
Getting It Right Before It All Goes Wrong
Paul Adams interviews Cory Shepherd
Welcome to Sound Financial Bites, where we help you with bite-sized pieces of financial and life knowledge to help you design and build a good life. I’m Paul Adams, President and CEO of Sound Financial Group, and I’m excited about the guest that we have here today. Today, we’re talking about having a philosophy around protection, a philosophy around how we protect ourselves from what would otherwise be financial calamities. That’s why we call this “Getting it right before it all goes wrong”, because today’s episode is all about the things we have to have in place from a protection perspective.
My guest here today is Cory Shepherd. By the time this goes out, Cory will have been announced as President of Sound Financial Group. He took some time off to write his book, ‘Cape Not Required’, now available on Amazon. We’re so glad to have you back in the fold at Sound Financial Group and here today. Welcome, Cory.
Thanks, Paul. I appreciate you turning your head around my door and asking me to be here today, and it’s great to have a door close to you again so that I can do that.
Yeah, it is great. For those of you that have ever had the experience of working with somebody where things work really well and then getting the opportunity to have that startup again, that’s certainly been our experience here at Sound Financial Group having Cory back with us. Cory, since we just talked about the book, could you give everyone a quick insight into what to expect with your book?
First, I’ll share what you can’t expect from the book, which is a lot of talk about your money and what you should do with it. I specifically wanted to write a book inside of our atmosphere that hadn’t been done before. Paul wrote a great book a few years ago about our client process, so I made this about all of the things outside of money that I had encountered in my life and had to learn to grow and progress in my career and my business. It’s called Cape Not Required, and it’s about ways to live a life more powerfully, to seek out greater ways of moving powerfully in your life.
I’m a member of EO Seattle here in the area, and periodically, Cory has come to me to those events. There’s not a business owner that’s met Cory that hasn’t mentioned how impressed they are with him. So, if you’ve got somebody in your life that you want to come up as a leader in an organization, I would say go and order that book.
Another target audience member would be your kids. If they’re between the ages of 18 and 30, they probably haven’t ruined themselves yet. This book would be a great contribution, and it really talks about his journey of finding coaching, and then learning how to find help. The help that he found along the way allowed him to really accelerate to one of the top people in our industry in an incredibly short period of time.
Now, onto our subject at hand today: getting it right before it all goes wrong. What are the first things you think of, Cory, when it comes to the ways that people have to protect themselves?
The state of Washington, and I think every state in the country, mandates car insurance as one of those.
So, car, homeowner’s, health, disability insurance, life insurance, wills and trust are important…
Liability insurance.
Yeah, especially if you’re a business owner. We’ve got all these ways that we think of to protect ourselves, and what we see too often is people make decisions because a tactical situation pops up. If they’re not a client of our firm and they haven’t got organized yet, they pull open what I would refer to as the financial junk drawer, and they take their best look at what’s missing. They think, “What should I have in here?” and they pick some new thing, and it’s usually not picked because they have a philosophy that’s helping them make the assessment. It’s because of price, or because my friend recently became a car insurance agent, or a guy I know from college joined an insurance company.
Really, most folks think of it like it’s a quote-based process, not a strategic process. They’re looking for a quote, which is really them saying, “Here’s how much I think I need,” and asking for a price.
Yeah, and sometimes not even asking how much they need. I ask most clients if they have said to their car insurance agent, “I need a quote,” and they’re looking for a price. When it comes to car insurance, that’s what they’ve all gotten used to. Most car insurance agents built the beginning of their career on calling people to see if they could save them money. They’re very sensitive to giving you the least expensive — sometimes the most expensive — monthly premium.
But, you make a good point. Someone calls for car insurance and asks for a quote based on their address and their car. They think there’s one policy out there for them based on that one level. But there is a giant spectrum of different things that could be included or not and different levels of protection for just a car insurance policy.
We need to go in and think, “What’s my philosophy about acquiring this?”. That applies to all those protection pieces: car insurance, homeowners, umbrella policy, life insurance, disability insurance, even getting your will and trust.
Let’s start on the philosophy of when to even insure. Because, you don’t have to insure everything. Intuitively, we know that. If somebody came up to me and said, “Hey Paul, would you like to insure the sprinkler system in your lawn?” I would say, “No, because I can fix that pretty easily if it breaks.” But, if they said, “Paul, would you like to insure if your house burned down?” that answer would be, “Yes, because I don’t want to have to rebuild a home.”
I just remembered this. This is probably from one of my first license exams in the industry where it’s got to be catastrophic and infrequent, because if it’s not catastrophic, then it’s probably not cost-effective to insure. We’re not insuring the plates in our house, because dropping them happens fairly often and it’s not that catastrophic. But, if it’s catastrophic and frequent, you won’t be able to get insurance on it.
Yes, yes. So, that really leads right to where I was going to go next, which is the idea that we only need to insure it if it is catastrophic. If you can repair it, that’s fine. There’s nothing you need to do if you could just fix it, so it’s got to be catastrophic. But, now, if we’re going to lose something, and it’s a catastrophic loss, it begs the next question:, “How much of it do we want back of what we lost?”
If your home burned to the ground with all your stuff in it, too often, people will ask themselves the question first: “What do I need? What do I need? What do I need if X goes away like the house?” but they don’t do that with the house, like something physical you can see. You don’t just default the need because nobody says to themselves, “You know what? I think if my house burned down, I could just sort of level the plot out, we’ll get all the burned embers out of the way, and then I’m just going to buy a 1976 Airstream trailer and park it there, and then that’ll save me a lot money in my homeowner’s insurance because I won’t be replacing the whole house. I’ll just put an RV where the house was.”
I was going to say that I gained so much thinking from you and the talking I’ve done about simplification in your life that me that me and Danielle barely have anything more than we need anymore. We don’t have a lot of extra stuff, so if it all burned down, I probably want all of it back, because I pared it down to the most of what I really, really want to have.
Absolutely. When it comes to these losses, it’s important to document what you have. If your house burns down, you have to prove what your loss was. then you can hand your proof to a claims adjuster and make sure that thay can replace what you said you lost. Otherwise that process becomes very, very difficult.
We insure if it’s catastrophic, and then we insure for full replacement. Now, this full replacement idea, that means if my home burns down, what I want back in its place is the house like I had before. If my car is stolen, or I get in a terrible car accident, I want my car back the way it was. But, now that branches into some other things. What about my income for disability insurance, or what about the money I bring into my household if I were to die on the life insurance front? Both of those are key, because how much hangs in the balance with one person’s income in the household? Even if you’re a dual-income household right now, and let’s say both people, one person makes $250,000 and the other person makes $180,000. That’s $430,000 total income. Now, I would think most people will be thinking,“Wow, if that much of a household income, either about two-thirds or about one-third just up and disappeared, it’s going to be a problem.” Some people will say, “Well, what if they saved one of the incomes? What if 100% of the income was saved?” how we might judge the catastrophic loss will be based upon the future output of the money we were saving?
Let’s say the person with $180,000 income doesn’t need it to pay the bills, because after taxes, they’re saving $115,000 a year. They’re using it literally for retirement savings, or college savings, then they would say, “Well, we don’t need to get disability insurance.” It will be pretty quick to see the future impact of having saved that money for another 20 years, and it would be significant without doing any serious math right now. But it would be a big future impact of not having that money insured, even if they’re saving one full income. Cory, in your years of experience, how often do you see incomes that high where they’re saving one of them in its entirety?
I see very few dual-income households at any level where they’re saving that great a percentage of the household income. It’s not often.
Sometimes people say, “I don’t really need to worry about full replacement”. What do you say to that?
Let’s take a hypothetical household. It doesn’t matter which one of them they lose, income-wise. If either of them is compromised, they are no longer in a position to save that much money, and it clearly was important enough of a value to the household for them to do so, therefore, it is a highly catastrophic event, and we would want to insure that income at full replacement value or as close as we could.
I go back to that all the time where I can see the gears grinding in people’s eyes when we’re meeting with them by our online meeting platform. Sometimes they’ll actually say something to the effect of, “Well, we would just change this or that about our lives if that bad thing happened: disability, death, or even being sued,” which is where the umbrella policy comes in. What can happen, if that happens to them, and they say, “We just change this.” I always ask the question, “Why don’t you change it right now?”
I tell them I don’t want you to answer. You’re welcome to answer that, but I’m not after you answering it. “Is there some reason why if the way you would save money if one of you died is that one of you would take the kids and move to Gilbert, Arizona, and they would get by? If that would work, and that’s the life that you’re after, why wouldn’t you do that right now?” Or, periodically, the business owner says, “Well, if something happened, I don’t really need to go into the office anymore. The business pretty much runs itself,” well then, how come you’re gone 40 hours a week right now?
There’s something you’re after — whether you’re trying to build a bigger future for your family, or you’re trying to build a business large enough that kids can come into one day — there’s some reason why you’re doing it. Let’s understand that, and it’s not to say that anybody needs to own the full replacement. What we need to do is have enough conversation about the economics of why you would fully replace an asset. That asset includes a capital asset, the income-generating tool that you are, not to be too like pragmatic or mean about it.
Clinical.
Yeah, a little clinical. But if you had the printing press in your basement, and that printing press was kicking off $300,000 a year, here’s the question I would ask you: how much would you insure the printing press that prints $300,000 a year? Maybe it could get damaged, maybe it could just break, maybe somebody could come in and steal it from you. How much would you want to protect the $300,000 a year printing press for?
I would want all of that money to keep coming in. “Why you wouldn’t just do that alternative now?” They don’t want to do it, but I think they might have the impression that if they bought the insurance, they’d be forced into that anyway, meaning it would cost a prohibitive amount to protect this ineffable what-if kind of future.
But wait, there’s more…?!
You can find out more information about us on our website, www.sfgwa.com or you can find us on Facebook under Sound Financial Group. We’d love to hear any questions or comments from you there. Who knows? You may hear one on a future episode. For our full disclosure, you can go to description of our podcast series, this episode’s description, or our website.
