Do you have disability insurance? It may be something to consider! On this week’s episode, Josh and Austin dive into the topic of disability insurance. From discussing what it is to how it works, you’ll leave this episode with a pool of knowledge on the topic. Find out details on cost of living adjustments and on finding and buying disability insurance in this week’s episode of The Invested Dads Podcast!
Main Talking Points
[0:56] – What is Disability Insurance?
[5:29] – Dad Joke of the Week
[7:04] – How Does Disability Insurance Work?
[11:18] – Defining Whether or Not You’re Disabled
[14:04] – Cost of Living Adjustment
[21:20] – Who Needs Disability Insurance?
[24:18] – Buying Disability Insurance
[26:48] – Where To Get Disability Insurance
Links & Resources
Invest With Us – The Invested Dads
Free Guide: 8 Timeless Principles of Investing
Social Media
Full Transcript
Intro:
Welcome to the Invested Dads Podcast, simplifying financial topics so that you can take action and make your financial situation better. Helping you to understand the current world of financial planning and investments, here are your hosts, Josh Robb and Austin Wilson.
Austin Wilson:
All right. Hey, hey, hey, welcome back to the Invested Dads Podcast.
Josh Robb:
Let’s try that again.
Austin Wilson:
I’m going to try that one more time. All right. Hey, hey, hey, welcome back to the Invested Dads Podcast, the podcast where we take you on a journey to better your financial future. Today, it’s pretty exciting. I have not been able to sleep for a week in preparation for this episode. We are going to be talking one of my favorite topics.
Josh Robb:
Must be.
Austin Wilson:
But it’s not.
Josh Robb:
It’s not really.
[0:56] – What is Disability Insurance?
Austin Wilson:
It’s not that exciting, but it’s necessary. We’re going to talk about disability insurance. Josh, what is disability insurance? Everybody loves it.
Josh Robb:
Yes. You’re right. It’s one of those, whenever you bring up any insurance, people’s eyes just glaze over.
Austin Wilson:
Zonk.
Josh Robb:
And I want to do anything but that. And the reason is insurance in general, you are paying money to somebody to take some risk that you have and they’re going to be financially responsible for it. If we step back from disability, if we just look at insurance in general, car insurance, I’m taking risk when I’m driving my car that if something happens, I am in trouble. I have to fix my car and possibly other people’s cars or property if I crash it. Or anything that happens from a result of me driving. I pay insurance and a company says, “If you give me monthly or annual,” however, often you pay it, “I will then be responsible for X amount of dollars.” You’re taking the risk that I have and giving it to somebody else. And they’re going to charge you for that. That’s what insurance is from a high level.
Austin Wilson:
At the end of the day, in all insurance situations, it is less likely that you will ever get the benefit that you pay into it out of it, because that is how insurance companies make money.
Josh Robb:
Correct. Insurance use actuarial tables, which they just run probabilities and say, “If we do this for enough people and we price it correctly, we’ll make money even if we do have to pay out some of them, because more will not pay out. Or if they do pay out, it’ll be less than the full amount than what we’re charging.” You’re right. That’s the whole goal for the insurance companies. Plus they get to invest the money while they have it so they can earn it as well so that’s the other benefit of it. There’s a float type of thing, which is a cool word. I don’t know why they use that word, but the idea is you just get to take money on money you’re using and grow it.
Austin Wilson:
Get to earn interest on the money you’re holding.
Josh Robb:
Disability insurance is the insurance, so the risk of what happens if I am disabled. Disability insurance is you’re paying someone else to cover in the event that you become disabled. And so if you think about disability insurance, it’s your income so everything that you have to do, you have car payments, home payments, all the stuff you need, food, groceries, utilities. All those things are covered by your income while you’re working. While you and I have a job, we get paycheck. That paycheck goes to cover all those expenses. What if something happened and you were no longer able to work?
Austin Wilson:
That would be very bad.
Josh Robb:
Right. And so that’s what disability insurance is for because the event that you’re not able to work anymore, you have to find another way to cover those expenses. Now, if you’re in a household with two people, spouses, maybe if you’re both working, you may be able to survive on just one income, maybe not depending on what you both are doing. But if you do, then what happens if the second person, becomes, that’s the whole point is you’re mitigating the risk.
Austin Wilson:
It’s a lot of what ifs.
Josh Robb:
Yes. And so we’re going to go through some stats and stuff, talk through it all. But this is where this disability insurance comes in. Because as you’ll see, there’s a high probability that some people listening to this may end up disabled if you look at statistics. And so this whole thing is saying, “Okay, the risk to me is I have to find another way of providing for all those needs.” And the way of doing this, giving money to another company and saying, “Here, take this and if something happens to me, you’ll give me X amount of dollars a month so then I can survive.” A way of thinking of that too and I saw this online, let’s say you’re saving 10% of your income, we talk about savings rates we say 15 to 20 is kind of the target from a high level standpoint. Let’s just say, you’re saving 10% of your income. It will take you 10 years to save one year’s worth of your salary. Simple math.
Austin Wilson:
And that’s not including any inflation.
Josh Robb:
Yeah, no inflation or changes. Just, if I just do 10%, I’m making $20,000, $2,000 a year. It takes me 10 years to get $20,000. And then I have one year’s covered.
Austin Wilson:
And things have gotten more expensive over 10 years.
Josh Robb:
But if that’s just one year and let’s say, I start when I’m 20. At 30 I’ve one year saved. Well, if I get injured, I have more than just one year I need of income coming forward. Even if I have to just get till Social Security age or something like that.
Austin Wilson:
And depending on what vehicle you put that in, you could have a lot of penalties and restrictions on, even if you can even get it out.
Josh Robb:
Saving yourself to cover this need is very hard to do because you’re covering for multiple years.
[5:29] – Dad Joke of the Week
Austin Wilson:
Josh, this kind of makes me sad to think about, but I think that you have a remedy for my sadness.
Josh Robb:
I do. I always have that remedy and it’s in the form of a dad joke of the week.
Austin Wilson:
Dad joke of the week, Josh. What you got?
Josh Robb:
All right. This is kind of a two parter.
Austin Wilson:
Oh, so it’s a dad jokes of the week.
Josh Robb:
Well, it just involves the same animal twice. Why did the cow have to keep shaving?
Austin Wilson:
Because he was udderly furry?
Josh Robb:
No, I like the udderly.
Austin Wilson:
Okay. See what I did there?
Josh Robb:
No, because he kept having a moo-stache.
Austin Wilson:
A moo-stache.
Josh Robb:
My kids and I were at the table, that was the joke my daughter was saying. And that was my guess. Which is funny because it’s a dad joke and I like it.
Austin Wilson:
That was not the real answer.
Josh Robb:
That was not the answer. That was not the answer. He kept getting a milk mustache was what my daughter said. Which was very cute and funny. If you scare a cow, you’ll get a milkshake. That’s the other think to think about too.
Austin Wilson:
We go through the dairy products in our house substantially. Milk, sour cream, cream cheese.
Josh Robb:
It’s always there.
Austin Wilson:
Cheese, American cheese, cheddar cheese.
Josh Robb:
Yogurt.
Austin Wilson:
Mozzarella cheese.
Josh Robb:
Do you do yogurt?
Austin Wilson:
No.
Josh Robb:
We go through so much yogurt.
Austin Wilson:
Butter.
Josh Robb:
Butter.
Austin Wilson:
Oh so much butter.
Josh Robb:
A lot of butter.
Austin Wilson:
But how many different kinds of cheese have I named? There’s 10 more.
Josh Robb:
There’s a lot, yes.
Austin Wilson:
Mozzarella cheese, Monterey Jack cheese.
Josh Robb:
Munster cheese.
Austin Wilson:
It’s coming up on Halloween. Munster cheese.
Josh Robb:
Swiss cheese.
Austin Wilson:
I don’t do Swiss cheese. There’s a hole, you’re paying for air.
Josh Robb:
Oh man. That’s to let all the flavor out.
Austin Wilson:
Why is there a hole there?
Josh Robb:
Falls through.
Austin Wilson:
Why is the hole there?
Josh Robb:
Bubbles?
Austin Wilson:
I do not understand.
Josh Robb:
I have no idea.
[7:04] – How Does Disability Insurance Work?
Austin Wilson:
Okay. I just named it a lot of cheese. Back to our regularly scheduled program. Josh, how does disability insurance work?
Josh Robb:
Yes. All right so here’s how it works. You look at what you’re making, your pre-disability income. While I’m working, how much salary do I have? Going back to my example, I said $20,000 was what this person was earning. And so I know that if I make $20,000, I don’t get $20,000. Taxes are involved, all the other fun stuff, maybe I’m saving for retirement and all that. I need to look at specifically, what do I need per month to cover my needs? And so that’s what they call the benefit amount. And that’s kind of what you’re targeting. You don’t necessarily need a 100% of your salary covered because, and we’ll get down to this on different ways they’re paid out. Most of the time disability payments are tax free. If you pay the premium, then you’re not paying taxes on those payments when you get them. I don’t need full $20,000.
Austin Wilson:
Right so you can look at your net.
Josh Robb:
I maybe need, 60, 70%, depending on taxes and all that between the state and federal and then also, like I said, if I’m saving for retirement, that’s not money I need and we’ll get through that in a minute. But those are the pieces that when I’m looking at, okay, what number do I need? How does it work? Is first you need to say, “Okay, here’s how much dollars I need.” And then you need to say, “Okay, how long do I need this coverage for?” Some are for a time period, some are for an age. You can get a disability insurance that says, “Okay, we will pay. If you get disabled, whenever you do, we’ll pay out until 62 years old, when Social Security starts or 67, when it’s full retirement or Social Security.”
Or you can get a five year disability insurance or 10 year. You can decide either by age based or the number of years. And sometimes you may have a company plan, which is a little different where the company offers disability as part of their package, which may be more tied to a two, five or 10 year where they’ll just kind of supplement you from being disabled for a short period of time.
Austin Wilson:
And those costs, they’ll probably be more expensive the higher income you’re trying to replace.
Josh Robb:
Yeah, so the higher income you’re trying to replace and the longer you potentially have to replace it.
Austin Wilson:
Those are factors that make it higher.
Josh Robb:
Could add to make it higher. Now, if your company covers it, you may not have to pay anything. The company may cover it. Now, if they do, you will be taxed on that since you didn’t get a benefit from the premiums getting paid, then the company gets their deduction, they pay you, it’s actually a taxable event. Just be aware of that.
Austin Wilson:
But not until you need it.
Josh Robb:
Not til. You need it. There’s the period, the amount you need and then the period length and then the last piece of this, on how this works and kind of the pieces that you’re putting together is how long do you need to be disabled before it starts paying out to you? And so this is long term disability. This is disability for if you’re disabled for an extended period of time. A lot of times they’ll have a waiting period where it’ll be maybe 60 days, two months, 90 days, three months, a year, you can have it that long. And what happens is during that timeframe, you’re responsible for covering your needs.
And so you may have a short term policy, you may see like Aflac, Tesum, things like that. You see it on TV with that duck. There’s some short term policies that pay out quicker, but in these long term policies, they have a wait period. And that also enables them to get the right information because you got to prove that you’re disabled. And so you got to be able to show doctors and all the different things to say, “Look, I actually can’t work.” And so they got to go through that process.
Austin Wilson:
And I’m sure the longer that period, the lower the cost is as well, that’s another factor.
Josh Robb:
Yeah. Going the other way is if I want to lower my premiums, I can say, “Well”
Austin Wilson:
I can go a whole year.
[11:18] – Defining Whether or Not You’re Disabled
Josh Robb:
If I put enough money away to cover that short term and it goes back to your emergency fund that we’ve talked about. If I have a six month emergency fund, then maybe I can do a 180 days of this grace period where they don’t kick in and then I get a lower premium. Yeah, you’re right. That’s the other way. There’s other pieces and we’ll get through those. Kind of some benefits or basic policy things you need to know about. I mentioned the length of time. The elimination period, that’s what they call it before they pay out.
This is the important part. This is where you need to listen. There’s different types of definitions for whether or not you’re disabled. And this is based on your occupation. And there’s a level from how wide they accept your ability to be disabled, to a very narrow one. You can have your own occupation or your occupation depending on your company. They name it funny, but anything related to what you do currently. That’s the best policy to have, because if you’re still able to work, but just not in the field you were doing, they’ll pay out your disability, regardless of if you can actually go to work somewhere else. That’s key because let’s say you’re a doctor, and you have this own occupation and you’re a surgeon so you need your hands. And then you’re Dr. Strange in the movies and you have your hands crushed in.
Austin Wilson:
I haven’t got that far yet.
Josh Robb:
I’m sorry. Well, it’s not a spoiler. He hurts his hands. That’s his whole character.
Austin Wilson:
I’m working through the Marvel series and I’m only through Ant-Man.
Josh Robb:
Okay. Dr. Strange is a doctor, he hurts his hands. End of story. Didn’t spoil anything. Anyway, so if he had own occupation, being unable to perform surgeries anymore, he would qualify for disability insurance, even if he could go out and do something else. And that’s what you want because you want a very narrow translation on what’s disability. If you have any occupation, they will not pay out your disability claim until you prove you cannot work anywhere. Again, going back, let’s say I’m a doctor and I’m earning half a million dollars a year because I’m a highly sought after surgeon. If I get in an accident or something happens where I’m unable to perform that level, but yet I can teach at a local university and now I’m earning $60,000 a year, my disability will not kick in if I have any occupation because I’m able to work. And so, again, that’s a change of lifestyle. That changes everything on my planning. Whereas if it was own occupation, I could go get a job at the university.
Austin Wilson:
You could double dip.
Josh Robb:
Depending on your plan, they may offset. But more often than not, they’ll pay your full amount out and then you can earn extra money on the side.
Austin Wilson:
Wow.
Josh Robb:
Because again, going back to it, I’m probably only getting maybe 60, 70% of what I was making before, because it’s after tax. Then I could maybe offset a little more with a job somewhere else, but that’s the benefit. You want own occupation or your occupation, something that’s tied to what you’re currently doing, especially if you’re in a high risk of an injury limiting that. If it’s a physical job or something that requires a skill.
Austin Wilson:
Specialty, yeah.
Josh Robb:
Yes. Or, if I can’t do it while I’m blind, there’s certain things that, okay, this type of disability affects me, how will I be able to perform it? Especially, lifting those type of things that require physical exertion. If I’m unable to do that, I’m out of that job.
[14:04] – Cost of Living Adjustment
Austin Wilson:
Josh, moving to the next point, I think that we should talk about now, this brings me back to my background in actually plant accounting where we talked, if this was pension.
Josh Robb:
Is this leaves, plant accounting?
Austin Wilson:
Plant accounting.
Josh Robb:
Count the leaves, count the flowers.
Austin Wilson:
Pension accounting so much fun, but you get thirsty when you’re on the job. And sometimes you need to have a drink of some COLA. Or cost of living adjustment is actually what we’re talking.
Josh Robb:
You need some COLA.
Austin Wilson:
This is what we’re talking about. Things get expensive over time, inflation occurs over time. The historical average for inflation is two and a half or 3% over a long period of time, of the increase of the basket of goods, quote unquote. I’m doing air quotes on a podcast.
Josh Robb:
There you go.
Austin Wilson:
Basket of goods increase over time, year over year. Cost of living adjustment, explain how that relates to disability insurance and how that can be a factor too.
Josh Robb:
Yeah. Let’s say I am a 30 year old person and I get disabled and I have a policy that pays me a $2,000 a month and that covers what I need so I’m happy, everything’s working out. But when I’m 40, if I don’t have a cost of living adjustment, a COLA, I’m still getting $2,000 a month on my disability, but I’m not as happy because everything went up, is more expensive. My $2,000 is not buying what it did when I first got disabled.
Austin Wilson:
Over that period of time, not nearly what it was.
Josh Robb:
Oh no. That’s why I’m not happy. What you need is some sort of increase in your benefits if there’s an increase in inflation. A cost of living adjustment. They’ll a lot of times tie it to a percentage. They may say a 2% cost of living adjustment or inflation plus, or depending on the company, they’ll adjust it some way or another, but you want some sort of cost of living adjustment. Now you’re going to pay for that because they need to be able to recoup that in order to increase it over time. Now, in the other end, there’s also, what’s called future increases of my benefit. What this is, it’s saying, okay, let’s say I am a 30 year old and I’m making that $20,000 I used in my initial example. Well, most people get raises periodically throughout their career.
Let’s say at 40, I moved up and I’m in a different position. And now instead of earning 20,000, I’m earning $40,000 a year. And so now if I had a disability insurance that I got way back when I first started based off of $20,000, that’s not going to cover my new lifestyle and my new income. What they allow is for future increases without really needing to requalify through medical exams and stuff is just saying, “Okay, we understand you’re going to earn more money over time. We’ll give you this kind of range where we’ll increase them as your salary goes up and you have to prove that you’re not just saying that well, actually now I’m making $80,000.” No, they want to know what your actual salary is, but they’ll allow you to increase that starting benefit amount over time, based on what your salary is doing. And then if you reach a cap, you then have to probably go through a new medical exam or something, but they’ll give you a pretty good cap to get through that. Most working careers, you can keep the same policy, but increase it over time.
Austin Wilson:
Both of those components go to making the benefit should something happen. A, move up if you don’t need it so that your starting point would be close to where you’re at on a salary basis. But B, also then extend so you increase as cost of living increases over time. You’ve got two components of increases over time.
Josh Robb:
And those would be two separate ones and you can pick and choose how much and what you want to do.
Austin Wilson:
And the more you lever those up or down.
Josh Robb:
Cost.
Austin Wilson:
That could cost definitely change your cost. Wow.
Josh Robb:
Yep. That looks at salary. And that’s what’s covering the disability. Basic part of disability is covering your income needs. Along with that, there’s a lot of things you can add into that. Disability insurance is a broad insurance that an insurance agent can really help you understand additional riders or add ons. a rider is what they call insurance world an add on or an addition to your policy.
And so you could say, “Hey me, Josh Robb. I have four kids. What if part of my plan was to be saving for college for my kids, but then I become disabled so I’m no longer able to earn the money to put aside for college.” If I added a addition to my disability insurance that said, “Hey, I want this additional benefit for this thing, there are certain things that you’re able to do.” Now, there’s student loan protection. Now that’s usually for you personally, where if I have student loans, my disability will also help cover those, but they do have retirement protection, which is I’m saving in a 401(k) while I’m working. But what if I become disabled? Well, great. My disability insurance is coming during my working years, but come 62, 65, 67, whenever it stops I’m now just relying on Social Security.
Austin Wilson:
Right. Because when you were putting in money into your retirement, as you’re working, that’s great. But as soon as you start claiming the benefit, you become disabled.
Josh Robb:
I’m not working anymore.
Austin Wilson:
You claim the benefit, you’re no longer getting paid for your job so you’re no longer contributing so you may still have your money in your retirement account, but it’s not getting added to all the time. That’s what you need to include that provision for.
Josh Robb:
You get a provision, they’ll actually, during your claiming of disability, be adding to a, which in a sense kind of an annuity type thing as a retirement piece. Once 67 hits or whatever that stop point is, they no longer give you disability, but that bucket then becomes your payout for retirement. They’re in a sense that they’re adding to your retirement like you were. And so then those other goals are able to be meet by your other assets like the college saving that I mentioned. I no longer have to worry because my retirement is taken care of from the rider, now any assets I had saved can go towards college.
What about, let’s say I do get disabled, but I can work somewhere else, but just not in my field. They can have riders that help you get education or get you back into the workforce. Because again, if you have any occupation and I’m temporarily disabled but I know I can’t go back to my field, I may take advantage of something like that to get a skill that I can get back into a workforce, because if I know disability is going to kick out anyways, I like to at least have some new skills.
Then you can add on some ones that if you own your own business, there could be some sort of policy that, okay, what if I’m one of the owners or one of the key people and I can no longer work there? Some sort of thing to help the company. There’s a buyout or some sort of thing to get me out of the kind of equity I built in there. There’s some add ons and it really just depends on your situation, what makes sense. But I would encourage you to check into at least the retirement piece, because again, we encourage you to save while you’re working and if that’s not happening there will be a shortfall at some point, or at least a very tighter budget once you’re just relying on Social Security at that point.
Austin Wilson:
And don’t forget, there are definitely some specialized solutions out there for those hard to replace earners. For that doc specialized surgeon example you used, that is something that there can be a special, you can write special policies. Now, obviously the more specialized and the higher the income.
Josh Robb:
You’ll pay for that.
[21:20] – Who Needs Disability Insurance?
Austin Wilson:
These policies are, the higher the premium is going to be, but there are provisions and options out there for very, very specialized situations where it’s hard to replace. Josh, this is kind of, now we kind of understand what the topic is. We understand disability insurance and kind of how it works. Let’s talk about bringing it home. Who needs disability insurance?
Josh Robb:
Yes. You and I, we got some stats. We like statistics.
Austin Wilson:
Ooh I like stats.
Josh Robb:
We like numbers. We like to talk about that. I want to start by saying, there’s a higher probability that you and I say you, as people listening.
Austin Wilson:
Or me.
Josh Robb:
You in general, you will be disabled instead of dying early. If you’re working, you have a high probability of being disabled than dying early. We talk a lot about life insurance. We’ll have a whole topic on life insurance in a future episode, but people spend more time worrying about life insurance than they do disability even though statistically more people are disabled than die early during their working career. What are some of those stats?
Austin Wilson:
Well, according to statistics, we know that 3,000 Americans become disabled every hour. Every hour.
Josh Robb:
That’s crazy.
Austin Wilson:
There’s 24 hours in a day. That adds up quick.
Josh Robb:
It adds up.
Austin Wilson:
A 30 year old is four times as likely to become disabled than to die before the age of 65. Kind of like what Josh had just talked about there. And most disabilities, so around 90% are actually due to illness, not injury. And about 95% of disabilities are not even work related.
Josh Robb:
Yeah. When we talk about that, that would be heart problems, heart issues, cancer, those type of things.
Austin Wilson:
They’re not from your job.
Josh Robb:
No, but they can totally disrupt your life.
Austin Wilson:
Absolutely.
Josh Robb:
And so, that’s when we’re talking about when it talks about illness, the primary two are heart diseases and cancer, are the primary two causes but there’s other ones out there. But it’s not just, oh, I fell at work and hurt my back and now I can’t do it anymore.
Austin Wilson:
That would be a whole other type of claim anyway.
Josh Robb:
But those are what people think of a lot of times, the injury side of things. But usually it’s not an injury that slows people up.
Austin Wilson:
And think about your mortgage, think about your house. Most Americans have a mortgage for the house that they own, their primary home. Over 50% of all foreclosures are actually caused by medical problems, not by maybe a loss of a job or something like that. And I’m sure that that is, that’s a huge portion of people’s income requirements that they’re using.
Josh Robb:
The mortgage. Yep.
Austin Wilson:
Is their mortgage. That is a huge portion of those foreclosures that we see.
Josh Robb:
Yep. Social Security administration has their stat. They say one in four 20 year-olds will be disabled before they reach retirement age.
Austin Wilson:
Where does that leave us? Are we in the middle?
[24:18] – Buying Disability Insurance
Josh Robb:
I’m older than that so I’m on my way. I’m trying to get through there. And then about 70% of Americans would find it difficult to meet expenses if their paychecks were delayed even one week. We talk about living paycheck to paycheck. That’s what that is, is that there is no cushion. There is no emergency fund there that if there was a disruption, I would struggle to be able to fill all my needs. And which goes back to that foreclosure issues is if there’s a disruption in my ability to make money, which we saw earlier this year with COVID-19, that causes a lot of problems, even if it’s not your fault.
And so that’s kind of where we’re at is in this disability insurances we need to make sure that since there’s a way to mitigate that risk, push it off to someone else. And honestly, we haven’t talked about the cost yet, but it’s not super expensive for disability insurance. When you look at the big scheme of things, it probably costs less than your car insurance in most cases. It’s not really like it’s hard to get or hard to pay for. Just, you need to plan for it you need to budget for it.
Austin Wilson:
And so there’s two routes to even go about that. Obviously there’s the go out and get your own policy, just like you do life insurance, just like you do car insurance, whatever private, but there’s also public option. Social Security disability insurance, talk about that a little bit.
Josh Robb:
SSDI, if you ever see that, it’s Social Security disability insurance.
Austin Wilson:
We love our acronyms in finance.
Josh Robb:
Yes. And so it is, so if you think about every paycheck you pay into Social Security, you pay into this program, part of what you’re paying into is this disability insurance. That if I become disabled, Social Security will provide me with some income. Now you have to work a certain amount of credits to get this. But once you have it, it’s always there for you. And then it’ll be available from whenever you’re disabled and they have their own criteria. You have to not be able to do certain functions. They have this list of things to qualify and it’s to prevent fraud and all that stuff. But if you do qualify for Social Security disability insurance, they’ll pay you their insurance all the way up until you qualify for Social Security. Then you just switch to Social Security. It’s all in the same bucket, just named two different things. They’ll pay you then for the rest of your life. Pretty much if you’re disabled, Social Security and qualify for it, Social Security will cover. The problem is, on average in 2019, Social Security disability insurance paid on average, $1,234 a month.
Austin Wilson:
When I saw that number in the notes.
Josh Robb:
One, two, three, four.
Austin Wilson:
It went one, two, three, four, and I was like, Josh, just put a placeholder.
Josh Robb:
I just type, type, type, type.
Austin Wilson:
Nope, that’s real.
Josh Robb:
That is it.
Austin Wilson:
$1,234 per month.
Josh Robb:
1,200 bucks a month. Think about all your needs, your food, your utilities.
Austin Wilson:
That guy’s quick.
[26:48] – Where To Get Disability Insurance
Josh Robb:
Mortgage. It’s not a lot, which is why again, we come back to, yeah, it’s there like Social Security. It’s a safety net to keep you from being in total devastation, but it’s also not there to provide much more than that safety net. And so, as a result, that’s why outside of the public sector, Social Security disability insurance, private insurance companies are selling these policies. The biggest issue is where do you get this? We talked through what is disability insurance? Who needs it? Which is everybody that’s working. Finally is, where do you get it? I would say first and foremost, especially if you work for a large company, ask your human resource department, say, “Do I have any form of disability insurance with my employment? Do you guys offer something?” And so if they do, find out what that is. What does it cover? How long does it cover? How long do I have to wait to get that?
Austin Wilson:
And it might be covered. There might be a great policy, which is wonderful.
Josh Robb:
Might be perfect.
Austin Wilson:
But even if it’s not, it might be extremely affordable because larger companies can often have a lot of leverage with these insurance companies to get great deals for their employees.
Josh Robb:
Yep. If your company doesn’t, don’t panic, anybody can buy disability insurance. You can be self employed, doesn’t matter how you’re getting income. You can apply. Shop around, go out, find an insurance agent you trust. Have them look for quotes. I will say too, if you’re part of some sort of group or network or affiliation, check with them, they may have also negotiated group rate for anybody a part of that. For instance, at my office, a group of us are part of a association for financial planners. They have a group disability policy that if you wanted to, you could join into them with that group. Don’t have to, but it’s there. They offer a certain discount and they kind of give you the rules and stuff.
I know that’s available for dentists and all different industries. They offer some of those things. And the same is true with life insurance stuff. They just group stuff together, which is great. Teachers, they have some opportunities like that through their teachers retirement plans. Just check around, see if you’re affiliated with something that may give you a discount or ability to get in. Some even waive the medical requirements so the blood work and all that crazy stuff they do just to check to make sure that there’s nothing right now that’s going to impact an immediate claim. And so some of those groups even waive those.
Austin Wilson:
Yeah, so one thing to keep in mind, as you mentioned earlier in the episode, is that if your company pays the premium, when you start claiming that, it will be taxable, where if you’re paying the premium, that will not be.
Josh Robb:
Correct, yes.
Austin Wilson:
Keep that in mind. It’s very different.
Josh Robb:
Yes. And so, who pays premiums on insurance matters to the IRS. And so that’s a big deal. To clarify Austin, it is tax-free when you’re paying the premiums of after tax dollars, which would be if I get my money, if after taxes my take home pay and then I pay my own premiums. But either if my company pays the premiums or I’m paying pre-tax kind of like what I do with my 401(k), before it’s taxed, it doesn’t count as my salary. Then I’ll have to pay taxes on my benefits. Just want to clarify.
Austin Wilson:
Which end of taxes this occurs on.
Josh Robb:
The IRS cares, is it pre or post tax that paid the premiums?
Austin Wilson:
Also just don’t think that you have to go with the first thing you see. It does pay to shop around and there are a lot of companies with a lot of different options and you can slice and dice and do what you need to do. But shopping around this is an area where it can definitely pay off.
Josh Robb:
And work through, talk with, if you’re a family unit at home, talk together, what makes the most sense? What are the goals as our family? What makes the most sense that we need? Because if something would happen to me and I was then forced to not be able to work anymore, how would that change the dynamics? What would we need in order to go forward? Talk through that, make sure you have a good plan and then shop around to see what best matches that. What your ideal situation would be.
We have, let’s see, talk through disability insurance, why it matters and I mentioned it maybe once or twice, but in general, if you have a financial advisor who you trust, have them help you with this, because part of what a good financial planner is doing is not only looking at your investments and talking through those pieces, but they’re looking at the other parts of your full financial plan. And one of those is insurance and risk management. And so they should be talking with you about that. And if they haven’t, just bring it up and see, what are your thoughts? Do you know of anything that I’m missing on this disability? If you get some quotes and you’re not sure, show it to them, say, “What are your thoughts on these? Which one makes the most sense to me?”
Austin Wilson:
Yeah, just like life insurance. This is a piece of that grand picture.
Josh Robb:
Yes. And if you don’t and you’d like to find out some financial advisors, feel free to reach out to us on our website, we have a link. You can email us at hello@theinvesteddads. It says I think, “Invest with us.” And so we can love to talk with you. And if we’re not a good fit, we can try to help you get connected with somebody that is. Austin, what else can they do?
Austin Wilson:
Yeah, and don’t forget, we have a free gift on our website. It’s a brief list of eight principles of timeless investing. These are overarching investment themes to keep you on track, to meet your long term goals. These are just kind of high level things that it’s good to take your mind off of the choppiness we see in the markets, whether that’s due to a pandemic or an election or whatever else may be going on. 2020 has thrown a lot of curve balls, but this is just good long term things to keep in mind. Josh, how can people help us continue to grow this podcast?
Josh Robb:
Yeah. First of all, subscribe, that allows you to get alerts to say, when we drop a new episode every Thursday. Also leave us a review, especially on Apple Podcasts. That’s great to help us rank so that more people can find our podcast. And if you have any ideas, which is our favorite way of choosing topics is hearing from a listener.
Austin Wilson:
Absolutely.
Josh Robb:
Email us at hello@theinvesteddads.com. There’s a link again, on our website, theinvesteddads.com where you can send us any thoughts or questions or topics.
Austin Wilson:
Yeah. And don’t forget if you know someone, maybe someone was asking about this topic or your friend was like, “Hey, what is disability insurance?” Don’t feel like you can’t send this episode because you can hit that little share button, send it to your friend and hopefully that’ll answer some of their questions. We’d really appreciate if you did and it would help us grow. Thank you for being here this week, until next Thursday.
Josh Robb:
We’ll talk to you later.
Austin Wilson:
Bye.
Outro:
Thank you for listening to the Invested Dads Podcast. This episode has ended, but your journey towards a better financial future, doesn’t have to. Head over to theinvesteddads.com to access all the links and resources mentioned in today’s show. If you enjoyed this episode and we had a positive impact on your life, leave us a review, click subscribe and don’t miss the next episode.
Josh Robb and Austin Wilson work for Hixon Zuercher Capital Management. All opinions expressed by Josh, Austin or any podcast guests are solely their own opinions and do not reflect the opinions of Hixon Zuercher Capital Management. This podcast is for informational purposes only and should not be relied upon for investment decisions. Clients of Hixon Zuercher Capital Management may maintain positions in the securities discussed in this podcast. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses, which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.
