The Critical Insurance Many High Earners Don’t Realize They’re Missing
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Imagine this, you're finally making a great income. Maybe it's more money than you ever dreamed that you would earn. Maybe you're learning hundreds of thousands of dollars.

You've got all your eyes dotted and your teeth crossed, automatic contributions to your retirement funds each month and solid health insurance, maybe some term life insurance. And you've got a bright luca ative career ahead of you. Of course, you're probably going to start living a lifestyle that's like a little more fitting for someone in your position as you should.

Maybe you'll move your family or your fleet of cats into a nice or home and you become accustomed to Better food. You know, you enjoy nice trips, your friends and family. You really made IT at this stage in your financial journey what could go wrong as long as you stay the course, you're pretty set, right.

But this is the point in this journey, we are protecting your downside. The risk becomes paramount. We mentioned health insurance. We mentioned term life insurance. But if you're that higher or who isn't yet quote on, quote, rich, there's one other thing that you should probably think about protecting your ability to continue earning that high income. The social security administration reports that one in four twenty years will have a disability before they reach retirement age, making IT the minority group that any person can join at any time. Hi.

my name is lacy, and I was diagnosed a few years ago with a real condition called sudden century neural hearing loss. IT affects about sixty thousand people a year in the united states. And man, that changes your life. When I was diagnosed, I was earning over a million dollars year in a very intense role that a major in business and bank a name, you know.

Welcome back to the money with Kitty show. I am kd gi toss and and today we are talking to rich gel lc about the insurance that he is really glad as SHE didn't skip since we recently a pant whole life insurance on the show, we figured that was time to do like a deep dive on expensive insurance that actually might be worthwhile.

Because lily had, by all accounts, a pretty stressful career. He was working sixteen hours a day every day, and her job required her to be on all the time. So when he woke up one morning and SHE couldn't hear anything out of her left year, SHE knew pretty much immediately that her career, at least as he knew IT, was not gonna last much longer.

I woke up on a saturday morning a few years ago. No hearing at all on the left side. You know nothing. In my left year, IT was just like IT was dead.

I didn't feel stuffy, I didn't feel like I had a head cold, but I was supposed to fly the next day for work to go back to headquarters for a series of big meetings that week. So I was like, I got ta get this figured out. And thank goodness I had that travel because I went right into the walk in clinic.

I had a great doctor who immediately recognized what was going on, which was critical because for this condition, treatment has to start within forty eight hours, or you have almost no chance of recovery in any of your hearing. So that doctor, my hero, advised me that monday morning, first thing you need to go to see, analyse logic, you need to see the E N T right after have this confirm start series. This is a big deal, not that you can't fly, but you have to be seen right now, my gosh, current.

At first, the seriousness of what was happening didn't quite sinking, but soon he realized that her high line career was completely incompatible with her new diagnosis.

By the end of the week, the impact of my new reality started to Crystallized. I was attending these multiple sessions, forty people in the room. I wasn't the only person on zoom.

Some people had gotten covered, but I was struggling to follow the conversation. I had splitting headaches everyday, and I was absolutely exhausted. And this was not even in my regular schedule. IT was basically like a half load, and I was all done.

Uh, so you IT sounds like the reality set in pretty quickly that you were not gonna be able to do this job anymore if this continued.

Exactly, exactly. The other thing was the treatments for this involved a four hour round trip, daily treatment. For forty days, though, I had to go into a hyper beric oxygen therapy tank and be pressurized and depressurised every day.

And so how would I like my schedule was planned out weeks, if not months in advance. How was I taking four hours a day out to do this? Maybe I gets some hearing back, but maybe I wouldn't.

So definitely, in the short term, I needed to not work and I couldn't do my regular schedule. And then IT IT was becoming really clear, like i'm not going to be able to do this job. I was really, really worried about your on point.

Your in senior management. I had hundreds of people relying on me out of fifty million dollar budget. You miss something in a meeting you didn't hear something you didn't pick up on, something you didn't follow up.

Then you're slipping. Oh, she's slipping. Oh, well, you know, she's got a lot on her plate. Let's move one assignment to someone else and then they're looking at your work at your end and they're like all SHE didn't do as much as you did last year and then your income is reflecting that. And so I could just see IT writing on the wall that degrading.

And as much as I love the place where I worked, they don't have any obligation to me. They weren't gona give me a pass. So then I needed to really think about my life in a different way.

But lacy was lucky because back in the early two thousands, SHE had purchased a private long term disability insurance policy from a company called mass mutual. In the last time we did a deep dive on someone with a really insurance policy, IT didn't end so well. This one actually has a happy ending. If you could call IT that .

in this situation, I was well prepared. I had long term disability coverage. I bought the policy in two thousand nine when I was working at a previous employer.

There, we were offered the opportunity to buy insurance, both life and long term disability. We had limited coverage provided by the firm for both. I didn't really need more life insurance.

I was divorced. I had no kids. I had minimal debt other than the basic coverage provided by my employer. There was nobody who needed my life insurance. The disability insurance offered through my firm would cover the first two hundred and fifty thousand dollars of my income, and I had already signed up for that, and everyone should period full stop.

My boss at the time encouraged me to think about access disability coverage over above what was the basic offered by the firm, because I was making just hundred, five hundred thousand dollars a year. At the time I was single, my family wasn't wealthy and could not have help me financially if anything happened to me. And despite making good money, i'll be at in an expensive city like new york.

My divorce had wiped out most of my savings, and I was just starting to build back. If I were sick or injured or couldn't work, I would be in real trouble, especially if I had large medical bills or had to hire someone to take care of me. I don't like if I sell and hit my head, or was mug and hit my head, or hit my head.

what? What is something happened to my brain? You know, what was I gonna do? So I bought a long term disability insurance policy that would provide ten thousand dollars per month in after tax income should I have a qualifying disability? I went through a medical exam, and the insurance company went through my entire medical history, oh my god ness.

They ensured me that I was like a coal and ocock's, you know, they ensured me, but they excluded any benefits related to my knee because i'd had a previous injury. So that's something to know. So best to get this Young before you have anything happen to you. If you have income that that requires IT, the policy at that time cost just over five thousand dollars a year.

just over five k year four policy that would give you ten thousand dollars tax free each month.

correct? The policy I purchased had a writer that allow me to increase coverage as my income and increased. I did so once, and I up the benefit to fifteen thousand dollars with an annual premium of sixty eight hundred dollars.

Okay, I could have .

increased IT one more time to twenty thousand dollars when my income increased, but I just never got around to IT.

Yeah so loaded .

statement .

never got around to IT. So you are doing five hundred and sixty six per month for the fifteen thousand per months post .

tax yeah with your disability insurance. If you're buying an access policy, you can pay IT monthly, but IT costs you money because you're financing IT. So I would budget for that every year and save IT in advance to make a one lum some payment.

So as you heard, lacy's employer did provide long term disability insurance to her, but he knew that the policy wasn't sufficient. Among other things, IT came with stricter conditions. So for around five hundred dollars per month, he decided that he was going to a privately ensure her future erself from the exact sort of free occurrence that ended up happening to her. That is, to be sure, of really steep insurance premium at five hundred thousand dollars per month. But as we noted, the insurance part of the story does have a happy ending.

So the policy today pays me fifteen thousand, nine hundred and thirty three doors, because IT also has a cost of living increase. Writer, which was part of my premium, I paid more for that writer. So they will increase the amount that they pay me every year. They reset IT annually. The policies that I have will pay me until i'm sixty five, and my disability happened shortly after I turned fifty.

So together places policies, the one that her employer provided her and the supplemental coverage that he bought to make sure he would have in the income will continue to pay her a total of four hundred and twenty thousand dollars per year in tax free income until he turns sixty five, which is admittedly a pretty anonymous outcome. That's not really the norm with insurance. But in this case, lady saw her preparedness pay off.

The cut off age will always depend on the policy that you buy. And since you got the policy in two thousand and started using IT in twenty twenty two, that means that he paid around seventy eight thousand dollars in premiums over thirteen years, which is an excEllent quote, quote investment when you consider her eventual outcome. But obviously, that would look like a pretty big waste if SHE didn't, such as the chAllenge of insurance in deciding whether or not it's worth IT to pay for IT. Still, I would say that the important thing here is that in relation to her income, these premiums were extremely affordable and we ll get right back to IT after a quick break.

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I was curious how and why li had the inclination to purchase extra g in the first place.

I'm really fortunate that I had good advice from my boss, and when I became a boss, I really tried to be what I called full service to my people. I like, are you saving money? Are you contributing to your first care? You maxing out your match like all those things.

But even more than a boss who nudged me towards the insurance proper, I had seen in my twice mentors of mine who are in their thirties, I had more than one woman in my life who had a brain tumor. And the difference in quality of life for these women during one of the most chAllenging experiences of their lives was stuck between someone who was really prepared and someone who was not in dealing with cancer while losing her income was devastating. My friend lost her apartment.

He lost everything, and then he lost, then he lost her life. And so imagine trying to deal with all of that and not having your regular income. SHE didn't have a lot of savings and SHE was really alone in every sense at the end.

And so that was terrifying. You know, I had an impact on me, and I definitely remembered that. So hearing that I could protect my income to the full amount that I was making seemed stupid not to do.

Thank you for sharing that. So what is private long term disability insurance? Long term disability insurance, especially the kind that lacy purchased, is like any other insurance policy.

And as they he mentioned, that is pretty expensive. This is why IT tends to be a good fit for high earners who have a lot to lose if they're suddenly unable to perform. You know, the high level that most highly paid, intense jobs require.

Doctors, for example, are a pretty classic candidate. And like what was for lacy, you might get some long term disability insurance through your work. Lady mentioned the distinction between her employer's policy and what they were offering and her families needs and how much they were spending. Cause hurts want to go out and seek supplemental coverage.

The policy that I have through my job is capped at twenty thousand dollars per month. My family currently lives on less than a month, but we wouldn't be saving much money. I wouldn't have been socking away money like I was when I was getting bonuses at work.

I was just over fifty when this happened. The policies I have peni till sixty five. But inflation will eat away at what feels pretty generous in today's dollars.

My employers policy is self funded, meaning that they pay the claims and hire someone to administer IT. They do not want to pay this amount of money over this more than a decade period is a lot of money. I may be the first person that they have ever had that's at my level, who left their job, is claiming benefits and doesn't have a terminal illness.

They really have been very chAllenged dealing with me. The insurance company they work through has been super chAllenging to deal with. They initially approve my claim, but when I didn't want to have an implant in my skull, which wasn't even scientifically shown to help my condition and would cost me five thousand dollars, they denied my claim.

I had to appeal, which was a process that took over eight months and during which they did not pay me a single dollar because my claim was denied. My employer also had the right to terminate me if I did not return to work. So you're in like double jeopardy there.

Um without having my access policy which kept paying, I would have had to liquid assets and happened to savings and I was kind of a nightmare. Thankfully, my employer was pretty reasonable and they put me on a long term leave, unpaid leave, so that I didn't lose all of my R S. Use my stock. I didn't lose my insurance, but IT was dici and super stressful there for a while. scary.

So when you say that they put you on an unpaid leave, this is because in your situation, had you been terminated in this long term disability policy that you were kind of going back and fourth with and appealing, like would that have been then cancelled? Had you have been terminated IT.

would you have been they would have waited for the outcome of the appeal and then reinstated me. But what I said of them is, given that this process has been so messy and there have been clerical air at every turn, I can't even imagine what is going to the firm to try and unwind determination and like cancelling my stock and cancelling all of that stuff and putting IT back.

You're going to spend more time dealing with unwinding IT and putting everything back. So you cancel my stuck I have some investing. And what if the markets moving and I wanted to sell IT, are you making me whole on the stock, but you now have to give me back like really, why did you just click the box and put me on an unpaid and that's what they did IT made sense to them, but I explained that logically.

I persuaded them. And I also explained that the difference between what I was paying for my health insurance premiums and the portion that they gave employees at my level, like the difference in cobra, was eight thousand dollars a year to then, if that makes sense, that difference of what they contributed towards my help insurance and was eight thousand dollars. I i'm sorry if you took my stock away and I won't sold IT and the stock went down, you've got a potentially unlimited amount of liability. I think eight thousand dollars of insurance for that was worth IT to them.

Your options through your employer are probably somewhat automatic and limited, but you do have a lot more a way when you're going out and purchasing a private policy. You can choose benefit lengths like a number of years or up to an age limit. You can choose the insurance company who's gonna underwrite IT.

And they'll consider factors like your age, the benefit period, the disability definition. So you know what counts, the elimination period, which is how much time passes before they started paying you, your gender, your health, your monthly benefit amount and end your occupation. Much like any insurance, you pay your premiums every single month. And then assuming you're in good standing, if you need to in something happens, you just file a claim, you wait for a and then you get paid a percentage of wages after the elimination period is over, which is usually somewhere in the thirty to ninety day ranged. But IT can be up to two years and you'll get those payments until the end of the coverage period that you buy.

The payments are usually monthly and you're typically going to be paid anywhere from forty to sixty five percent of your predisposes earnings and with a cap because high incomes are often either paid in part with equity or highly variable, unlike a standard w two job, the way the insurance company determines what your pre disability income is can vary. Lacy had to provide her most recent tax return and a few months of pay stubs, but only her cash compensation, so not the R. S.

Use that he received. Part of her pay qualified as income that could be replaced by the policy. And when IT comes to the types of disabilities that claims, often face laces cases, pretty instructive.

Things like brain injuries, burns, cancer, kidney disease, heart attacks, dw, heart disease, mental health issues, muscular of skeletal disorders, all of that can qualify. But you always want to make sure you understand the policy's definition of an illness before you purchase IT because that's not a comprehensive list and certain exclusions for preexisting conditions can apply. And all right, while we're on the subject, what doesn't count? PregNancy doesn't count, the complications do.

And then things like injuries related to committing a felony or active participation in violence or intentional self inflicted injury, disabilities that begin while you are incarcerated, injuries from war, IT is a thing. Usually, the stuff that's excluded from insurance policies feels a little absurd to me, like the time I bought umbrella policy specifically because I wanted to make sure if there were ever an accident in our home with our dog that we would be protected. And then I got the paperwork, and IT was like, yet german shepherds are explicitly excluded from this coverage.

So I was sort of pleasantly surprised when I read the exclusions that are typical for long term disability that they seemed, I don't know, at least a little bit reasonable. But there were other concerns that felt top of mine to me. For example, I often wonder what happens to people who are unable to work in amErica because of a health condition when their employer is the one who provides their health care, like there is no worst time to lose your health insurance than at the exact moment you are also losing your income.

So it's in a uniquely american shit sandwich that you would be dealing with. And if you're like lacy and your disability payments are extremely high, you might not really be stressed about having to provide your own health care, your own health insurance. But I was still curious what happened to her and how SHE handled IT.

So the roll over impact to the rest of your benefits depends on where you work. Of course, I worked at one of the largest fortune five hundred companies that we have in the country. And for them, they continue to have you on the payroll er on staff for twenty four months following when you go on long term disability of two years. okay. So your insurance continues everything continues as Normal if it's coded correctly in the systems.

But let's assume that the place works and you end up a writing a check to them or they take IT out of your bank account if you give them that information and because there's no paycheck for them to deduct IT from, yeah so you're writing a check OK to them and then that continues for twenty four months and then you're offered cobra and cobra in certain circumstances can be extended beyond the typical eighteen months for a disability situated for a disability claim situation that can be extended up to thirty six months. But again, I think that's by employer situation. I don't think there's a law there not that i'm aware of.

And so you would still be within that or maybe just now accepting the twenty four months period?

Yes, i'm over the twenty four months and i'm on cobra now.

gotcha. okay. yeah.

Now we had catala really great insurance. So I haven't looked in a health care marketplace. But absolutely, if my insurance wasn't as good if my coverage wasn't as good as IT is and at my level, we paid so much for our insurance. At a senior level, they make you care more of the cost because you're able to pay, which I agree with. But the difference between cobra and what I was paying already is a material.

So what's interesting to me about this, I think, is that four people who maybe go through this same experience, the same problem, but maybe they are not an excessively high earner, maybe they're above average, but a little bit more kind of like what I would call a reasonable high earner. You have this long term disability. You can do the same job that you were doing before.

At the very least, you theoretically probably need more medical care more regularly than you did before, by the very nature of the fact that now you have a disability. And so is IT fair to say that after that period, whether it's a couple years and then once the cobra runs out, whatever, know that up to your employer, then you really are just kind of now on your own with finding a market place plane that works for you. I think that that to me jumps out as a reason to get this type of insurance and like factor in the like you might not be spending a thousand dollars months on healthcare now, but you could be .

absolutely there have been discussions at my dinner table of um should my husband go try to find a government oh no you know yeah that is the one place that we have an outsize risk to our financial help. And so trying to self fund this effectively early retirement is scary. Yeah so having the policy that covered a larger portion of my predisposes income is really important for me to feel comfortable that i'm able to save at a rate the similar to what I was doing before. And those savings can grow, you know, from here on yeah so hopefully will protect us against inflation and help care costs that we know we'll just continue rise.

So your employer may continue to pay its portion of your health insurance costs if you are on long term disability. But if it's a permanent disability or you are out for longer than six months, your employer is probably to drop that health insurance coverage and you are going to be required to find your own. Everyone say IT with me yeah corporate nani state.

But the point is that is important to redefine print on this one. And if you already feel like the insurance that you're getting through your workplace, the long term disability that they might be providing you, three with w two employer, if it's already a little bit tight on income that can replace your spending IT might be worth buying more simply so you would have money to pay for your own health insurance later. okay? We will continue this right after a week break.

What does the future hold for business? Honestly, that's a pretty brought question, which is why you'll probably only get brought answers like rates will rise or fall to put IT in more jargoning terms. It's a buller bear market until someone finally invents a Crystal ball.

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So as with most things, insurance, the devil is always in the details. And races said there were a few critical considerations that made her specific policy a winner.

the number one being own occupation. So O W M, own occupation means that if I am unable to do the work that I was doing on the day I was disabled, I am entitled to receive benefits. So this is critical.

And of course I can work. I can do all kinds of work right now. I can't do the job that I was doing before sn sensory during what happened to me and I can't make the money I was making. So without the own occupation clause, the insurance company could say, go get a job as a store clerk and you're gonna eighteen dollars an hour and you're good right? Um and so the own occupation policy has saved my back and let's put in that way and that .

own occupation clause extends for the duration now of the payoff there any point where that falls off?

Nope no. So on occupation insurance protects you for the rest of your working life, which is defined to end IT sixty five. Okay, so there's no time its all about what you were doing on the day of the disability.

And let me tell you through my appeal which was successful, I had to pay for a vocational expert to do an assessment of what those and respons bi t ie s were with. The components were of my job and detailed in the page report of the insurance company. The other two key features of my access policy are cola cost of living adjustments.

So that increases the payments that I received with inflation, the rates assessed and adjusted annually. And so that gives me some measure of protection. But that is capped at three percent.

So oh, last year and the before where IT was more than three percent, but at least it's adJusting something. But you know my policy to work doesn't have that and so it's not going to adjust. Um and then the other was the ability to increase coverage.

And so being able to buy up your policy to uh, larger benefit is really important. This policy also had so you didn't have to have another exam. They didn't go through your medical history again. So if I had some kind of health incident in between when I first got the policy and now which as you get older, stuff happens, not having that all reexamined and more exclusions added is important.

okay. So to put a finer point on this, own versus any occupation coverage is critical because own occupation coverage means that you are covered under your long term disability policy for as long as you can do your own specific job as opposed to being unable to work your job, but potentially capable of doing a different job. That is completely different and far less illustrative.

So almost definitely going to be a critical component. Here is own occupation coverage. Another thing that lady was grateful for was that he used post tax dollars to pay her premiums. And this meant that her benefits, or tax free.

another critical part of your disability insurance is making sure that you're paying your premiums with post tax dollars. Now if you have an access policy and you're writing a check to them, that's how it's gna beat. It's going to be post tax.

But if it's a benefit through your employer, you want to verify that it's being charged as post tax dollars because if you're paying with pretax dollars, your benefits are taxable. If you're paying with post tax dollars, your benefits are not taxable. For me, four hundred and twenty thousand dollars a year without tax is significantly different than what that would be if tax was being was held or charged.

Really, really important. And I think most really large employers have this figured out. But when I first bought this policy, I worked at a firm that had three hundred people, and they originally charged IT pretax and then figured that out and had to back all of IT out and recharged at all. And so if you're either self employed or in your running ness through your payroll system or you work at a smaller company regardless, just double check, ask the question. That's a material difference.

So we've already eluded to this that you can have employer provided benefits, and that's true. We've really spend a lot of time here talking about private long term disability coverage that you go out and stick for yourself, but you might already have some version of long term and short term disability policies with your employer. You might even be aware of IT.

The thing is these plans do often cap out at a level that might be much lower than a salary like someone like laces would have required. For example, just out curiosity, I went, I checked my own employer policy. So ha, and I would get, quote, sixty percent of our annual salary, excluding bonuses and commissions, or twelve thousand dollars monthly, whichever is lower.

So another way to interpret that is the maximum amount that one could receive with this policy that we are covered by at work is one hundred and forty four thousand dollars per year. That's assuming that is lower than sixty percent of your salary IT would pay for twenty four months. So you got two years of coverage here, and it's not totally obvious from the paperwork that I am looking at now what disabilities would be covered. And I think that, that highlights another important element of the types of professionals who can become invaluable when you are navigating situations like these.

So when this first happened, no other than panic and shed some tears, I realized I need to do two things very quickly. I needed to hire a disability specialist, atterley, and I needed to get a theriere, because I needed make sure I had support in both camps for whatever this journey was gonna.

I wanted a specialist disability attack y to guide me through the process and make sure that I was completing forms and interviews in the right way with correct answers and things that wouldn't trigger or be red flags as this one through. And if I was denied benefits, I would have someone who had been with me along the journey and could work on an appeal pretty easily. My appeal in the documentation that my attorney submitted was over twelve hundred pages.

Oh my gosh.

So with a .

disability specialist attorney, is this someone that charges by the hour they get a percentage of benefits? How does that typically work?

They will do IT either way. And so before my claim was denied, I paid them on an hourly basis. And then once my claim was denied, I had the option to continue that way or to move to a percentage that they would receive if the claim, if the appeal was successful.

There is a few nationwide disability specialist attorneys. I interviewed people from three different places, and I know the one I went with. I have referred business to surprising to me how many people need this, but i've referred business to them.

They're absolutely fantastic. And we're really good at talking off the ledge and making sure that when I was upset and feeling attacked, they make sure that the interactions I had were from a place of palm and rational and professional and not emotional. And so just having that barrier, they stepped in between the insurance company and me so that I wasn't telling the claims adjuster where to go.

Yeah, yeah. That sounds like having that guide through the process, even if you hadn't needed to appeal IT still strikes me that having someone that is familiar with the jargon, the languages, to your point about red flags, just kind of like simplifying and streamlining because I I can imagine IT is a pretty no insurance company is like eager to fulfill and accept a claim. So you don't want to make any mistakes when you are going through that initial a make application filing.

The other thing that the attorney told me is we have the biggest problems with people who are in your situation. You have worked really hard to get where you are, your top of your field. You're used to think, yes, i'll figured that out.

No problem. I can do IT. And especially he did not say this, but especially as a woman, you know, you're like, I can do IT there's nothing wrong with me i'm totally fine I can figure out IT out i'll do everything.

I take care about everything, right you and this is not a case where that is what you want to do. You want to be very realistic, you want to accept your situation, and you want to communicate your limitations. And what he said is that people like me in my situation have a very hard time doing that.

The female lawyer he assigned in his firm was an absolute dream to work with, and I was glad to work with a woman. I'll just throw them. But they said, this is one of the reasons why, because you're going to want to actually tell in these forms what is really going on with you and not make light of IT not i'm fine. 这是 哪里？

And on the note of short term disability, which uh apart from like the timelines we're talking about, works pretty similarly from a pre tax and post tax per productive and you know paying for the the premiums and the to filing claims you may have been on short of disability already. If you've had a baby in our great nation, which is one giant paid ly if a shirk under god.

But sure, term disability provides some income replacement on a weekly basis as while employees are out of work on a disability claim and IT typically covers off the job accidents and illnesses that workers comp wouldn't like. You know, pregNancy, which is hopefully and off the job accidents. Some states like california, hawaii, new jersey, new york and road island actually require short term disability policies for workers.

And there are a few different types that very based on who is paying for IT and how, but the wages that you will be paid typically ranged from forty to seventy percent of your income. And usually it's gona take several days to begin. So apart from pregNancy, what else qualifies as a short term disability? Think accidents, injuries, illnesses.

Uh, the benefits usually last a number of weeks, and most policies macks out around a year. So for example, like I was curious again, I pulled up my own employer policy and saw that he pays for a maximum of twenty six weeks or roughly six months. Just a give you a sense for the difference were talking about when we say short term verses long term, okay.

So we've covered high end private policies for long term disability. We have talked through the types of coverage that you might have at your job already from your employer. But what about the type you can get from the government?

S S D I or social security disability insurance is quote and quote a thing. And it's great that IT exists, but it's both not a share thing and also not a lot of income. The qualification requirements are pretty similar to how the regular rules of social security work.

And by that I mean, it's all about credit. You must have worked in paid social security taxes for a certain number of years. So typically you need to have earned at least twenty credits in the last ten years, though Younger workers may qualify with fewer since you typically earn four credits per year.

This generally means that you would have had had been working for five of the last ten years. But whatever your age, you must have earned the required number of work credits within a certain period, ending with the time that your disability begins. So if you qualify now, but then you stop working, you're not earning wages that are being considered for social security.

You may not continue to meet the disability requirement in the future. So when I say it's not a lot of income, I mean, that is not a lot of income. In january twenty twenty four, the average S S, D, I benefit payment was just under seventeen hundred dollars per month.

And in order to get IT, you cannot do work that you previously did. You cannot mean that with just to other work due to a medical condition if you are able to earn even a modest amount of money on your own, think like fifteen hundred dollars a month, you are probably not going to qualify for this. So all that to say, IT is good to know what exists, but this isn't no way of replacement for getting your own policy if you fit the bill described.

And I would also add a kind of flies in the face of this colloquial wisdom or knowledge or fear that, like people are living on government, larger dress, all these people on disability, or are taking advantage of government money, you're really not going to get much of money on on disability payments. That's not true. So let's go back to what is lc been up to. Because when you go from working sixteen hours a day to permanently leaving your career behind practically overnight, I kind of figure that was a pretty big adjustment. So I wanted to ask her what she's doing now to fill her time.

I'm at a different pace. There are some things that I can do that I used to do, uh, I used to go see a lot of live music. It's not super pleasant for me.

I used to go to a lot of restaurants that's not super pleasant to me. I really like eating outdoors because you don't have the sound bouncing around where you can't hear anything. But I got really into something that had been just the beginning of a hobby before I started.

And when I tell you, I went down a ababa hall, I went down a rabbit hole, I went back to school at my local community college, which has been amazing. And now i'm in the process of starting a business to make that hobby a profession with several of my classmates. And so i'm really excited about that, and I feel like we can do some important work with this hobby.

This is actually a really important detail. Lacy and her lawyers had to send letters to her insurance companies to inform them of her plans to return to another type of work.

First off, I needed to inform, and I had an obligation to inform both companies that I was intending to work. My lawyers said that lots of people don't even tell them until they've been working like six months and they're scrambling. So I wanted to make sure that before I even contemplated going back to a job, that I communicated with them and we communicated with the insurance companies.

So we did that. One company has sent me a set of forms to fill out about what the duties are and will do a vocational analysis of that, and i'll need to provide whatever information they want. The other company sent me a globally books letter about what's percentage of earnings and causes and and actually did not accurately communicate the information in the policy.

You'd be surprised to know which one. All but the most important thing that I need to be aware of is your benefits change. This is not consistent across the policies i've seen.

If you make over eighty percent of what they call your predisposes index income. So they've looked at all of your financial records at the time of the disability and typically for the two years prior. So those were another set of documentation I had to send in um and they will tell you this is the amount of money that you made. If I make more than eighty percent of that number than my disability payments .

sees completely this correct.

correct. Thankfully, the the timing of my illness could not have been Better. I had my highest earning year of my entire career the prior year, and there's not a realm of possibility in which I would make that again.

So it's less of a concern for me, but it's something to be aware of. And depending on what your policy says, some insurance companies will start impacting your benefit if you make twenty percent of your predisposes income. So they might offset as that amount increases over your original you know, look, you said IT earlier people, the insurance companies, they're not signing up to pay out your plane. So now and he doesn't .

matter that the work is completely different, right? It's just income from any source that you are driving. That is, I guess, now good benchmark twenty percent or somewhere between there eighty percent that becomes eighty .

percent starts to get yeah yeah. I do have to be really clear and maintain documentation about what is different about the job. And for me, the chAllenges.

One, I can't do a fourteen to sixteen hour day back to back to back to back. So that's just not happening. So the duration is not something I can do.

And in the components of like trying to follow conversations going on, that's not a thing. Yes, for me anymore, it's not the same at all and it's not the same kind of business at all. So if somebody we're trying to do something, you know, it's something to think about whether putting your benefits at risk is something that you want to do. It's really hard to sit on your hands if you've been a high achieving, high earning person. It's been a time to just reexamine how I was living my life and spend some more time on, more time on relationships with people in my life verses the people at work.

Now that you've been through all of this, you know what? You know you're in this position now. Is there anything you would have done differently?

I'd say there's two things. One, I would have up my benefit one more time. Not that i'm not comfortable in fine, but there was additional benefit available to me had I not let that self care item of hey, you're making more money, adjust your insurance fAllen to the bottom of my priorities continuously. So that's one. And then two, i've had a friend from work where the same thing happened, and SHE said, I can't believe that, you know, you told me exactly what I needed to do, exactly what I needed to get, the clauses, everything, and I never got to IT.

And so I think that the people in my life who I care about, I need to just go back around and say, hey, pop this up to the top of your list and get IT dealt with, and then do that until they tell me that they have, whether you work for a large company or yourself, employed, doctor, dentist, lawyer, anything that's using hands, brain, you need to make sure that you're covered because anything could happen. Hopefully you never, ever, ever need your benefits. But god, for did you do.

Now I still a few questions, so I called up Kitty song, my feel, only C, F, P, to ask her, and just a little deliver. Katy song does work for domain money, which is a sponsor of this show. So you are intimately familiar with my financial situation, and I am thinking about getting a private long term disability policy. And so when I say those words to you, i'm curious, what do you think about that?

So I think that for anybody that song employed and a primary earner in a family is critical. It's really important, critical yeah the lows hanging fruit. The people who need are the ones who didn't get IT through work.

So I feel like you are w two and it's one of the employee benefits this offers to you. Take IT sign up for the maximum amount statistic. There's like a thirty percent chance of anybody over the age of forty not being able to work for up to eighteen months.

And we're not talking about like I burg leg and I can't like return to office. It's like, oh my god, they're had a brain tumor. I have to go through radiation.

I can't think straight like I take some time off. So if you can get IT through work, sign up for the maximum. If you are self employed and you are kind of the primary provider of income for your family, that work is too like the independent policy is super important.

If you are covered at work already, if you already have a policy at work, do you think that it's overkill to get a private policy?

Yes, usually at work, the default is sixty percent of your income. An insurance company, even if you are not going to get an independent policy, is never going to ensure you for more than seventy percent of your income because they do not want to incentivize you to gleevec stay out of work.

Would a private policy kind of closed the gap? Or would they look at you and go, no, you already have x dollars of coverage, so we are not going to cover you. Or will they will they allow you buy a policy that would ensure more of your income?

So insurance companies always going to want to sell a policy. So the incentive of is there to figure out like, okay, does this make sense for you? So that does happen from time to time. Let's say that you are and attorney, it's usually like highly paid executives. And if they work for a smaller company and a smaller company doesn't have great long term disability benefits, that we are kind of getting an ad on policy can bridge the gap.

But I get like if you make, let's just see twenty thousand dollars a month and your work cover just going to cover you for ten thousand in like crap like there's a ten thousand dollar gap there. That's when an independent policy can really bridge the gap. But I would encourage most people to look at that, not just in covering my income generation, but what are you actually spending. But let's talk early briefly about who doesn't need IT. So if you are not the primary owner and your self employed, but your partner, your spouse, has benefits through work and they are the primary earner, Normally IT doesn't make sense to spend money on a monthly premium to cover answering income that isn't necessary to live your life.

I hear you. That was kind of what I was curious about because I was like, what I do save most of my income, like my savings rate is pretty high.

So if i'm going to go out and get a policy like this, should I be trying to just get enough insurance to replace the income that i'm spending? Or should I be trying to fully replace my income? And IT sounds like you're saying you're looking more at the amount you need to spend versus paying to ensure yourself to to fully replace the amount of income that which IT doesn't not like that would actually be possible based on the roof. The sixty percent, seventy percent, right?

yeah. But I mean, if you think about like an insurance company is going to want to sell you the biggest policy possible when i'm trying to encourage people to do is to not buy more policy than they need. So let's say that you make tangle in a month, but you spent five in a month.

And so in insurance companies can be like, oh, OK, i'll ensure you seventy percent or seven thousand dollars a month so they're going to charge you x for the premium. You're like, oh, but I actually only need five and my premium would be sixty box lower a month. So i'd rather you out for the right amount of coverage and paid lesson premiums than do what the insurance company wants you to do.

gotcha. Okay, that makes sense. Thank you. Are there any hacks for getting a policy like this? Or is that kind of just like shopping around for car insurance or like the other type of insurance that people are probably familiar with getting anything that people should be aware of if they do pursue the private policy?

So I think that one thing that I would recommend for people to do to consider things like associations or unions that they might be a part. So if you think about IT this way, like when you get coverage to work, the reason it's so inexpensive as because you've got pulled with insurance companies like to pull risk and not have individual risk. So if you were able to join like a freeLance writers union or part of the financial planners association, a lot of times those unions are associations, will have long term disability policies that you can do from the group.

What about coverage or claim? Watch out. Like i'm thinking about my car insurance example. Again, I would probably tell someone, oh, you have a new car, right, that would actually cost a lot to replace. If you get hit, you should have collision and comprehensive coverage on that vehicle.

But if you are someone that has a pretty cheap red car that like if you've got ten an accident, you would just get a new one and you wouldn't pay a fixed cosmetic stuff, I might say, uh, this is a pretty expensive part of the policy. Maybe you don't need IT. Maybe you can skip IT. I actually am not sure, cain, if you would agree with that advice. But I am curious, are there any analogous situations that you would point to hear of, like tips for coverage and claim watch outs in the L T D space?

There is some driving factors. So one is the elimination period. So like how long will you self fund before the long term disability policy kicks in?

So that ninety days, is that a hundred days? Is that a whole year? So like how much emergency fund do you have on hand to cover you if you're not able to work?

So the elimination period will have a really big impact on what your premium. M S, the analogous thing to like, you know, do I decline collision because my blue book value is less than ten thousand dollars? That's my my .

rule of done. kay. great.

Thank you. Yes, if if you're toyota gha from two thousand and is worth less than ten thousand dollars, don't have collision because you're going to end up paying more for that part of the premium than they're ever going to pay you out for the car if he gets total. So this kind of comes back to like who are the people who don't need coverage in the first place.

So like if you're not a super high earner and your partner has the benefits of the primary or in capability or you know that's what they are bring to the financial side of the relationship, then you probably don't need an L T D policy at. So elimination period, that's one of the big drivers. The second big drivers is the benefit amount this gets back to and I really trying to replace income or I am I trying to make sure that i'm covering what my nut is on a monthly basis.

So i'm spending five thousand dollars a monthly battle. What might not is, and I want to make sure that I can cover that. The third is how long is the benefit period are going to be?

So statistically, you're gonna need more than eighteen months to three years worth of income. So like why would you pay five years, ten years up to the age of sixty five, which that tends to be the default. So again, think about the insurance company want really long term policies that are excessive because they make the most money.

So really have to kind of dial into what meets your need. So elimination period, which is like how much cash I have on hand to self insure and how go about last ninety days, is pretty typical. That's like the shdema.

Usually short term disability is through the state is viable for that short term period of time and then that benefit amount and then the benefit period. So kind of don't get load into like, oh, of course I need to the age of sixty seven or sixty five when so security kicks and that you really are not going to need IT for more than five years. So I usually want my clients to make sure that they don't need IT for longer than that period of time.

I assume that, that informed by statistics that show just the average length of time that someone is has a permanent disability that is going to permanently inhibit them from doing the type of work that they were doing before. And how maybe comparatively unlikely IT, is that something would happen that would keep you alive for a very long time, but completely unable to earn income?

yes. So I guess the statistics that I was referring to, like the eighteen months is not a permanent disability because it's saying you're out of work for an an average ten months over the age of forty, that probabilities around thirty percent.

Um I have a similar story of um a client who was an F X trader and he was on the beach and stand beach and ended up getting metaphors he had a heart attack IT turns out he had to have a quite group of bypath like Young, super healthy guy three Young kids had a quite group of bypass at stanford dc. center. They saved his life.

fantastic. Goes on disability. There's no way a doctors gna say, I want you back into an effect trading floor. So he was on long term disability.

But this gets to one of the things we should discuss, which is, what kind of occupation is your policy going to cover? So on on on. Occupation is very specific. It's like, okay, if I can't be a trader or an fx trader because that is what my my career has been, then I will be covered. Any OK means essentially he could be the janitor, A J P.

Morgan, whatever being he was working at um and still they have a viable incomes stream, right? So sometimes the insurance company would be like, okay, you go be the gene or we'll cover the difference in your pay. But in this incident he had an own oc. But of course, insurance companies don't want to pay into the eternity right until like you hit our security. So they're going to try to settle and they are going to try to this happens all the time.

They're going to try to say, OK, we will settle for x million of dollars because they will figure out like, okay, at some point, he most likely could do a job, right? But he has an own awk policy and technically they would have to be paying him that salary until sixty seven. So they're going to try to settle with him, which they did not undisclosed amount. You can't really talk about IT, but he took the settlement because they were fighting back, enforcing that he could do something. And he was saying, no, I can.

And with his policy, if you were call through work.

yes.

IT was his work policy. Yes, absolutely gotcha. And so he took a settlement and I assumed decided that it's Better to just get this up front payment, be done with IT, not have to go back and fourth with so many more. okay. But this is really illuminating because I think what I was feeling after we did this interview was, well, I do have coverage at work, but i'm getting the impression that sometimes those policies can be less than Stellar or that the partners with these companies might not be as accommodating as a private policy that you can go out and pay for yourself. That certainly seem to be the situation with our interviewing this week. But IT feels like what i'm hearing you says that if you're covered at work and it's enough to meet your needs as far as your consumption habits and lifestyle expenses, that is not a critical thing that you need to go out and get some sort of supplementary private policy that IT really is just those who are self employed and primary earners for whom this is absolutely critical.

I think that's a really good summary. And anything that doing research on L T D like there are certain occupations that tend to have these independent policies, like really high paid exact is really high paid tourneys pilots, people who potentially only have fifty to sixty percent coverage, their work, they are the primary owners. They are used to spending twenty, thirty, forty, fifty thousand dollars a month. And if they were to kind of self ensure that millions and millions of dollars, so when you're looking at kind of the the opportunity cost of self ensuring at that right on a monthly basis and makes a lot more sense to pay for an independent policy, that concludes the gap I see.

Whereas someone who is maybe well long on their journey to financial independence, maybe part of a two income household is spending an amount that is reasonable to self ensure, particularly if they're pretty far along on their financial journey already, then you would look at that and go, yeah but if something were to happen and you have this, even if this policy at work is not fantastic, you are close enough with your investments that you can pay to support your consumption habits, such that I would not make a tuna sense to spend many hundreds dollars of month on your private policy supplementary?

yes. So IT all comes down to that decision. Like, am I gonna ensure, or am I? Am I gonna risk mitigate? And by insurance policy, the same thing comes with life insurance.

The possibility of death were all gonna die, right? Like me, that the probability of you dying within a term policy is slim. You know like, of course, are terrifying, sad stories of people actually dying within their twenty or thirty year term policy.

But the reason that mean the insurance companies are like the house, they are gambling, like they're always going to went, right? Insurance companies are smart and our smart investors, they know how to press policies. The same thing comes with these disability policies, right? They tend to want to scare people in the over, ensuring you will have the tail case where IT has really benefit the person.

Like I did have a client. IT was super sad story. SHE worked at sales for us. SHE was A, B, P.

Their great long term disability know seventy percent of her total compensation, not just her base pay. SHE was at an event. SHE collapsed.

IT turned out he had a brain tumor. IT wasn't Operable there, no treatments to eye to Young kids. So, you know, he had a about an eighteen month time on the planet remaining.

And sales force was amazing, and her covered was great. He actually ended up making more money with her disability policy because he didn't have to pay into her retirement anymore. SHE didn't have to pay for her health benefits anymore. So no kind of the last eighteen months of her life SHE really enjoyed IT know she's sounds of times where their kids it's a very sad story, but that's where those kind of policies our life changing.

okay so to summarize kye advice this is critical insurance for self employed primary owners if you've got coverage at work that you feel comfortable with and the payment amount right the amount that you would get in benefits if you were to file a claim is sufficient for you and it's gonna meet your lifestyle needs IT is less critical that you get some sort of supplementary private policy if you do choose to buy your own policy things like a longer elimination period or a shorter benefit length can help you keep your premiums reasonable and lastly the cost beni analysis that you're gna want to run here it's sort of similar to the rest of insurance analysis that we talk about on the show whether or not your lifestyle is conducive to self insuring which is to put IT simply investing enough that like your own savings and investments could support you and you wouldn't really need an insurance policy to fill the gaps so in conclusion if the most valuable asset you own is your ability to earn income you might consider getting a quote for a private long term disability policy and big thanks today to lacy for sharing her story with the show and to kd for wing in from the c fp side of things that is all for this week we ll see next week for a conversation about what IT takes to calculate a truly comprehensive five timing our show is a production of morning brew and is produced by hand of a liz and me kaji cosine with our audio engineering and sound design from nick tourists devan memory is our chief content officer and additional fact can comes from scott wilson