RJS 5-24-25

Episode Transcript

Speaker 1 (00:00):
Good morning to all. Craig Chillig here and this is
Safe Money. I'm here every Saturday to talk with our
listeners about financial strategies we use to manage and protect
assets safely. I've been in an insurance agent for over twenty
four years. During that time, I've learned a few insurance strategies,
like using annuities as safe money harbors, or using cash

(00:23):
value life insurance to supplement retirement income. Just a reminder,
you can call our office at five six three three
three two two two zero zero if you'd like to
enroll into one of my virtual Medicare community meetings. I
give those via zoom. I give two every month, or

(00:44):
you can email me at Craig at Craigshillig dot com
and that's my name, cr Aig at cr Aig scchi
l l ig dot com. Today, I'd like to continue
my talk about May being Disability Awareness Month by talking

(01:08):
about disability income, also known as paycheck insurance. I'm going
to pick up where I left off last week talking
about writers on paycheck insurance policies. Some policies will offer
a hospital income writer. This writer, it's kind of dated

(01:32):
and it's losing popularity. It provides a set payment for
each day you are hospitalized because of your sickness or injury.
Payments can last up to twelve months, which can be
especially beneficial if you have elected a long elimination period. However,
the writer typically is not a good value, as most

(01:54):
hospital stays are relatively short these days. Buying a hospital
indemnity would be a better value, and in my opinion,
you can use that for more things. It's just a
better use of better use of your dollars. You can
get a hospital indemnity plan through several companies. You could

(02:18):
just purchase an amount that would at least cover your
deductible your max out of pocket. This is kind of
a better way of using your money, and especially if
you're under the age of fifty, you can get hospital
indemnity plans through relatively very very monthly premium, very inexpensive

(02:39):
lifetime extension writer. The lifetime extension rider extends your benefit
beyond age sixty five. In other words, if you're totally
disabled as a result of an injury or an illness
that occurs before age sixty five, benefits will continue throughout
your lifetime as long as you remain totally disabled. The

(03:00):
insurance company may specify that the injury or illness must
begin before a certain age, usually age forty five or fifty,
in order for you to receive a full benefit under
this rider. If the disability begins after this specified age,
you typically receive a reduced benefit up until age sixty five,

(03:23):
at which time the benefits then would end. The amount
of your reduced benefit would be based on your age
at the time you become disabled. Also note a lot
of my clients begin to cut back their benefit and
start looking at long term care insurance or a hybrid
insurance policy. A policy or strategy usually around age forty

(03:47):
to fifty waiver premium rider. You may be familiar with
this on life insurance policies, but a waiver of premium
rider allows you to stop paying premiums in the event
you do become sicker hurt. This would keep the policy
in force. The writer provides you will not be required

(04:07):
to pay any future premiums once you've been defined as
sicker hurt for a certain period of time. Once you're
able to return to work in full time duty, the
writer then would require you to start picking up premium
payments again. Once your policy then begins. This writer's very

(04:31):
important and most policies today they just have that built
into it. Accidental death and dismemberment writer. This type of
writer provides an additional benefit if you were to die
or suffer a combination of a loss of limbs, sight,
and hearing as a result of an accidental bodily injury.

(04:55):
When you purchase this additional coverage, the insurance company provides
a schedule that signs a benefit amount for each specific
type of injury, and those are usually listed line item,
depending on the circumstance. Automatic benefits increased writer. This writer

(05:15):
stipulates that the monthly benefit amount will be adjusted automatically
every year, provided you are not sick or hurt, to
account for pay raises or increase income you are likely
to receive after you were to purchase the paycheck insurance policy.
The policy provides annual increases for a certain term, often

(05:39):
about five years. During this time, you won't have to
provide any proof that your income has gone up. However,
if the writer is renewable and you want to renew it,
you may have to show evidence that your income has
increased at that time, although the increased benefits your already

(06:00):
have cannot be taken away from you. In most cases,
there's a corresponding increase in premium, So most companies allow
you to decide whether you want to accept the higher
benefit level and premium each year at the time that
that is offered. Usually they'll give you sixty or ninety

(06:20):
days and you have to make a decision. Partial disability
benefits rider. A partial disability benefits rider will pay your
benefits in the event you are unable to unable to
perform summer all of the duties of your occupation on

(06:41):
a full time basis. However, a partial benefits writer doesn't
pay benefits based on the percentage of earnings you've lost
and said it simply states that you will receive your
percentage of your monthly benefit for a specified period, usually
three to six months. A partial benefits rid or may
require you have first qualified for total sickness or injury

(07:05):
benefits before being able to collect under this writer. Most
partial disability benefits say that if you can show a
twenty percent loss of income or productivity, the writer then
will pay benefits. And remember this is a net payable
on an individual disability plan, not gross taxable. This, in

(07:28):
my opinion, is a very valuable writer. I have clients
in the past who've exercised this writer Today with technology
in the medical field, I've had clients, especially those that
have cancer. You're doing some sort of chemotherapy treatment. They

(07:52):
can still go to work, but then after they have treatment,
you know they're not producing at one hundred percent. As
long as we can show a twenty percent loss of
income due to productivity, then the policy will pay and
that can kind of cushion that blow if you can't
get paid for forty hours of work and maybe it's

(08:14):
only twenty eight or thirty two. Salary increases. Salary increase
Inflation protection this allows you to purchase additional monthly disability
coverage during annual option periods up until age sixty as
your income increases. You must be actively at work and

(08:35):
not sick or hurt, and there's usually some financial underwriting required, ie,
we have to prove if you've had an increase in income.
Inflation protection this would be if you're on claim allows
you to purchase additional monthly disability coverage once every three
years as your income increases, so long as you financially qualify,

(09:00):
are actively at work and are not sicker hurt. To
keep the writer in force until age fifty five, every
three years you must submit an application and accept eligible
coverage increases subject to the terms of that writer. Benefit

(09:20):
increased writers sometimes called BR or Automatic Benefit increased Writer ABI.
It allows the automatic annual purchase of benefits without evidence
of medical or financial insurability. You cannot be sicker hurt
at the time of application. To renew the writer every
fifth year up until attained age fifty five, you must

(09:44):
requalify financially, so we have to be able to show
your earning income and that you're increasing. The increased amount
is usually three percent. The goal is of this writer
is to help the policies base coverage keep pace within
inflation COLA also known as cost of living adjustment writer.

(10:05):
If your disability lasts longer than twelve months, your benefits
may increase. Under the COLA writer, benefits may continue to
increase following every twelve months of eligible disability until you
return to work full time. This helps benefits keep pace
with inflation. Return to premium writer. The return to premium

(10:31):
writer might appeal to you if, like most people, you
don't believe you will actually become sicker hurt. I e disabled,
but you're buying a disability See you're buying a disability
policy just in case you become sicker hurt. The return
of Premium Writer entitles you to get back the premium

(10:52):
money you pay in the event you don't need to
use the policy benefits. Depending on the type of writer
you choose, you will get either a portion of the
money back at a certain ages or after a certain
number of years, or all of your money back at
age sixty five. When the writer expires. Any claim payments

(11:14):
made to you will reduce the amount of the premium
that you get refunded. Also, this writer will substantially increase
your premium. Because of this writer's high cost and limits
on potential premiums returned, you should be wary as it
may not be the best value for your premium dollars.

(11:35):
Just the thought on just the thought here on return
to premium we call it ROP. I would argue that
you'd be better, subject to ensureability, to put that portion
of the ROP Premium Writer into a straight whole life contract.
You get more value for your money, and it's guaranteed

(11:57):
to pay. One of these days. We both know you're
going to die. The return to premium writer creates a
taxable income event at the time of issue. You'll pay
taxes on the interest earned at the time of refund.
Hence that'll be a ten ninety nine. Most of my

(12:18):
clients like this, especially when they turn Most of my
clients don't like this when they turn sixty five because
they get this check in the mail that's a substantial
amount of premium and then they get a ten ninety
nine for it. So keep that in mind. Just the
thought student loan debt writer, this has been a real

(12:41):
popular one probably the last ten years. Paying off student
loans is difficult enough. How would you pay them off
if you became sick or hurt? Think about this for
a moment. If you're a recent college graduate, odds are
you have student loan debt and a good chunk of it.
Do you think about your debt when you're paying your

(13:03):
bills or buying your morning coffee? Now, think what would
happen if you became sicker hurt for an extended period
of time. Four years is the average duration for several
disability claim companies based on data. If going back to

(13:23):
from nineteen eighty six to twenty twenty one, you're at
a point in your life where your college debt is
likely at its highest and your income is at it's
the lowest, you may be in a vulnerable position. During
the initial years of your career. Chances are you haven't
had enough time to accumulate the savings needed to cover

(13:46):
your monthly loan obligations if you were to become sicker hurt.
By purchasing a paycheck insurance policy with a student loan rider,
you can help protect your ability to continue making your
student life payments in the event of a sickness or
an injury for less than you might think. The student
loan writer pays the benefit during periods of eligible sickness

(14:11):
or injury for the purpose of reimbursing your student loan debt.
The writer will pay benefits for up to ten or
fifteen years from the policy issue date, depending on the
carrier you choose. Most writers have a ninety six month
waiting period, and you can usually purchase coverage up to

(14:33):
twenty five hundred dollars of monthly benefit towards your student
loan monthly bill. Comparing disability income insurance policies, individual disability
income insurance is a very flexible product. Many types. There's
many types of policies out there with an array of
features and options that are available. This allows you to

(14:58):
design a policy that fits both your needs and your budget.
But because there's no such thing as a standard disability policy,
comparing policies can be difficult. To make it easier, figure
out the coverage or features you want before you begin
to compare policies, so that you're comparing equivalent policies. A

(15:20):
guaranteed issue policy has a different definition of sickness or
injury than an individual disability policy. A group disability policy
has a different definition of disability than an individual or
a guaranteed issue policy, so please keep that in mind.
Three different types of policies, there's usually three different types

(15:42):
of definitions. Ask your agent questions if anything seems unclear.
This falls under a contract law. The policy is a
contract between you and the insurance company. You should understand
your side of the contract. Here are some important things
to consider it before choosing a paycheck insurance policy. How

(16:03):
does each policy define disability? What are the contractual guarantees
of the policy, What base and optional features does each
policy offer and how much do they cost? If you
want to make sure your disability claim will be paid
when you're sick or injured. It's extremely important to know

(16:27):
how the policy you are buying defines the word disability.
No standard definition of disability exists, so when you're comparing policies,
you have to read the wording under the definition of
each contract carefully. If you don't want to do that,
call me. I'll read them for you. I'll tell you

(16:48):
what the differences are. Do you want coverage only if
you can't work in your own occupation or if you
can't work in any occupation. Do you want the policy
to pay benefits only if you're completely disabled or if
you can return to work part time. This will affect

(17:09):
how much recovery time you have, whether it be physical
therapy or occupational therapy, et cetera. And own occupation definition
will cost more in premiums and benefits. But if you're
a doctor, lawyer, a high earner executive, you may want
an OOC definition for the added protection. If you're a

(17:33):
surgeon and can't work in the operating room anymore, but
you could work in the er or a clinic, the
OOC definition would continue paying even if you were still
working as a doctor. And I use that example a lot.
So if you're a surgeon, maybe you're making seven to
fifty to a million years a surgeon, But if you

(17:55):
go become an er doc, maybe your income gets cut
to four fifty or five hundred grand. That can be
a third to a half of your paycheck. Remember, the
more liberal the definition of disability is, the more expensive
the policy will be. What are the contractual guarantees of

(18:16):
paycheck insurance policy? Is the policy you're considering non canceible
and guaranteed renewable or is it only guaranteed renewable. Does
the policy offer special provisions for rehab rehabitation coverage or
exclusions for pre existing conditions. I'll talk about exclusions now.

(18:40):
This is sometimes a sticking point with some of my
new clients. Many times, when I help my clients apply
for a paycheck insurance policy, I give them a certain
level of expectation. If you've had a previous medical diagnosis,
that's going to count against you and that issue will
probably be off the table for a future disability claim,

(19:03):
and the insurance company will call that an exclusion on
your new policy. If you've had back surgery, for example,
the company may say we won't cover any claims on
your back. What the company is saying is they won't
cover that one issue. They will still cover three nine

(19:24):
and ninety nine other things. They can go wrong with
the human body at any given day. And let me
use back surgery for a second. So the policy may
say we will not cover any claims related to the back. However,
let's pretend you get run over by a car and
they injure your back. That's different. That's different than saying

(19:47):
you're filing a claim due to a previous back injury.
So keep that in mind. What base and optional features
does each policy offer? Disability policies offer a variety of
base and optional features. How long is the waiting period
before you can begin collecting benefits? How long are benefits

(20:09):
payable for? What optional benefits can you add? For example,
can you add a cost of living writer to adjust
the benefits of or for inflation? How much does each
policy cost? Once you found two or more equivalent policies
that have the features you want, compare their premiums. Is

(20:30):
one's policy a better value for the price? If one
policy is more expensive than the other, can you find
an explanation for the disparity? It may be due to
the definition. Maybe the cost of additional writers is higher
with the more expensive policy. It's possible you may have
overlooked an important provision or that one policy is simply

(20:53):
the better value. Another point on this, remember the contract
is an issue until the time of acceptance, so sometimes
quoting this can be a little tricky until an offer
is until a contract is offered, the price that you're
being quoted is. It can be hypothetical. Let's see where

(21:18):
am I okay? A basic disability income policy costs one
to three pennies for every dollar you earn, or said
that another way, one to three percent of your income.
It's whatever your base income is. You can get a
base policy for usually one to three percent of that. Now,
if you want to add some fancy riders or have

(21:39):
a shorter deductible period, that's going to cost more than
three percent. Again, most policies are less than the streaming
services and most of the utilities that we pay for
every single month. Does the ensure you're looking at have
a good reputation. Though it's unlikely that an insurance company

(22:01):
will become insolvent, it can does and has happened. To
protect yourself, find out as much as you can about
each of the companies. You're comparing several companies right Insurance
on financial strength, profitability and claims, pain ability, AM Best Fitch, Standard, Impoorers,
and Moodi's ratings. I generally only write contracts for mutual

(22:25):
companies that have solid definitions of sickness or injury. Choose
the policy that best suit your needs and your budget.
After you've compared paycheck insurance policies, you can decide which
one to buy. In many cases, certain policies are going

(22:45):
to be far superior to others, and your decision is easy.
Sometimes you ought to spend some time weighing the strengths
and the trade offs of each policy before you can
decide which one is right for you. Of course, because
disability insurance is expensive, the price of each policy is
also a factor. But be careful not to buy a

(23:07):
policy that's seriously lacking just because the premium is cheaper. Again,
I go back to it's the definition quality of coverage
is as important as price. Sometimes you'll find out. You'll
find that out if you file a sickness or injury claim.

(23:29):
Although the final decision always rests in your hands, a
professional opinion can be valuable. Your insurance advisor or broker
may be able to detect hidden weaknesses in a policy,
explain confusing terms or provisions, and help you weigh the
strengths and trade us of each policy you're considering. However,

(23:49):
please do not buy a policy you can't afford, or
one that won't follow you throughout your career, because that's
not going to do anything for you. You cancel a policy,
you usually can't go back in time. You'll have to
apply it that attained age and income and or occupation definition,

(24:12):
and that can seriously change both the premium and the
coverage of that policy. Remember the different policies or excuse me,
the different carriers cover different careers or occupational classes better
than others. Some companies specifically target doctors, white collar executives,

(24:37):
high earners, accountants. Some others will focus solely on blue collar,
self employed, or high risk occupations. It just depends. So
I'm always going to ask what's your income, what's your age,
and what is your current occupation, because that's kind of

(24:58):
where we get the ball rolling. Don't forget. I give
monthly virtual meetings regarding medicare for two different companies every
month and one meeting I will cover the Medicare Supplement
Plan with a standalone drug plan. That meeting is sponsored
by well Mark. United Healthcare is a sponsor for my
other virtual meeting, I focus on Medicare Advantage plans and

(25:19):
Medicare Parts C. You can call our office at five
six three three three two twenty four hundred for the
zoom meeting codes and additional dates and times. You're also
welcome to email me at Craig at Craigshilig dot com
and that's my name, cr Aig at cr AI G

(25:41):
S c h I l lig dot com. I can
send you the virtual zoomlink meeting codes. This is Craig
Shillig with Safe Money.