RPF0358-DI_Taxation_and_Types_of

00:00:00.000 | Today on Radical Personal Finance, it's Financial Planning Wednesday, and we're going to round

00:00:05.720 | out the Disability Income Insurance series.

00:00:08.760 | This will be the fifth episode in this series.

00:00:10.680 | We're going to talk about taxation of premiums and benefits of disability policies.

00:00:15.200 | We're going to talk about various different types of disability policies that you can

00:00:19.200 | buy.

00:00:20.600 | Some of these you'll be familiar with and some of them you will have never heard of.

00:00:24.800 | And also I'm going to answer your questions, answer all of the listener questions that

00:00:27.440 | came in about Disability Income Insurance.

00:00:46.440 | Welcome to Radical Personal Finance, the show dedicated to providing you with the knowledge,

00:00:50.000 | skills, insight, and encouragement you need to live a rich and meaningful life now while

00:00:54.960 | building a plan for financial freedom in 10 years or less.

00:00:58.440 | My name is Joshua Sheets and I'm your host.

00:01:00.040 | Thank you for being with me.

00:01:01.040 | Today, we work on that avoiding catastrophe category where we talk about insurance and

00:01:07.360 | try to pull back the curtains of the disability world yet again.

00:01:18.560 | This episode is the fifth in this Disability Income Insurance series that we began quite

00:01:22.840 | a while ago.

00:01:23.840 | Episode 337 was the first.

00:01:26.360 | That one was entitled "Why You Should Buy Disability Income Insurance Before Any Other

00:01:32.040 | Type of Insurance Coverage."

00:01:33.960 | That was the sales job that I needed to do on why you should really focus on disability

00:01:38.520 | insurance.

00:01:39.520 | Next, we covered in episode 339, long-term disability versus short-term disability and

00:01:45.720 | I explained why they both can be useful but I spend most of my time with regard to financial

00:01:50.920 | planning talking about long-term disability.

00:01:53.400 | We also discussed various benefit periods, elimination periods, and certain contract

00:01:58.560 | terminology such as non-cancellable versus guaranteed renewable for the continuance provisions

00:02:05.480 | to understand why these make a difference in your life.

00:02:08.660 | Then we went on to episode 340.

00:02:11.880 | That was a Q&A show where I answered should I get a couple of questions on disability

00:02:15.480 | insurance.

00:02:16.480 | 354 where I talked about different benefit amounts for disability insurance, how to do

00:02:21.360 | a needs analysis, group insurance versus individual insurance, various definitions of disability

00:02:27.400 | such as own occupation versus any occupation, and then different policy provisions that

00:02:32.400 | you need to be aware of, total disability, partial disability, etc.

00:02:35.840 | So with these episodes, I guess this is the fourth in the series plus the Q&A.

00:02:39.620 | With these episodes, I think I've laid a pretty good groundwork for you with regard to the

00:02:44.120 | terms of disability insurance.

00:02:46.040 | Today, we're going to round it out with a discussion of taxation of policies.

00:02:50.080 | We're going to explain that to you, how these policies are taxed.

00:02:52.640 | I'm going to go through some of the different types of disability insurance that are not

00:02:56.240 | so common, not so popular.

00:02:58.520 | Then I had various questions that came in from the audience on disability insurance.

00:03:01.840 | I'm going to answer these questions in today's podcast.

00:03:04.800 | So I hope you enjoy this.

00:03:06.440 | This should round out the disability portion.

00:03:08.320 | I think that with the conclusion of this show, I have finished everything that's on the CFP

00:03:13.200 | exam with regard to disability insurance.

00:03:15.920 | Disability is a relatively small area of focus, and so it's relatively easy to be able to

00:03:21.320 | dig into and cover everything with regard to disability.

00:03:25.120 | Before I start today's content, quick sponsor of the day today, number one, is Paladin Registry.

00:03:30.920 | Paladin Registry is my solution for you for where you can go to find a good financial

00:03:34.840 | advisor.

00:03:35.840 | Now, disappointingly, the advisors that you get here are not necessarily always insurance

00:03:39.800 | experts.

00:03:40.800 | They should be qualified and credentialed advisors.

00:03:43.060 | They should be able to work with you in the areas of insurance or at least be able to

00:03:48.800 | give you some input in that area.

00:03:51.640 | But they're not necessarily insurance people.

00:03:53.240 | They're investment people primarily.

00:03:54.800 | I've worked to try to figure out a solution for being able to give referrals for you guys

00:03:58.440 | to good insurance companies.

00:04:00.480 | I haven't figured it out yet.

00:04:02.360 | When I can make that happen, I'll bring that to you.

00:04:06.320 | But if you're looking for a financial advisor, a financial planner who can look at disability

00:04:10.640 | insurance among everything else, start your search with Paladin Registry.

00:04:14.240 | Paladin Registry is a registry service.

00:04:16.280 | So what happens is that individual financial advisors come to the company.

00:04:19.280 | They apply to be part of the program.

00:04:22.200 | Paladin researches them, researches their disciplinary records, takes a look at their

00:04:25.680 | practice models, et cetera.

00:04:27.360 | And then if they get approved, then they list them in the registry service.

00:04:31.200 | The way that you get connected is go to radicalpersonalfinance.com/paladin, P-A-L-A-D-I-N, radicalpersonalfinance.com/paladin.

00:04:39.040 | And that will forward you through to a landing page where you put in your name, your address,

00:04:43.880 | your info, the amount of assets that you have to manage, all that information.

00:04:47.800 | They'll take that.

00:04:48.800 | They'll filter it against the criteria of their advisors.

00:04:51.280 | And that's why it's important that you put the information that's there.

00:04:53.560 | I don't think it's overly onerous to put that information, but you need to do it accurately

00:04:57.720 | so they can connect you with an advisor who will work with you.

00:05:00.680 | If you're just getting started and you've got $50,000 of investable assets, then they've

00:05:03.880 | got to screen you out from the people who are working with million-dollar minimums.

00:05:09.560 | If you've got millions of dollars, you've got to put that in there so they screen you

00:05:12.800 | out of the people who are not focused on your type of situation.

00:05:18.360 | So fill in that info there and they'll connect you with a few different advisors who will

00:05:21.560 | reach out to you.

00:05:22.560 | You can schedule an appointment, see if any of them will be a good fit for you to be able

00:05:26.520 | to find a good financial advisor, radicalpersonalfinance.com/paladin.

00:05:31.360 | Also quickly, I've been doing a few more consulting calls.

00:05:34.280 | If you would like to get my input directly on your situation, I'd be happy to offer a

00:05:38.720 | consulting phone call to you.

00:05:40.560 | All the details of that can be found at radicalpersonalfinance.com/phonecall.

00:05:43.080 | Now, let's dig into it.

00:05:48.640 | First thing I want to talk about is taxation of premiums and benefits for individual disability

00:05:53.640 | insurance.

00:05:55.320 | To begin, let me explain the basic concept that you need to know, which is simple.

00:06:01.440 | You're going to get taxed either on the way in or on the way out.

00:06:05.640 | In many cases, you get to choose.

00:06:08.040 | When it comes to insurance benefits, the Internal Revenue Code is relatively consistent.

00:06:13.920 | You've got to pay tax somewhere and you get to choose where.

00:06:18.600 | So what I mean is you either can take and deduct the premium up front and then the benefit

00:06:24.700 | will be taxable to you, or you can not be able to take a deduction on the premium up

00:06:30.680 | front and you can receive the benefit on the back end without any taxation, without any

00:06:37.080 | income taxation.

00:06:38.640 | There are a few exceptions to this general rule, but for the most part, just remember

00:06:44.720 | the rule.

00:06:45.760 | You can either take a deduction up front and not get the benefit tax-free, or you can pay

00:06:51.100 | the tax up front and get the benefit tax-free.

00:06:54.000 | So the way this works with disability insurance is relatively simple.

00:06:56.640 | If I own an individual disability insurance policy and I'm paying for it out of my own

00:07:01.880 | personal pocket, paying for it out of my checking account, well, that's not going to be a deductible

00:07:07.640 | expense for me.

00:07:09.320 | I'm just going to pay for that premium using after-income tax dollars.

00:07:15.120 | But if I were to become disabled, then at that point in time, I would receive the benefit

00:07:22.880 | income tax-free.

00:07:23.880 | So that's fairly simple for individuals who are going to just buy something themselves

00:07:31.360 | in their own individual bank account.

00:07:33.580 | But what about the situation for those of you who own businesses or what if you're getting

00:07:37.660 | benefits as an employee?

00:07:40.240 | Well, again, the key is just to remember who owns the contract and who's getting the tax

00:07:46.160 | deduction.

00:07:47.240 | So if you as an employee own a disability insurance contract and you're paying the premium

00:07:53.800 | for that contract, then the premiums are not deductible up front, but the benefits are

00:07:59.980 | going to be tax-free on the back end.

00:08:04.040 | If on the flip side, however, you as an employee own the contract, but the employer pays the

00:08:11.280 | premium under a salary continuation plan, then that premium will be deductible by the

00:08:18.240 | employer, but the benefit will be taxable to you.

00:08:23.000 | So the key difference here – and this is where it gets a little complicated.

00:08:25.160 | If you don't need to deal with this for your situation, just tune me out for a couple of

00:08:27.760 | minutes and we'll be done with taxation.

00:08:29.680 | But there's a big difference when you're setting up in group benefit plans whether the disability

00:08:36.080 | policy is being offered under some sort of a bonus arrangement, under a section 162 plan

00:08:42.320 | or under a salary continuation plan.

00:08:46.000 | If the employee owns the contract and the employer pays the whole premium under a bonus

00:08:50.400 | arrangement like in a section 162 disability insurance plan, then the premiums are deductible

00:08:56.500 | by the employer as a bonus and the benefits are tax-free to the employee.

00:09:02.500 | So you can set this up a little bit different.

00:09:05.180 | But in general, if the employer is paying for it, then the benefit is going to be taxable

00:09:09.240 | to you.

00:09:10.240 | If you're paying for it and it's not deductible, then the benefit is going to be received tax-free.

00:09:16.120 | If you get into a situation where you get into an option where there are partnerships

00:09:21.220 | or S-corporation shareholders, then it gets even more complicated.

00:09:26.040 | It is possible that a partnership or an S-corporation can deduct the premiums that are being paid

00:09:35.440 | in order to get coverage for a partner in a partnership or for an S-corporation with

00:09:40.780 | somebody who has more than 2 percent of the shares in an S-corporation as a deductible

00:09:45.220 | business expense.

00:09:46.980 | That deduction is basically the idea is that the premium cost is being included in the

00:09:53.220 | taxable income of the partner or shareholder and then at that point in time, the proceeds

00:09:58.740 | because they've been included as income and taxed there, the proceeds would be excludable

00:10:03.380 | from taxable income.

00:10:06.100 | So basically what you need to remember is simply that if you're deducting it up front,

00:10:11.340 | the benefit is going to be taxable.

00:10:13.200 | If you're not deducting it, then the benefit is going to be tax-free.

00:10:16.820 | Now let me just go real quick.

00:10:18.340 | I had a question on this.

00:10:20.080 | So this is one of the questions that came in from a listener named Dan.

00:10:23.660 | "Joshua, my employer provides a generous disability coverage and gives employees two

00:10:27.460 | options.

00:10:28.460 | One, pay the tax on the benefit cost and receive disability payments tax-free.

00:10:32.700 | Two, do not pay the tax, making the disability payments taxable on receipt.

00:10:37.620 | I am a physician in the highest income tax bracket in California, but I've been encouraged

00:10:41.660 | to pay the relatively small amount of tax on this benefit for the potentially larger

00:10:45.660 | tax-free income if disability occurs.

00:10:48.420 | Does this make sense?

00:10:49.420 | Thanks, Dan."

00:10:50.420 | So Dan, the answer to this question is that probably it does make sense for you to go

00:10:56.180 | ahead and pay the tax on the premium and include it in your after-tax income so that you can

00:11:02.940 | receive the benefit tax-free.

00:11:06.060 | I can't prove this one way or the other.

00:11:08.660 | I really can't prove it.

00:11:10.420 | And it would be great to go ahead and somehow be able to switch it if you knew you were

00:11:15.340 | going to be disabled.

00:11:17.180 | But the potential impact, especially if you're a physician and you're receiving large amounts

00:11:23.900 | of disability benefit revenue if you became disabled, by receiving that money tax-free,

00:11:31.540 | the tax savings on that could be very substantial.

00:11:35.100 | It really could be.

00:11:38.320 | So in general, I've encouraged people just to say pick it up and pay the – use after-tax

00:11:43.380 | dollars now and receive the income tax-free on the back end.

00:11:48.700 | I do think it would be wise to, as always, run some numbers in your situation because

00:11:52.780 | if your premiums are very high and if you can use that deduction now and it would be

00:12:01.140 | advantageous to you, and if you look at the benefits and say, "Well, if I did receive

00:12:05.060 | the benefits, how much would that be?"

00:12:07.660 | I think it's worth doing some math because sometimes some of these policies can get extremely

00:12:11.900 | high in terms of their premium cost and that deduction can be very, very useful, recognizing

00:12:16.780 | that that deduction is going to be a deduction that's applicable at your highest marginal

00:12:22.500 | bracket.

00:12:23.500 | But you need to look at it and run the numbers both ways.

00:12:26.340 | In general, if I have to give you a generalized answer, I say go ahead and pick up the income,

00:12:31.180 | pay the income tax now and get the benefit tax-free.

00:12:35.380 | But I understand why people go the other way.

00:12:38.220 | So that's the basics of how the taxation works of disability income insurance policies.

00:12:43.780 | Remember that theme when you get to other aspects of types of insurance because that's

00:12:52.180 | a consistent theme that really goes most of the way through with insurance policies and

00:12:59.300 | with the revenue code to understand how it works.

00:13:02.700 | Let's talk about a few different types of disability insurance products that you may

00:13:08.460 | like to be aware of.

00:13:09.980 | First, we've mentioned continually here individual disability insurance.

00:13:15.260 | And I talked about short-term disability insurance and long-term disability insurance.

00:13:20.700 | You can purchase these products in the individual marketplace and make sure that you understand

00:13:25.260 | that it's basically up to you to solve the needs that you actually have.

00:13:30.380 | As a financial planner, I think generally it's easier to self-insure for the short-term

00:13:35.260 | needs and then to pick up the risk with an insurance policy for the long-term needs.

00:13:41.540 | But you can buy – as an individual, you can buy various short-term disability products

00:13:45.740 | in the marketplace and you can buy long-term disability products as well.

00:13:50.540 | One of the interesting aspects to this is different companies offer some different riders.

00:13:55.660 | And it's very important when making disability insurance decisions that you're working with

00:13:59.420 | somebody who's knowledgeable in this area who can look at your situation and can figure

00:14:03.380 | out what the benefits are for you.

00:14:05.820 | Let me give you an example.

00:14:06.820 | I think I touched on this in a previous episode but I wasn't sure so I made a note to talk

00:14:11.340 | about it here as well.

00:14:13.060 | There is an option that you can buy with disability insurance.

00:14:16.100 | It's called a social insurance substitute benefit, SISB.

00:14:21.300 | And what this works is it's a way of the insurance company transferring some of their

00:14:25.420 | risk from the company over to social security.

00:14:29.940 | And the reason I think this is valuable is because when I used to work with people who

00:14:33.380 | were in the blue-collar professions and in the trades, because these types of jobs – let's

00:14:39.660 | say you're an electrician or a plumber.

00:14:41.820 | Because these types of jobs bear with them a larger risk of disability due to accident

00:14:47.060 | or injury than does a white-collar sitting behind a desk job, the cost of the premiums

00:14:52.280 | is substantially more.

00:14:54.180 | But I don't think that means that there's any less need for the insurance.

00:14:58.720 | But what it does mean is often it was harder to fit these premiums into a blue-collar worker's

00:15:04.820 | financial situation than a white-collar worker's financial situation.

00:15:09.180 | If you have the benefit of working with somebody who's working in a professional job earning

00:15:13.700 | $150,000 a year and their disability is very inexpensive because they're in great shape

00:15:18.680 | and they're working in office, it's not hard to fit 50 or 100 or $150 a month of premiums

00:15:23.740 | into that type of budget.

00:15:25.260 | But if you're working with a tradesperson who's earning say $60,000 or $70,000 a year

00:15:29.860 | and who is on a job and they know how easily they could be hurt and all of a sudden now

00:15:36.060 | the premiums are much more, it's a little harder to fit that in.

00:15:40.020 | So you've got to make insurance plans fit the budget of the prospective insured.

00:15:45.700 | There are a few ways that you do that.

00:15:48.480 | One is that what you often do is you often pull back on the benefit period a little bit.

00:15:56.760 | Where you go from instead of offering a benefit period from 65 or 70, you pull it back to

00:16:01.400 | something like a five-year benefit period.

00:16:03.320 | That'll make a big difference in the cost of the insurance.

00:16:07.360 | You might pull back on the amount a little bit, make sure it's there.

00:16:11.120 | You might even stretch out the benefit period.

00:16:13.200 | All of these things will help reduce the premiums.

00:16:15.240 | It's reducing the coverage but it's reducing the premiums.

00:16:19.240 | But often it's still too expensive.

00:16:22.040 | One way that I used to solve this is by using what's called the social insurance substitute

00:16:26.200 | benefit.

00:16:27.200 | The way it works is in general if you're buying just straight disability insurance from a

00:16:32.000 | company, nothing keeps you from applying to Social Security and receiving Social Security

00:16:37.520 | disability if you qualify.

00:16:39.840 | Much harder to qualify for Social Security disability but there's nothing that stops

00:16:43.440 | you from applying for it.

00:16:45.520 | So if you had a $4,000 a month benefit from your insurance company and if you're able

00:16:51.320 | to get $1,000 a month from Social Security, you'd get $5,000.

00:16:57.480 | It would be add on top.

00:16:59.000 | The way social insurance substitute benefit works is in the contract language from the

00:17:03.360 | disability insurance company, there's a clause that reads that you will apply for Social

00:17:08.760 | Security.

00:17:09.980 | If you're not approved by Social Security, then the insurance company will pay out the

00:17:15.980 | benefits based upon the terms of the contract.

00:17:18.800 | But if you are approved by Social Security, they will reduce the amount of your benefit

00:17:24.200 | based upon the amount of your Social Security benefit.

00:17:28.000 | So if the same client had a $4,000 a month policy but they were receiving $1,000 a month

00:17:33.320 | from Social Security because they were very disabled, then that would cut their benefit

00:17:39.600 | from the insurance company to $3,000 but they would still be getting the $1,000 a month

00:17:44.120 | from Social Security.

00:17:45.520 | So sometimes these riders can be very, very helpful if you understand them.

00:17:50.160 | And because disability insurance is so difficult to compare in a direct way, it's not like

00:17:55.600 | lining up a straight 20-year level term policy among five companies and just picking the

00:17:59.720 | cheapest.

00:18:00.720 | You've got to pick all these different options.

00:18:02.840 | That's why you need to work with someone who understands the riders because these tools

00:18:06.600 | in the hands of the insurance agent can be useful to get the premium down.

00:18:11.080 | Don't ever be scared when working with an insurance agent to speak clearly and directly

00:18:16.680 | and figure out how to get the premiums to a manageable level.

00:18:21.760 | Often it seems like people are fearful of this.

00:18:24.380 | But you need to first decide, "Do I want or need the insurance coverage?"

00:18:29.240 | If the answer to that is yes, because you want it or because you need it based upon

00:18:33.600 | a needs analysis, then you've got to figure out how to make it work within your budget.

00:18:39.640 | And it's not like there's necessarily magic.

00:18:42.800 | The insurance costs what insurance costs.

00:18:44.840 | Remember, these things are all invented and designed by actuaries.

00:18:48.920 | And so it's very difficult to get – people have this idea of insurance that somehow there's

00:18:56.600 | tons of money and you just got to shop around.

00:18:59.440 | Remember, you do need to shop around.

00:19:01.480 | But remember, the actuaries are working and they're trying to be competitive in many

00:19:05.040 | markets as long as this company is trying to compete in this market.

00:19:08.520 | They're working to figure out how do they do it and they're just making different

00:19:12.280 | assumptions.

00:19:13.720 | So you're not getting better insurance by getting cheaper insurance.

00:19:23.400 | You're just getting insurance that costs less but has less benefits.

00:19:28.160 | But you can still solve the bulk of your problems and hedge against the risk even while getting

00:19:35.200 | the premium down cheaper to a level.

00:19:38.480 | You always got to decide.

00:19:39.480 | Do I go all the way with insurance?

00:19:40.920 | Do I go halfway or do I get just the bare minimum?

00:19:44.960 | One of the riders that I wanted to mention here and this is what – to introduce the

00:19:49.020 | topic of riders was there are different riders that you can use to enhance the benefits of

00:19:53.600 | a policy on the backend as well.

00:19:56.320 | There's a rider that you should be aware of called the retirement protection rider.

00:20:00.840 | Different companies will have different names for it.

00:20:03.200 | But some policies, you can buy this rider where it will set aside and provide for you

00:20:09.000 | retirement funds if you get disabled for the rest of your life.

00:20:14.060 | One of the biggest costs of disability is the lost time and money to compound for retirement

00:20:21.600 | goals.

00:20:22.600 | Let's say that you were very careful with your finances and you were diligently working

00:20:30.480 | the job, diligently putting money into your 401(k).

00:20:33.520 | You were planning for retirement.

00:20:34.520 | But then you get disabled and you don't have disability insurance.

00:20:37.400 | Well, remember there are two costs to that.

00:20:39.520 | First is the current cost, the fact that how do I earn my income now?

00:20:43.320 | You start using savings.

00:20:45.080 | But the other cost is what about the money that I was going to be putting into my retirement

00:20:49.360 | accounts and it was going to be growing early on in my career?

00:20:54.120 | Retirement accounts don't get funded.

00:20:55.120 | You don't get your 401(k) match when you are disabled.

00:21:00.880 | So you can get these riders that will put an option on there where some of them, they'll

00:21:05.000 | set aside a trust account for you.

00:21:07.520 | Some of them, they'll make additional contributions.

00:21:09.760 | But you'll get a rider here where it will set aside and set aside a retirement fund

00:21:13.880 | for you.

00:21:14.960 | So if you're up in the upper income limits or you're looking at this, you should consider

00:21:18.960 | the value of that.

00:21:20.000 | You should price it.

00:21:21.000 | You should see what the benefits are and consider that.

00:21:24.720 | While I'm on the topic of riders, one of the other things that I wanted to mention

00:21:28.480 | was the process of getting insurance if you have trouble, if you have some kind of medical

00:21:34.680 | condition.

00:21:35.940 | Life insurance underwriting is based upon the chances and the likelihood of your dying.

00:21:42.440 | So it seems obvious but that's how it works.

00:21:47.180 | So you can have all kinds of medical conditions.

00:21:50.720 | But if they don't lead to a statistically expected shorter lifespan, they're not going

00:21:56.960 | to impact your chances of – they're not going to impact your life insurance underwriting.

00:22:04.240 | You can have what seems like a very minor medical condition.

00:22:08.160 | But if it seems like it might lead to some chance of dying, that will significantly impact

00:22:13.000 | your medical – your underwriting for life insurance.

00:22:16.200 | Here's an example of what seems like minor.

00:22:18.560 | I used to work with people and sometimes somebody had questions.

00:22:22.960 | They would have trouble sleeping and I had one client.

00:22:25.800 | He went to see a sleep doctor.

00:22:27.600 | They diagnosed him with sleep apnea and they recommended that he use a CPAP machine.

00:22:32.880 | Well this client said it was ridiculous.

00:22:34.200 | I don't have sleep apnea.

00:22:35.560 | It was a bad test.

00:22:36.760 | Never took the advice.

00:22:37.760 | Never did anything with it.

00:22:39.080 | We went to apply for life insurance and it became a significant problem.

00:22:44.120 | We wound up with a significant cost to him for his life insurance because of the diagnosis

00:22:49.880 | of having sleep apnea.

00:22:51.720 | The medical underwriter, when you apply for insurance, will go through your medical records

00:22:55.960 | and they will go based upon what your doctor says.

00:22:58.440 | Well, sleep apnea bears with it a significantly increased chance of dying in the middle of

00:23:04.520 | your – while you're sleeping.

00:23:06.680 | So that will have this person totally normal, totally healthy.

00:23:09.960 | No, I don't have any health conditions but a condition like sleep apnea does have a significant

00:23:15.200 | influence on your ability to get life insurance.

00:23:18.360 | So this happens quite a bit.

00:23:20.440 | On the other hand, you might have people and I can't come up with an example off the

00:23:23.800 | top of my head but I know I have people say I have this, I have that, I have this other

00:23:27.360 | thing.

00:23:28.360 | Examples like high blood pressure or cholesterol problems, things like that.

00:23:32.800 | There will be many people who said, "Well, I've got these problems," but often you

00:23:36.200 | can get it in and as long as those conditions are stabilized and they've been stabilized

00:23:41.160 | and controlled with medication, you get standard rates or standard plus rates or preferred

00:23:46.280 | rates of some kind.

00:23:47.960 | The reason is that the underwriters, they get very nervous about things that are recently

00:23:51.800 | changing.

00:23:52.800 | If you were just put on blood pressure medicine, that's going to have an impact.

00:23:55.760 | But if you've been on blood pressure medicine for 10 years and there's a good record there,

00:24:00.800 | well then chances are it's not going to affect your underwriting rates.

00:24:04.160 | So the underwriters get concerned about things that are moving but if things are well controlled

00:24:08.800 | and your medical history is clear, that might not result in any changed rates.

00:24:14.000 | With life insurance, the way that risks are handled is based upon changes in the premium

00:24:20.400 | because they can't exclude anything.

00:24:22.440 | If you die, they've got to pay it out.

00:24:24.320 | So they adjust things based upon the premium.

00:24:26.800 | They adjust it based upon a ratings classification.

00:24:29.600 | So you get to standard rates or preferred rates or you get tables, they call them a

00:24:35.160 | tabled rating.

00:24:36.160 | So with a company, it might be preferred, then standard plus, then standard, then table

00:24:40.560 | one, table two, table three.

00:24:42.400 | Each of those comes with a rating adjustment where you're going to pay more money for it.

00:24:46.120 | But what you also get is you get another system where they'll add what they call a flat extra.

00:24:51.680 | This is common if you have a hobby or something that bears with at risk.

00:24:55.600 | You're racing cars, you're a private pilot, you're flying airplanes, you're doing experimental

00:25:01.600 | scuba dives, things like that or deep depth scuba dives.

00:25:07.840 | They'll put on a $3 flat extra, which means for every $1,000 of insurance, they'll add

00:25:13.040 | $3 of annual premium.

00:25:14.560 | So if you had a $100,000 policy, then that's 100 times three and so you'll pay an extra

00:25:23.280 | $300 per year for your premium because they have what's called a flat extra.

00:25:28.120 | And sometimes on life insurance, those flat extras will be removed.

00:25:31.600 | They'll say, "We're going to add a flat extra for this medical condition for X number of

00:25:35.560 | years and then you can come back in and we're willing to remove that from the policy with

00:25:39.960 | a good medical history."

00:25:41.600 | So that's the way it works with life insurance.

00:25:43.680 | They adjust the premiums because they can't adjust the benefits.

00:25:47.200 | With disability insurance, however, they will add riders, which will exclude certain causes

00:25:54.640 | of disability.

00:25:56.480 | So first let's talk about what disability insurance underwriters find problems with.

00:26:01.300 | They find problems with things that are likely to affect your work.

00:26:04.800 | So you might have something like carpal tunnel syndrome.

00:26:08.040 | Carpal tunnel syndrome is not life threatening.

00:26:09.860 | It's not going to make any difference with your life insurance underwriting, but it could

00:26:13.300 | potentially make a very big difference for your disability insurance underwriting if

00:26:17.580 | you're a computer programmer.

00:26:20.600 | So it's all the medical conditions that you have to worry about go down to not what's

00:26:25.080 | going to kill you, but rather what's going to make you sick, what's likely to cause you

00:26:29.360 | not to be able to work.

00:26:31.040 | Something like back pain becomes a huge deal for disability insurance underwriting, where

00:26:35.720 | for life insurance, okay, you've got back pain and you're taking a medication to help

00:26:38.840 | you with it.

00:26:39.840 | No big deal.

00:26:40.840 | If your back pain is not connected to it, something that's going to kill you, we don't

00:26:43.860 | care how miserable you feel.

00:26:45.220 | We just don't care, but we don't care how miserable you feel.

00:26:48.540 | We just don't want you to die.

00:26:50.260 | With disability insurance, we care about that back pain.

00:26:53.540 | So with disability insurance, because it's not so cut and dried, meaning life or death,

00:26:59.100 | death certificate or not, they will give you the option of issuing the insurance policy,

00:27:05.620 | even if you have a medical condition, and sometimes they'll adjust rates just like they

00:27:09.020 | do with life insurance.

00:27:10.140 | They'll charge you additional cost or add some kind of flat extra cost to it, but sometimes

00:27:16.780 | what they'll do is they'll offer you a policy with an exclusion rider.

00:27:21.300 | They'll say, "Okay, we noticed that you have carpal tunnel syndrome.

00:27:24.620 | We're willing to issue you the disability insurance policy, and we'll cover you for

00:27:30.140 | any disability except a disability that's related to your carpal tunnel syndrome and

00:27:35.380 | your repetitive strain injury."

00:27:38.260 | Or "We noticed that you have back pain.

00:27:40.460 | We'll cover you for anything, any kind of cause of disability except for this back pain

00:27:46.180 | that you have."

00:27:47.940 | And sometimes this will come with a certain number of years where the underwriter will

00:27:52.380 | say, "We'll cover it except in the first three years," or it'll just be on there as a permanent

00:27:57.220 | exclusion rider.

00:27:59.060 | So you should pay attention.

00:28:00.060 | You should talk about those things and look into those things.

00:28:02.180 | Again, this is why it's so important.

00:28:04.180 | If you are going to get insurance, get it before you think you need it because most

00:28:08.180 | people don't start thinking about repetitive strain injury and carpal tunnel when they're

00:28:12.660 | just normally typing and they're making their work.

00:28:14.880 | But I've had two family members who have been disabled due to repetitive strain injury,

00:28:19.620 | unable to use a computer, unable to click a mouse without significant pain.

00:28:24.700 | And so these things make a big difference over time.

00:28:28.580 | Little bit of a sidetrack from my types of disability, but those were just a couple of

00:28:32.220 | additional thoughts that I hadn't covered previous in the series I wanted you to have.

00:28:36.260 | So we talked about individual disability, long-term, short-term.

00:28:38.820 | There's also obviously group disability income insurance.

00:28:42.400 | And if you need disability insurance but you can't get it as an individual, you should

00:28:47.300 | consider looking into seeing if you can get it within the context of a group.

00:28:52.580 | When you sign up for group benefits, and if you are a person who has health issues or

00:28:57.940 | has disability problems, you should seriously consider working at a company where the group

00:29:02.740 | benefits are strong.

00:29:04.100 | Now their HR coordinator won't like this because it'll mess up their rates if they have a bunch

00:29:09.780 | of sick people working there.

00:29:10.780 | It'll mess up their rates with the insurance company, but that won't be a problem to you.

00:29:14.740 | And you can get in on a disability contract on a group basis where you might have been

00:29:20.040 | excluded on an individual basis because of that individual medical underwriting.

00:29:24.900 | There are also opportunities where you can get what are called multi-life policies, list

00:29:30.500 | bill or simplified issue individual disability plans.

00:29:34.580 | And if you run a small business or run a small company or if you have partners, you should

00:29:37.660 | talk with your insurance agent about the options of a multi-life discount or a simplified issue

00:29:45.020 | plan.

00:29:46.880 | Some companies are very competitive in these smaller market opportunities.

00:29:52.980 | Some companies, they do big group insurance.

00:29:55.720 | They want 3,000 enrollees and that's where they specialize.

00:29:58.580 | Some companies are really specialized on individual policies.

00:30:02.420 | But then there are companies who work hard to get this 2 to 10 or 10 to 30 or this type

00:30:06.460 | of range of disability contract.

00:30:08.940 | And sometimes if you have some kind of questionable situation, it's not just if you have a questionable

00:30:14.060 | situation, these things can save you money as well.

00:30:16.980 | But you can talk with an insurance agent and you might be able to put in place a plan for

00:30:20.600 | everybody in the company.

00:30:22.940 | Also often, you should ask about the possibility of a multi-life discount when working with

00:30:28.780 | your insurance agent.

00:30:30.300 | As an insurance agent, this is a benefit.

00:30:31.940 | But if you can get or know of multiple people at your company that have their insurance

00:30:36.580 | with the same company, you can go ahead and get a discount for that.

00:30:42.180 | So this might be a good reason to send your insurance agent around.

00:30:46.420 | Most people need disability insurance.

00:30:48.900 | Many people don't have it.

00:30:50.140 | And so if you refer them to a few of their friends, they'll make some additional sales

00:30:53.260 | but it can come with a substantial discount for you.

00:30:56.580 | So that would be a multi-life discount.

00:30:58.780 | You should also ask if you're buying insurance and you're working for a company, you should

00:31:02.500 | also ask if other people there have insurance, disability insurance with that company.

00:31:07.940 | The insurance agent will not have access because of privacy records.

00:31:11.700 | They will not have access to that company to know, okay, you work at ABC Manufacturing.

00:31:15.580 | Hey, I know we've got four other clients there.

00:31:17.980 | That's their personal clients where they've actually sold the policies and done the business.

00:31:22.620 | They are not going to know that.

00:31:23.940 | But you can go ahead and send an email and say, "Hey, does anybody have a policy with

00:31:28.220 | this company, an individual disability policy?

00:31:30.500 | I'm trying to get a discount."

00:31:31.780 | And if you find maybe three people, two or three, four people, depending on the company's

00:31:36.860 | rules, you might be able to get a multi-life discount.

00:31:40.020 | You can also get these on a simplified issue basis.

00:31:44.220 | And one of the benefits that can come if you can get a few people together is you might

00:31:49.260 | be able to get unisex rates and a discount.

00:31:54.100 | Sex ratings for disability insurance are very important.

00:31:58.760 | Life insurance for men costs more than life insurance for women by a small margin.

00:32:04.060 | When you're doing individual insurance, it's a little bit cheaper for women because women

00:32:08.340 | are likely to live for longer.

00:32:09.700 | There's a small difference.

00:32:11.600 | But women are much more likely to be disabled at an early age than are men for various reasons.

00:32:19.860 | And so the premium difference can be substantial.

00:32:24.020 | And I've had a few of these situations where I would work with, say, a couple of attorneys

00:32:27.540 | at a law firm.

00:32:29.180 | And it was very much in the best interest of the attorneys, especially if I was working

00:32:33.260 | with a female attorney.

00:32:35.540 | If I could get a few people at the law firm to get a minimal policy coverage, the discount

00:32:40.900 | by getting to either a multi-life situation or a unisex rate was so substantial that it

00:32:48.420 | made all the financial sense.

00:32:51.500 | And so if you are a – let's say you're a high-power female attorney, a high-power

00:32:55.340 | female physician, you should talk to your insurance agent and see maybe if you put some

00:33:00.500 | minimal contracts.

00:33:01.500 | And even if you paid for it either out of your company or yourself, if you have a big

00:33:06.180 | contract for you, a big expensive contract for you as the high earner, but you go ahead

00:33:12.380 | and just put two minimal policy minimum contracts for your employees, you might get a discount

00:33:17.500 | that's even substantial enough to where you save yourself the money on – you wind

00:33:24.260 | up getting it cheaper by getting it to a unisex rate.

00:33:27.140 | The rate differential for disability insurance between men and women is substantial.

00:33:32.880 | So pay attention to that.

00:33:37.860 | Guaranteed issue plans can also make a big deal for you.

00:33:41.860 | I've had clients especially as a financial advisor if you're working with the principal

00:33:46.460 | and the principal has some health conditions, you can go ahead and again bring in if you

00:33:50.100 | can get a group of say 10 or more employees.

00:33:53.500 | Even if you're not paying for it or offering as a group benefit, if you can get enough

00:33:57.180 | people to participate and you can get in on a guaranteed issue plan, it can help you to

00:34:01.180 | cover for a personal medical problem that you might have that you might not have been

00:34:04.860 | able to get coverage for.

00:34:06.540 | So just because you can't get disability insurance doesn't mean that you shouldn't

00:34:12.700 | necessarily research another way.

00:34:16.660 | Talk to a good insurance agent.

00:34:17.660 | A good insurance agent might have a creative way to get you coverage.

00:34:23.920 | Business overhead expense insurance.

00:34:25.720 | Business overhead expense insurance is another way, especially if you're a small business

00:34:29.040 | owner that you should consider buying disability insurance.

00:34:33.340 | Sometimes with a business it can be difficult to get and prove financially because with

00:34:37.460 | disability insurance you've got to do medical underwriting and financial underwriting.

00:34:42.460 | Oftentimes when you're running a business it can be difficult for you to get enough

00:34:46.100 | coverage because you might have, especially in the early years, heavy business expenses.

00:34:51.000 | So a business overhead expense policy is designed to keep your business going if you are disabled.

00:34:57.460 | It's designed to cover the expenses of your overhead if you are disabled.

00:35:04.300 | So this is important because it allows you to keep your business going concern, which

00:35:09.820 | is much more valuable to sell in the secondary market, even if you are disabled.

00:35:15.620 | The way these policies work is they come in with a 30 or a 60, 90 day elimination period

00:35:21.140 | so they kick in after a relatively short period of time.

00:35:23.860 | But they only last for a short period of time.

00:35:25.700 | They're usually one or two years at their maximum benefit period.

00:35:30.900 | Two years is usually about the maximum.

00:35:33.620 | And so here if I'm running a store and I'm a florist or I'm a, it doesn't really matter,

00:35:40.660 | I'm a CPA, just something, and I'm running a business and I've got my rent, I've got

00:35:45.580 | my utility costs, I've got my advertising expenses, I've got all these expenses lined

00:35:49.700 | up.

00:35:50.700 | If I'm running these things and now if I'm out of business and I'm out for six months

00:35:54.120 | or a year, how on earth am I going to be able to cover all of those expenses on an ongoing

00:35:59.740 | basis if I'm out of work?

00:36:02.340 | It's just probably not going to work.

00:36:04.980 | I'm probably not going to be able to do it at all.

00:36:07.180 | And so as a component of this, what you do is you buy this business overhead expense

00:36:11.860 | policy and if you become disabled, it'll cover these expenses for you for a year.

00:36:17.100 | And that's usually enough time to either say, "Hey, am I going to be back in the business?"

00:36:21.620 | In which case you can pick it up and you can get things going again, or "Do I need to

00:36:25.280 | get out and either close or sell the business?"

00:36:28.000 | So you might need to go ahead and close, but at least you didn't get behind on your lease

00:36:31.760 | and have those problems, or you might be able to sell it.

00:36:34.560 | Because you've kept your storefront open, you've kept your advertising going, maybe

00:36:37.720 | had a friend or family member step in and do the best they could to keep the business

00:36:41.160 | going while you were out, you can go ahead and sell it as a going concern instead of

00:36:45.320 | just shuttering it and not having anything valuable to sell.

00:36:49.040 | That's called disability overhead expense or business overhead expense.

00:36:53.580 | Very very useful insurance policy to be aware of.

00:36:57.260 | Next, there is buy-sell insurance, disability buy-sell insurance policies that you can buy

00:37:04.020 | to fund a buy-sell agreement in the event of a disability.

00:37:07.900 | Now to explain what a buy-sell agreement is, if you and I are in business together and

00:37:13.100 | you and I are just say we're partners for the moment, doesn't really matter whether

00:37:16.100 | we're shareholders in a corporation or whether we're partners, just assume that we're business

00:37:21.060 | partners.

00:37:22.060 | We're tied in together and one of the most important aspects of business advice that

00:37:27.000 | you need to think through carefully when you are establishing a partnership is what's the

00:37:30.980 | exit plan from this partnership?

00:37:33.780 | Because when you and I are getting into business together, we're getting into business together

00:37:36.840 | because we think that each of us brings something to the table that's going to be helpful.

00:37:41.340 | We're going to be able to work together and we're going to bring something to the table.

00:37:45.220 | But what if I die and now my shares and my ownership of the business now go to my wife?

00:37:51.780 | Well you're now business partners with my wife.

00:37:55.400 | That might work great.

00:37:56.400 | My wife is a great woman.

00:37:57.820 | I love her to death.

00:37:58.820 | Or it might not work great.

00:38:01.880 | You might or might not want to actually be in business with my wife.

00:38:05.600 | Probably you don't want that.

00:38:07.220 | Probably you got into business because you wanted to be in business with me.

00:38:10.400 | So it's important to understand that when you're in a partnership with somebody, what

00:38:14.840 | happens to your partner if they die?

00:38:17.300 | What happens to the partnership?

00:38:19.500 | Many partnerships just fall apart and this can be a real problem because remember, my

00:38:23.980 | shares of ownership, my partnership interest, my member units of our LLC that I own or my

00:38:30.500 | shares of stock in the corporation that we're partners in, those shares are going to be

00:38:35.060 | passed according to my will to my beneficiaries.

00:38:39.580 | And now those shares come with ownership rights.

00:38:41.940 | If I'm 50/50 partners, you now have to make business deals, decisions with my wife according

00:38:46.500 | to the terms of our partnership agreement.

00:38:48.820 | What happens if I die?

00:38:50.500 | What happens if I become disabled?

00:38:53.620 | You and I, we build a financial planning firm together and we're doing great.

00:38:57.540 | I'm handling the marketing of it.

00:38:59.740 | You're doing the planning of it.

00:39:01.140 | And we build this thing bigger and bigger and bigger and we're both doing really well.

00:39:04.940 | Now I'm disabled.

00:39:06.540 | Well, I can't do the marketing like I planned but I'm also now receiving the benefits of

00:39:13.860 | my ownership and my share of the profits.

00:39:17.940 | I'm receiving my share of the profits because I own the business.

00:39:21.380 | Now you probably would want me to receive that for a few months.

00:39:24.660 | You know, Joshua, he's not doing well.

00:39:26.140 | He's got cancer.

00:39:27.140 | He's going to get back on his feet.

00:39:28.620 | But after a while, you're going to start to feel like you're getting the short end of

00:39:31.460 | the stick.

00:39:32.460 | How do we make sure that doesn't happen?

00:39:36.180 | This is why when planning for partnerships or when you're in business with somebody,

00:39:41.440 | you plan for all the Ds.

00:39:42.580 | You plan for death.

00:39:43.580 | You plan for disability.

00:39:45.180 | What happens in the case of divorce?

00:39:47.020 | It's a big one.

00:39:49.700 | You and I are partners together.

00:39:51.820 | My wife and I divorce but she's still the beneficiary of my shares and now I die and

00:39:59.300 | now you're in business with my ex-wife.

00:40:01.700 | You might not like that.

00:40:03.980 | What happens in the case of dissolution?

00:40:05.420 | You just want to get out.

00:40:06.420 | You just sort of just handle all the Ds planning.

00:40:09.900 | How do you escape from a partnership?

00:40:11.540 | You know that plan going in.

00:40:13.420 | If this doesn't work out, how do we dissolve the partnership?

00:40:16.740 | So you can buy a disability insurance policy to fund a buy-sell plan.

00:40:21.020 | Most people fund their plans with life insurance and this is important.

00:40:24.980 | You and I have a business.

00:40:25.980 | It's worth half a million dollars.

00:40:27.780 | I die.

00:40:28.780 | You want to buy out my wife.

00:40:30.980 | What do you do?

00:40:31.980 | You have $250,000 cash sitting there but my wife needs the money.

00:40:36.060 | So you buy a life insurance policy on my life or I buy a life insurance policy on your life.

00:40:41.900 | That works out really well because I die.

00:40:45.100 | You receive $250,000 from the life insurance policy that you owned on me.

00:40:49.840 | You take that $250,000.

00:40:51.420 | You buy out my wife.

00:40:53.820 | She has $250,000 cash.

00:40:56.100 | You have the business.

00:40:58.820 | Everybody has what they want.

00:41:01.260 | Another episode will cover buy-sell plans in depth.

00:41:03.580 | We'll cover cross-purchase agreements.

00:41:05.420 | We'll cover entity purchase agreements.

00:41:06.820 | We'll cover taxation because that can work really well.

00:41:09.540 | What you received was you received a step-up in tax basis from your units that you bought.

00:41:14.260 | My wife received the full value of the company without ever paying income tax on the money

00:41:19.260 | – excuse me, without paying tax on the gain.

00:41:21.700 | So this can work out really well because she received – we'll save taxation for another

00:41:27.060 | time.

00:41:28.060 | But many people fund their partnership agreements, their buy-sell agreements with life insurance.

00:41:31.220 | But they don't fund them with disability insurance often.

00:41:34.740 | You need to consider it because as I mentioned, if I'm dead, I'm dead and gone.

00:41:39.140 | But what if I'm still alive and what if I'm still – I'm just disabled and I

00:41:42.540 | can't contribute very much to the business but I still want my monthly check and I still

00:41:47.100 | want to give input on the business?

00:41:49.100 | Well, you want to get me out.

00:41:51.620 | The problem with this comes in from two reasons.

00:41:54.620 | Number one, the funding problem.

00:41:56.420 | Where do we get the money for you to buy me out?

00:41:58.620 | We're in business.

00:41:59.620 | I'm disabled.

00:42:00.620 | I'm fighting cancer.

00:42:01.620 | It looks like I'm going to make it but it's really tough.

00:42:04.300 | And now you're like, "Listen, Joshua, I love you to death but I can't have you

00:42:07.460 | out.

00:42:08.460 | So where do you get the $250,000 to buy me out?

00:42:10.020 | I need the money.

00:42:11.020 | I'm fighting cancer and you need the business.

00:42:13.700 | But how do we get out?"

00:42:15.780 | Well, it would be nice if you had a policy there that was set to pay with a lump sum.

00:42:22.100 | And these policies, again, they'll work.

00:42:24.260 | And what these will do is they'll have a very long elimination period, maybe a year,

00:42:29.100 | maybe two years.

00:42:31.100 | You're not going to kick your business partner out after three months of being sick.

00:42:34.900 | But after two years of being sick or a year of being sick, you might want to.

00:42:38.380 | And then they come with a lump sum.

00:42:39.940 | You can structure them either with a lump sum or a series of payments if you need to.

00:42:44.820 | But usually a lump sum would be the best.

00:42:46.500 | So if I were disabled, I'm fighting cancer, a year into that thing, the disability policy

00:42:52.060 | triggers.

00:42:53.060 | It pays you $250,000.

00:42:54.540 | You buy me out for $250,000.

00:42:55.860 | I've got the cash.

00:42:57.260 | You've got the business.

00:42:58.260 | You're happy.

00:42:59.260 | Now, the second reason why you want to fund a disability insurance agreement with a life

00:43:05.060 | – excuse me, with a disability buyout policy is because it gives you an objective third

00:43:10.540 | party who can determine the definition of disability.

00:43:15.380 | And this protects both of our interests.

00:43:17.820 | Think about this.

00:43:20.100 | If I'm disabled but I'm receiving an income from the business, how much – and I'm

00:43:28.780 | not working but I'm still receiving 50 percent of the profits.

00:43:32.020 | How much do I want to be out of the business?

00:43:34.940 | I'm doing pretty good.

00:43:36.060 | I'm not working.

00:43:37.060 | I'm still receiving 50 percent of the profits.

00:43:38.900 | I don't want to get rid of my business.

00:43:40.500 | I like this.

00:43:42.340 | But if I'm disabled and I'm not contributing anymore to the growth of the business and

00:43:46.580 | you're picking up all my slack at work, how much do you want to get me out of the

00:43:53.180 | business?

00:43:54.180 | Well, financially, you probably want to get me out so you can bring someone else in.

00:43:58.300 | Maybe you're going to find someone who's going to fill my role.

00:44:00.900 | But you don't want to get me out too much because you know what an impact it's going

00:44:04.420 | to make in my life.

00:44:05.420 | After all, we're business partners.

00:44:06.620 | You care about me.

00:44:08.500 | And so it can become very difficult for partners to figure out, "Are you disabled or are

00:44:13.500 | you not disabled?

00:44:14.500 | What do we do?"

00:44:15.700 | The second big thing that it comes into is how do we determine if you're actually disabled?

00:44:21.220 | We set up this legal document between us that's called a buy-sell agreement that triggers

00:44:26.260 | that when you're disabled, you're going to be out and I'm going to buy you out.

00:44:28.940 | But how do we know when that's going to happen?

00:44:31.380 | And worse yet, who enforces that?

00:44:34.420 | So the buy-sell agreement could say, "Well, if Josh was disabled, you got to buy him out.

00:44:38.100 | You may not have the money.

00:44:39.740 | And how am I going to prove that I'm disabled?"

00:44:42.500 | It can be very, very difficult.

00:44:44.740 | So if you're going to have this kind of policy, this kind of agreement in your buy-sell agreement,

00:44:48.760 | you should try to get disability insurance for it.

00:44:51.700 | And if you can get disability insurance for it, you should make the terms of your legal

00:44:56.340 | agreement subject to the terms of your insurance contract.

00:45:01.580 | So you want the contract to come in and to say, "If Josh was disabled according to this

00:45:06.960 | disability contract number 12345, then this clause goes into force."

00:45:12.720 | And this accomplishes what you need.

00:45:14.460 | It accomplishes an external third-party independent who's determining the level of disability

00:45:20.660 | and it's making sure that we don't have a legal agreement that says one thing and an

00:45:24.420 | insurance agreement that says another.

00:45:26.060 | Because the legal agreement says I'm disabled, but the insurance agreement doesn't pay out.

00:45:29.580 | Now you've got no money to pay me.

00:45:31.500 | So you make the terms of your legal agreement between you subject to the insurance policy.

00:45:36.420 | And then that way, you have that insurance policy.

00:45:38.920 | If it triggers, now you have the money to buy out.

00:45:42.060 | You don't want to get in the situation where the legal document triggers the sale, but

00:45:46.340 | the insurance policy is not triggered because then you don't have any money.

00:45:49.720 | So an disability buyout insurance policy is very, very useful.

00:45:54.940 | I've done these with architects, attorneys.

00:45:58.820 | You just want to look at it.

00:45:59.940 | And if you're in practice with somebody, think about how this works.

00:46:04.140 | And it can work really well to have this set up.

00:46:07.580 | It protects for many people the equity of their practice.

00:46:12.140 | It's difficult in a professional practice and that's where these are largely used.

00:46:16.860 | Because if you have a traditional business, a brick and mortar business, a business that

00:46:22.340 | can operate independently of the business partners, oftentimes those businesses can

00:46:26.280 | keep going.

00:46:27.280 | Just ask yourself, if I were disabled, how would my business be affected?

00:46:30.540 | But if you get into a professional occupation, an attorney, an architect, if I were disabled,

00:46:35.980 | that's going to dramatically affect my firm.

00:46:38.700 | And yet the value of the firm, the equity, the reputation that you've built, that's a

00:46:42.660 | big asset.

00:46:43.660 | It's a hard asset to cash out of.

00:46:46.420 | So older professionals try to cash out by bringing in younger partners and doing a buyout

00:46:51.780 | over time.

00:46:52.780 | So there's a good transition plan and that can work really well.

00:46:55.880 | But you need to consider and research these buy-sell plans.

00:47:01.420 | Okay, a couple more.

00:47:03.220 | There are some unique things you can sometimes get, impaired risk disability policies.

00:47:07.820 | You can get policies for unique occupations.

00:47:11.740 | You can get disability policies for athletes.

00:47:14.620 | You can get disability policies for entertainers.

00:47:17.860 | These are not going to be gotten with a mainstream company, but they can be gotten.

00:47:24.860 | These will need to be individually underwritten.

00:47:27.180 | I placed a couple of these policies with a subsidiary of Lloyd's of London.

00:47:31.460 | That's where these types of insurance contracts often go where they – I'm going to insure

00:47:36.340 | my legs and these actresses.

00:47:38.020 | I'm going to insure my lips in case my lips get damaged.

00:47:41.680 | My pouty lips are my reputation.

00:47:44.020 | But I had – I worked with one lady who was a TV correspondent and she was an independent

00:47:49.620 | freelance TV correspondent.

00:47:50.820 | We couldn't get her disability insurance with a mainstream company because they wouldn't

00:47:54.220 | cover that occupation.

00:47:55.700 | But I could – I did get it with Lloyd's of London with a subsidiary of them.

00:48:01.620 | These are also the companies that you work with if you need a high-excess limit policy.

00:48:06.580 | So you reach – you have an occupant, a very high earner.

00:48:10.100 | They want to protect their income.

00:48:11.940 | You can go ahead and you can get in place a policy with a mainstream company, but they're

00:48:18.460 | going to limit their risk.

00:48:19.460 | They're going to stop at 10 or 15.

00:48:20.920 | Some of them will go for $25,000 a month.

00:48:23.280 | But you can go ahead and get an additional supplemental policy for a much higher amount

00:48:27.860 | with another company.

00:48:28.860 | So these options out there exist.

00:48:30.660 | They exist.

00:48:31.660 | If you're in a market like a physician, there's physician excess limits policies

00:48:35.900 | where they'll go above the $10,000.

00:48:37.660 | The terms work a little bit different.

00:48:39.860 | But those are – if you're a physician, those are widely available.

00:48:42.020 | If you're in a more unique, smaller occupation, they're less available.

00:48:48.380 | There are also products out there such as key person disability insurance.

00:48:53.860 | So most of you have probably heard the idea or the word of key person life insurance.

00:48:58.260 | Let's say that I run a company and I have my star salesperson who's responsible for

00:49:03.100 | bringing in 80 percent of my revenues.

00:49:05.260 | They're very good.

00:49:06.580 | They're very well-known.

00:49:07.580 | I pay them handsomely and they bring in 80 percent of our revenues because they've

00:49:11.900 | been in this industry forever.

00:49:13.180 | Well, that's a key employee for me.

00:49:15.300 | If that person died, I've got a problem.

00:49:18.420 | I've got a huge problem as a business owner.

00:49:21.140 | So I'll put a key person life insurance policy on that key person.

00:49:25.900 | If they die, then I'm going to have a half a million-dollar life insurance policy payout.

00:49:31.300 | That will help me to have enough money coming in to where I can handle the financial shortfall

00:49:36.100 | I'm going to have for the next few years until I can raise up another – raise up

00:49:39.620 | or train another salesperson.

00:49:42.340 | Very important.

00:49:43.340 | You can also purchase key person disability insurance and it does the same thing.

00:49:48.060 | Again, my star salesperson gets cancer.

00:49:53.060 | We feel really sorry for Joe.

00:49:54.820 | We try to help Joe as much as we can.

00:49:57.660 | But at some point in time, we got to figure out what we're going to do.

00:50:00.340 | If Joe can't service his accounts, we got a problem.

00:50:02.980 | So you can purchase a key person disability insurance policy that will protect you and

00:50:07.940 | remunerate you for the loss of Joe's services.

00:50:12.420 | Finally, you can cover disability – you can get disability and policies to insure

00:50:17.660 | a bank loan in the same way that you can get life insurance to satisfy that.

00:50:21.820 | If I owed you a lot of money, you might want to have a life insurance policy on my life

00:50:25.580 | if I die and I can't pay or if I get disabled.

00:50:29.700 | Then there's also – I've seen a few companies that have worked in the area of

00:50:34.100 | divorce settlements.

00:50:36.860 | Same thing.

00:50:37.860 | If you're reliant on alimony and child support payments and the divorced spouse becomes disabled,

00:50:48.700 | that can be a real problem to your alimony and child support payments.

00:50:52.200 | So you can get a disability policy that can put that in place and you can put in place

00:50:57.820 | a policy that will – you can make that part of the divorce settlement.

00:51:03.980 | A good divorce attorney usually handles these things but in general, you often want to make

00:51:07.740 | sure that there is life insurance and potentially disability insurance that's protecting

00:51:13.660 | you in case of the death or disability of your spouse.

00:51:18.060 | All right.

00:51:19.360 | That covers most of the things that I wanted to cover here.

00:51:21.940 | Just the final thing.

00:51:22.940 | Let's see.

00:51:23.940 | Questions.

00:51:24.940 | Joshua, I heard one of the podcasts where you mentioned you're going to be doing a

00:51:26.060 | series on disability insurance next week.

00:51:27.900 | I have a couple of questions to contribute.

00:51:29.380 | Number one, can you get disability income insurance if you don't have a job?

00:51:34.140 | I do a variety of things to make money but often on a project basis or just as they come

00:51:38.180 | up and sound interesting to me.

00:51:40.440 | My income isn't very predictable but my expenses are really low.

00:51:43.900 | So it works fine as long as I'm healthy.

00:51:45.880 | But it wouldn't if I were hospitalized or indefinitely incapacitated.

00:51:50.660 | Answer to this question is probably not.

00:51:54.840 | Possibly but probably not.

00:51:56.220 | Now, depending on how you have these things structured in terms of your personal activities,

00:52:01.980 | that will drive the answer.

00:52:03.540 | When you say I do a variety of things to make money but often on a project basis or just

00:52:07.820 | as they come up, if that's – I have a couple of different jobs with employers.

00:52:13.340 | I'm an employee for – let's just make up some occupations here.

00:52:16.100 | I'm a photographer and I work part-time as a photographer and then I also do DJ work

00:52:24.500 | and I help a DJ as their employee and I'm a rodeo clown and I have a real estate license.

00:52:31.380 | So I do those four things.

00:52:33.940 | Well, you're not going to be able to get disability insurance and the reason is because

00:52:37.700 | in the contracts, you're not going to be able to prove that you do it for enough time.

00:52:43.460 | There are limits.

00:52:44.460 | I forget what the limits are.

00:52:45.460 | I think something like 10 hours.

00:52:46.460 | You got to be working at least 15, 10, 15, 20 hours a week in an occupation for it to

00:52:51.100 | be considered.

00:52:52.380 | So if you're just doing eight hours as a photographer and you're getting paid as

00:52:56.740 | an employee and eight hours as a DJ and you're getting paid as an employee and you're working

00:53:01.340 | 10 hours but you're doing that on a contract basis in photography and your real estate

00:53:06.580 | agents, your commissions are all over the place, you can't get disability insurance

00:53:10.580 | for that.

00:53:11.580 | That's going to be a problem.

00:53:12.580 | Now, if you can bring some of your activities together under one structure and under one

00:53:19.900 | entity, then you can make – you might be able to get this done.

00:53:25.620 | So if I were working as a photographer and as a DJ and – I can't make Rodeo Klon

00:53:30.140 | work – and a graphic design artist and I brought those together under JJS Enterprises

00:53:39.060 | and JJS Enterprises is designed to provide graphic design services, audio services, and

00:53:45.860 | photography services to the wedding marketplace because I'm designing wedding invitations.

00:53:50.380 | Well, now I've got an occupation that I can bring together under one business entity.

00:53:55.540 | I'm filing one tax return, Schedule C for JJS Enterprises or a corporate tax return

00:54:01.820 | and now I've got one entity.

00:54:04.140 | Well, now you can go ahead and get disability insurance.

00:54:06.820 | Yes.

00:54:07.820 | So hopefully your activities might be something that you can bring together, consolidate them

00:54:12.700 | under a business entity, make those activities the services of that entity, and then you

00:54:17.540 | can work your way through the business process, the business disability process.

00:54:22.500 | Next, are there any special things to establish now to prove disability in the future?

00:54:27.140 | This is the same listener.

00:54:28.860 | For example, my greatest asset is my mind.

00:54:30.460 | I can learn and retain new information faster than almost anybody I've ever met.

00:54:34.020 | If I suffered a blow to the head and lost 50% of my mental function, I would still likely

00:54:38.060 | test within the normal range for intelligence and brain function.

00:54:41.100 | I don't say this to sound conceited.

00:54:42.560 | My dad had a stroke and had this very thing happen and I'm sharper than he was.

00:54:46.220 | Is there a reliable way to establish that my baseline isn't average?

00:54:49.380 | Some kind of doctor certification, test results of some kind, the same question could apply

00:54:53.380 | to any unusual aptitude I think.

00:54:55.820 | It's an interesting question.

00:54:59.220 | I've never seen that but what I would do is as with anything, any documentation that you

00:55:04.860 | can prove or provide is helpful.

00:55:08.720 | So if this aptitude that you've noticed is something that could be medically certified

00:55:13.940 | and if you could do it in a minimally intrusive way, I wouldn't spend thousands of dollars

00:55:19.420 | trying to plan for something that will likely never happen.

00:55:21.940 | You're probably never going to get disability disabled.

00:55:24.980 | But if you could just say, "Hey, can we run a cognitive test or you're applying to

00:55:27.860 | Mensa and you say, 'Let me see if I can do this' and you can prove that," then

00:55:31.940 | that would be good information to have.

00:55:33.940 | But the reality is that when you are disabled, the way that the insurance company is going

00:55:37.940 | to calculate the fact of your disability is did you lose, did you suffer the loss of time

00:55:45.900 | at your occupation, duties at your occupation and/or income depending on your specific contract.

00:55:54.580 | So that's going to make a difference, time, duties or income.

00:55:58.660 | So you're not going to be considered to be disabled because you had a loss of aptitude.

00:56:07.540 | If you could still function and do your job, do your work with 50% of your current mental

00:56:13.420 | functioning, you're not going to be considered to be disabled.

00:56:16.340 | But if your mental functioning is going to influence your job, then the doctor would

00:56:22.020 | certify that and you would be considered to be disabled.

00:56:25.500 | The company here does make a difference.

00:56:28.440 | Some companies and I cannot name any specific companies.

00:56:31.460 | I would just encourage you to do research on companies.

00:56:35.540 | I think – and I actually can't prove this.

00:56:37.860 | So let me be careful with what I say.

00:56:39.740 | I think the nature of the company makes a difference.

00:56:44.300 | I think there are insurance companies that are looking to cut anything they can and there

00:56:51.660 | are insurance companies that are looking to provide good service.

00:56:55.140 | No insurance company is going to be trying to pay out a fraudulent claim.

00:56:59.900 | But there does make a difference of the insurance company.

00:57:04.380 | I feel like one of the things if possible is to work with a mutual insurance company.

00:57:09.700 | I've experienced this with USAA.

00:57:11.540 | As a USAA policy owner, when I've had to make insurance claims, I had accidents a couple

00:57:17.820 | of times I had to make insurance claims.

00:57:20.500 | USAA was fantastic and I felt like I was treated fairly.

00:57:23.860 | I read some of the experiences of some other people with other companies that are not mutual

00:57:28.580 | insurance companies like USAA and it makes a difference.

00:57:33.340 | For years I worked with Northwestern Mutual and I was always very proud of Northwestern

00:57:36.500 | Mutual.

00:57:37.500 | They always look to try to – they seem to try to always look to do the right thing.

00:57:41.260 | Now there's going to be disgruntled policy owners with any company.

00:57:44.620 | But I feel like that mutual versus stock company thing does make a difference and I think you

00:57:48.860 | want to work with a reputable company.

00:57:50.660 | It doesn't make sense to me to always just work with the cheapest company out there because

00:57:55.300 | now when you need service, when you need them to pay the claim, it might not work out.

00:58:03.300 | So some companies build their reputation on their taking care of their customers.

00:58:07.380 | I think American Express has worked hard in this area as well.

00:58:09.780 | If you've got a problem, they're going to try to take care of it.

00:58:12.420 | So choose your company carefully.

00:58:14.420 | I've got a few more questions here.

00:58:16.820 | Let's just buzz through them.

00:58:17.940 | Before I go to the next question from a listener, I expected to get this question.

00:58:21.260 | I haven't covered it yet but many people ask me or have asked me in the past about

00:58:25.260 | pregnancy.

00:58:26.640 | Is pregnancy considered a qualifying event to receive on a disability policy?

00:58:32.780 | This can often happen especially if you're thinking that you're planning to have kids

00:58:36.780 | and you want to know.

00:58:38.460 | So the short answer is that yes, pregnancy is considered something that can pay out for

00:58:44.540 | disability.

00:58:45.540 | Generally, it will pay out more for short-term disability than for long-term disability although

00:58:49.600 | it can be effective for both.

00:58:53.380 | But the key is to recognize that just simply the state of being pregnant is not a disability.

00:59:00.780 | But if you are disabled because of something that's associated to pregnancy or a complication

00:59:06.680 | from pregnancy, that qualifies as being disabled.

00:59:10.520 | So in a normal, healthy pregnancy and childbirth, in general, a mom who's recently given birth

00:59:18.740 | a couple of weeks after childbirth is going without any complications, is completely capable

00:59:25.580 | of going back to work.

00:59:27.440 | So medically speaking, a normal childbirth is not going to qualify for a disability benefit

00:59:33.980 | simply because most moms can do their work up until the day that they – day before

00:59:39.900 | or day of that they're going to be giving birth.

00:59:42.020 | A few days of rest, a week or two of rest ideally is going to be best and then they're

00:59:47.500 | back at it.

00:59:48.500 | Well, that's not going to satisfy the elimination period of a disability policy unless it's

00:59:53.660 | a very short-term disability policy.

00:59:55.700 | It's just not going to qualify.

00:59:57.740 | Just because you're choosing to stay at home and spend the first few months with your

01:00:01.220 | children and not go back to work doesn't mean that medically you can't go back to

01:00:07.020 | work.

01:00:08.020 | So it's not going to trigger the policy.

01:00:10.380 | However, if there is a complication associated with pregnancy such as, "Hey, I had a friend

01:00:19.180 | recently.

01:00:20.180 | Her water is released in the sixth month of pregnancy.

01:00:22.020 | OK.

01:00:23.020 | There are three months of bed rest now."

01:00:24.440 | At that point in time, medically she cannot work.

01:00:26.980 | And so once the elimination period of her contract has been satisfied – that's why

01:00:31.580 | I said a short-term is more likely to pay out.

01:00:34.260 | Once that two weeks or that three months is satisfied, then the policy will start paying

01:00:38.920 | benefits just like any other physical disabling condition.

01:00:44.080 | So pregnancy is covered.

01:00:45.580 | It's just that most pregnancies don't result in a medical disability.

01:00:49.940 | So usually you're not going to get a payout just because you had a baby.

01:00:53.860 | Next question here.

01:00:54.860 | This one is funny.

01:00:55.860 | It's a little hard to understand the question but I love the question.

01:00:59.340 | "Hi, Joshua.

01:01:00.340 | I've heard your podcast for a while now.

01:01:01.820 | I thought I should get in touch after hearing your recent podcast related to the importance

01:01:04.780 | of buying disability insurance.

01:01:06.460 | I'm interested in how the premiums receivable are calculated for certain disabilities.

01:01:13.260 | More specifically, what happens if an individual loses certain superpowers?

01:01:17.160 | As you may have seen recently, most movies are gradually starting to touch upon these

01:01:20.380 | superhumans amongst us.

01:01:21.980 | I am personally not worried as my superpowers are unlikely to disable anytime but I'm still

01:01:26.460 | curious to understand the finer details of these financial transactions."

01:01:31.220 | Love the question.

01:01:32.220 | Well, the answer is if your superpowers are related to your job and if you lose some of

01:01:38.220 | your superpowers and that causes you to suffer a loss of time, duties or income at your job,

01:01:45.300 | then you've got a problem.

01:01:47.400 | So the question is, do they know about your superpowers and are they going to be cataloged?

01:01:55.220 | They know about your super job.

01:01:58.900 | In general, it comes back to that loss of time, duties and/or income depending on the

01:02:04.720 | contract how it's written, time, duties and/or income.

01:02:07.740 | If you've suffered loss of those things, then you're generally going to receive a benefit

01:02:12.340 | once the terms of the contract have been fulfilled.

01:02:15.260 | As long as your contract includes a partial disability payment, then it's going to pay

01:02:21.320 | you out a partial benefit.

01:02:23.020 | So if you lose some superpower and that causes you to not be able to have a 25% loss of time

01:02:31.620 | at work, as long as your policy has a partial disability benefit associated with it, then

01:02:36.420 | that 25% loss of work will come with a 25% benefit.

01:02:40.860 | So that's the only way that the amount of money that you receive from a disability policy

01:02:44.820 | is going to be affected, is if you're receiving a proportional partial benefit.

01:02:49.940 | Most companies, anywhere from 20% to 80%, you'll receive a proportional benefit based

01:02:54.400 | upon the proportion of loss that you've experienced and then a proportion of the face amount of

01:02:59.820 | the policy.

01:03:00.820 | So 50% loss, you have a policy that's $4,000, they're paying you out a 50% benefit, you're

01:03:06.140 | going to receive $2,000 a month.

01:03:08.660 | It's not related to a loss of any one superpower.

01:03:11.740 | So if you had 10 superpowers and you lost one superpower, but you could still have full

01:03:16.220 | time at your job, do all the duties of your job and earn as much income, just because

01:03:24.180 | you lost one superpower out of 10 doesn't mean you're going to qualify as being disabled.

01:03:28.780 | Next question.

01:03:29.780 | Kevin says, "Hey, Josh.

01:03:30.780 | I love the series on disability insurance.

01:03:33.340 | Very helpful.

01:03:34.340 | I wanted to ask you a fairly general question about planning disability insurance.

01:03:37.580 | I'm a physician.

01:03:38.620 | It seems like there are quite a few physicians that listen to your show.

01:03:40.740 | By the way, thank you all the physicians that listen to the show.

01:03:43.180 | Feel free to correct me on all my medical ignorance.

01:03:45.780 | And I've recently had to tell one of my patients that she has an incurable, progressively blinding

01:03:50.440 | condition that will most likely leave her unable to work in several years.

01:03:54.980 | She is still quite young, in the middle of her career, and I hated giving this devastating

01:03:59.300 | news.

01:04:00.300 | She is but one of many people I take care of who face similar problems.

01:04:04.140 | Obviously, as someone who does not know the ins and outs of insurance, I can only direct

01:04:08.140 | them where they should go, but I want to be able to give them at least some helpful guidance

01:04:12.060 | as they deal with a major change to their lives.

01:04:14.700 | I deal with quite a few people trying to apply for Social Security disability, and I have

01:04:18.460 | a similar view as you do.

01:04:20.460 | People who need it can't get it, and it's generally not enough for any meaningful subsistence.

01:04:24.980 | My question is, what options are there for someone who is just diagnosed with a permanently

01:04:30.380 | disabling condition, either presently or something that almost universally is disabling in the

01:04:35.220 | future, for securing disability insurance?

01:04:37.600 | If there is anything, thank you for everything you do, Kevin.

01:04:40.260 | Kevin, unfortunately, the answer is there's no option.

01:04:43.140 | There's really not an option for disability insurance.

01:04:47.220 | Anytime your medical situation shows a hint of change, basically, most of your insurance

01:04:52.700 | options are going to be tossed out the window.

01:04:57.860 | Insurance companies are not in the business of losing money, and so they're not in the

01:05:01.140 | business of taking sick people.

01:05:03.300 | The way that an insurance company works well is if they have their rates, and their rates

01:05:07.700 | can be applicable across the board, and they know that they're doing good underwriting.

01:05:12.060 | Now, there are always exceptions.

01:05:13.760 | You may apply for insurance and the next day be diagnosed, but once there's been a diagnosis,

01:05:19.080 | your options for insurance are very, very limited.

01:05:24.280 | They're just practically non-existent.

01:05:25.360 | Again, insurance companies don't like things that are in flux.

01:05:32.700 | Even if something weren't going to result in a permanently disabling condition, even

01:05:37.160 | if it weren't almost assuredly going to result in blindness, even if something's in flux,

01:05:42.040 | all of a sudden things become difficult.

01:05:45.400 | When you buy insurance, insurance is not a right.

01:05:49.000 | You have to ask and be accepted in the contract.

01:05:55.160 | What's interesting, as an insurance agent, I've been through this many times, clients'

01:06:01.600 | attitudes change.

01:06:04.760 | Insurance has to be sold a little bit, sold kind of aggressively in the sense that I've

01:06:08.520 | got to make the case.

01:06:09.520 | That's why I started this series with selling you insurance, talking about the impact, trying

01:06:13.640 | to evoke in you sales.

01:06:15.640 | I'm trying to invoke in you an eager want for the product.

01:06:19.800 | I want you to want it.

01:06:21.280 | That's selling.

01:06:22.280 | I've got to transfer the enthusiasm that I have for the ownership of disability insurance

01:06:26.280 | to you.

01:06:27.280 | First, they've got to be sold.

01:06:29.360 | Many people come into a disability insurance discussion, just like many of you who are

01:06:33.040 | listening and they're not that interested.

01:06:34.560 | They don't really want it.

01:06:36.840 | Then the insurance agent sells them on the idea.

01:06:40.040 | Then we take it to underwriting.

01:06:41.880 | What happens is that if we get any problems in underwriting as an insurance agent, it's

01:06:46.160 | funny because your client that wasn't sure that they were even going to accept the policy,

01:06:49.160 | they think they want to apply, they're going to think about it, okay, let's go ahead and

01:06:51.960 | make an application, buy the coverage.

01:06:54.600 | They're thinking about all of a sudden they get very offended because it's kind of offensive

01:06:58.560 | to clients when the underwriter says, "Well, you're not quite our top choice."

01:07:05.320 | It changes the attitude.

01:07:07.640 | It's just always – I've always chuckled a little bit where I would have somebody who

01:07:11.720 | didn't want insurance.

01:07:12.920 | I showed up.

01:07:13.920 | They said they didn't want insurance.

01:07:14.920 | I asked them good questions.

01:07:16.240 | I opened their minds to the value of insurance.

01:07:19.360 | We went ahead and submitted an application.

01:07:21.000 | Then all of a sudden, they're angry with me that the insurance company doesn't want

01:07:23.760 | them.

01:07:24.760 | They're offended.

01:07:26.720 | So there's no disability solution that I know of.

01:07:29.720 | But that doesn't mean however that there can't be a solution that can be found.

01:07:36.000 | This is why I do radical personal finance, to demonstrate that financial tools such as

01:07:40.720 | insurance can be helpful and can be useful but there are other tools available as well.

01:07:47.640 | If I wanted a plan for the future of my family and I couldn't get life insurance, I could

01:07:52.600 | make a plan to make sure that my family is OK if I can't get life insurance.

01:07:56.480 | I should do a show on that sometime.

01:07:59.200 | You can solve that problem without life insurance.

01:08:01.520 | How do you solve it?

01:08:02.520 | Well, I just remember so clearly a family that we used to know.

01:08:06.880 | They built a cabin up in the mountains.

01:08:09.080 | They had lots of kids.

01:08:10.080 | The dad was sick.

01:08:11.440 | But when he died, he had an active family-operated business.

01:08:14.520 | They had no debt.

01:08:15.520 | They had a paid-for cabin, paid-for land in the mountains.

01:08:18.080 | The children were well-trained and were contributing to the business.

01:08:20.840 | So when dad died, the family was able to keep things going.

01:08:24.780 | He made a plan.

01:08:25.780 | He was prudent and he cared for his family even without buying life insurance.

01:08:30.280 | Same thing with disability.

01:08:31.280 | Now this particular person, blindness doesn't necessarily mean that they're completely going

01:08:36.560 | to be unable to do anything.

01:08:38.400 | You can earn an income doing something that's blind, even if you're blind.

01:08:41.840 | I could do my job with some changes but I could do my job now that I do with blindness.

01:08:48.920 | So the biggest opportunity for someone in that situation is – it's not going to happen

01:08:52.880 | probably with you as the doctor.

01:08:55.760 | It's not going to happen in the stress of the moment.

01:08:58.080 | But the biggest opportunity is let some time go.

01:08:59.840 | Let the emotions die down and then you make a new plan based upon the new constraints.

01:09:06.880 | You say, "How can we take this problem and turn it into a solution?"

01:09:11.040 | Take the problem, turn it into a solution.

01:09:13.860 | Figure out, "OK, this is a constraint."

01:09:15.720 | It doesn't mean that if you've got an income, if you're a truck driver and you're going

01:09:19.480 | to go blind, you're not going to be a truck driver anymore.

01:09:22.140 | But that doesn't mean you can't build new skills, new capacities for something that

01:09:26.600 | can be done even though you are blind.

01:09:29.800 | So that's the best solution for people in this situation.

01:09:33.160 | Probably not going to come from you, Kevin, just because you're a physician.

01:09:35.280 | But maybe you can encourage them that there are lots of people who have faced very difficult

01:09:39.400 | circumstances, including their own circumstance, and they'll be able to find a solution in

01:09:44.400 | time.

01:09:45.400 | All right.

01:09:46.400 | I think that is – just look at the rest of the questions.

01:09:48.680 | I think that's all the questions that I want to take today.

01:09:50.480 | I hope this series has been useful to you all.

01:09:52.580 | I hope you've enjoyed it, a little bit of inside look and a little bit more knowledgeable.

01:09:56.780 | If you've got more questions, I'd be happy to answer questions on a Friday Q&A call or

01:10:02.540 | I'd be happy to answer questions.

01:10:04.540 | You can send them by email.

01:10:05.860 | Sometimes they get in.

01:10:06.860 | Sometimes they don't.

01:10:08.160 | But I hope this has been useful to educate you and help you to feel a little bit more

01:10:12.380 | confident.

01:10:13.380 | That's my hope.

01:10:14.380 | My hope is to give you some more information and help you to feel more competent.

01:10:17.140 | I always used to love the Sims model.

01:10:20.020 | Si Sims had the discount clothing store.

01:10:22.420 | An educated consumer is our best customer was their store model.

01:10:26.340 | I think they're out of business now.

01:10:28.540 | But I always loved that model and an educated financial consumer is the best client for

01:10:36.420 | a good financial advisor, for a good insurance agent, et cetera.

01:10:40.220 | So I hope that – I mean I hope even just this insight in disability insurance.

01:10:43.820 | Insurance agents, they do a lot of work.

01:10:46.020 | It can be very, very valuable.

01:10:47.780 | I don't think that you need insurance agents in everything.

01:10:50.900 | Sometimes it works great to go right to the company.

01:10:53.660 | But I mean hopefully some of this inside knowledge that I've shared with you, knowing what

01:10:57.500 | company to go and present your case to, knowing how to package the case, knowing which company

01:11:02.340 | is the best, that's why it's good to find an insurance agent that you can trust.

01:11:07.020 | I feel one of the concerns that I have going forward is that the – for the financial

01:11:11.700 | planning industry is that the role of the insurance agent seems to be quickly falling

01:11:18.020 | to the wayside.

01:11:19.700 | Most young financial services professionals are interested in going to the investment

01:11:24.780 | side of the business.

01:11:25.780 | Man, a good insurance agent is really, really valuable.

01:11:29.260 | I don't see those ranks being filled.

01:11:31.260 | But not my problem.

01:11:32.260 | Thank you all so much for listening.

01:11:34.220 | If you'd like to support the show, I would be grateful to you for doing it.

01:11:37.260 | The primary mechanism for me earning income from the show is patrons of the show, listeners

01:11:40.940 | who – and thanks for the content – sign up as a patron.

01:11:44.340 | RadicalPersonalFinance.com/patron is where you can do that.

01:11:47.980 | RadicalPersonalFinance.com/patron.

01:11:49.940 | Thank you to the 260 of you who do that.

01:11:53.300 | Also if you would like to speak with me directly and have some kind of consultation on your

01:11:58.020 | situation, I'd be happy to serve you in that way.

01:11:59.940 | Go to RadicalPersonalFinance.com/phonecall.

01:12:02.700 | You can book a personal consultant call with me at RadicalPersonalFinance.com/phonecall.

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