Long Term Disability…MORE Likely to Happen?! | Series 4.6

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Welcome to the EnjoyMore30s Family Finance

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podcast. The only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

Joseph Okaly: 00:00:17

Hello, and welcome to the EnjoyMore30s Family

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Finance podcast. We're on our sixth episode today in this

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series of Your Major Money Misnomers. As always, if you

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like what you're hearing, please make sure to subscribe or follow

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us on Apple podcasts or wherever you listen. Clicking that star

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leaving the review really, really helps other young

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families out there find us. Last week we discussed Your Home

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Isn't an Investment to help you better mentally separate a

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property that is your home from one that is an investment

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property and how the good investment mindset can cause

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people to many times over extend themselves when it comes to

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their home. So check that out if you have not already.

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Today we're discussing if you can believe it or not what is

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actually worse than death financially. And it's the

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insurable scenario, that's actually more likely to happen.

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And that's disability. Although it's really important, it tends

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not to be one that most people have heard about as much when

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you compare it to life insurance, or tend to focus on

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the most. So today we're going to discuss what you need to know

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about disability and the scenarios it covers as well as

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what you can do to make sure you have the proper amount of

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coverage. Now, I don't know about anybody else out there,

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but I am a big fan of the Muppets. Growing up I loved

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Sesame Street and still to this day, my favorite Christmas movie

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of all time is the 1987 made for TV, a Muppets Family Christmas.

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So my kids watch it now. It's it's still fantastic. So

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timeless. Now if you have any kids in the area that can hear

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please pause this. Make sure they're not in the room so I can

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avoid scaring them and scarring them for life. All right,

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everybody ready? Okay. The Muppets aren't real. They're not

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they're puppets. I know. It's really surprising. If you have

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never googled Muppets puppeteers, please make sure

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that is the the next thing you do. You're going to see all of

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these adults with their hands up the puppets holding sticks to

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move their arms, contraptions around their head to aid in

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movements, looking down to both see a screen on what's being

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seen and keep their heads out of the shots. So they don't ruin

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it. It's it's really mind blowingly remarkable. If someone

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said to me, like, "Oh, we can just do it like this", I'd be

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like, 'You're crazy, that will never work'. It's especially

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cool if you find a big scene with like 20 muppets in the shot

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and you see like 50 adults on the stage, twisting their bodies

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all around to move the muppets and stay out of the picture so

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they really must have a chiropractor on staff I think

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for that kind of work. What you need to know that may be equally

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shocking, is that you are actually four times as likely to

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be disabled, as you are to die as a 30 year old. It's very

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significantly more likely, yet life insurance is the thing

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everyone immediately recommends when you have kids, which you

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should have but it's probably not the only thing you should

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have. As we covered in 1.3 the first series Survivors Don't

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Care About Too Much Life Insurance, your biggest asset as

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a young person is your future income potential. $100,000

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salary for the next 30 years say is $3 million, ignoring any

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raises or anything else. So it's really your biggest asset. And

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life insurance/disability insurance, they both go towards

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protecting that biggest asset. And when we look at the

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likelihood of death due to such things, as you know,

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hypertension, kind of like high blood pressure, or heart

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disease, when it comes to life insurance, those risks have

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actually gone down, as medical treatments have advanced with

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the likelihood of you actually dying from them. However, on the

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flip side, the likelihood of disability or being disabled by

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them has gone up by roughly the same amount in many cases. So

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what used to kill us doesn't kill us anymore, it just makes

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us disabled. So that's great. What makes disability

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financially worse than death is that if you can't work, you have

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no income. So the same as death but you still need to now eat,

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you still need to go to the doctor probably even more often

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and you know, just overall do all that living stuff. So you're

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you're here with no income, but you still need money to do all

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the things that you need to do. You may need even additional

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care on top of this, maybe your spouse has to work more. So it

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really covers a whole range of things. In death, there are no

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medical expenses, or you know, you know, having to eat and

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stuff like that. So Long Term Disability Insurance

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specifically, can easily be financially worse than death.

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And it doesn't necessarily have to be breaking your neck. You

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know for some people with specialties, let's say you're a

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surgeon, if you lost a few fingers, all that schooling may

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have been for nothing as your income ability may never

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recover. Now, you may be saying, you know, "Well, Joe, won't the

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government protect me if something happens?" Any short

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term disability you may receive would be on the state level. So

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like looking at New Jersey, where I'm in, you receive up to

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six months of disability protection for income. However,

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it's not for your whole salary, they don't say, 'Oh, you're

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making $200,000? Let me give you all of that back over the next

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six months.' There are limits to what you could receive. So it's

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going to very likely be less than what you need to live on.

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But it's still something. Long term, though there's social

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security disability and that's really the only government based

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option. But qualifying is really, really difficult. And

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they're going to come back to regularly to check on if you

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really still can't do any work of any kind. So it's not 'Can

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you not do your job', it's 'Can you not work at all.' So again,

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with the surgeon example, losing a few fingers may mean he can't

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do his job but that doesn't mean he's going to get social

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security disability. And on top of that, it's definitely not

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going to be as much as he was making. What you can do though,

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is make sure you understand what you are covered for and what you

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aren't, and make sure you have that required protection in

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place in case. So most employers have some level of coverage for

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disability, or at least offer it as an option. Having at least

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say 60% of your salary protected is a good place to start. That's

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kind of a baseline. The one problem with relying on employer

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insurance is, really of any kind, is that it's an employer

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benefit. They are only as good as long as you work there. If

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you were to change jobs, lose your job, your health might

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change, you may not qualify anymore, you may find yourself

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without any protection. Ideally, that's why we say if you can

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afford to do so having your coverages outside of work, so

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life insurance, and disability, long term disability,

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specifically, I should say, where you can control them

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always is the best. Now when obtaining a disability policy,

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and we're focusing our long term disability, the main three

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elements to look at after, you know, obviously, what the

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monthly benefit is, what you would receive is the definition

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that they're using a disability, the length of the coverage and

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the elimination period. So you know, yes, you want to make sure

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the benefit will replace at least 60% of your income. But

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then you also want to make sure it will cover your own

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occupation. Again, with the surgeon, you want a policy to

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kick in if they couldn't be a surgeon, not if they couldn't

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work at all. Length of coverage is how long it will last for and

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usually that defaults to age 65. Now this is important, because

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really what we're trying to protect against is long term

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disability, because that's the catastrophic scenario, that is

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what can completely blow up your finances, especially as a young

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family. You got disabled tomorrow, you don't want a five

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year policy to take you from 30 to 35, you want to cover the

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next 65, you know, all the way up to age 65, the next 35 years

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when you would be kind of retiring anyway. Remember that

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$3 million of future income example from earlier. Last is

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the elimination period for how long you have to wait for the

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benefit to start, which is normally defaulted to 90 days.

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The longer you wait to start the benefit, the cheaper the policy.

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So extending this piece of it is really the easiest way to make

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the policy more affordable as a long term disability is really

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that catastrophic scenario. So protecting at the right amount

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for the right occupation all the way to age 65 takes top

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priority. Even if you know made the elimination period six

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months or a year, you could probably get by for that if you

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had to, but not from now to age 65. So at 30, you could probably

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survive to 31, it'd be tough, but you're definitely not going

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to survive to 65. So if you have to make that elimination period

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longer just to make it affordable enough to have that

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long term coverage, then that's generally what is recommended.

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So the quick recap for today is first realize how disability may

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be much more statistically likely than you realize. And you

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really need to protect for that scenario. Two is that your

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employer may provide or offer options to obtain this coverage

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but obtaining a policy outside of work can provide that full

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control if you so choose. Next, check what your state may

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provide but do so with understanding there really is

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not going to be an easy or likely, you know income

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comparable disability coverage at the federal level that you're

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going to be able to rely on. Lastly, in obtaining a policy,

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make sure the coverage amount is correct, your own occupation is

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covered, the coverage period extends long term and the

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elimination period or how long you have to wait makes sense for

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what you're trying to do.

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So thanks very much for tuning in today. As always, if you are

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able to implement what we're covering, that is fantastic as

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always. You have less to worry about then before. You can focus

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more on enjoying life, really the whole reason you're

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listening I would assume today. So if you are wanting help with

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these things though or you have questions you need help in

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clarifying, check out that Ask Joe section on the show's

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website, www.enjoymorethirties.com. Again

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that's www.enjoy more three zero s .com. If you enjoyed this

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episode make sure to follow, subscribe, review us on Apple

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podcasts wherever you listen. There are literally millions of

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young families out there I'm trying to reach and help just

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like you.

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The next episode is Don't Worry, We Are All Emotional Investors,

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where we're going to discuss why emotions tend to play such a big

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and unwelcomed part in investing and what you can do to try and

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not let that work to your detriment. So until next week,

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thanks for joining me today and I look forward to connecting

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with you again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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registered investment advisor member FINRA/SIPC.