Latest / Only Fee-Only / #67 - From Jargon to Clarity: Making Sense of Disability Income Insurance - Dr. Rodney Mogen and Peter Ciravolo

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#67 - From Jargon to Clarity: Making Sense of Disability Income Insurance - Dr. Rodney Mogen and Peter Ciravolo · Only Fee-Only

• 0:05
  Speaker 1: How's it going everyone?
• 0:06
  Speaker 1: Welcome back to the Only Fee Only podcast and, as always, thanks for being here.
• 0:10
  Speaker 1: We've been on a little bit of a break as I just got married and just got back from out of the country, but we are back better than ever and super excited to be doing this again consistently.
• 0:23
  Speaker 1: Also, quick announcement we're going to be at the NAFTA conference starting when you're listening to this Today.
• 0:30
  Speaker 1: It's going to be starting on Wednesday and we're going to be there through Saturday morning.
• 0:34
  Speaker 1: So if you're going to be at the NAFTA conference in Louisville this week, please reach out.
• 0:39
  Speaker 1: We love to meet you.
• 0:40
  Speaker 1: We love to meet new financial planners and connect with the existing ones that we know all across the country.
• 0:45
  Speaker 1: So let us know.
• 0:47
  Speaker 1: In this episode we're going to do things a little bit differently.
• 0:49
  Speaker 1: As you guys know, we love to have financial planners on Fee Only financial planners to learn about their story and what they're doing.
• 0:55
  Speaker 1: But every once in a while we get requests about hey, would you mind?
• 0:59
  Speaker 1: We're going to be doing an episode covering some of the nuances of a specific insurance type, and so in this episode we've got Dr Rodney Mogan, who's a part of the BC Brokers team Unbelievable, has so much knowledge, and we've also got Peter Travelo, who you guys all know and love, on here as well.
• 1:16
  Speaker 1: So we're going to do an episode for you guys today about disability income insurance and some of the nuances and things that go along with that product.
• 1:26
  Speaker 1: So thanks for being here.
• 1:28
  Speaker 1: Here we go.
• 1:31
  Speaker 2: What's up everyone.
• 1:32
  Speaker 2: So today we want to do a little bit different of an episode where we talk about DI.
• 1:37
  Speaker 2: All we do is work with Fee Only planners to help implement their life, disability, long-term care and annuities.
• 1:46
  Speaker 2: And one of the biggest product lines that we get questions on or there's misunderstandings or there just isn't much experience in the product would be disability income insurance.
• 2:00
  Speaker 2: So today, rodney and I we're going to go over the basics really quick and then we want to get into some more specific questions and how to have these conversations with your clients, what features are important and just a general kind of 201, so higher level.
• 2:20
  Speaker 2: So, without further ado, let's get into it, rodney.
• 2:23
  Speaker 2: So I mean disability when we talk about it from financial planning, right, like there's some risks to the financial plan, inflation, right, not saving enough, a premature death and disability.
• 2:40
  Speaker 2: Disability is a huge consideration and a lot of the times, advisors.
• 2:46
  Speaker 2: When we talk to them about disability, income insurance and clients, right, there isn't much understanding or we get oh, you know what, we're already covered, or, you know, I have a little bit through work, I think I'm going to be all right.
• 3:00
  Speaker 2: And this is what we hear a lot of and really what we have found is that advisors, they don't know how to have the conversation with the client.
• 3:11
  Speaker 2: So, rodney, I mean you've got 20 years of experience, you've implemented thousands, tens of thousands of these plans.
• 3:19
  Speaker 2: Like what are you seeing on?
• 3:21
  Speaker 2: Just how do you get the ball rolling and having this conversation between the advisor and the client?
• 3:29
  Speaker 3: I think the very first thing is and you, peter, you've heard me say this many times stop calling it disability insurance, call it income protection.
• 3:38
  Speaker 3: And here's why I say that.
• 3:41
  Speaker 3: Just close your eyes for a second.
• 3:43
  Speaker 3: If I say, imagine you're disabled, what are you thinking?
• 3:48
  Speaker 3: Immediately Most people are going to think of they are in a wheelchair.
• 3:53
  Speaker 3: That you know, and you know.
• 3:55
  Speaker 3: We had conversations yesterday with a couple people.
• 3:57
  Speaker 3: Well, I'm a financial advisor or I'm this.
• 4:00
  Speaker 3: As long as I can use a computer and talk, I'm fine.
• 4:02
  Speaker 3: I don't need disability insurance.
• 4:04
  Speaker 3: Yeah, you know, and this is coming from someone that has to start using a wheelchair.
• 4:09
  Speaker 3: Me, I am partially disabled.
• 4:11
  Speaker 3: I'm 100% partially disabled.
• 4:13
  Speaker 3: I'm tired sometimes throughout the day.
• 4:15
  Speaker 3: There are just times where I just can't work, you know.
• 4:18
  Speaker 3: And so think about it in your own practice or your own deal, if you know.
• 4:24
  Speaker 3: Let's take the wheelchair thing, for example.
• 4:26
  Speaker 3: If you are in a wheelchair and you grow in a physical therapy three hours a day or two hours a day, which a lot of people in wheelchairs do, how effective are you at work doing that?
• 4:35
  Speaker 3: You know?
• 4:35
  Speaker 3: So are you working less hours as your income gone down?
• 4:38
  Speaker 3: Those different things?
• 4:38
  Speaker 3: That's why I said let's pull it out of the wheelchair view by calling it disability insurance and let's talk about income protection, because we also know that that wheelchair thing is really only about 5% to 10% of all disability claims.
• 4:53
  Speaker 3: So and that's per the Disability Awareness Council.
• 4:56
  Speaker 3: So if you, you know, if you take a look at that, then we know a lot of disability claims are mental health, they are cancer, heart attack, stroke diagnosis, different things like that.
• 5:12
  Speaker 3: You know Lou Gehrig's disease, als, ms, all those different things.
• 5:17
  Speaker 3: So that's not necessarily the wheelchair consideration.
• 5:22
  Speaker 3: Maybe there's an aphasia in the brain, which you know.
• 5:26
  Speaker 3: I have a client that is a financial advisor that cannot look at a computer screen anymore.
• 5:30
  Speaker 3: He's the CEO of a financial planning firm now, but everyone has to actually talk to him.
• 5:36
  Speaker 3: He can't read numbers, he can't process that.
• 5:39
  Speaker 3: That was a mini stroke, you know, and he's 36 years old.
• 5:43
  Speaker 3: Things happen.
• 5:45
  Speaker 3: So that's where you want to kind of take a look at this.
• 5:48
  Speaker 3: That's why I like to change it to income protection.
• 5:50
  Speaker 3: What happens if you are a sick or injured and you're either limited or can't work at all, and then that I think when you start having that conversation, then it makes it a lot easier to talk with your clients about it, because now you can start talking about scenarios of all right, if something were to happen where you can't work for seven months or eight months to a sickness or injury you're going to the doctor every day or going to treatment or things like that how is your lifestyle changing?
• 6:18
  Speaker 3: What income do you need to cover that?
• 6:21
  Speaker 3: Now we can protect that income versus saying, hey, here's my computer printout.
• 6:29
  Speaker 3: It says if you are disabled, you're going to need this.
• 6:34
  Speaker 3: Human nature is going to be well.
• 6:36
  Speaker 3: No, no, we'll figure it out.
• 6:37
  Speaker 3: No, we don't need that, we don't need to spend this money or whatever.
• 6:40
  Speaker 3: But when you start saying how much money do you need?
• 6:43
  Speaker 3: How do we get that?
• 6:45
  Speaker 3: Do you want to pull it from your portfolio or do you want to actually leverage that money with some insurance dollars so that you don't have to touch your portfolio, don't have to pay higher taxes, don't have to pull it out during high inflation, low market returns, things like that?
• 6:59
  Speaker 3: Now it becomes a risk play versus a cost play.
• 7:06
  Speaker 2: Yeah, those are all great points, really exchanging the word out disability to income protection, having that conversation.
• 7:15
  Speaker 2: God forbid bad things happen to good people.
• 7:18
  Speaker 2: If a disability were to occur, what do you want to have happen?
• 7:24
  Speaker 2: What does it look like financially?
• 7:26
  Speaker 2: How does it look like within the family?
• 7:29
  Speaker 2: It's a very interesting conversation.
• 7:33
  Speaker 2: So let's dive a little bit deeper, just into this intro and shifting the client's thinking.
• 7:40
  Speaker 2: So let's get over some objections here.
• 7:43
  Speaker 2: Maybe, okay, I'm covered through work, or I think I got that through work.
• 7:48
  Speaker 2: Or how about, oh well, a family member might take care of me.
• 7:54
  Speaker 2: Or oh, I got some emergency funds.
• 7:56
  Speaker 2: What are some of your reactions to these objections, rodney?
• 8:02
  Speaker 3: So my reactions to those objections are really there's four ways you can cover disability or income protection.
• 8:09
  Speaker 3: Number one is self-insured.
• 8:11
  Speaker 3: So you talked about oh, I've got emergency funds, I've got different things like that.
• 8:14
  Speaker 3: Okay, great, so able to understand, fancy, do you have six months a year, a year and a half, two years of emergency funds?
• 8:21
  Speaker 3: Most people in this country we know don't even have two months, so they're gonna say A thousand bucks.
• 8:28
  Speaker 3: You know they're gonna say, no, I don't have that.
• 8:30
  Speaker 3: No, I don't have all that covered.
• 8:32
  Speaker 3: Okay, so that's a real easy question.
• 8:36
  Speaker 3: Right, there is.
• 8:37
  Speaker 3: You ask them that question and then you go all right, well, you've got $600,000 in your 401k If a disability were to happen tomorrow and you needed it.
• 8:46
  Speaker 3: You said you only have two months of.
• 8:48
  Speaker 3: Let's just be general.
• 8:49
  Speaker 3: Let's just say they have three months of reserve.
• 8:50
  Speaker 3: So let's say that disability, which we know a disability on average, about 71, 72% of them are going to actually be over three months.
• 9:01
  Speaker 3: So let's say that occurs.
• 9:03
  Speaker 3: Where are you gonna get that income from?
• 9:07
  Speaker 3: Well, I guess I'll have to pull from my 401k, because that's their number one asset.
• 9:12
  Speaker 1: Great when you pull it out, you're gonna be appalling.
• 9:16
  Speaker 3: because you're under 15 and a half, you're gonna get taxed on it.
• 9:19
  Speaker 3: So how long is that realistically gonna last, you know, would you rep?
• 9:25
  Speaker 3: And then what if you do get better?
• 9:27
  Speaker 3: What if it's only a year long disability?
• 9:29
  Speaker 3: How many more years now are you gonna have to work because you actually harmed your 401k?
• 9:36
  Speaker 2: So, that knocks out the self-insurance.
• 9:39
  Speaker 3: Objection for the most part Government objection because that's the second way that you can cover disability.
• 9:45
  Speaker 3: Government objection and what you can do with that is great.
• 9:53
  Speaker 3: Do you know how social security works?
• 9:55
  Speaker 3: Do you know definitions?
• 9:57
  Speaker 3: Well, what is that important?
• 9:59
  Speaker 3: Well, you have an any-off definition on social security.
• 10:03
  Speaker 3: It's looking at different things like that meaning you can't work at all.
• 10:07
  Speaker 3: And I have a personal situation where my wife is disabled.
• 10:10
  Speaker 3: As we were filling out the application, she got to nine because she answered the question yes, I can fold laundry.
• 10:17
  Speaker 3: So they considered her not disabled.
• 10:21
  Speaker 3: You also take you can apply for six months.
• 10:24
  Speaker 3: So it goes back to the first question how much cash reserve do you have?
• 10:28
  Speaker 3: So you have to know the facts a little bit.
• 10:31
  Speaker 3: Or if you don't wanna know the facts, or if you don't really wanna have that conversation, that's where you get us involved We'll have that conversation, we can talk about that and do it in that way.
• 10:44
  Speaker 3: The conversation I like to have the best is the third one and that is group coverage.
• 10:49
  Speaker 3: And the reason why I love having that conversation is because it's very eye-opening for clients, because if you really look at benefits in general benefits, group work benefits group benefits are about covering or you think they're about covering the worker.
• 11:07
  Speaker 3: No, they're actually not necessarily about covering the worker.
• 11:11
  Speaker 3: No matter what benefit you're talking about, they're about providing a benefit for you to want to stay at that company, because if another company has it at the same pay raise or same pay amount or whatever, you're gonna wanna go to that company.
• 11:25
  Speaker 3: So that's why most employers offer it.
• 11:27
  Speaker 3: A lot of small employers don't offer it.
• 11:30
  Speaker 3: They all offer health insurance because they almost have to, based on federal law, but they don't have to necessarily offer disability insurance.
• 11:35
  Speaker 3: If they offer it, that seems like, in your mind, a really great benefit Until you start reading the details.
• 11:41
  Speaker 3: So the very first question I always ask is what's in the?
• 11:46
  Speaker 3: How does your policy pay?
• 11:49
  Speaker 3: Most people don't know what it is.
• 11:52
  Speaker 3: They may have read the blurb that they signed up for that said 50% or 60%.
• 11:56
  Speaker 3: We had a situation where a doc this week thought they were getting 84%.
• 12:01
  Speaker 3: Now, right away I knew that was wrong, because the most you're gonna be able to get is 80%, but it was 84% of her eligible earnings are the calculation pool, and then it's 65% of that.
• 12:13
  Speaker 3: So, and then there's a monthly cap and a lot of high earners don't know about this monthly cap.
• 12:21
  Speaker 3: We work with a lot of people that they have a base salary.
• 12:24
  Speaker 3: They also have commissions and bonuses.
• 12:27
  Speaker 3: They have restricted stock.
• 12:29
  Speaker 3: They have other different things.
• 12:30
  Speaker 3: Well, here's where the devil is in.
• 12:32
  Speaker 3: The details is a lot of times that group policy doesn't cover all that ancillary stuff.
• 12:37
  Speaker 3: It only covers the base salary.
• 12:39
  Speaker 3: So if you've got someone that's, let's say, making 100,000, it may be 60,000.
• 12:43
  Speaker 3: Now their total comp might be 300,000.
• 12:46
  Speaker 3: So they're thinking they have 180,000 in coverage.
• 12:48
  Speaker 3: No, they've got 60,000 in coverage because it's 60% of the base salary of 100,000.
• 12:54
  Speaker 3: So they're not covering all that ancillary comp.
• 12:58
  Speaker 3: Or maybe it does cover that full 300, but it's capped at 7,500 or it's capped at 5,000.
• 13:05
  Speaker 3: I'm seeing those caps go further and further down, not as high as they used to be.
• 13:10
  Speaker 3: I'm also seeing the percentage go down because and then that's the lovely thing is, that's the other reason why I like having this conversation is because everyone thinks disability is the same whether it's through group or individual.
• 13:21
  Speaker 3: So they don't understand why, individually, they're paying $300 a month for the same coverage they would get at work where they're paying $5, $10 every paycheck.
• 13:31
  Speaker 3: Well, it's because their employer is subsidizing 90, 95%, not all of it for them, which then makes it taxable all those different things.
• 13:40
  Speaker 3: Here they're actually covering the whole cost.
• 13:42
  Speaker 3: So what we want if they do have group that if someone says, hey, you know, I already have it through work and it's like great, I'm glad you signed up for it, congratulations, do you know how it works?
• 13:53
  Speaker 3: And then that opens up that conversation of well, no, and then again it goes back to what I was saying at the very beginning.
• 14:02
  Speaker 3: Maybe that 60%, that's really about 40 because it's taxable, and so on and so forth.
• 14:08
  Speaker 3: Maybe that's all they really need.
• 14:10
  Speaker 3: You know, because you have that income conversation with them.
• 14:13
  Speaker 3: More than likely it's not, but that takes away where you're not pushing them or doing anything.
• 14:21
  Speaker 3: You're actually having that conversation of hey, okay, remember we said that you needed really 7,000.
• 14:26
  Speaker 3: Well, your group policy only covers this, so it only gives you 4,000 or 5,000 a month.
• 14:33
  Speaker 3: So do you want to change your income assumption?
• 14:36
  Speaker 3: Need that you need, or do you want to add additional coverage?
• 14:39
  Speaker 3: Now, what have I done?
• 14:42
  Speaker 3: I've now changed it from here's what you need versus you're making the choice oh, I can live off of 5,000.
• 14:53
  Speaker 3: Well, can you really?
• 14:54
  Speaker 3: I mean, you have to ask them that question versus Correct.
• 14:58
  Speaker 3: So now you're putting them in the driver's seat and that's what I have found is, you know, there's a you know a business coach I work with a lot and he talks about the decision making, a compass, and basically I think too many times we do the first part of the compass, which is identify the problem, and then we skip that some things on fire, some things on fire.
• 15:25
  Speaker 3: And then we skip the second part of the compass, which I'll come back to in a second, and we go immediately to the third come third part of the compass, which is the solution to the problem.
• 15:36
  Speaker 3: Yep, but that second step we skip is probably the most important buy in that it actually is a problem for them.
• 16:22
  Speaker 2: Agreed.
• 16:22
  Speaker 2: I think you know many people and this is just in general.
• 16:27
  Speaker 2: Right, the group coverage, you are going to be underinsured.
• 16:32
  Speaker 2: It's just that's the way it is with the caps and 60% pre-tax.
• 16:39
  Speaker 2: So then it's 45%.
• 16:40
  Speaker 2: Most people are, you know, they're living expenses and they're, you know what they're investing is greater than 45%.
• 16:47
  Speaker 2: So there is a shortcoming there.
• 16:49
  Speaker 2: So you know, talking with advisors so much and I hope if you know whoever's listening to this in the first 15 minutes of this, you know it's really about shifting that client instead of just price, price, price, price price and look at quotes, hey, this is a risk to your financial plan, no different than like inflation or credit card debt or, you know, living too long, having a premature death term, life insurance having, you know, a disability and injury or sickness right, most of them they're not injuries, they can be sickness.
• 17:26
  Speaker 2: We're seeing a lot of mental health things like that.
• 17:28
  Speaker 2: So really putting the client in the driver's seat and letting them understand is really important.
• 17:35
  Speaker 3: Well and real quick.
• 17:36
  Speaker 3: Let me also make this personal to the financial advisors that listen to this podcast.
• 17:40
  Speaker 3: How hard is it to get a client?
• 17:43
  Speaker 3: Think about that for yourself.
• 17:46
  Speaker 3: What do you have to do to go get a client?
• 17:49
  Speaker 2: So if yeah, the amount of content and Content, the word.
• 17:52
  Speaker 2: It takes time, it takes time.
• 17:53
  Speaker 2: It's unreal.
• 17:55
  Speaker 3: And the reason why I bring that up is what if you have a client, you don't talk to them about disability insurance or you?
• 18:02
  Speaker 3: What I see a lot of advisors do hey, you have a need for disability insurance?
• 18:05
  Speaker 3: Sign here that I talked about it.
• 18:07
  Speaker 3: Okay, move on, you know.
• 18:09
  Speaker 3: Or if plans are too expensive, or you know you have enough at work I'm making fun of it, but really that is actually what I see a lot of the time but that client gets disabled.
• 18:21
  Speaker 3: They don't have the income to cover what they need because it wasn't really mapped out of what they really need.
• 18:28
  Speaker 3: So what do they do?
• 18:28
  Speaker 3: They start pulling from their investments.
• 18:30
  Speaker 3: They no longer pay your fee, they are pulling from you, and so it's reducing the investments that you're helping them with.
• 18:36
  Speaker 3: That actually hurts your income long term.
• 18:40
  Speaker 3: So that's what I'm saying is think of all the time, the money, the investment that you've put in there, at the very least.
• 18:47
  Speaker 3: Obviously, first of all, you should be actually protecting your client and helping your client get protected, but think of it also as practice insurance for you as well, that when you do talk about it, your clients are covered and if something were to happen when they come to you what are we gonna do now?
• 19:05
  Speaker 3: You don't have to go well, okay, we can liquidate this and do this and do that.
• 19:09
  Speaker 3: We can say, hey, this is what we plan for, we've got this, this and this, we have the disability insurance, you're covered.
• 19:14
  Speaker 3: And think about how that also would generate referrals when that occurs.
• 19:20
  Speaker 3: Because a lot of times when people go through a traumatic event, studies show if you've ever listened to Bill Cates, the referral coach, he will actually say the most referrals come from a positive solution to a traumatic event.
• 19:37
  Speaker 2: Yup, because you were there for them and that you know, and I think that really having the disability conversation and not checking a box is what's most important.
• 19:45
  Speaker 2: So, all right, so we've identified, we've had the conversation with the client, that there's a shortcoming in income protection.
• 19:53
  Speaker 2: Okay, so let's dive in a little bit into just the product side a little bit, okay.
• 20:01
  Speaker 2: So really, you know, I mean people, you can boil it down to four or five, but there might be eight to 10 levers, if you will, for pricing on an individual disability income policy.
• 20:16
  Speaker 2: Okay, some of them right off the bat you're going to be age, gender, state, occupation and then, from their definitions, riders, health policy size, health benefit length.
• 20:36
  Speaker 2: So there's a lot to get into.
• 20:38
  Speaker 2: And I think that for the fee only planner, it's very important to have the beginning, what we've already talked about and once when you establish that need, that's kind of when you would bring in a broker like us to come and help, but what we would do is come in and find these eight to 10 levers and implement or build a plan that could work.
• 21:02
  Speaker 2: So let's talk a little bit, rodney, about what we look at.
• 21:06
  Speaker 2: So let's just say, for example, a lot of the clients that we work with with fee only planners.
• 21:12
  Speaker 2: They're high earning, not rich yet Okay, and they might have blends of income.
• 21:18
  Speaker 2: And what do I mean by that?
• 21:19
  Speaker 2: They might have active income at one job and it's a salary, and then they get some bonuses or they get some RSUs.
• 21:28
  Speaker 2: They might own a rental property, their first home.
• 21:33
  Speaker 2: They have a great mortgage on it.
• 21:35
  Speaker 2: They're just going to keep renting it out and that's there.
• 21:39
  Speaker 2: So, rodney, let's talk a little bit about what type of income even qualifies for disability income insurance.
• 21:47
  Speaker 3: So disability insurance is basically really only active income.
• 21:52
  Speaker 3: The only thing that somewhat looks like it's passive income but that qualifies are RSUs, restricted stock units or restricted stock grants or stock options.
• 22:05
  Speaker 3: Those may look like passive but they actually are considered active on that.
• 22:11
  Speaker 3: Now they are discounted.
• 22:12
  Speaker 3: So if you're getting 100,000, most companies generally discounted by 60%, so it's really only a $40,000 cash value.
• 22:20
  Speaker 3: But any true passive sources rental income, sometimes K1s in, where it's dividend income coming off of a business versus an actual salary or distribution those can actually be reduced.
• 22:36
  Speaker 3: It just really depends on the type of business and I can talk about that later.
• 22:41
  Speaker 3: So when we're looking at the overall financial aspect, we take a look at their active income, what their income is.
• 22:52
  Speaker 3: And let me just highlight something real quick.
• 22:54
  Speaker 3: We had this pop up yesterday as well when we're given an income, if they're a W2 employee, it's usually not an issue because if they tell me $200,000, I just assume that's their salary, $200,000, unless they break it up saying I get $50,000 in bonus, things like that.
• 23:12
  Speaker 3: But if they're a small business owner and they tell me my income is $100,000, the assumption we make is that is their net income.
• 23:21
  Speaker 3: And notice, I said gross income for W2, net schedule C or net income for business owner, because that's what disability companies will cover is the net after taxes, after deductions, all those different things.
• 23:39
  Speaker 3: So we had a situation where they gave us one number but when it came back and we looked at the tax return it was $35,000 lower and so that did affect the benefit.
• 23:52
  Speaker 3: But I mean they understood it no big deal.
• 23:54
  Speaker 3: It was just a misunderstanding and we thought that we were given the net number, not the gross number.
• 24:01
  Speaker 3: And so those are some of the things that you have to look at first of all, right there.
• 24:06
  Speaker 3: Number two is working with another person yesterday.
• 24:08
  Speaker 3: You have gross income figured out, what their net income is to the business owner.
• 24:12
  Speaker 3: But then we were looking at the tax return.
• 24:14
  Speaker 3: We noticed that the net business income was actually higher than what was on their schedule C.
• 24:19
  Speaker 3: Well, that's because they had rental properties.
• 24:22
  Speaker 3: Well, when you have rental properties or that passive income that comes in dividends from stocks, all those different things, really, my general rule is if it's under $10,000, we don't really have to worry about it.
• 24:33
  Speaker 3: That's per year under $10,000.
• 24:35
  Speaker 3: Per year it's over $10,000.
• 24:37
  Speaker 3: That is something that we will put in the calculation, and as we do that, that reduces the benefit pretty much dollar for dollar.
• 24:45
  Speaker 3: So if you've got $18,000 in rental income or dividend income and for that they actually use gross, it gets very confusing on when you look at the underwriting side of it.
• 24:59
  Speaker 3: They use your net schedule C, but they use your gross rental income, because that rental income is going to come in pretty much no matter what, and so that $18,000, that's $1,500.
• 25:11
  Speaker 3: So if you were eligible for a $6,000 a month benefit, now you're actually eligible for a $4,500 a month benefit, now a lot of companies will do that reduction upfront.
• 25:22
  Speaker 3: There are a couple, though, that do that upon claim.
• 25:25
  Speaker 3: So that's another thing you have to look out for is if you have a lot of rental property, you go with a couple of different companies.
• 25:32
  Speaker 3: Yeah, you can get a larger benefit now, but it actually is going to get reduced.
• 25:37
  Speaker 3: So you've been paying all this money for a larger benefit and you're actually getting a much reduced benefit at that point.
• 25:41
  Speaker 3: So there's a lot of factors to look at.
• 25:46
  Speaker 2: Yes.
• 25:46
  Speaker 2: So I mean basically and I mean you got to be a seasoned disability professional.
• 25:52
  Speaker 2: I'm telling you it's hard to put a percentage on it, but it would be under 5% of people know how to actually calculate the benefit amount that's qualifiable, and it's not just punching it into a system, it's being able to also read tax returns and understand the true client situation.
• 26:15
  Speaker 3: So that is an important the advantage I have with you and not everyone knows this is I am a certified DI underwriter.
• 26:22
  Speaker 3: I'm also a certified life underwriter, so when I'm doing things, I'm looking at it from an underwriter's perspective, not just as an agent.
• 26:28
  Speaker 3: And so, like you said, it's not just putting it in a system, it's really calculating, making sure you do things the right way.
• 26:36
  Speaker 2: Yes, so that's how income will affect pricing or what they can qualify for.
• 26:42
  Speaker 2: Of course we also have to take into account if there's any group benefit at work.
• 26:48
  Speaker 2: This must be taken into account, whether or not they opt into it, and majority of the time it is in the client's best interest to take advantage of the group plan.
• 26:59
  Speaker 2: Dollar for dollar, the coverage is unbeatable.
• 27:03
  Speaker 2: You're not going to be able to get that on the private market.
• 27:07
  Speaker 3: So here, real quick on that point, because we get this question a lot.
• 27:11
  Speaker 3: Well, they're going to leave the company in a year and maybe start their own business or whatever.
• 27:14
  Speaker 3: So we need to get them to actually have the most coverage possible.
• 27:17
  Speaker 3: The problem is, like you said, if they've got a group plan, whether they are signed into it or not, we by law have to include that in our calculation of the individual.
• 27:31
  Speaker 3: So even if we know they're going to leave, we can't tell the underwriter that, because the underwriters do have to make sure that you know, because we're getting audited all those different things.
• 27:41
  Speaker 3: So if you know they're going to leave or do different things, that's where certain benefit writers make a lot of sense of future income increases or other different things, so that we can get that in place also.
• 27:53
  Speaker 3: So those are things that we have to kind of take a look at, you know, and maybe we wait until we get a starting and do something called a starting professional or different things like that.
• 28:02
  Speaker 3: So there's a lot of different ways we can play with that.
• 28:07
  Speaker 2: Yeah, all great points.
• 28:08
  Speaker 2: So a quick item, maybe just a minute here.
• 28:11
  Speaker 2: But let's just talk about age and how it affects policies.
• 28:14
  Speaker 2: You know some carriers.
• 28:17
  Speaker 2: They go off of insurable age right, so your half birth date matters.
• 28:23
  Speaker 2: That's where the roundup, roundoff is point that can affect pricing.
• 28:27
  Speaker 2: So, rodney, you maybe want to touch real quick on just what age is and how it might affect some pricing.
• 28:34
  Speaker 3: Yeah.
• 28:34
  Speaker 3: So I can't say this enough Getting disability insurance, individual disability insurance, before age 40 is probably the most important thing in the world because you can get it at a much lower price, you can build the policy the way you need it and you can have different riders that you can keep adding income or benefit onto it and still keep the benefit really, really, really, really, or the premium really, really, really low.
• 29:00
  Speaker 3: Overage 40, we see usually a 20 to 30% jump.
• 29:04
  Speaker 3: Age 50, we see usually a 40 to 50% jump from the 40 to 50 age.
• 29:12
  Speaker 3: So also that's where you really start to think about plan designs and things like that.
• 29:18
  Speaker 3: Instead of going to age 65 or age 67 or 70, it might be actually only doing a five-year or 10-year benefit to keep that.
• 29:27
  Speaker 3: Some states I'm just going to cover these two quick items real quick as well Some states actually do have surcharges that make it a little more expensive, which states?
• 29:37
  Speaker 3: Florida and Puerto Rico.
• 29:38
  Speaker 3: That's due to high claims in those states.
• 29:42
  Speaker 3: And then, lastly, gender Disability and long-term care females are more expensive than males, whereas life insurance males are more expensive than females.
• 29:54
  Speaker 3: So a lot of times we see a lot of women actually wanting disability policies.
• 29:59
  Speaker 3: In fact that's probably 70% of our clients that get disability insurance are females and that just shows why it's more expensive.
• 30:12
  Speaker 3: Females know there's a higher likelihood they're probably going to claim on it.
• 30:15
  Speaker 3: They want to have that security, they want to have that protection in there and that's why it is actually higher is because they're more likely to claim, so insurance companies will charge a little bit more for that.
• 30:28
  Speaker 3: Just like on life insurance, men are more likely to die sooner, so they charge a little bit higher premium for that.
• 30:37
  Speaker 2: And quick tidbit for the listeners On females specifically.
• 30:41
  Speaker 2: We have a lot who come in and they're like does this cover pregnancy, rodney?
• 30:47
  Speaker 2: What's the answer to that?
• 30:49
  Speaker 3: All but one company excludes normal pregnancy.
• 30:52
  Speaker 3: So one company does cover normal pregnancy, but you still have to meet the waiting period.
• 30:58
  Speaker 3: So if it's 90 days, you got to meet 90 days.
• 31:00
  Speaker 3: Otherwise, especially in a short-term disability, pregnancy is excluded 100%.
• 31:11
  Speaker 2: Now, just for those who are listening, which carrier is it that does cover pregnancy?
• 31:16
  Speaker 3: Mass Mutual.
• 31:18
  Speaker 2: Got it Okay, cool, and that's normal pregnancy.
• 31:22
  Speaker 3: So they all will cover an abnormal pregnancy where you're bedridden for seven months, eight months Again.
• 31:28
  Speaker 3: You still have to meet the waiting period.
• 31:30
  Speaker 3: But all but mass mutual excludes normal pregnancy.
• 31:35
  Speaker 2: Cool.
• 31:36
  Speaker 2: One last question on the gender.
• 31:37
  Speaker 2: Sometimes we get the question hey, are there unisex rates still?
• 31:41
  Speaker 2: What's the answer there?
• 31:44
  Speaker 3: Yeah, there can be.
• 31:45
  Speaker 3: Most carriers have gotten rid of unisex rates 99%.
• 31:52
  Speaker 3: There are some existing group situations where they are out there, and there is one.
• 32:03
  Speaker 3: I think there's still one carrier.
• 32:04
  Speaker 3: I think Unom, on a group side, will still offer some unisex for really, really large companies.
• 32:12
  Speaker 3: But the problem is again, it goes back to what I just said about females Because more females are in the workplace, more females are working, and the unisex rate actually creates an adverse selection for the company because more females sign up for it.
• 32:29
  Speaker 3: Thus they take more claims and they just couldn't price it properly.
• 32:35
  Speaker 3: So now they've switched to offering discounts what we call multi-life or multi-line discounts and then doing gender-specific or gender-distinct rates.
• 32:48
  Speaker 2: Great point.
• 32:49
  Speaker 2: Okay, so we talked a little bit about the income, age, gender, the biggest one, occupation, so they're in the pricing guides and at all the carriers and underwriting guides there is what's called occupation classes, right?
• 33:08
  Speaker 2: So, rodney, you want to talk a little bit about the scale of it and kind of why it's important to be conscious of it, as one underwriting class or occupation class at one carrier might be a completely different level than another.
• 33:24
  Speaker 3: So basically, in general, you've got occupation classes that go from A to either 5A or 6A, or 5M or 6M, M meaning medical or P for physician.
• 33:37
  Speaker 3: Some carriers have class 1 to class 4 or class 1 to class 5 or A to 4A.
• 33:44
  Speaker 3: So you kind of have to know what carrier you're kind of working with.
• 33:47
  Speaker 3: There are some carriers that are really good at certain things.
• 33:51
  Speaker 3: Let me just use financial advisors as a quick example.
• 33:56
  Speaker 3: One carrier they're a 3A If they make $100,000 or less.
• 34:02
  Speaker 3: They're a 4A If they make $100,000 or more, caveat being they've been in the business for five plus years.
• 34:09
  Speaker 3: You might be able to get them to a 5A if they've got employees utilizing a business owner upgrade or enhancement.
• 34:16
  Speaker 3: Some other carriers, though, on the same with financial advisors.
• 34:22
  Speaker 3: They may start them at a 3A under $50,000, but if they're making over $75,000 in the business for five years, they might put them at 5A if they're somewhere in between.
• 34:32
  Speaker 2: Why is that?
• 34:32
  Speaker 2: It's the same occupation, right?
• 34:35
  Speaker 2: We had this question yesterday, Ronnie.
• 34:37
  Speaker 2: That doesn't make any sense.
• 34:39
  Speaker 2: You think, hey, you're higher up, you got more employees, more stress.
• 34:43
  Speaker 2: Why is it just when you're starting out that they ding you like that?
• 34:51
  Speaker 3: It's all because of claim history.
• 34:53
  Speaker 3: What they've actually have seen over decades is businesses supervisory businesses fail in the first three years.
• 35:01
  Speaker 3: That's probably one of your more higher stress points.
• 35:04
  Speaker 3: You're trying to comb together a business all these different things.
• 35:09
  Speaker 3: You're stressed.
• 35:10
  Speaker 3: More likely, you're working 90 to 100 hours a week trying to build that business.
• 35:15
  Speaker 3: Your body breaks down more, all those different things Until you get to a certain income level.
• 35:21
  Speaker 3: I don't necessarily agree with how they do it.
• 35:24
  Speaker 3: I'm just saying that that's how they've kind of a the claims.
• 35:28
  Speaker 3: The claims is kind of how they put it in there.
• 35:29
  Speaker 3: But once you've gotten over a certain income level, you're able to hire an assistant, you're able to do other different things.
• 35:35
  Speaker 3: Like that All of a sudden you're not working as much, your body rests a little bit better.
• 35:39
  Speaker 3: All those different things.
• 35:41
  Speaker 3: Then also that's industry-wide claims.
• 35:45
  Speaker 3: Then each company based on claim experience may not actually have a huge negative claim experience in that area.
• 35:58
  Speaker 3: They've changed their numbers a little bit to play with it, they've worked their pricing along with it and so on and so forth.
• 36:07
  Speaker 3: One of the companies I'm thinking of and it's Ameritas sometimes is really really good for high-income earners on the financial advisor side that have been in business for seven, eight, nine years, because Ameritas really does a lot of work with independent financial advisors and that are people in there.
• 36:27
  Speaker 3: They have a much more positive claim experience.
• 36:30
  Speaker 3: Medical side, podiatrists you think okay, why is a podiatrist a dangerous thing?
• 36:39
  Speaker 3: Or something like that?
• 36:40
  Speaker 3: Because they're crouching, they're bending, they're doing all these other different things.
• 36:43
  Speaker 3: They may also be, assert.
• 36:46
  Speaker 3: Most of them about I think it's 85, 90% are also surgeons, so they're on their feet all the time.
• 36:50
  Speaker 3: They've got the stress of the surgery room, all those different things, so a lot of carriers don't even cover podiatrists.
• 36:59
  Speaker 2: Yeah, chiropractors too.
• 37:00
  Speaker 3: Chiropractors same thing.
• 37:02
  Speaker 3: There's really only two companies that cover chiropractors and the way they.
• 37:06
  Speaker 3: Which are they?
• 37:06
  Speaker 3: Mutual of Omaha, illinois Mutual and I think Asherty does as well.
• 37:12
  Speaker 3: So three companies.
• 37:14
  Speaker 3: But what's funny is the way they cover them.
• 37:17
  Speaker 3: The contracts are completely different.
• 37:19
  Speaker 3: Mutual of Omaha can go up to age 65.
• 37:21
  Speaker 3: Illinois Mutual and Asherty only do a five-year benefit plan.
• 37:25
  Speaker 3: So again that goes back to the income conversation.
• 37:28
  Speaker 3: How much income do you want?
• 37:29
  Speaker 3: How long do you want them to run All those different things?
• 37:32
  Speaker 3: So it's very interesting, based on the different carriers.
• 37:38
  Speaker 2: Yes, so occupation class, huge.
• 37:41
  Speaker 2: Next kind of Maybe it's not pricing, it's probably product availability or state requirements would be what state is the insured living in?
• 37:52
  Speaker 2: So for the most part, the states, the majority of them the pricing's the same.
• 38:00
  Speaker 2: But, rodney, let's talk a little bit about maybe some of those goofy states where, because of state laws or just the way it's set up, that the products are a little bit different in those states.
• 38:12
  Speaker 3: Yeah, so real quick.
• 38:13
  Speaker 3: Before I do that, just one other thing about occupation classes.
• 38:16
  Speaker 3: A lot of times we get in a quote request for a doctor.
• 38:21
  Speaker 3: Okay, I have to do a lot of research on LinkedIn to find what type of doctor they are.
• 38:28
  Speaker 3: It's very, very important.
• 38:31
  Speaker 3: Now you can say lawyer, lawyer is fine, lawyer is covering as a general, but when you have a lot of specialties in a particular industry, we need very, very specifics of what they do.
• 38:42
  Speaker 3: So that's just my little plug to make my life a little bit easier.
• 38:47
  Speaker 2: But yes, and a plug for a little bit later, we're going to talk about own occupation and any occupation.
• 38:53
  Speaker 2: But we'll leave that for later.
• 38:55
  Speaker 2: Let's talk about the states and what are a little different.
• 38:58
  Speaker 3: So there are 44 states called the compact states.
• 39:01
  Speaker 3: Basically, the plan is exactly the same in those 44 states, from Texas to Montana, to Oregon, washington, all those places.
• 39:12
  Speaker 3: However, there are a couple states California, new York, new Jersey, florida, puerto Rico and Pennsylvania that have some different rules, different things.
• 39:24
  Speaker 3: Pennsylvania and New Jersey they're not, and even New York we're not really all that different as far as what they change in there.
• 39:33
  Speaker 3: However, there is certain language that has to be in there about own occupation or different things like that.
• 39:42
  Speaker 3: The two biggest, the three biggest states or territories, that where we really see the biggest differences, are California, florida and Puerto Rico.
• 39:51
  Speaker 3: Florida and Puerto Rico, like I already said, have surcharges on their policies, so generally makes the disability policy a little bit more expensive than it would just in Georgia If you went next door to Georgia, if you lived there, or Alabama or whatever.
• 40:06
  Speaker 3: But the actual contracts in those states are very similar, if not exactly the same as other states.
• 40:18
  Speaker 3: It's just they have that pricing difference.
• 40:21
  Speaker 3: California is probably the state with the most changes to the contract, along with New York.
• 40:27
  Speaker 3: There are some very specific changes.
• 40:29
  Speaker 3: Like California, new York both only allow one year maximum.
• 40:34
  Speaker 3: Sorry, california allows a maximum one year waiting period.
• 40:37
  Speaker 3: New York actually starts at a 90 day and goes up to two year, whereas California you go down to 60, but it's only a one year deal.
• 40:46
  Speaker 3: California actually has a cash sickness plan statewide, which is why they that lasts for one year, which is why they don't want it to be a two year waiting period, because they want the long term to kick in at no more than after one year from it.
• 41:01
  Speaker 3: There are also different income calculations with California.
• 41:05
  Speaker 3: So if you know anything about insurance, you know that there's a few states and I mentioned them already California, new York, new Jersey, florida, puerto Rico and Pennsylvania that those are generally the harder ones to get things through.
• 41:20
  Speaker 3: Texas is a little bit harder to get through, but they're still a compact state.
• 41:23
  Speaker 3: They just sometimes want to make things a little different.
• 41:26
  Speaker 3: But for the most part, those six states, or six states and territories, you have to do change them, the plans, almost differently or drastically compared to what you see in other states, and even someone that I've been doing this for 20 plus years, I have to think about what state is what, so on and so forth.
• 41:51
  Speaker 3: They're there Like Oregon has little specific, little restrictions on things, even though their contract is the same.
• 41:58
  Speaker 3: There are some minimums of benefit that you have to deal with and all that stuff, so the definitions might be the same, but you might have some states where you can't do a $500 a month benefit plan.
• 42:10
  Speaker 3: It has to be a minimum of a thousand or 1500 or it has to be minimum of five year benefit, things like that.
• 42:18
  Speaker 3: We're seeing the same thing happening in long term care as well.
• 42:22
  Speaker 2: Yeah, just a little bit of a quirk there.
• 42:24
  Speaker 2: So those are maybe what we'd call like the top four or five factors that affect pricing on a policy.
• 42:32
  Speaker 2: Right, there's some benefit length and things that we'll get into here in a little bit.
• 42:37
  Speaker 2: But the next kind of section is going to be riders.
• 42:41
  Speaker 2: Right, and one of the top riders and sometimes it is built into the contract it is not a rider, okay.
• 42:50
  Speaker 2: And this is where it can become a whole gray area of what's own occupation?
• 42:56
  Speaker 2: What's any occupation?
• 42:59
  Speaker 2: Is it worth paying?
• 43:01
  Speaker 2: Why are some of these different than others?
• 43:03
  Speaker 2: So, rodney, let's try to simplify the own occupation discussion, right?
• 43:10
  Speaker 2: So what is true own occupation?
• 43:16
  Speaker 3: All right, let me just explain it this way.
• 43:18
  Speaker 3: So let's look at any Ock first, because that's probably the easiest definition.
• 43:22
  Speaker 3: Any Ock means you cannot or you can.
• 43:25
  Speaker 3: You cannot perform any occupation.
• 43:28
  Speaker 3: So think of it.
• 43:29
  Speaker 3: You can't flip burgers, you can't flip fries at McDonald's, you can't be a Walmart laundry fold laundry, you can't be a Walmart greeter Okay, that's any occupation.
• 43:39
  Speaker 3: That is a very, very strict definition.
• 43:42
  Speaker 3: So if you can really do anything whatever, then here's the middle of the road.
• 43:47
  Speaker 3: This is what Peter said is a lot of these companies.
• 43:50
  Speaker 3: So when I got into this business real quick, true own occupation actually used to be built into the policy, used to be part of the policy.
• 44:00
  Speaker 3: It was the base contract true own occupation definition.
• 44:04
  Speaker 3: They weren't.
• 44:05
  Speaker 3: Companies were not implementing enough of these policies.
• 44:08
  Speaker 3: Reason being it seemed expensive.
• 44:10
  Speaker 3: So what they did was they got rid of the true own occupation definition as the base core of their policy and made it a writer.
• 44:18
  Speaker 3: I'll talk about that in a second.
• 44:19
  Speaker 3: So they do have own occupation in their base contracts, meaning if you don't add the writer, you still have own occupation.
• 44:25
  Speaker 3: However, it might be a modified Ock or it might be a limited Ock and more than likely it only has a two year or five year coverage period.
• 44:34
  Speaker 3: What I mean by that is you might see language in there of will cover specific duties that are reasonable and and they're reasonable and trained for and educated for.
• 44:48
  Speaker 3: So read that from a lawyer or claim perspective reasonable to be trained or educated for.
• 44:56
  Speaker 3: So if you are an accountant, could you go be a math professor?
• 45:01
  Speaker 3: I'm just I know Peter hates it when I use teaching, but I'm just using it as an example If you work with numbers all the time but you can't be an accountant anymore, can you go teach other people, or can you go do math work someplace else, or you know whatever, Can you do book work, all those different things remember, reasonable and trained for.
• 45:20
  Speaker 3: So really, they've made it in any Ock definition.
• 45:23
  Speaker 3: They just made it seem like it has Ock on it.
• 45:26
  Speaker 2: True, ock Rodney.
• 45:27
  Speaker 2: Let's go ahead Just real quick.
• 45:30
  Speaker 2: So like, as an example let's say we have an accountant who's making 200 grand a year.
• 45:36
  Speaker 2: Okay, let's say they have an any occupation definition, so the weaker definition.
• 45:43
  Speaker 2: They then go work at Walmart as a greeter and they make 20,000 annually.
• 45:52
  Speaker 2: What happens?
• 45:55
  Speaker 2: What type of coverage Do they really have?
• 45:58
  Speaker 2: That $180,000 drop?
• 46:00
  Speaker 3: No.
• 46:01
  Speaker 2: That's because, how does that work?
• 46:07
  Speaker 3: Yeah, the 20,000 year salary will reduce their benefit potentially.
• 46:13
  Speaker 3: If it's a true any-ock definition, they will not receive any benefit.
• 46:17
  Speaker 3: If it's a modified onock or whatever, then what it will do is it will reduce their benefit.
• 46:25
  Speaker 2: Yes, if it is on occupation, which we'll talk about here in a second, then what would their income scenario look like if they were working as a Walmart reader?
• 46:34
  Speaker 3: They would have their disability benefits, so $180,000, like you said, plus the 20,000, so they would have a total income of $200,000.
• 46:42
  Speaker 3: But they would only pay taxes on 20 because that $180,000 would be income tax free.
• 46:48
  Speaker 2: Yeah, that is right there why it's so important to truly understand these concepts from a claims perspective.
• 46:56
  Speaker 2: A lot of people they'll see own occupation as a writer oh, it's 60 extra bucks a month, screw that.
• 47:01
  Speaker 2: But they don't look at it from the claims perspective.
• 47:06
  Speaker 2: Back to the thing of price, price, price, price price.
• 47:09
  Speaker 2: That's not what disability income insurance is.
• 47:12
  Speaker 2: Sure, it's from life insurance.
• 47:14
  Speaker 2: As long as it's from an A rated carrier, you're going to probably be good.
• 47:20
  Speaker 2: Sure, you can have some conversion and other factors with it.
• 47:23
  Speaker 2: But disability is a completely other ballgame.
• 47:26
  Speaker 2: I made this comment yesterday and it really stuck.
• 47:29
  Speaker 2: They know the insides and outs of their health insurance.
• 47:35
  Speaker 2: They know they're going to use it or they're currently using it.
• 47:40
  Speaker 2: Disability income insurance you don't use it till you need it.
• 47:44
  Speaker 2: That's something that's very important to talk about with a client.
• 47:48
  Speaker 2: I just want to stop there for one second and just make sure before we get to into the weeds.
• 47:54
  Speaker 2: But, rodney, you want to dive into true own occupation, what the definition is, and why it's important True own.
• 48:05
  Speaker 3: You do have to kind of read it a little bit because it's going to be a little bit different for different industries or different occupations.
• 48:10
  Speaker 3: Really, what true own is your specific duties at time of disability or in the last 12 months prior to disability or things like that.
• 48:21
  Speaker 3: Every company has put a little spin on it For doctors and medical professionals, especially dentists, things like that.
• 48:31
  Speaker 3: I think every single contract that covers them now has language in there that says the most dominant or double dominant CPT codes.
• 48:45
  Speaker 3: So if you don't want a CPT code, it's a billing code.
• 48:50
  Speaker 3: Think of like an orthopedist.
• 48:52
  Speaker 3: They might be a surgeon.
• 48:54
  Speaker 3: Maybe they do ankle surgeries twice, two days a week.
• 49:00
  Speaker 3: So even though it's two days a week, that CPT code, it might be responsible for 50% of their income.
• 49:09
  Speaker 3: So that's a dominant part of their practice.
• 49:13
  Speaker 3: Thus you actually have what's it called.
• 49:21
  Speaker 3: Thus you actually can use that, as with true own op, because that's their CPT code.
• 49:27
  Speaker 3: If they're mostly just billing casting and office visits and things like that and they can't do that anymore but for some reason they can still do surgery, then that own op and that's their more dominant is the office stuff.
• 49:42
  Speaker 3: Then that true own op is going to protect that, even though they're probably making more money being a surgeon.
• 49:48
  Speaker 3: So that's where you really want that true own op and make sure that it's covering their most dominant or their most specific duties over the most recent or over the last 12 months.
• 49:58
  Speaker 2: Rodney, I think a lot of advisors.
• 50:01
  Speaker 2: They're like yeah, I mean the doctor, I mean you went to medical school for eight years.
• 50:06
  Speaker 2: You have all this debt lawyer.
• 50:08
  Speaker 2: Yeah, of course I understand that I'm just a financial advisor or I'm just in tech sales or I'm a freelance writer.
• 50:18
  Speaker 2: I mean heck, I work virtually man.
• 50:21
  Speaker 2: Why do I?
• 50:23
  Speaker 2: I can switch occupations.
• 50:25
  Speaker 2: What's the big deal?
• 50:26
  Speaker 2: Why pay for this?
• 50:30
  Speaker 3: Here's my answer to that is yeah, maybe you could.
• 50:34
  Speaker 3: Maybe you could switch occupations, maybe you could do that.
• 50:36
  Speaker 3: Number one would you be able to switch to an occupation making the same income?
• 50:39
  Speaker 3: I don't know.
• 50:40
  Speaker 3: Do you know?
• 50:41
  Speaker 3: Most likely not.
• 50:42
  Speaker 3: Most likely not.
• 50:44
  Speaker 3: Number two think about it if you are going through chemo treatments, you can't work, you can't move, you can't do anything, you know.
• 50:51
  Speaker 3: The way I like to say is if you've ever had, like COVID or the flu, or you were just out for a week, two weeks, you just couldn't move.
• 50:59
  Speaker 3: Now multiply that by 10 months or a year.
• 51:02
  Speaker 3: Do you want to have to go get another job because you didn't put on occupation on there?
• 51:11
  Speaker 3: Or would you rather just have your benefits come in because you can't be an advisor because of whatever you're doing, you can't see people, even though you're virtual, you know.
• 51:20
  Speaker 3: And then that's where you know.
• 51:22
  Speaker 3: That's the other rider that I think is vital is partial.
• 51:24
  Speaker 3: You know, there's partial, there's residual, and that could be a different topic for a different podcast.
• 51:30
  Speaker 3: But maybe you're able to work a week a month.
• 51:33
  Speaker 3: So your income's gone down if you're in sales and things like that because of that.
• 51:37
  Speaker 3: So you know, but you're still working, so the partial would kick in and make up what you're losing in income.
• 51:46
  Speaker 3: So there's different things to look at it, but you want that own occupation, so you really have that choice.
• 51:51
  Speaker 3: If you don't have the own occupation, on the policy you have now basically already made the choice that you're going to have to go find work, and when you probably can't.
• 52:03
  Speaker 2: Yeah, that's a great point.
• 52:04
  Speaker 2: I mean, you want to have choices, right?
• 52:06
  Speaker 2: The default plan is not really a plan, that's just the default, right.
• 52:11
  Speaker 2: I mean, I've heard, we've heard, hey, I got a great manager, they'd understand.
• 52:15
  Speaker 2: Well, they'd maybe understand for the first week or two, right, and then they'll tell you to work on your paid time off and all that, and then before that, that's where you need some level of insurance and risk transfer.
• 52:29
  Speaker 2: So, rodney, we talked about own versus any occupation.
• 52:33
  Speaker 2: You hinted at it.
• 52:35
  Speaker 2: Let's just dive right into it.
• 52:36
  Speaker 2: The next biggest definition slash writer to pay attention to is going to be a partial or residual, and let's talk about the difference between those two, because they get blended a lot and they're very confusing to some people.
• 52:53
  Speaker 2: So you want to define the two and how they kind of might work in tandem.
• 52:58
  Speaker 3: So basically, partial and residual.
• 53:00
  Speaker 3: Partial generally means that you are partially disabled.
• 53:04
  Speaker 3: Like I'm partially disabled, I'm still working.
• 53:07
  Speaker 3: Partial means you are able to work but maybe not work as much or you have some limitations.
• 53:13
  Speaker 3: Partial means that you were totally disabled and you are now working your way back to where you were prior to disability.
• 53:20
  Speaker 3: Here's the thing.
• 53:22
  Speaker 3: It's just because the disability illustration writer says a partial writer or it says residual writer doesn't mean it's just residual, or it doesn't mean it's just partial, or it doesn't mean it is partial.
• 53:37
  Speaker 3: It could actually be a residual writer.
• 53:39
  Speaker 3: Sometimes companies actually try to fool you and whatever you have to read the devils in the details.
• 53:45
  Speaker 3: You have to read the description of those writers and then you also want to know what the definitions are to qualify for.
• 53:55
  Speaker 3: So the best in the industry right now is a 15% loss of income definition for partial.
• 54:03
  Speaker 3: But we're also seeing a 15% loss of income for residual.
• 54:08
  Speaker 3: Here's the difference with that when you read a lot of times that residual writer.
• 54:13
  Speaker 3: That residual writer says there's a little thing in the very first line in the contract that states must have gone on total disability first.
• 54:23
  Speaker 3: So they must have been totally disabled first, meaning that you've used the Onok or the Eniok or whatever.
• 54:30
  Speaker 3: Now you've been cured and they'll say treatment must be done.
• 54:35
  Speaker 3: So now you're coming back.
• 54:37
  Speaker 3: So think of someone that really hurt their back.
• 54:39
  Speaker 3: They sit all day.
• 54:40
  Speaker 3: They got their back fixed.
• 54:44
  Speaker 3: Now they're back, but they still can't sit all day or even stand at a standing desk all day.
• 54:50
  Speaker 3: They need to go way down as they get back, as they rebuild back their income and their working hours.
• 54:57
  Speaker 3: That's when that residual is going to kick in Versus the partial.
• 55:04
  Speaker 3: Let's say you did get hurt in an accident.
• 55:05
  Speaker 3: Or let's say you're going through cancer treatments, like I've used before.
• 55:08
  Speaker 3: That doesn't mean you can't work.
• 55:11
  Speaker 3: It just means you're more probably limited in your work.
• 55:14
  Speaker 3: Maybe you are going to physical therapy two days a week, or maybe you are going to chemo every other week or something like that.
• 55:20
  Speaker 3: So when you're doing that, you're still working, but you're just not working as much and thus your income has gone down.
• 55:26
  Speaker 3: When you're a financial advisor, that partial definition is extremely important, because maybe your income has not gone down, because maybe you have recurring income and fees and things like that coming in, but you're just unable to work as many hours.
• 55:41
  Speaker 3: Well, that's where you probably want the definition, that's 15% loss of income or 15% loss of time, or at least one significant duty.
• 55:50
  Speaker 3: No-transcript.
• 55:57
  Speaker 3: He never lost income, never, ever lost income, but he was only working 30% of the time that he was working prior to that because he couldn't move, but he had all this recurring income coming in.
• 56:11
  Speaker 3: Well, one of his disability policies denied him because he never lost income.
• 56:16
  Speaker 3: The other one paid and that is why he only actually recommends or offers that one company and it's because of the definition on that.
• 56:27
  Speaker 3: So it's those different things that you have to pay attention to.
• 56:31
  Speaker 2: So is it possible that you can make more money being disabled?
• 56:36
  Speaker 3: On partial.
• 56:37
  Speaker 3: Yes, I mean they won't pay you your full benefit, there's little things around it, but they will make up.
• 56:43
  Speaker 3: You know.
• 56:44
  Speaker 3: They'll figure a calculation of what you were making per hour, because you're making less hours.
• 56:48
  Speaker 3: They'll actually provide that benefit to you.
• 56:50
  Speaker 3: Yeah.
• 56:52
  Speaker 2: Cool, all right.
• 56:53
  Speaker 2: Next topic, as we finish out, on the riders plus features, let's dive into, let's do the inflation protection riders.
• 57:07
  Speaker 2: Yep, COLA and FIO.
• 57:09
  Speaker 2: Right Now, COLA, cost of living adjustment, FIO and different carriers.
• 57:15
  Speaker 2: There might be a different acronym, but future increase option or the ability to make an increase when there is an income increase.
• 57:24
  Speaker 2: So you want to talk about the two and kind of how they work together.
• 57:27
  Speaker 2: Rodney.
• 57:27
  Speaker 3: Yeah, there's actually three, so we'll talk about the third one in a second.
• 57:31
  Speaker 2: Yep BIR.
• 57:32
  Speaker 3: So COLA cost of living adjustment.
• 57:34
  Speaker 3: Basically that is post-disability inflation protection.
• 57:39
  Speaker 3: That's how you have to think of it.
• 57:40
  Speaker 3: It does not kick in.
• 57:41
  Speaker 3: In fact, I had an advisor ask me the other day.
• 57:44
  Speaker 3: We added that COLA 3% and it's not increasing.
• 57:47
  Speaker 3: Yeah, because it's a post-disability.
• 57:49
  Speaker 3: It's not like long-term care, where it actually does it as your paying premiums.
• 57:55
  Speaker 3: It kicks in one year, one day after you're disabled.
• 57:58
  Speaker 3: So what you do have to be careful is that percentage can be based on CPI.
• 58:04
  Speaker 3: It can be flat, it can be.
• 58:06
  Speaker 3: There's a lot of different ways of how it's calculated.
• 58:08
  Speaker 3: Every company is a little bit different the FIO or GIO, or guaranteed riders, basically what those are those are pre-disability inflation protection.
• 58:23
  Speaker 3: That pre-disability inflation protection is meant that as your income increases, you can actually pull from a pool of dollars and increase your benefit without going through medical underwriting.
• 58:35
  Speaker 3: So maybe you actually had a heart attack, you're not disabled, you're still working.
• 58:40
  Speaker 3: But now you're making more money, you can actually add benefit to it and you're perfectly fine.
• 58:45
  Speaker 3: They will not medical underwrite you.
• 58:47
  Speaker 3: Those are some of the kind of like a term conversion.
• 58:50
  Speaker 3: In a way, the key thing there is those are paid riders, meaning it's part of the premium you're paying.
• 58:58
  Speaker 3: So you have a little bit more options and choices of when you can enact it.
• 59:02
  Speaker 3: Now what we're seeing a lot more often is BIR or benefit increase riders.
• 59:07
  Speaker 3: These are things that are free riders you only pay when you increase the benefit, but they have more restrictions to them.
• 59:14
  Speaker 3: So if you forget to do it or you did not, or you don't do it or whatever, you may lose that.
• 59:20
  Speaker 3: So those are things that you may want to take a look at.
• 59:23
  Speaker 3: Is it worth it?
• 59:24
  Speaker 3: And again, it just comes down to that income conversation what you need to kind of protect all those different things.
• 59:33
  Speaker 2: So that's awesome, Rodney.
• 59:34
  Speaker 2: So I mean really the main riders that we talk about a lot and definitions the OWN versus any occupation, the partial and residual, the future increase option and the COLA, and those are really the main riders.
• 59:50
  Speaker 2: There are a few others that are out there.
• 59:52
  Speaker 2: In certain scenarios it might make sense, right, Student loan repayment or retirement contribution.
• 59:59
  Speaker 2: There are far and few between, and sometimes they're just, you know, it's not worth it, or we are already calculating that into the benefit amount in the beginning.
• 1:00:08
  Speaker 2: So that's just something to be conscious of.
• 1:00:11
  Speaker 2: I mean, Rodney, before we wrap up, really, when we look at illustrations at the end, you know there's alternative scenarios, right, and pricing.
• 1:00:21
  Speaker 2: So I mean, when a client comes to us from a fee only planner, a good product, I hate to say the Cadillac, right, Because that makes it seem like I'm overselling it.
• 1:00:31
  Speaker 2: But you know a good contract would be, you know, cover, the need that you need, and benefit right After tax, To age 65.
• 1:00:42
  Speaker 2: The reason why is because you want to get to retirement age or before.
• 1:00:46
  Speaker 2: You know social security and things like that.
• 1:00:51
  Speaker 2: You know 90 day elimination period, right, that's why, usually here, have three to six months of savings and then have these riders and options on there, but we know that sometimes this premium comes out a little bit high.
• 1:01:04
  Speaker 2: Okay, or you know, hey, you know at this point, you know it sounds great, but you know the insurance, you know being insurance poor isn't risk Worth it, Right?
• 1:01:18
  Speaker 2: So, Rodney, what are some alternate scenarios?
• 1:01:21
  Speaker 2: And you know someone says, hey, you know what, that's a little bit high.
• 1:01:25
  Speaker 2: You know what else can we do.
• 1:01:27
  Speaker 3: Well, you know you've got really three levers, you know, or four levers basically.
• 1:01:31
  Speaker 3: With that you can.
• 1:01:32
  Speaker 3: You can change the benefit, you can lower the benefit and again that goes back to the income conversation.
• 1:01:36
  Speaker 3: You know how much really is needed.
• 1:01:38
  Speaker 3: You can extend the waiting period.
• 1:01:40
  Speaker 3: So if they've got more cash reserve let's say they have six months, eight months a year then you can do a longer waiting period on that.
• 1:01:50
  Speaker 3: You can also lower the benefit period.
• 1:01:53
  Speaker 3: In fact we do this a lot for 50 year olds.
• 1:01:57
  Speaker 3: Instead of going to age 65 or age 67, we might only do a five or 10 year benefit, mainly because we're just trying to get them to the Social Security Retirement Age of 62.
• 1:02:07
  Speaker 3: You know there's little things you can do with that.
• 1:02:11
  Speaker 3: You know we talked the importance of Onok and any partial and all that.
• 1:02:17
  Speaker 3: Maybe it's dropping the Onok rider, even though I wouldn't recommend that.
• 1:02:21
  Speaker 3: But if they're a little bit older in age, we know that they're more likely to maintain a partial disability rather than they are to need a total disability.
• 1:02:30
  Speaker 3: You know it's about a 60-40 split.
• 1:02:33
  Speaker 3: So, like I said, slightly more.
• 1:02:34
  Speaker 3: So you might be taking a little bit of a risk there, but maybe you can just say you know what?
• 1:02:40
  Speaker 3: I can't work, I can't deal with it anymore and retire, and it continues to do that.
• 1:02:45
  Speaker 3: Those are all different ways that you can look at it.
• 1:02:51
  Speaker 2: Yeah, great tips there.
• 1:02:52
  Speaker 2: So sweet, rodney.
• 1:02:53
  Speaker 2: We went about an hour talking about DI.
• 1:02:55
  Speaker 2: I know we can talk about it for days, on, days, on days, but we'll continue to put out some more content just like this, not only for disability, but also we're going to dive into long-term care a little bit more, because we do get a lot of questions over there too.
• 1:03:10
  Speaker 2: So, rodney, thanks so much for coming on.
• 1:03:12
  Speaker 2: Thank you, peter.
• 1:03:13
  Speaker 3: Have a great day.
• 1:03:14
  Speaker 2: You bet.