Summary:

In this episode, Billy Gwaltney delves into the complexities of disability benefits, focusing on the implications of having insufficient coverage when faced with disability. It highlights the importance of understanding policy features such as cost of living adjustments and the limitations that come into play once a person becomes disabled.

Takeaways:

  • A lot of times in life, things don’t go according to plan.
  • Once you’re disabled, you stay where you were in terms of benefits.
  • The cost of living adjustment rider can help increase benefits over time.
  • Benefits will increase starting in the second year of the claim.
  • Inflation factors usually compound at around 3%.
  • Understanding your policy is crucial before becoming disabled.
  • You cannot bump up your coverage after becoming disabled.
  • Planning ahead is essential for financial security.
  • Disability benefits require careful consideration of coverage options.

Transcript:

00;00;01;23 – 00;00;19;09

Welcome to the Cover Your Assets podcast, a show for the physician who understands the importance of protecting everything you’ve worked so hard to achieve. If you’re ready to find the peace of mind that only financial security can bring. Let’s get started. Here’s your host, Billy Gwaltney.

00;00;19;11 – 00;00;49;07

Hello. Welcome to today’s episode of the Cover Your Assets podcast. I’m your host, Billy Gwaltney, and I’m excited about today’s topic, which is answering the question, should I increase my coverage to the maximum if I don’t need it? And that’s a really good question. It came up in a conversation with a new attending physician. I work with thousands of physicians across the country and generally start working with them, while they’re in training, and then they transition to becoming an attending with a much higher income.

00;00;49;07 – 00;01;14;03

And this particular client, he had his himself and his wife on the phone, and we were just kind of walking through the options. And based on his new income, he had, he had 5000 a month from his trainee benefit original policy. And through the benefit increase rider, he was eligible to increase to about 18,000 a month. And his initial thoughts as he was saying, hey, that that’s good.

00;01;14;06 – 00;01;41;07

I don’t think I need that much because, our overhead is very low right now. We may buy a house in the next handful of years. But we haven’t bought one yet. And so is it possible? Is it doable to increase, maybe by half way, and then revisit it in the future and increase further once we have a bigger mortgage and our expenses are higher?

00;01;41;10 – 00;02;01;19

It’s a very reasonable question to ask for someone who’s planning, their future, and I thought was. So to answer that question the first thing, and I thought I would bring it here to a podcast to to chat about it, because it does come up more than once, like, okay, if if this is the max, how much do I really need?

00;02;01;21 – 00;02;25;09

And so a few thoughts on that. One is the benefit increase rider. If you have that on your policy, it does require you to increase by at least 50% of the additional eligible benefit that you that you can buy. So if you had 5000 a month and let’s say you’re eligible for 15,000 a month, then you would at least need to increase up to 10,000 if you increase at all.

00;02;25;09 – 00;02;48;01

Okay. In order to keep the benefit increase rider on the policy, if you increase to something less than 10,000, then they would take the benefit increase rider off the policy. So again, check your contract to be sure. I’d be happy to chat with you about it if you wanted to. But those are the kind of the guidelines that that most people are thinking about.

00;02;48;01 – 00;03;06;26

So I shared that with this client, and, and they were like, okay, we we were thinking about halfway anyway. And I said, well, that’s certainly an option. You can do that. That is doable. I said, but as your insurance advisor, I just want to make sure you’re aware of what happens if you actually need to file a claim.

00;03;06;26 – 00;03;29;27

Okay. So your plan works great if you don’t need to file a claim, like if if things go according to plan, then then do that plan all day. But a lot of times in life things don’t go according to plan. So the question will become, what happens if you’re disabled and you have a lesser benefit? Because once you’re disabled, you cannot increase coverage after that point.

00;03;29;27 – 00;03;56;20

So if you don’t have the maximum, and you become disabled, your you stay where you were. Now, if you have the cost of living adjustment rider on your policy, that benefit will increase starting in the second year of the claim and each year thereafter by the inflation factor, usually 3%. And it would compound, but once you’re disabled, if you had, 12,000 a month and you were eligible for 18,000, you can’t then bump up to 18.

00;03;56;26 – 00;04;20;25

Okay. The second thing to keep in mind is that expenses go up during a claim, at least statistically speaking. As for medical care, for rehabilitation services, trying to just figure out life medications, expenses are going to go up. Almost always. So it’s not like your, your budget, stays the same. It actually takes a hit and goes up.

00;04;20;27 – 00;04;46;04

The next thing to keep in mind is that you may never go back to earning the income you were making before. You may stay disabled for the full benefit period to age 65, or whatever your benefit period is. And you still need to save for retirement. People on claim again, most disabilities are not catastrophic, so life expectancy is still similar to what it would be for someone who wasn’t disabled.

00;04;46;04 – 00;05;06;11

If you hurt your back, you know that if you, maybe if you’re not exercising as much and you don’t eat well, then then your life expectancy would be shorter. But in a lot of cases, you’ll still live well into the normal retirement years. And so you need to save enough for retirement. You need to have enough disability benefit to still fund that.

00;05;06;14 – 00;05;26;10

Also, hopefully you still are able to do some things if you do your again, if you do your disability insurance correctly to still send your children to the school you want to send them to, to still take some vacations, to still have a lifestyle, that you’ve started to get accustomed to as an attending as your income is expanded.

00;05;26;13 – 00;05;49;18

And so as I discussed it with this, with this client and his spouse, you could just see the light bulb coming on, going, okay, okay, okay. Okay. So yeah, it they actually mentioned that sounds like it might be Pennywise and Dollar foolish. And I was like, yeah, I couldn’t have said it better. I would say Pennywise and Dollar not so wise.

00;05;49;18 – 00;06;08;19

Okay. A little more politely, but their response was a good response. I thought I would say this whether I’m the broker or not, it’s not about me somehow. Making more money because you buy more insurance. So of course that would happen. The broker gets paid a small percentage of the premium. You pay for the life of the policy.

00;06;08;21 – 00;06;30;13

The point and behind that is to incentivize me to to treat you well. One of the things to treat you well about, or regarding is making sure you have enough. We do have clients on claim. Okay. We do. They were all healthy enough to get the insurance when they got it. The only complaint we’ve ever gotten from anyone on claim is they should have had the max.

00;06;30;15 – 00;06;49;26

Okay. And I have one client in mine in particular, who was a young physician. She got disabled. Never thought she would need it. She had not increased from the trainee benefit. Even, and and she was like, that was a gut punch. And, the first thing she did when she recovered quickly, she was out for two years.

00;06;49;26 – 00;07;09;08

But when she recovered, she bounced back her income bounced back, and she was eligible to increase. And she did that stat right away. The first thing she did was increase to the max. And she has stayed at the max sense because she knows the way the policy works is that if she she had cancer or she gets it again, she’s going to get that higher benefit.

00;07;09;11 – 00;07;28;04

She did some really good planning. And so, as a disability specialist, as an advisor, I have a, I have an obligation to make sure it’s on the record that you consider the maximum. I cannot be the one that’s going to explain to your family why I didn’t tell you. You should have bought the maximum. Just not going to do it.

00;07;28;06 – 00;07;52;18

I’m not going to answer that question. So my job, if you want to work with me is to make sure you consider it. And then also, you know, make sure you understand that it’s ultimately your call. I’m not. I’m not you. I think one of the, one of the things that that, has become apparent to some clients is that, the money that they’re saving by not getting the maximum sits in their checking account.

00;07;52;18 – 00;08;26;21

Anyway, there’s this idea that, oh, I can invest that and do better. Well, first of all, if you’re disabled, you can pay this premium for 25 years and be disabled. And and if you collect for one year of a claim, you will win financially. You clobber the insurance carrier if you’re disabled. Okay. The second thing is that most people do not fully invest all their income to the point where they’re literally going to take that last 300 or $500 a month that they’re not paying in disability premiums and allocate it to a mutual fund.

00;08;26;23 – 00;08;54;11

It’s going to sit in the checking account doing nothing, earning nothing. So why not allocate it towards something that is protecting your most important asset, which is your ability to make a really good income over the long term. Your most valuable asset will always be you, doctor Smith. Doctor. Tom. Doctor. Sarah, you’re. That is your most important asset.

00;08;54;11 – 00;09;24;05

It’s not going to be your home. It’s not your investment portfolio. It’s not your retirement account. It’s your ability to generate a monthly income every two weeks or twice a month or once a month, whenever you get paid, that your family counts on. And so ensuring that is just smart business. So don’t don’t be penny wise and dollar not so wise by letting that $200 that you’re saving by not getting the max, just sit in a checking account doing nothing while your family’s exposed.

00;09;24;05 – 00;09;52;13

And then if you get disabled, you’ll regret it. There’s a there’s a high likelihood you’ll regret it. So obviously your decision. Food for thought I’d be happy to discuss your situation in more detail if you’d like. Please, text me (704) 270-2376 again. (704) 270-2376 And until next time, thank you for carving out a few minutes.

00;09;52;13 – 00;10;13;13

I’m grateful for that. Yeah. I look forward to seeing you next time. Take care. Thanks for listening to the Cover Your Assets podcast and art conduit media production. New episodes drop every two weeks. If you’ve enjoyed the conversation, subscribe, rate and review this podcast. For more tips and advice, visit the website and YouTube channel. Check the show notes for links.

00;10;13;17 – 00;10;21;21

Join us next time for another episode dedicated to helping physicians like you get your disability insurance right and protect your way of life.