employer for a great health insurance policy
00:23:21.080 | because they use that.
00:23:22.840 | But very few people ever use their long-term disability insurance policy.
00:23:26.840 | And so the long-term disability insurance policy is one place where an employer can
00:23:31.040 | offer something so that there's something there, but not actually offer something great
00:23:35.840 | and save a little bit of money.
00:23:37.680 | And I'm not trying to say employers are being mean to employees, just simply that employees
00:23:42.840 | don't usually raise a ruckus about their long-term disability benefits.
00:23:46.400 | So we need to know, how is income defined?
00:23:49.320 | Is it base and bonus?
00:23:51.040 | Is it total compensation?
00:23:52.800 | If you are a commission-based salesperson, how is your income defined?
00:23:57.760 | Next, is there a maximum monthly benefit?
00:24:01.800 | Oftentimes there'll be a maximum monthly benefit of $5,000 or $10,000 a month.
00:24:05.920 | For many people, that's not a problem.
00:24:07.180 | For some of you, that might be a significant problem because you're underinsured.
00:24:11.320 | Next question is, who pays the premium for the coverage?
00:24:15.560 | Who pays the premium for the coverage?
00:24:18.260 | That's important so that we get to taxation.
00:24:20.040 | If your employer is paying the premium for the coverage, then the benefit when received
00:24:24.680 | by you after being disabled will be taxable.
00:24:28.040 | So if the employer is paying the premium, because the benefit's taxable, the individual
00:24:33.040 | policy, you'll be able to get a higher amount of insurance with your individual policy than
00:24:37.840 | the other way around.
00:24:40.900 | Is the benefit taxable when received by me?
00:24:42.880 | That's just a different way of asking it.
00:24:44.880 | There are a couple of interesting tax rules where sometimes it may or may not be, but
00:24:49.360 | let's skip that for now.
00:24:50.360 | Is there a partial disability benefit?
00:24:53.200 | And this, as far as I'm concerned, we're going in just a moment to definitions of disability
00:24:56.760 | for individuals with disability policies.
00:24:58.640 | But as far as I'm concerned, the most important disability benefit to have is a partial disability
00:25:05.320 | benefit.
00:25:07.320 | And this is often the biggest lack in group disability policies.
00:25:12.880 | Many times the group disability policy will have a clause for a total disability.
00:25:17.540 | But think about it.
00:25:18.540 | Many of you have pretty safe jobs, and it would take a lot for you not to be able to
00:25:24.680 | do anything related to your job.
00:25:28.040 | But it wouldn't take all that much for you to be only able to work 50% of your time at
00:25:33.040 | your job.
00:25:34.040 | Well, does being able to work 50% of your time at your job qualify you for a disability
00:25:39.320 | payment under the terms of your disability insurance policy?
00:25:42.600 | It's a big deal.
00:25:45.040 | We'll come back to that in a moment.
00:25:47.800 | Next is the policy, have a cost of living provision after I am disabled.
00:25:51.880 | This can be a big deal.
00:25:53.440 | You're getting $3,000 a month, but all of a sudden you're 30 years old.
00:25:56.240 | I was just reading – before I hit record, I was just reading about a story of this guy
00:26:00.760 | who was – where was it?
00:26:03.760 | It doesn't matter.
00:26:04.760 | I think it was California.
00:26:06.880 | But reading about a guy who was arrested by the police and they pulled him out of the
00:26:12.480 | police car in handcuffs.
00:26:14.320 | He fell on his head and he was paralyzed from the neck down.
00:26:17.040 | He was an MMA fighter which was probably why they were pretty rough with him because his
00:26:21.360 | arrest was probably pretty difficult.
00:26:22.960 | I didn't read all the details of the case.
00:26:25.080 | But point was he was pulled out of a police cruiser.
00:26:27.200 | He was pulled on his head and he was paralyzed from the chest down.
00:26:31.640 | I think I said from the waist.
00:26:32.640 | Excuse me.
00:26:33.640 | From the chest down, no longer able to function.
00:26:36.760 | Well obviously he's totally disabled.
00:26:38.720 | But things like that can happen.
00:26:41.360 | You can hurt yourself and you can still do some work but you just can't do everything
00:26:45.360 | that you were doing before.
00:26:47.720 | Or you can still work and do everything you were doing before and you just can't do
00:26:53.640 | it for as much time.
00:26:54.680 | Now you're 30 years old.
00:26:56.480 | You're 30 years old and as a 30-year-old, you've got a long time horizon.
00:27:01.040 | So say you're collecting – this guy, if he had a disability insurance policy, let's
00:27:04.480 | say he's collecting $3,000 a month from his policy.
00:27:07.040 | Well, $3,000 a month today is a livable income level.
00:27:11.480 | 30 years from now, that won't be a livable income level.
00:27:15.040 | So that's important.
00:27:16.600 | The next is the benefit reduced by any social security payments I may receive.
00:27:22.440 | Sometimes in order to reduce the risk, there – it exists on policies and you can put
00:27:27.200 | this on your individual policy, something called a social insurance substitute benefit
00:27:30.880 | where your amount of your benefit will be reduced if you're receiving social security
00:27:35.160 | payments.
00:27:36.520 | So this can be a substantial thing as well.
00:27:40.200 | So those are the questions that you should ask about your group disability insurance
00:27:43.040 | policy.
00:27:44.040 | The point of those questions is to understand what you actually have.
00:27:47.520 | I've reviewed hundreds of policies that are great and I've reviewed hundreds of
00:27:51.440 | policies that are OK and I've reviewed a lot of policies that were terrible.
00:27:56.160 | They just – yeah, they were called long-term disability insurance but the protection for
00:27:58.960 | the individual was minimal.
00:28:01.860 | Now here's the major challenge.
00:28:04.260 | If your employer is paying for your disability insurance, you can't opt out.
00:28:08.880 | You actually – you usually can't opt out even if it's terrible.
00:28:12.680 | I tried it one time with a client and the policy coverage was so terrible.
00:28:15.880 | I said you should opt out of this thing and just get an individual policy to cover the
00:28:18.760 | whole amount.
00:28:19.760 | They couldn't do it.
00:28:21.240 | What you can do is if you're not enrolled, don't enroll until you find out the details
00:28:25.280 | of it and you can't find this stuff out from the little sales thing.
00:28:28.880 | It's not going to tell you that.
00:28:30.160 | You can sometimes find it if you have the comprehensive booklet.
00:28:33.120 | But in general, this is where you have to sit down with an insurance agent and let them
00:28:36.000 | read through it and find it or you'll have to get on the phone and ask them these questions.
00:28:40.080 | Again, I will post these questions at the website and you can use it to email it to
00:28:46.800 | your HR coordinate, HR benefit person.
00:28:50.320 | If you're a financial planner, feel free to steal my questions.
00:28:52.480 | This was always a standard thing.
00:28:53.680 | The first time I ever met somebody, I always saved this on my phone as an attachment and
00:28:58.840 | we were going to get into group disability – group benefits.
00:29:01.800 | I just said you don't – unless you know, just email this to your HR coordinator and
00:29:05.680 | send me their answers.
00:29:06.680 | It worked really, really well to get a good, accurate understanding of what benefits somebody
00:29:11.240 | actually has.
00:29:13.280 | When you have a group policy in force, the insurance company, if you're applying for
00:29:17.600 | an individual policy, will take that policy and they'll calculate the amount that you
00:29:20.720 | have, calculate your income and calculate how much they're willing to offer to you.
00:29:27.400 | If you don't have a group disability policy in force, then you should usually go and get
00:29:33.920 | an individual disability policy first because you'll be able to cover the maximum amount
00:29:39.600 | of your income versus the group policy.
00:29:44.840 | Now oftentimes, your group policy will be cheaper than your individual disability insurance
00:29:50.120 | policy.
00:29:52.120 | Many times, you'll pay much less money.
00:29:54.000 | It wouldn't be surprising to me if somebody were to call me up and say, "Joshua, I can
00:29:57.680 | buy group disability insurance policy for $23 a month and you're telling me this individual
00:30:02.760 | disability policy at $97 a month.
00:30:05.520 | Obviously, I should go with the group."
00:30:07.240 | Well, don't go so fast.
00:30:10.160 | The reason is you can't make that assessment accurately until you know what the group policy
00:30:14.740 | is and what the terms of that policy are.
00:30:17.720 | This is usually the major mistake people make.
00:30:20.520 | They jump on the group policy because it's cheap.
00:30:23.200 | But when actually look at it, we all of a sudden find out, "Well, yeah, it's cheap,
00:30:27.000 | but it doesn't have a partial disability benefit.
00:30:28.840 | It doesn't have a cost of living adjustment after disability.
00:30:31.820 | It's capped at $5,000 a month and it doesn't cover your bonus."
00:30:35.480 | Yes, it's cheap and it's $20 a month, but it is in no way comparable to this really
00:30:42.880 | good disability policy over here that's $140 a month.
00:30:48.000 | With disability insurance, there's no way to cut the corners.
00:30:52.520 | You've got to actually compare it based upon what's in the policy.
00:30:57.080 | In a moment when I go into some more of these definitions of disability, you'll see how
00:31:00.360 | as an insurance agent, man, you tell me how much you want to spend and I can build you
00:31:04.220 | an insurance policy that matches that.
00:31:06.620 | You can't start by shopping on price for disability insurance.
00:31:10.680 | You've got to start of what you want and what's important, what options are necessary because
00:31:15.800 | I can take a disability insurance policy.
00:31:17.520 | It's $185 a month and I can drop this benefit and strip this other one out and let's go
00:31:21.680 | to the cheap option of this other benefit and let's shorten up the benefit period and
00:31:25.120 | let's stretch out the elimination period and hey, I took this $180 policy and it's now
00:31:29.640 | $32 a month.
00:31:32.000 | Is that really what you should do?
00:31:34.560 | The obvious answer is no.
00:31:36.120 | You should start and understand the benefits that you want, that you need, and that are
00:31:38.960 | important for your situation based upon your financial assets, etc. and then go to the
00:31:44.920 | price.
00:31:45.920 | Obviously, also, we always have to fit this into the amount of money that's available.
00:31:51.240 | Money is, for most of us, the amount of income that we have is not infinite.
00:31:54.680 | If we're working with a budget of $300, we've got to fit all of the needs into that and
00:32:01.280 | that's where again, you might say, "Well, I'd like to have a benefit period to age 65
00:32:06.400 | but I can't do that and get disability insurance for my spouse and get life insurance for me
00:32:10.960 | and get life insurance for my spouse and have any money to save to an emergency fund.
00:32:15.200 | I can't do all those things."
00:32:17.200 | So what we're going to do is for now, we're going to shorten up the benefit period from
00:32:19.960 | age 65 to five years and that will allow us to get life insurance for everybody.
00:32:25.400 | As an insurance agent, you always got to fit everything into the budget that you actually
00:32:28.680 | have.
00:32:30.040 | Budgets can be flexible.
00:32:32.360 | Sometimes if you're a client, sometimes the budget that you tell the insurance agent you
00:32:35.680 | have and the budget you could actually come up with are different but at the end of the
00:32:40.960 | day, we're going to have a hard number of budget.
00:32:45.520 | If you're spending more money on your insurance than you are on your food budget, you're generally
00:32:49.720 | not going to be happy with your insurance agent.
00:32:53.800 | Most people are not happy with that.
00:32:56.440 | I think those are the major things you need to know about group insurance versus individual
00:33:00.800 | insurance.
00:33:02.880 | Those are the key things.
00:33:03.880 | Obviously, an individual disability policy will go with you when you lose your job.
00:33:08.040 | A group insurance policy won't.
00:33:10.360 | So that's important also.
00:33:12.480 | Now let's talk about the definition of disability.
00:33:15.440 | By far, the most important feature of a disability insurance policy is going to be the definition
00:33:23.520 | of disability.
00:33:26.720 | Before I give you some of the language, let me just ask you.
00:33:30.160 | If I came to you, pretend that I'm your insurance agent, I want the best for you and you're
00:33:35.240 | telling me, "Joshua, I'm disabled," how would I prove or how would you prove to me that you're
00:33:40.520 | disabled?
00:33:41.520 | What would be the actual definition of disability?
00:33:45.040 | Let's come up with a couple of simple examples here.
00:33:49.560 | Example number one, you go skiing with your family, you run into a tree and you break
00:33:53.040 | a leg.
00:33:56.240 | Are you disabled in your job?
00:34:01.200 | Example number two, you go through a time period of severe depression and you're not
00:34:07.740 | able to function effectively.
00:34:10.640 | Are you disabled?
00:34:14.340 | Example number three, you are diagnosed with cancer and it's a significant form of cancer.
00:34:19.520 | Now you're going through chemotherapy, radiation treatments, and you're working through with
00:34:24.480 | your oncologist trying to beat cancer.
00:34:27.040 | Are you disabled from your job?
00:34:32.080 | Example number four, I don't know, what would be a very common thing?
00:34:40.680 | Just insert any accident, illness, you lose an eye, you were in a car accident and you're
00:34:46.520 | paralyzed from the waist down.
00:34:48.960 | You bang your head and you have a concussion, you're out of work.
00:34:53.200 | What would it take for you to prove to me that you're disabled?
00:34:57.160 | You can start to see how the most important thing is the actual definition of disability
00:35:04.240 | because under two different definitions of disability, let's talk about this in terms
00:35:10.440 | of the paralyzed from the waist down.
00:35:13.960 | If you're earning your income as an electrician or a carpenter, it's very likely that you're
00:35:23.800 | now disabled from being able to work as a carpenter if you're disabled from the waist
00:35:27.840 | down.
00:35:29.680 | But does that necessarily mean that you can't get a job working as an accountant if you
00:35:36.680 | have the mental ability to do it?
00:35:42.200 | You can start to see that we've got to figure out what am I disabled from and how disabled
00:35:48.840 | am I?
00:35:49.840 | It becomes more difficult.
00:35:51.600 | The first thing that we want to talk about is what is the best definition of disability?
00:35:57.280 | The best definition of disability will be what's called own occupation disability.
00:36:04.280 | In the insurance lingo, you'll hear this talked about as own-oc versus any-oc.
00:36:11.280 | Own-oc is own occupation.
00:36:13.680 | Any-oc is any occupation.
00:36:16.560 | Own occupation, the best definition of total disability for own occupation would be the
00:36:21.440 | inability of you, the insured, to engage in your own occupation.
00:36:28.440 | It doesn't matter if you could go and retrain and do something else.
00:36:35.040 | If I'm disabled from what I'm doing now, my own occupation, I want to be considered as
00:36:38.880 | being disabled.
00:36:41.520 | Really, really important.
00:36:46.280 | People with highly specialized jobs for which they've trained a tremendous amount of time
00:36:52.480 | will appreciate this to a very high degree.
00:36:56.400 | The most common people who actually appreciate this hugely are physicians because they know
00:37:03.400 | I've spent a tremendous number of years studying and learning and practicing in this very highly
00:37:08.860 | specialized skill.
00:37:10.160 | Therefore, it's very important to me that I be able to do this very highly specialized
00:37:13.720 | skill.
00:37:14.800 | If at all possible, you want to be protected from disability in your own occupation.
00:37:21.800 | What about any occupation?
00:37:28.000 | There are a couple of ways that any occupation could be determined.
00:37:33.360 | These terms that I'm giving here will vary among companies, but these are generalized
00:37:37.920 | terms.
00:37:38.120 | You'll just have to figure out with the insurance agent you're working with and with the company
00:37:41.240 | that you're working with which specific terms are being used.
00:37:44.200 | You definitely want to get an own occupation if you can.
00:37:47.040 | The next one would be an ENEOC.
00:37:48.920 | This would be where you're considered to be disabled if you're unable to engage in any
00:37:54.500 | occupation for which you're qualified by reason of training, education, or experience.
00:38:01.500 | The idea here is to have some level of appropriateness.
00:38:09.440 | This would be called a modified any occupation or a modified own occupation.
00:38:12.700 | The idea is to say to some degree we're going to take into account your experience and training.
00:38:18.360 | Yes, we know that you could go and sit at the front desk of a condo and buzz people
00:38:22.560 | in and buzz people out, but it needs to be any occupation for which you're reasonably
00:38:28.680 | suited due to your training or your education or your experience.
00:38:32.400 | If you've got a master's degree and you've been highly trained in a specialized occupation
00:38:36.760 | just because you can go sit in front of a condo and buzz the buzzer to let people in,
00:38:41.360 | we're not going to say that that's what you need to do.
00:38:44.240 | That would be called either, again, depending on whether we're doing any occupation or modified
00:38:49.380 | any occupation or modified own occupation.
00:38:54.040 | Then the final leg of the three, which is the worst, would be truly any occupation.
00:39:01.040 | This would be get close.
00:39:03.080 | When I've said in the past that I place no emphasis or value whatsoever on Social Security
00:39:09.120 | as far as the likelihood of receiving Social Security disability payments, this is why.
00:39:13.840 | We're getting here to like the any occupation definition as defined by Social Security.
00:39:18.000 | Here is their definition of disability.
00:39:20.160 | Social Security defines you as disabled when you have the inability to engage in any substantial
00:39:27.160 | gainful activity by reason of any medically determined physical or mental impairment,
00:39:36.080 | which can be expected to result in death or which has lasted or can be expected to last
00:39:41.760 | for a continuous period of not less than 12 months.
00:39:45.240 | That's the technical Social Security definition.
00:39:47.000 | I'll read it again to you.
00:39:48.520 | The inability to engage in any substantial gainful activity, the inability to engage
00:39:55.520 | in any substantial gainful activity by reason of any medically determined physical or mental
00:40:06.440 | impairment, which can be expected to result in death or which has lasted or can be expected
00:40:11.440 | to last for a continuous period of not less than 12 months.
00:40:15.240 | Basically, you got to not be able to do anything and it's got to last and be expected to last
00:40:20.440 | for a long time, like at least a year, or you better be expected to die from this problem.
00:40:27.440 | This is a serious cost to you.
00:40:34.440 | This is really not the type of disability insurance that most people want to have.
00:40:38.840 | Hey, but you can get it.
00:40:39.840 | It's cheap.
00:40:40.840 | It's what Social Security disability is.
00:40:44.360 | This definition of disability is the most important.
00:40:49.360 | Now, there may also be specialty definitions of disability.
00:40:55.160 | This is where you have to check your contract.
00:40:58.240 | If you are in a specialized occupation, there may be a specialized definition of disability,
00:41:03.440 | but in general, you want to get to as close to an own occupation definition of disability,
00:41:10.440 | which brings us to a question of saying, "Okay, if I'm disabled, then what?"
00:41:17.240 | This is another thing you want to look at your contract to understand.
00:41:20.760 | Back in the '70s and '80s, I think they started to dry up by the '90s, but in the physician
00:41:27.760 | marketplace, there was a major thing that happened with disability insurance policies.
00:41:34.760 | You used to be able to buy what was called a true own occupation definition of disability
00:41:40.760 | for as a physician.
00:41:41.760 | What this meant is if I were practicing as a surgeon, as a physician, I'm considered
00:41:46.960 | to be disabled if I can't practice my surgical specialty.
00:41:51.320 | Let's say I had a disability policy that covered me for $15,000 a month.
00:41:55.160 | Well, this is a substantial benefit.
00:41:57.360 | So, I go out and I'm out skiing and I fall and I break my hand.
00:42:01.160 | Okay, well, now I can't do surgery.
00:42:03.560 | So, I'm automatically considered to be qualified and automatically considered to be disabled.
00:42:08.560 | But obviously, I'm still an intelligent person.
00:42:12.080 | I just broke my hand.
00:42:13.880 | I could still practice other forms of medicine.
00:42:16.200 | I just can't do surgery because I can't hold the scalpel properly or I can't do the very
00:42:21.200 | fine motor controls that are necessary for my surgical specialty.
00:42:24.880 | What happened is many times somebody who was in that situation would qualify as being disabled.
00:42:30.520 | They would then go ahead and retrain, reskill, slightly shift their specialty and go ahead
00:42:35.800 | and earn a full physician's wage at another occupation while also collecting their $15,000
00:42:40.960 | a month disability benefit, income tax-free, which is pretty sweet.
00:42:47.320 | That type of definition of disability has gotten very difficult to find, very difficult
00:42:53.820 | to actually get that true own occupation definition of disability.
00:42:58.320 | And so, here's where when we get into the next thing, which is how is disability determined?
00:43:02.840 | You need to read and understand your contract because there are three major ways with most
00:43:06.960 | disability insurances policies that disability is determined.
00:43:11.240 | You'll be considered disabled if you suffer a loss of time, a loss of duties, and then
00:43:17.920 | here we would get into a question, is it and, is it or, or is it and/or?
00:43:24.400 | And/or income, time, duties, income.
00:43:28.240 | This is the thing that's going to prove that you suffered a disability.
00:43:31.400 | So the first one is time.
00:43:33.600 | Many times you want your contract to cover you if you're disabled for a period of time.
00:43:38.780 | You might still be able to do all of the things that are associated with your work, but if
00:43:43.520 | you just can't do them 50 hours a week, you can only do them 20 hours a week, you want
00:43:48.120 | to be considered disabled by the policy.
00:43:51.260 | Next would be duties.
00:43:52.320 | You might still be able to work a full work week, but there were some duties of your job
00:43:55.760 | that you couldn't do before, excuse me, that you could do before that now you can't do.
00:43:59.920 | So you want that to be covered if possible.
00:44:02.280 | And then also you might suffer a loss of income.
00:44:04.600 | But depending on your job, this loss of income might or might not lag the actual loss of
00:44:09.120 | time and duties.
00:44:11.440 | Income is ultimately the key indicator of your disability.
00:44:15.080 | Do you actually have a decrease of income?
00:44:18.160 | But sometimes, again, in many specialties, income will lag.
00:44:22.840 | If you were in a commission-based sales job and you had a bunch of things negotiated,
00:44:27.600 | or if you were receiving payment from things in the past, your income might not be affected
00:44:32.240 | until say five months or six months after your disability.
00:44:36.960 | But do you want to give up disability benefits during all those periods of time?
00:44:40.900 | So that's – you need to understand in your contract how that is calculated.
00:44:47.720 | Some contracts and the contracts that I used to work with whenever possible would cover
00:44:52.540 | you for any of those three, loss of time or loss of duties or loss of income.
00:44:58.400 | And usually though, you need to prove the loss of income after a period of time, so
00:45:03.240 | often something like six months.
00:45:05.240 | If you were still working 20 hours a week and you – but you never had a decrease in
00:45:10.720 | income, then the insurance company would say, "Well, you're not actually disabled.
00:45:13.860 | The disability policy might not pay under those circumstances."
00:45:17.260 | So those attributes and features of the disability policy are extremely important.
00:45:23.320 | You can see now when I said I could make a policy cheap, just change it from own occupation
00:45:28.680 | to any occupation and all of a sudden now, we're going to have a major change.
00:45:35.880 | Or again, that true ONOC versus modified ONOC.
00:45:38.700 | True ONOC meaning that you can receive your – you can double dip.
00:45:42.980 | You can get your disability benefit and you can go do other work.
00:45:45.740 | Very hard to get now.
00:45:46.740 | Most people are not going to be able to get that.
00:45:48.360 | Most disability policies are what's called a modified own occupation definition of disability,
00:45:53.080 | meaning that you can be disabled but if you're earning income at something else, that's
00:45:56.660 | going to affect and offset your benefits.
00:45:58.300 | It's a much fairer thing.
00:46:01.780 | Fairer for the insurance company, better for the insured because you're not trying to
00:46:05.180 | negotiate something where you're going to double dip and get all this extra money.
00:46:08.780 | It just sets up too many conflicts of interest and too many risks of adverse selection for
00:46:13.220 | the insurance company.
00:46:14.840 | Next thing is provisions.
00:46:15.840 | Here, I'm going to talk about total disability, partial disability, and presumptive total
00:46:20.220 | disability.
00:46:21.540 | It's possible that you might be completely disabled.
00:46:25.140 | It's possible.
00:46:26.700 | It happens.
00:46:28.140 | But on the grand scale of just statistical probability and likelihood, it's unlikely
00:46:34.180 | that you would be completely disabled.
00:46:36.860 | I'm giving you my sales pitch that I used to give to people.
00:46:40.900 | What I found as a financial advisor – any of you financial advisors listening, here's
00:46:44.940 | the number one way to overcome objections in the sales process.
00:46:49.260 | Always give your client all of the objections that they're going to have before they have
00:46:52.620 | them and you feel like – and your client thinks that you're reading their mind.
00:46:58.060 | Because people would be skeptical, especially disability insurance.
00:47:00.460 | What's the number one thing that everyone thinks is not going to happen to them when
00:47:05.020 | they're thinking about buying disability?
00:47:06.220 | "I'm not going to get disabled."
00:47:07.500 | Okay.
00:47:08.500 | So after a while, I started realizing, "Well, this is stupid.
00:47:11.180 | I have to answer this question every time."
00:47:12.820 | I would just look them right in the eye, especially men, and just say, "But the chances are,
00:47:15.820 | realistically, you're not going to get disabled, right?"
00:47:17.900 | Okay, great.
00:47:18.900 | Now we can deal with that and talk about it.
00:47:20.260 | I don't have to have it lingering in the back of your mind.
00:47:22.420 | Same thing with the idea that, "Well, I'm not going to be able to do anything."
00:47:27.380 | Again, we're the worst.
00:47:29.180 | Every man would be like, "Oh, give me my laptop in a hotel room and I'll figure
00:47:31.860 | out a way to make money."
00:47:32.860 | Okay.
00:47:33.860 | So I just took that and I'd always put it into my sales language.
00:47:37.900 | So realistically, Mr. Prospective Client, give me a break.
00:47:41.340 | It's possible, I guess, in theory, that you could be totally disabled.
00:47:45.300 | But realistically, statistically, it's really unlikely that you could be totally disabled.
00:47:51.620 | I bet if I gave you a laptop, even if you're in your hospital room – I think I said hotel
00:47:55.140 | room, excuse me – even if you're in your hospital room, if I gave you a laptop and
00:47:58.620 | a cell phone, you could probably figure out a way to make some money, couldn't you?
00:48:05.140 | Nodding along, of course, because that's what they were thinking.
00:48:07.460 | Okay.
00:48:08.460 | So now let's talk about that.
00:48:09.740 | Total disability is important because it's possible you could get totally disabled.
00:48:13.700 | But the most important benefit in a disability insurance policy is a partial disability benefit.
00:48:18.100 | And the idea here is that if you suffer a partial disability, you're not totally disabled.
00:48:24.340 | You just can't do some of the things that you used to do or you can't do them for
00:48:28.380 | as much time as you used to be able to do them, then you still want to be covered.
00:48:31.700 | This is a big deal because, again, most disabilities that people experience are partial disabilities.
00:48:39.220 | Can still work.
00:48:40.220 | It just can't work at all.
00:48:41.700 | So in many policies, you'll have a sliding scale where you've got to at least be 20%
00:48:47.300 | disabled.
00:48:48.300 | If you were saying, "Well, I was working 55 hours a week, but now I can only work 50
00:48:52.420 | hours a week," well, I'm sorry.
00:48:54.060 | You're not that disabled.
00:48:55.620 | The insurance company is not going to pay you for that.
00:48:57.900 | But if you were working 40 hours a week and now your doctor has restricted you to 30 hours
00:49:01.780 | a week because of your back pain, you're facing chronic back pain that's occurring when you're
00:49:05.780 | standing and you can't work effectively anymore, that's a 25% disability.
00:49:10.420 | And so if your hours are reduced, you're going to suffer a 25% loss of income.
00:49:14.220 | So you want to make sure that your policy covers you for that partial disability and
00:49:17.940 | makes up that 25% loss of income.
00:49:21.540 | Anywhere from 20% to 80% would be considered a partial disability.
00:49:25.100 | If you get to the point where, yeah, you can work 40 hours a week.
00:49:28.660 | You were working 40 hours a week, but now you can work four, well, let's just go ahead
00:49:32.660 | and you're going to be considered totally disabled at that point in time.
00:49:36.420 | So partial disability is the most important thing because most disabilities are not total
00:49:42.020 | disabilities.
00:49:43.020 | They're partial disabilities.
00:49:44.020 | There's sometimes one other benefit and I like this other benefit.
00:49:47.580 | It's called presumptive total disability.
00:49:50.900 | Some of the policies I used to work with, the presumptive total disability would say
00:49:54.020 | if you lose the use of both hands, both feet, one hand, one foot, or you lose your sight,
00:50:03.500 | your speech, or your hearing, you'll automatically be considered to be completely disabled even
00:50:09.100 | if you're still able to work.
00:50:11.180 | So again, this comes back to that example I used of paralysis.
00:50:15.100 | Let's say that I had a paralyzing event and I had a disability policy.
00:50:18.500 | I could do my job right now, speaking to you through this microphone, whether I were sitting
00:50:23.220 | in a wheelchair or not.
00:50:25.100 | That wouldn't affect my ability to actually do this job.
00:50:27.180 | It would make my life inconvenient, but it wouldn't affect my ability to do the job.
00:50:31.300 | But at least if I had that paralyzing event, I would, under the terms of a presumptive
00:50:37.100 | total disability, regardless of my ability to work and earn income, I would be receiving
00:50:41.100 | a disability benefit.
00:50:42.100 | That could be extremely helpful.
00:50:43.860 | So I always like it when policies have that in there.
00:50:45.660 | Is it a must?
00:50:46.660 | I don't think it's a must, but I think the chances are so remote.
00:50:50.460 | I think the insurance companies, it's a cheap benefit to have in there.
00:50:54.060 | So many of them have that, the presumptive total disability.
00:50:58.100 | That's how you figure out what's in your insurance policies.
00:51:04.220 | Those features right there, which is probably like drinking from a fire hydrant if you're
00:51:08.780 | not familiar with these terms.
00:51:10.500 | Those features determine how valuable or not valuable your disability insurance policy
00:51:18.140 | is.
00:51:19.140 | If you're working in the United States of America and you are earning wages, you're
00:51:22.820 | going to be covered under the Social Security Disability Insurance Program.
00:51:26.780 | I consider that program as worthless as anything because of that definition of disability.
00:51:33.900 | You qualify as being disabled under Social Security.
00:51:37.940 | You can't be able to do any gainful activity, any substantial gainful activity.
00:51:47.860 | Not just, "Oh, I can't do any substantially gainful activity for the next couple of months."
00:51:51.780 | This has got to be a long-term thing.
00:51:53.820 | You're not sick.
00:51:54.980 | You're not fighting cancer.
00:51:57.500 | You've got to have something where you can't do anything for at least 12 months or you're
00:52:02.980 | going to die from this thing.
00:52:05.660 | Then even there, you get into the stacks and the lines.
00:52:09.020 | Just the rates of application, the rates of approval are tiny.
00:52:13.620 | The amounts are tiny.
00:52:15.100 | I consider Social Security Disability Insurance to be completely worthless.
00:52:18.580 | That doesn't mean there's a problem of all disability insurance.
00:52:22.820 | It's just you've got to actually check and understand what are the benefits of my policy.
00:52:29.340 | I'm going to save taxation for another day.
00:52:35.620 | Save taxation.
00:52:36.620 | I'm going to save a discussion of some of the other types of disability policies.
00:52:40.420 | I've been primarily talking here about individual long-term disability income insurance.
00:52:48.100 | But there are other kinds.
00:52:49.100 | There are buy-sell policies.
00:52:50.100 | There are disability overhead expense insurance.
00:52:53.540 | There's all kinds of interesting wrinkles.
00:52:55.220 | Maybe I'll do that in a different show.
00:52:58.220 | Thank you all so much for listening to this disability series.
00:53:02.260 | I hope that this has been useful to you and helpful to you.
00:53:05.700 | I know many of you have been encouraged and motivated to go out and purchase disability
00:53:09.700 | insurance and I love hearing that.
00:53:11.020 | Man, I wish I had an insurance license to rake the commissions in on this.
00:53:14.380 | It's what I always wanted as an insurance agent, sit down in a format like this and
00:53:21.860 | just talk and give you a chance to learn and educate you and then sell policies.
00:53:29.820 | Because once you educate your clients, it's so easy to sell a policy.
00:53:34.260 | Unfortunately due to the ridiculous laws that we have in the United States, I surrendered
00:53:40.300 | all my licenses.
00:53:41.540 | So I can't take any commissions.
00:53:42.540 | But hey, you know what you can do is you can send me money.
00:53:45.460 | So the way you do that is go to RadicalPersonalFinance.com/patron.
00:53:51.780 | You sign up to support the show there.
00:53:53.160 | That allows you to put some money from your pocket into my pocket as a way of saying thank
00:53:57.160 | you, Joshua, for this valuable content.
00:53:59.460 | I really appreciate those of you who are doing that more and more all the time and I thank
00:54:03.260 | you each and every one of you who's doing that.
00:54:05.460 | The second thing that you can do is if you want to consult with me on a specific topic,
00:54:10.620 | I'm available to you to consult with you.
00:54:12.260 | The way you do that, go to RadicalPersonalFinance.com/phonecall.
00:54:17.540 | That will link you through to information.
00:54:19.340 | I can consult with you on any topic.
00:54:21.380 | I did a consultation with somebody on their disability insurance program recently and
00:54:27.180 | I just went through there.
00:54:28.460 | They were working with an agent that was selling them a policy.
00:54:30.460 | I went through and explained.
00:54:31.900 | Here's how this works.
00:54:33.060 | Here's how you would decide if you wanted this.
00:54:34.660 | Here's how you would decide if you wanted that.
00:54:36.380 | I can't make specific recommendations of companies or things like that that would get too close
00:54:40.260 | to the line of selling insurance.
00:54:43.460 | Since I don't sell insurance, I need to stay away from that line.
00:54:47.380 | I can educate you and I can tell you if you're getting clear, good advice or not.
00:54:51.540 | If you'd like to sign up for a consulting call with me, I'd be happy to do that.
00:54:55.380 | I think that consulting client was extremely pleased with the results of that call.
00:55:00.900 | RadicalPersonalFinance.com/phonecall.
00:55:01.900 | (upbeat music)
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