back to indexRPF0358-DI_Taxation_and_Types_of_Policies
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Today on Radical Personal Finance, it's Financial Planning Wednesday, and we're going to round 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 00:00:20.600 |
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 00:00:46.440 |
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. 00:01:01.040 |
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 00:01:26.360 |
That one was entitled "Why You Should Buy Disability Income Insurance Before Any Other 00:01:33.960 |
That was the sales job that I needed to do on why you should really focus on disability 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 00:01:53.400 |
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. 00:02:11.880 |
That was a Q&A show where I answered should I get a couple of questions on disability 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 00:02:46.040 |
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 00:02:58.520 |
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. 00:03:06.440 |
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 00:03:15.920 |
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 00:03:35.840 |
Now, disappointingly, the advisors that you get here are not necessarily always insurance 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 00:03:51.640 |
But they're not necessarily insurance people. 00:03:54.800 |
I've worked to try to figure out a solution for being able to give referrals for you guys 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. 00:04:16.280 |
So what happens is that individual financial advisors come to the company. 00:04:22.200 |
Paladin researches them, researches their disciplinary records, takes a look at their 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. 00:04:48.800 |
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 00:05:22.560 |
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 00:05:40.560 |
All the details of that can be found at radicalpersonalfinance.com/phonecall. 00:05:48.640 |
First thing I want to talk about is taxation of premiums and benefits for individual disability 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. 00:06:08.040 |
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 00:06:38.640 |
There are a few exceptions to this general rule, but for the most part, just remember 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 00:07:09.320 |
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 00:07:23.880 |
So that's fairly simple for individuals who are going to just buy something themselves 00:07:33.580 |
But what about the situation for those of you who own businesses or what if you're getting 00:07:40.240 |
Well, again, the key is just to remember who owns the contract and who's getting the tax 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 00:08:04.040 |
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 00:08:29.680 |
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 00:08:46.000 |
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 00:09:10.240 |
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 00:09:46.980 |
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 00:10:06.100 |
So basically what you need to remember is simply that if you're deducting it up front, 00:10:13.200 |
If you're not deducting it, then the benefit is going to be tax-free. 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 00:10:28.460 |
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 00:10:50.420 |
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 00:11:10.420 |
And it would be great to go ahead and somehow be able to switch it if you knew you were 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. 00:11:38.320 |
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 00:12:07.660 |
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 00:12:23.500 |
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 00:13:09.980 |
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 00:14:06.820 |
I think I touched on this in a previous episode but I wasn't sure so I made a note to talk 00:14:13.060 |
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 00:14:41.820 |
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 00:14:54.180 |
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 00:15:25.260 |
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. 00:15:48.480 |
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 00:16:03.320 |
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. 00:16:22.040 |
One way that I used to solve this is by using what's called the social insurance substitute 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 00:16:39.840 |
Much harder to qualify for Social Security disability but there's nothing that stops 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. 00:16:59.000 |
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 00:17:09.980 |
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 00:17:45.520 |
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 00:18:00.720 |
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. 00:18:44.840 |
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. 00:19:01.480 |
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 00:19:13.720 |
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 00:19:40.920 |
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 00:19:56.320 |
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 00:20:22.600 |
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). 00:20:34.520 |
But then you get disabled and you don't have disability insurance. 00:20:39.520 |
First is the current cost, the fact that how do I earn my income now? 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? 00:20:55.120 |
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 00:21:07.520 |
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 00:21:14.960 |
So if you're up in the upper income limits or you're looking at this, you should consider 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 00:21:35.940 |
Life insurance underwriting is based upon the chances and the likelihood of your dying. 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. 00:22:18.560 |
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. 00:22:27.600 |
They diagnosed him with sleep apnea and they recommended that he use a CPAP machine. 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 00:22:51.720 |
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 00:23:06.680 |
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. 00:23:20.440 |
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 00:23:28.360 |
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 00:23:47.960 |
The reason is that the underwriters, they get very nervous about things that are recently 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 00:24:24.320 |
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 00:24:36.160 |
So with a company, it might be preferred, then standard plus, then standard, then table 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 00:25:14.560 |
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 00:25:41.600 |
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 00:25:56.480 |
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 00:26:20.600 |
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 00:26:31.040 |
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 00:26:40.840 |
If your back pain is not connected to it, something that's going to kill you, we don't 00:26:45.220 |
We just don't care, but we don't care how miserable you feel. 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 00:27:10.140 |
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 00:27:40.460 |
We'll cover you for anything, any kind of cause of disability except for this back pain 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 00:28:00.060 |
You should talk about those things and look into those things. 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 00:29:04.100 |
Now their HR coordinator won't like this because it'll mess up their rates if they have a bunch 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 00:29:46.880 |
Some companies are very competitive in these smaller market opportunities. 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 00:30:08.940 |
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 00:30:22.940 |
Also often, you should ask about the possibility of a multi-life discount when working with 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. 00:30:50.140 |
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. 00:30:58.780 |
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. 00:31:23.940 |
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? 00:31:31.780 |
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 00:31:54.100 |
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 00:32:11.600 |
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 00:32:29.180 |
And it was very much in the best interest of the attorneys, especially if I was working 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 00:32:51.500 |
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 00:33:01.500 |
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. 00:33:37.860 |
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 00:33:53.500 |
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 00:34:06.540 |
So just because you can't get disability insurance doesn't mean that you shouldn't 00:34:17.660 |
A good insurance agent might have a creative way to get you coverage. 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. 00:35:33.620 |
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 00:35:50.700 |
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 00:36:04.980 |
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 00:37:22.060 |
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 00:37:33.780 |
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. 00:38:01.880 |
You might or might not want to actually be in business with my wife. 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 00:38:19.500 |
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 00:38:53.620 |
You and I, we build a financial planning firm together and we're doing great. 00:39:01.140 |
And we build this thing bigger and bigger and bigger and we're both doing really well. 00:39:06.540 |
Well, I can't do the marketing like I planned but I'm also now receiving the benefits of 00:39:17.940 |
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. 00:39:28.620 |
But after a while, you're going to start to feel like you're getting the short end of 00:39:36.180 |
This is why when planning for partnerships or when you're in business with somebody, 00:39:51.820 |
My wife and I divorce but she's still the beneficiary of my shares and now I die and 00:40:06.420 |
You just sort of just handle all the Ds planning. 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. 00:40:31.980 |
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. 00:40:45.100 |
You receive $250,000 from the life insurance policy that you owned on me. 00:41:01.260 |
Another episode will cover buy-sell plans in depth. 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 00:41:21.700 |
So this can work out really well because she received – we'll save taxation for another 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 00:41:51.620 |
The problem with this comes in from two reasons. 00:41:56.420 |
Where do we get the money for you to buy me out? 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 00:42:08.460 |
So where do you get the $250,000 to buy me out? 00:42:11.020 |
I'm fighting cancer and you need the business. 00:42:15.780 |
Well, it would be nice if you had a policy there that was set to pay with a lump sum. 00:42:24.260 |
And what these will do is they'll have a very long elimination period, maybe a year, 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. 00:42:39.940 |
You can structure them either with a lump sum or a series of payments if you need to. 00:42:46.500 |
So if I were disabled, I'm fighting cancer, a year into that thing, the disability policy 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. 00:43:20.100 |
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? 00:43:37.060 |
I'm still receiving 50 percent of the profits. 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 00:43:54.180 |
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 00:44:08.500 |
And so it can become very difficult for partners to figure out, "Are you disabled or are 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? 00:44:34.420 |
So the buy-sell agreement could say, "Well, if Josh was disabled, you got to buy him out. 00:44:39.740 |
And how am I going to prove that I'm disabled?" 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." 00:45:14.460 |
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 00:45:26.060 |
Because the legal agreement says I'm disabled, but the insurance agreement doesn't pay out. 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. 00:45:59.940 |
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 00:46:27.280 |
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, 00:46:38.700 |
And yet the value of the firm, the equity, the reputation that you've built, that's a 00:46:46.420 |
So older professionals try to cash out by bringing in younger partners and doing a buyout 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. 00:47:03.220 |
There are some unique things you can sometimes get, impaired risk disability policies. 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 00:47:38.020 |
I'm going to insure my lips in case my lips get damaged. 00:47:44.020 |
But I had – I worked with one lady who was a TV correspondent and she was an independent 00:47:50.820 |
We couldn't get her disability insurance with a mainstream company because they wouldn't 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. 00:48:11.940 |
You can go ahead and you can get in place a policy with a mainstream company, but they're 00:48:23.280 |
But you can go ahead and get an additional supplemental policy for a much higher amount 00:48:31.660 |
If you're in a market like a physician, there's physician excess limits policies 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 00:49:07.580 |
I pay them handsomely and they bring in 80 percent of our revenues because they've 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 00:49:43.340 |
You can also purchase key person disability insurance and it does the same thing. 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 00:50:37.860 |
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. 00:51:19.360 |
That covers most of the things that I wanted to cover here. 00:51:24.940 |
Joshua, I heard one of the podcasts where you mentioned you're going to be doing a 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 00:51:40.440 |
My income isn't very predictable but my expenses are really low. 00:51:45.880 |
But it wouldn't if I were hospitalized or indefinitely incapacitated. 00:51:56.220 |
Now, depending on how you have these things structured in terms of your personal activities, 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. 00:52:33.940 |
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. 00:52:46.460 |
You got to be working at least 15, 10, 15, 20 hours a week in an occupation for it to 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 00:53:12.580 |
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 00:54:04.140 |
Well, now you can go ahead and get disability insurance. 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? 00:54:30.460 |
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. 00:54:42.560 |
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 00:54:59.220 |
I've never seen that but what I would do is as with anything, any documentation that you 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 00:55:33.940 |
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. 00:56:28.440 |
Some companies and I cannot name any specific companies. 00:56:31.460 |
I would just encourage you to do research on companies. 00:56:39.740 |
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. 00:57:11.540 |
As a USAA policy owner, when I've had to make insurance claims, I had accidents a couple 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 00:57:37.500 |
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 00:57:50.660 |
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. 00:58:17.940 |
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 00:58:26.640 |
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 00:58:38.460 |
So the short answer is that yes, pregnancy is considered something that can pay out for 00:58:45.540 |
Generally, it will pay out more for short-term disability than for long-term disability although 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 00:59:27.440 |
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 00:59:48.500 |
Well, that's not going to satisfy the elimination period of a disability policy unless it's 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 01:00:10.380 |
However, if there is a complication associated with pregnancy such as, "Hey, I had a friend 01:00:20.180 |
Her water is released in the sixth month of pregnancy. 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. 01:00:45.580 |
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. 01:00:55.860 |
It's a little hard to understand the question but I love the question. 01:01:01.820 |
I thought I should get in touch after hearing your recent podcast related to the importance 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 01:01:21.980 |
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." 01:01:32.220 |
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, 01:01:47.400 |
So the question is, do they know about your superpowers and are they going to be cataloged? 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 01:02:23.020 |
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 01:03:00.820 |
So 50% loss, you have a policy that's $4,000, they're paying you out a 50% benefit, you're 01:03:08.660 |
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. 01:03:34.340 |
I wanted to ask you a fairly general question about planning disability insurance. 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 01:04:00.300 |
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 01:04:20.460 |
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 01:04:37.600 |
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 01:05:03.300 |
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. 01:05:13.760 |
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. 01:05:25.360 |
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, 01:05:45.400 |
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' 01:06:04.760 |
Insurance has to be sold a little bit, sold kind of aggressively in the sense that I've 01:06:09.520 |
That's why I started this series with selling you insurance, talking about the impact, trying 01:06:15.640 |
I'm trying to invoke in you an eager want for the product. 01:06:22.280 |
I've got to transfer the enthusiasm that I have for the ownership of disability insurance 01:06:29.360 |
Many people come into a disability insurance discussion, just like many of you who are 01:06:36.840 |
Then the insurance agent sells them on the idea. 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 01:06:54.600 |
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." 01:07:07.640 |
It's just always – I've always chuckled a little bit where I would have somebody who 01:07:16.240 |
I opened their minds to the value of insurance. 01:07:21.000 |
Then all of a sudden, they're angry with me that the insurance company doesn't want 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. 01:07:59.200 |
You can solve that problem without life insurance. 01:08:02.520 |
Well, I just remember so clearly a family that we used to know. 01:08:11.440 |
But when he died, he had an active family-operated business. 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. 01:08:25.780 |
He was prudent and he cared for his family even without buying life insurance. 01:08:31.280 |
Now this particular person, blindness doesn't necessarily mean that they're completely going 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 01:08:55.760 |
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?" 01:09:15.720 |
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 01:09:29.800 |
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 01:09:46.400 |
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 01:10:08.160 |
But I hope this has been useful to educate you and help you to feel a little bit more 01:10:14.380 |
My hope is to give you some more information and help you to feel more competent. 01:10:22.420 |
An educated consumer is our best customer was their store model. 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. 01:10:47.780 |
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 01:11:19.700 |
Most young financial services professionals are interested in going to the investment 01:11:25.780 |
Man, a good insurance agent is really, really valuable. 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. 01:11:53.300 |
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. 01:12:02.700 |
You can book a personal consultant call with me at RadicalPersonalFinance.com/phonecall. 01:12:18.840 |
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