Protect Your Income with Disability Insurance

Paul Adams interviews Ryan Jewell

Hello, and welcome to Sound Financial Bites. I’m your host, Paul Adams. It’s great to be with all of you today. I have a wonderful guest I can’t wait to tell you more about. But, before I do that, let me share with you a little bit about what we’re changing in some of our Medium posts. We’re going to rotate some general topics through; one’s going to be personal financial philosophy, another is analytical financial casts, third is personal philosophy, and lastly career and business philosophy.

These are going to come from the groups of people I get a chance to bump into, whether it’s speaking at a conference or attending a conference that our leaders in business and career philosophy, people that we can bring in to help you advance on the career side and give you an even greater ability to earn the income that you want to drive the personal financial habits you need so that you can design and build a good life.

So, that brings us to our guest today. What many of you may not realize is, along with owning Sound Financial Group, I have a division of my company that goes out and specifically brings certain sets of really high quality insurance products to advisers, and mainly to those advisers’ clients in the white coat and white collar professional communities.

What Ryan Jewell — who leads our brokerage division — does is go out and meet with advisers that are from any myriad of organizations that you may have heard of in the typical financial realm, and spends time with them helping them understand how to properly have their clients’ income protected. He’s led that division for us now for how long, Ryan?

Getting close to about a year and a half now.

Ryan’s done a wonderful job of bringing the ability to engage people, help people understand complex topics, and being able to help clients not necessarily by helping the client directly, but by helping the adviser understand how to communicate with their clients some of these really difficult topics. One, today, we’re going to focus in on disability insurance and getting our income protected. So, Ryan, thanks for being on the show today.

It’s great to be here.

We’re talking about protecting income, but people don’t necessarily seek out this topic. Share with me what are the most misunderstood things about disability insurance.

When you ask that question, do you mean what are individuals in the community not understanding about disability, or what are the advisers not understanding about disability income?

That’s a great question. I would say take either one you want first. I think they’re both applicable because every client reading this has an adviser that may not have even brought it up yet, or may have an adviser that doesn’t fully understand it. Let’s just take the advisers first.

Interestingly, they may be all the exact same, and I would say, in no particular order, number one, it’s expensive. Naturally, we’re driven to determine what the cost of things is that we’re going to acquire, and even including outside of the financial arena. Number two is I’m covered. I have, possibly, some group disability coverage or I’m earning a good income today, I’m bulletproof. I think that will continue on. I’d say the third thing is, geez, I’ve heard it’s tough to acquire. These are all valid concerns and also can easily be addressed.

If you’re the client thinking about this right now,or the person working to a retirement, if that’s a misunderstanding, the corollary is you’re not covered through work, or if you’re the adviser, your client is not covered through work.

Absolutely.

It’s expensive. For the adviser, it’s something like it is not going to cost your client that much money, and to the client, it’s not as expensive as you might think it is. A long time ago, a gentleman drew this box for me and he said, “We’ve got two things we can do: big mistake, little mistake,” and there was a big box and a tiny box in the lower left hand corner of that box. He said something to the effect of, “We can make this little mistake,” which I will apply it to disability interest, and the big mistake would be the income loss. The big mistake is not having it, and it’s maybe a big part of our financial game should be just avoiding the big mistakes.

Well, you took my talking point! However, what I was thinking about as you were talking was I think many people are accustomed to popular conversation out in the financial community: ‘pay off debt as fast as possible’ and all these things, which could be very well-intentioned and, certainly, part of a strategy. However, if income goes away, that might become a very difficult task, and that’s aside from saving appropriately, investing, doing all the other good work that people should be doing with their adviser.

You’re not covered through work is the corollary of the misunderstanding of the first one: I’m covered through work. It’s expensive. It isn’t that expensive, and it’s hard to get. Maybe it’s not that hard to get, and I really want to speak to the third one first.

Many of you know I go out and speak with financial advisers on a consistent ongoing basis trying to find the right kind of people that would be attracted to our firm’s philosophy and attract them to our team. Now, if you’ve been lucky enough that your adviser pointed you to this post, you need to know you’ve got somebody special.

But, for me, I go out in the adviser community and I meet advisers who really hold out on their sleeve they probably have a lot of initials behind their name and they hold themselves as a fiduciary, which means they put their clients’ interests before their own, which is certainly, that is the standard we, as advisers, should be in.

Yet, when asked, “Well, what do you do around something as simple as disability insurance?” and I’ll sometimes ask even car insurance, “Do you talk about this?” but disability insurance is our topic today, and they’ll say, “Oh, we don’t do that,” because it just takes too much work. It’s too hard for the client to apply for, and only because those of you who know me a little bit, I’m perfectly willing to have an uncomfortable conversation with somebody and I press in and ask — so, let me ask a question. You’re perfectly okay holding that standard of putting clients’ interests first when it comes to the way you manage their money, but you’re not willing to put your clients’ interests first when it comes time to inconveniencing you with some paperwork? It will usually give them pause before they throw me out of their office.

If you’ve been pointed to this post today by your adviser to get some general understanding about disability insurance, bravo. You need to thank them. Those advisers that take that kind of stand toward their clients, whether it’s your CPA or your attorney, I’d ask you to take a minute to send them a text, send them an email, and say thank you.

Where does that misunderstanding around being hard to get come from? What is it really like if somebody wanted to get it, and then go back and start working through the covered at work.

What comes to mind first is really just expectation. Unlike life insurance, disability, income protection is more scrutinized than something as simple as life insurance, and that’s not a bad thing. In fact, it’s very common, and we tend to just be waiting on things like medical records to come in, the scrutinizing, the financials to prove that the business is bringing in the income, etc.

Because they have to look at your income. Now, with life insurance, they’re like, “Hey, are you dead or alive, and do we think you’ll die soon?” or car insurance, they just run your DMV or whatever and they say, “We think you’re going to get in a wreck soon or not.” But, with disability insurance, they’re looking at what do you make, what do you do for a living and is it dangerous? Then they have to look at your personal health on top of all of it, and I think you’d mentioned before, you’ve got some numbers of how much risk in insurance companies actually taking on, even for a regular sized client.

When I’m speaking to groups about claims, a lot of people have this vision that disability is some very intense car accident where people are in a wheelchair, or paraplegic. The reality is 90% of our claims are internal. It’s the sickness. You may know someone that’s going through cancer.

90%? 90% sickness. Not getting hit by a car, not having a piano drop on me?

Yep.

Not being in the wheelchair like the little handicap sign says.

You know, stress, anxiety, a lot of mental issues due to stress, life happens, right? Interestingly, too, when you’re looking at men versus women, many women professionals end up with claims equal to men as well. What I like to use as an example of income earning potential, we talk about the risk that an insurer takes on when someone is applying for disability coverage. You take a medical professional earning $150,000 today at 35 years old, and if you just adjust that income just to stay with inflation up to retirement, say age 65, that person is going to bring in over $7.1 million.

That’s $150,000 a year income earner at age 35, inflation increases, meaning if you’re currently making 300, multiply that by 2. I think that’s where a lot of our audience is, that and above.

So, if you’re making $450,000 a year, it’s $2-ish million earnings that now won’t happen because you’re sick and injured and unable to work. Frankly, I think they should almost take away the word ‘disability’ and just make it sick or injured because we make stuff up about what disability means. If I just felt like I had the flu for two years, think about that, I don’t care what causes that, but I’m going to have a hard time making it to work and earning money.

Well, you look at someone who spent 10, 15, 20+ years building a business, going through medical school, residency. The amount of, not only money, but time they’ve invested in building their career, and when we’re talking about specialties, like occupations have specialties, like possibly a surgeon, it could be as something as simple as a slight hand tremor, and they could be done. Yet their neighbors would have no idea of it because they’re not in a wheelchair, but they’re in a gated housing community with nice cars, lifestyle, maybe not saving appropriately. Financial devastation can come so quick and so swiftly, and most people just aren’t present to that because they’re busy. They’re building their business, they’re working, and no one wants to take the time to think about what are all the bad things that could happen.

But what I’ll tell you is when I speak, the reason I’m so passionate, Paul, is because I had the unfortunate experience of watching a family member go through cancer not once, not twice, but four times, and wipe away a lifetime of savings and investments. This working professional had an adviser, and this situation of draining life out of assets, selling off a piece of land in Edmonds, Washington just wasn’t necessary.

Whether you’re an adviser or a client, think about that for a moment. Think about how big that claim is, the $7 million of lost income, meaning the insurance company may have been willing to go on the hook upon the issuance of a disability insurance policy $4.5 million of claim.

When a disability insurance company pays a claim, that claim is due right now, meaning if they have a claim that begins getting paid, they have to move the money off their balance sheet that day and totally put it in reserves in a claims account so that they can pay that claim for the life of the policy, even if other things go badly for that insurance company.

People don’t realize why is there all this extra work to get underwritten, it’s because it may look like, to the client, there’s just $10,000 a month, but the total amount of aggregate claim possibility might be $4.5 million. It’s a big difference, so it’s no wonder they have to be a little more rigorous, but it’s not impossible to get. Most of the advisers who are having cases submitted through our firm here, Ryan, what percentage of them would you say, at least, get issued?

This is a great point by the way: the majority of people that apply get great offers. Now, like anything, you’ll often hear the bad side of any industry where you hear about the people that were declined, but the majority, probably 90% of people are extended offers, and then the client’s in the driver seat to decide, “Hey, what it comes down to is what amount is going to make you sleep well at night,” and they can pull the trigger on the level of coverage they want, but I still recommend, just like life insurance, you can apply for the maximum because there is a maximum and then you can take the full amount or even some of it. Which is a great philosophy when it comes to insurance, anyway.

Underwriters don’t get nervous when you back down the amount of coverage you want to acquire. But, if they approve you and then you said, “Hey, instead of $10,-000 a month, I want $15,000 a month,” last minute, they get very nervous. So, it’s much better to start asking for 15 in the back down to 10 if you so chose. Let’s talk about being covered through work, and we’ve touched on medical professionals quite a bit. Let’s just talk about your Amazon or Microsoft, that kind of executive with large corporation, and they’re going through their benefits with their HR every year, they get introduced to it, and HR says, “Hey, great news. We’re paying for 60% of your income,” which usually means their base, and what does that really mean to them and how does that shape out if they actually had a claim?

You know, this is such a great point to bring up because what a lot of people when they say, “I’m good; I’m covered,” they literally mean, “I’m good; I’m covered,” because no one has been confrontational. No one’s taken the time to explain to them, “If life happens, how is this going to play out for you and how is this group policy going to work?” Number one, the benefit, if it’s paid for by the employer, it’s a fully taxable benefit, number two, as you alluded to, it’s only going to cover the base salary.

But wait…there’s more?!

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Paul Adams is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is an indirect, wholly-owned subsidiary of Guardian. Sound Financial Group is not an affiliate or subsidiary of PAS or Guardian.

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