Safe Money - 5-3-25

Episode Transcript

Speaker 1 (00:00):
Good morning to all. Craig Shillig 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 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

(00:22):
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
do those via zoom. I give two every month, or

(00:43):
you can email me at Craig at Craigshilig dot com
and that's my name, cr Aig at cr AI G
S C H I L l ig dot com. Since
May is Disability Awareness month, today, I'd like to talk

(01:05):
to you about paycheck insurance. This type of insurance is
for all income earning age brackets out there, ages twenty
one to sixty ish. You can go as high as
sixty five, but understand the last five years in your sixties,

(01:26):
it's not that advantageous. Now, I know you've seen commercials
for AFLAC. AFLAC stands for American Family Life Assurance Company
of Columbus. They give a great idea on how voluntary
insurance wrapped around a group benefits plan can help people.
Or even commercials for if we're talking about All State,

(01:48):
everybody knows who Mayhem is and they're always showing something
going wrong with Mayhem. There's several companies that represent that
offer paycheck insurance, Mass Mutual, Illinois Mutual Principle, just to
name a few. Depending on your current occupation and income

(02:10):
level determines which company would be best suited for you.
Not all contracts are written the same. Some companies ensure
different occupations better than others. Some companies favor more blue
collar type occupations, where some other companies are going to

(02:30):
favor more white collar occupations. It just depends. I'm going
to start out with this question, what is your most
valuable asset? Think about that for a minute. Is it
your home? Maybe your four O one K or your
IRA plan. Do you have ownership or do you own

(02:54):
stock in particular business. Maybe it's your brokerage account. Maybe
you owned some fine rare jewelry. Grandma left you a
diamond ring or an expensive watch, diamonds or gold bars.
Think about that for a minute. What is your most

(03:14):
valuable asset? What if you became sicker, hurt, and couldn't
go to work tomorrow. How long could you go without
a paycheck? A couple weeks, maybe a month? Three months?
How about six months? Depends on savings. Let me put

(03:36):
this another way. If you owned an ATM machine that
was located inside your home, every day, all you had
to do was press one button. Every time you press
that button, the machine would spit out one hundred dollars bill.
So how many times a day would you press that button?
I mean, you do that until your fingers were raw?

(03:59):
More importantly, how much would you ensure that ATM machine? Four?
Would you ensure it for at least one hundred percent
of its value? Well? That machine? Or going back to
my original question, what is your most valuable asset? The
answer to that question is it's your ability to go

(04:20):
to work and earn an income. You're the machine. If
I take away your income or if I take away
your paycheck, what happens to all those things in your
life and your household that you have to pay for
every day. How would those items be affected? Now? If

(04:40):
you're under the age of forty five, some of those
are going to be your rent or your mortgage, your
grocery bill, eating out, clothing, car payments, credit card bills,
student loan debt, and remember all your insurance pot your car,

(05:01):
your liability life insurance if you have it. If you're
over age forty five, how badly is that going to
affect your retirement account, your rent or your mortgage payment,
your grocery bill, your clothing allowance, your car payments, your
credit card bills, your student loan debt, and all your

(05:24):
insurance policies. So again, what is your most valuable asset?
It's your ability to earn an income that makes it
your most valuable asset. It allows you to maintain your
standard of living, pay bills, save for the future, and
enjoy life's simple pleasures. In short, your income provides the

(05:47):
foundation for life as you know it. In any given day,
there's over four thousand things and go wrong with human body, cancer, stroke,
heart disease, muscular skeletal issues, etc. Those are just the
top four items that come up most often, but they
aren't the only ones, and the big thing when we're

(06:10):
talking about the word with the advances of medicine today,
as many people can receive treatments and still go back
to work. So I have a lot of clients that
have a chemotherapy treatment or radiation treatment, or they take
certain medications. Your everyday life and future plans could quickly

(06:34):
be affected should you experience a sickness or an injury
and you're unable to work. Paycheck insurance, which is normally
called disability income insurance, can help solve this problem. It
provides a cash benefit you can use to pay your
basic expenses in the event of a total or partial disability.

(06:56):
You can also buy certain paycheck insurance contracts to ensure
your retirement contributions, to pay for your student loans, to
ensure your business expenses if you own a business. Some
contracts today will even pay your monthly premiums if and
when you become unemployed due to a job loss, you

(07:22):
start paying the premium once you become gainfully employed again.
These are all different types of policies, but when you
need them, they're there for you. Talking specifically about retirement contributions,
what do you think your account would look like if
I take you out of the workforce for say two years.

(07:45):
Did you know that you can't contribute to a retirement
account if you don't have earned income. A lot of
people don't know that. Imagine the loss of opportunity in
the market that would be lost from that scenario. There
are paycheck insurance contracts out there that will continue your
contributions and your matching contribution if you already become sicker

(08:08):
hurt for a fixed period of time or up until
age sixty seven, depending on the type of contract you
go with. Now, some of you may work for a
large company or corporation and have great You have a
great benefits package. Here's a tip for all of you.
Have you read your benefits booklet. The definition of disability

(08:32):
within a group long term or short term disability plan
is different from an individual long term or short term
disability plan. The group plans are usually more restrictive, meaning
that they're harder to qualify for at claim time. Your
group short term disability plan and your long term disability

(08:54):
plan may not have all the encompassing coverage that you
think it does. If you make more than say, eighty
to one hundred and twenty grand salary, most group plans
will top out at eight or ten thousand dollars a
monthly coverage. Meaning let's just say you make one hundred

(09:17):
and twenty one thousand dollars a year and the top
out is ten thousand, you're going to be a little
short on the benefit payout for that. They're not going
to pay any more than ten thousand a month or
one hundred and twenty. Most group plans only cover salary,

(09:38):
not commission or bonus income. Keep that in mind. If
your commission based person, most STLTD plans will specifically say
they only cover salary, they won't cover bonuses. If you
get a bonus every year, yeah that's not going to
be in there, so keep that in mind. Paycheck insurance

(10:01):
can ensure all that too. And the reason I'm telling
you read the booklet because you kind of want to
know this before claim time. Do you know the difference
between the main duties of your current occupation versus any duties?
Giving your education, experience, and or years of service, These

(10:23):
definitions can make a serious difference at claim time? Or
do you have you heard own occupation versus any occupation?
These are all definitions that are built inside both a
group and an individual paycheck insurance plan? Does your plan
cover partial disability? I've had many clients that are under

(10:47):
some sort of chemotherapy treatment due to a cancer diagnosis.
Now they can continue to work, but they may be
working at a diminished or lesser capacity. They're not operating
at one hundred percent. Most contracts will pay a partial
disability income benefit if we can show they've had a

(11:08):
twenty percent loss of income due to loss of productivity
or time off for treatments, exams, et cetera, whether it
be through PTO and a doctor's note that helps to
another ITEMA I'll throw in here. You've heard me say

(11:30):
the only certainties in life is death in taxes. Well,
I should say death disability in taxes. Under a group
short term disability plan or a long term disability plan,
your benefit, your benefit amount will be reduced due to taxes.
The employer pays a monthly premium and takes a tax

(11:52):
deduction for providing those benefits to you. So if the
plans says they cover sixty percent of your base pay,
you believe that, oh sixty percent of my pay, Well
that's fine. Well, that sixty percent benefit is gross taxable,
meaning your net take home is going to be depending

(12:13):
on your tax bracket forty five to forty eight percent
net income. Can you afford to live on less than
half of your paycheck? Paycheck insurance would fill in the
gap that the taxes create. A benefit from a paycheck
insurance contract comes to you net payable, not gross taxable.

(12:39):
When discussing paycheck insurance, I generally use the word sicker hurt.
When I say the word disability, you think of someone
in crutches or a wheelchair in a nursing home that
is near death. Or you'll think of some of the
aflack commercials where they have a broken arm or a leg,
broken bones can be wrecked to find in less than

(13:01):
typically today three to six weeks. Cancer stroke and heart disease,
that's what puts people out of work. That's what makes
people lose their homes or declare bankruptcy. And many of
these people that had cancer, strick or heart disease also
had health insurance. Remember, health insurance only pays for the

(13:23):
medical bills after you pay your copase, coinsurance and or deductibles.
Health insurance does not pay for food, clothing, shelter expenses, etc.
So what's the definition of disability. Total disability refers to
a condition where an individual is unable to perform the

(13:46):
essential duties of their occupation and potentially any occupation, due
to a physical or mental impairment. This inability can stem
from various factors, including injuries, ill illnesses, or cognitive impairments,
and can prevent the individual from engaging in substantial gainful

(14:09):
employment activity a sickness. A sickness or injury can be
a serious event that requires careful advance planning. Many assume
there is already a fallback to protect their income, but
discover that not to be the case, oftentimes when it's
too late. Here's some common examples people think would cover

(14:33):
their essential living expenses personal savings. Nearly seventy eight percent
of Americans would experience financial difficulties if their paychecks were
delayed for more than one week. How long could your
personal savings cover your living expenses before you would feel
a financial pinch? What about the government? Social Security paid

(14:55):
an average monthly disability benefit of about four hundred and
eighty seven dollars to all disabled workers in August of
twenty twenty three. That's barely enough to keep a beneficiary
above the twenty twenty two poverty level income amount of
fourteen five hundred and eighty dollars of annual income. What

(15:19):
about workers compensation? Workman's comp only covers injuries that occur
while you're in the workplace. If you fell into the
Social Security national average and were injured off the job,
could you live on four hundred and eighty seven dollars
a month? What about leaning on a spouse or a

(15:41):
partner's income. Many families require or rely on two incomes
to cover current monthly expenses. Could you get by on
just one income? What about employer provided disability insurance? Employer
provided group disability coverage is paid for by your employer.

(16:01):
May not have all the benefits you want. Additionally, this
type of policy is typically not portable, meaning you cannot
take the policy with you if you decide to leave
your employer. Did you know that individual disability income coverage
can be used to supplement the employer's group coverage, and

(16:21):
you can keep it even if you leave the employer
and go to a new one. About one in four
of today's twenty year olds will become disabled before reaching
age sixty seven for a period lasting longer than nine months.
These three questions can help design the right paycheck insurance

(16:44):
plan for you. How much do you need to cover
your basic monthly expenses? How long do you need benefits
to last? How long can you go without a paycheck.
To simplify this, I usually ask what is your mug?
Mug mortgage, utilities, groceries. Now there's other items you can

(17:05):
put in there, your cell phone, your student loan, credit card, debt,
car insurance payment, health insurance payment, etc. So when we're
talking about how long can you go without a paycheck,
so a couple of things you need to think of

(17:26):
is your deductible or your benefit period. That'd be your
elimination period. And we'll talk about some common terms here.
So there's benefit amount, there's benefit period. There's different definitions
built into most of these contracts. So a benefit amount
is the amount you receive for the insurance company each month.

(17:50):
The benefit payment helps you cover your basic monthly expenses.
Disability benefits are designed to help replace a portion of
the income you would earn while working, and can pay
you up to seventy percent of your pre sicker hurt
earnings at the time of purchase. However, benefit amounts do

(18:13):
vary based on income level, benefit period and selections plus
your current or existing coverages. A simple solution to determine
your basic monthly expenses by adding your mortgage, rent, utilities,
and groceries together and we can work with that amount.
When we're talking about benefit period, that's the length of
time you receive payments from your insurance company, which can

(18:37):
vary based on the policy. Understand, the longer the benefit period,
the more expensive the policy is. But you can get
some benefit periods that are as short as one or
two years. Maybe you go five or ten years. Some
contracts will go all the way out to age sixty seven.
Consider how long you may need disability income benefits to last,

(19:02):
and choose the benefit period the best fits your situation. Remember,
a two year benefit period is better than nothing. Okay,
that would give you twenty four months to make an
informed decision. Some people feel more comfortable with a five
or ten year benefit period, and some other professions are like, hey,

(19:22):
I went to school for this, you know, if you're
a doctor, lawyer, CPA. Some of them would be like, look,
I want coverage out to age sixty seven. I went
to school for five or seven years. I have a
graduate degree or a doctorate. I want to make sure
that I have that choice. Let's talk about elimination period.

(19:46):
That's basically your deductible. It's the number of continuous days
you must be sick er hurt before your disability income
insurance benefits would begin to become payable. You can get
a zero day deductible, but most of my clients go
with a thirty to ninety day deductible. Most people will

(20:07):
have enough savings to cover that time span. Understand, the
shorter the elimination period, the higher the premium is going
to be because the insurance company's going to pay much quicker. Now,
if you don't have enough savings to cover one or
three months or six months of loss of income, then

(20:28):
we'd have to make that elimination period shorter. Like all
insurance out there, the younger you are, the lower the
monthly premium or annual premium is going to be because
it's based on your age and health. Most simple paycheck
insurance plans are cheaper than most people's cell phone or
streaming services plans. Depending how we structure the contract. You

(20:52):
can purchase options to increase coverage with no medical exam
as you age and progress through your career and you're
in come increases throughout your lifetime. Most plans will let
you buy options up until maybe age forty five or fifty,
and then some plans if you top out on options,

(21:12):
you just have to be able to prove and increase
in income, and then you can buy more coverage. Some
companies will even let you buy a writer that will
refund all your premiums less any claims paid, all the
way up to age sixty five or sixty seven, depending
on the contract. Now, if you never filed a claim,

(21:33):
if you got that sort of writer, they'd give you
all your premiums back plus interest. That's not a bad
deal either. Here's another example. I show this to people
all the time. It's called job A or job B.
Job A says you get three thousand a month on
income when you don't have any paycheck insurance. When you

(21:54):
become sicker, hurt, you don't get any benefit, so you're
on your own, no checks for you. Job B says
that you get three thousand a month, but you pay
fifty dollars a month for a paycheck insurance plan, so
your net income is nine hundred and fifty dollars, not
three thousand when you become sicker hurt, the plan would

(22:15):
pay you two thousand a month tax free. If you
became sicker hurt, Which job a would you rather choose?
Do you want two thousand a month or do you
want zero? A couple other things on paycheck insurance plans. Again,
it's garnered by what your income is and the other

(22:35):
that occupation you have. There's different criteria whether you're a
blue collar or a white collar worker, and so questions
are to come up all the time. What is your
income or how much do you want to ensure? What
is your current occupation. You have to be gainfully employed
for at least ninety days. A lot of companies would

(22:59):
prefer a couple of years, but you can sign up
if you're right out of college as a student, if
you have gainful employment or a contract offer, and then
depending on that occupation, then they would make an offer.
Now remember you do have to qualify health wise. It's
not a freebie, so you have to have earned income.

(23:22):
You generally ask for two recent pace stubs, what your
occupation is, and then you may have to be have
a physical exam or they may look at your current
health history depending on age. If you're in graduate school,
especially for you young guys. If you're a doctor, lawyer, stuff

(23:47):
of that nature, you can get some through residencies or
post grad work. If you're just a regular sales guy,
they kind of like two years of income and you
had to have been gainful employed for the last ninety days.
Don't forget. I give monthly virtual meetings regarding Medicare. I

(24:07):
give two of those every month on two different companies,
and one meeting I cover the Medicare Supplement plan with
a standalone drug plan. That meeting is normally a sponsored
by well Mark. United Healthcare is a sponsor of my
other virtual meeting, I focus on Medicare advantage plans known
as Medicare Parts C. I cover the four parts of Medicare,

(24:31):
and I'll get in specifically on what that advantage plan offers.
You can call our office at five six three three
three two two two zero zero for the zoom meeting
codes and additional dates and times. You're also welcome to
email me at Craig at Craigshillig dot com and that's
cr Aig at cr AI G S c h I

(24:57):
l LIG dot com. I'd be happy to send you
the virtual zoom link meeting codes. This is Craig Chilligg
with safe money.