In the 36th episode of 'Retire Early, Retire Now,' host Hunter Kelly from Palm Valley Wealth Management discusses the importance of protecting one's income, particularly for high-earning professionals like physicians and attorneys. The episode covers the significance of disability insurance to safeguard one's earning potential in case of an injury or disability. Hunter explains the types of disability insurance, including short-term and long-term policies, and delves into group versus individual policies. The episode also touches on crucial elements such as benefit riders, underwriting processes, and considerations for choosing the duration of coverage.
Check out the Palm Valley Wealth Management Website PalmValleywm.com
In the 36th episode of 'Retire Early, Retire Now,' host Hunter Kelly from Palm Valley Wealth Management discusses the importance of protecting one's income, particularly for high-earning professionals like physicians and attorneys. The episode covers the significance of disability insurance to safeguard one's earning potential in case of an injury or disability. Hunter explains the types of disability insurance, including short-term and long-term policies, and delves into group versus individual policies. The episode also touches on crucial elements such as benefit riders, underwriting processes, and considerations for choosing the duration of coverage.
Check out the Palm Valley Wealth Management Website PalmValleywm.com
And welcome to the 36 episode of retire early retire. Now I'm your host hunter Kelly owner of Palm valley wealth management. And today we're going to talk about how to protect your most valuable asset. And so if you haven't heard, we are now recording and posting this podcast on YouTube. So my YouTube page is Palm valley wealth management. So go ahead and check that out. We'll add some shorts, some clips and things of that nature from these episodes. And then over the next couple of months, I'm going to try to do some screen shares where I show some examples of how I work with clients, um, and work through different problems that we solve and things of that nature. So if you're interested in looking at that, go ahead and subscribe to that YouTube channel, but you can always listen on apple, Spotify. All the major podcasting apps. And if you liked this episode, go ahead and leave a five star review on that podcasting app or give the video a thumbs up on YouTube, whatever applies. So. Um, let's jump right into it. We are talking about how to protect your most valuable asset. And that is your income. Especially the people that we talk about a lot on this podcast, physicians and attorneys, your ability to earn income is the most valuable thing that you have, especially early on in your career. You go through years and years of school, whether that be a undergrad in the metal. Medical school or undergrad and then law school. And then residency for physicians. And so, uh, the last thing you would want to do is, uh, spend all that time and money. Uh, going through schooling and training and then, uh, getting injured year two and not being able to work. Uh, in the profession that you studied for that could result in millions of dollars of lost income. And so, uh, we're going to talk about how to protect that income, what to do, uh, things to look for and the nuances within inside that. And so, uh, the big way to do that is through what's called disability insurance. And. And disability insurance is kind of like the little brother. Uh, if you will. I guess speaking in marketing terms to life insurance. Life insurance gets all the credit. Uh, it gets all the notoriety on, uh, the major social media platforms and marketing and commercials and all that. Um, for good reason, people do need life insurance. Um, and for not so good reasons, there's, there's big commissions. And generally, depending on, uh, what type of insurance and how much insurance, it could be a bigger commission than DEI. So that's why, uh, insurance agents like to sell it. So we want to make sure, uh, that we're both, uh, validly insured on life insurance, but also on DEI. And so. Um, what is disability insurance? How does it work? So let's go through the overview. And so generally, if you're an employee of a large company, such as a hospital or a law firm, Uh, with multiple attorneys. You're most likely going to be offered, uh, a group disability. Uh, policy. And so the way you would apply for this or, um, sign up for this would be through open enrollment, right? So you go through open enrollment, you do your health insurance, maybe some group wife. Uh, other ancillary benefits, dental eye. And then also you would apply for disability insurance. And generally this disability insurance is going to cover. Um, either. A short term injury or loss of work because of an injury. Or a more longterm injury. Right. And so let's cover. Uh, this short-term disability early on, maybe in residency. Or early on in your career as an attending physician or early on in your career as an attorney. Short-term disability may be applicable to you. But if you, uh, have a good savings rate and you build your emergency fund to meet that maybe three to six months. Time period. If you're not working. Uh, short-term disability generally, in my opinion is a waste of money. Unless you don't have the cash on hand to cover any extended period of time, somewhere between three and six months worth of your expenses. Uh, if you weren't able to work for whatever reason. And so, uh, if that is the case, especially early on your resident, you, you have a lot of bills, whether that be medical bills or just not making as much money. Um, as you will be in a few years. Uh, it may be a great idea to go ahead and get that short term disability so that you can cover any potential emergencies. Uh, that could pop up right. But after you fund your emergency fund, the one that's the most important, uh, in my mind would be that long-term disability. So, uh, you get an ACL ACL tear. You can't stand to do surgeries. Uh, for a number of months or you break her back, whatever number of things. And you're out of work for longer than six months to a year. Uh, this is where the disability insurance will come into play. And so, like I stated before, uh, the main area you you'll want to look first is does my employer offer me. Some sort of long-term disability benefit. And so generally. Uh, coverage wise, the amount of benefit that you'll receive is somewhere between 40 and 60% of your income. And so what we'll want to do is take that into account and then we can supplement elsewhere that we'll talk about here in a second. And so, um, Generally, these are not very specific. They're very general policies. So, um, you would have to be out of work completely, uh, given whatever injury that has occurred to receive this benefit. Um, and the length. Uh, generally for that benefit is about two years. Sometimes you can find a policy that will pay. A bit longer. Um, but generally the employer's going to offer to your benefit. And I would say most likely. Um, your. Injury. The biggest risk would be something. Uh, that would cause you to have to get healed within the next year or so. Um, God forbid you, you break your neck and you can't. Um, necessarily do something for a more extended amount of time. And then you can kind of get into like social security benefits and things of that nature. But. Um, in that case. Uh, the way you would pay for it is through obviously payroll deductions. So it would be a pre-tax deduction. And so the biggest thing about the employer. A benefit is that it's going to be taxable. So, uh, if your benefit is$5,000 a month, that benefit will be taxable. If the employer pays for it, or if it's a pre tax deduction. Um, because the government has not received their. Uh, cut if you will, for that. So, um, just keep that in mind. So if you think, Hey, I'm getting a$5,000 benefit. Well, it's surely 5,000 minus whatever your tax bracket is at that point. And then generally the premiums are age banded. So it's usually five-year age bands. So from like 35 to 39, uh, 40 to. 44, so on and so forth. Right? Um, and each time you hit a new age ban, the premium of that would increase now. The good thing is that because generally these are larger groups than ensuring just yourself. The premiums will be much more cost effective. Uh, when you decide, Hey, I want to get this. Um, and so the premium from that versus a personal policy will be much less. And you don't have to go through underwriting to determine health or previous injuries, things of that nature. Um, so there are a lot of good and pros about these types of policies, but there are some drawbacks as well. Um, and you'll see that when we talk about. Um, the types of, uh, personal policies that you can get. And so, um, look at your employer benefit first. And, um, from there you can decide, okay, well, where do I need to go next to. Kind of alleviate this gap. So generally, especially with our high income earners. Again, you're going, going to cover somewhere between 40 and 60% of your income. And so if you haven't had a long time to accumulate wealth and you're not becoming self-insured yet, well, then if I become injured and I still have a certain money income that I need to support my lifestyle, whether it be my spouse or my kids. Or just whatever. Um, then I need to go out and I need to find a personal policy. And so that process looks a little bit different. You'll want to meet with an independent agent. Uh, this is something I used to do at my old firm. So I would work with a number of different professions, but, uh, doctors, attorneys. Uh, uh, And likewise. Uh, and so what you would do is you would meet with this, this agent, uh, hopefully it's an independent agent where they can go shop. Uh, multiple different carriers, whether the principal guardian. Uh, mutual of Omaha is starting to come, come into the market, at least in the Jacksonville area and so on and so forth. So, um, You would meet with them and then you would go through an generally an underwriting process. And so in the underwriting process, They're going to ask for, um, your wages. Uh, your health. So have you had any. Injuries in the past. Um, what's your health now? So on and so forth. And then they're going to come back with basically a yes or no. Or some caveats. So if you have a pre-existing back condition, Uh, where you hurt your back and there it's likely that you could reinjure it. They may exclude that from this particular policy. Um, so the, um, the process to get this, these, uh, individual policies are a bit more. Um, strenuous, but there are some, uh, pros to that one. You can get a higher benefit, right? Um, and then also the benefit that you're paying for is through post tax money. So let's say you get the same$5,000 in this particular policy. Well, that$5,000 policy is non-taxable because you're paying with that money with post-tax dollars. Right. And so to get into the nuances one, we've got to figure out how much you'll need. So to me the best time to get disability, uh, Insurance, especially for your physician, uh, or early on in your career as an attorney is just that get it as soon as you can, and then add on what's called an increase benefit rider so that as your income continues to increase, you can go back to that carrier and say, Hey, I need a bit more. Uh, benefit. Right? So one you'll end up paying a little bit more toward the premium because you're getting more benefit, but you will not have to go through that underwriting process again. Uh, because you have this writer and so this is a pretty standard writer. Um, but you want to make sure that that that rider is on there. The other thing that's, uh, really important for. Um, Especially doctors that work with their hands. If you're doing surgery. Is the own occupation rider. So if for whatever reason, you're a neurosurgeon or an orthopedic surgeon and you develop a tremor or maybe you're in a car wreck and you. Uh, Hmm. Break your hand pretty badly, and you're not able to do surgery any longer. Well, then these policies will still pay out a benefit to you and you could go teach at a medical school beyond our advisory board. Uh, be in management w whatever number of things. Um, but because you're not. Performing the surgery, then you will, um, You still get a benefit. Right. And so making sure you have that own occupation. Um, Ryder on there. Couple of other things you may want to consider is cost of living. Uh, so the benefit would continue to increase based off cost of living. If you had to take that. A benefit. again, the process to kind of, um, Get through that as meeting with some sort of independent insurance agent. And so, uh, I partnered with a number of insurance agents around my area and they go out and shop. And the major players, I kind of mentioned it before, but our principal and guardian are generally, uh, the biggest players and have the, what I would consider the better policies. Now that's not always the case. Um, and so things change other insurance carriers. Uh, may changes to their policies to make them more appetizing to doctors and physicians and things of that nature. So the biggest takeaway here is that if you're a physician or you're early on in your career as an attorney, go ahead and get these policies with that feature, uh, increased benefit rider. So that as your income increases, you can continue to increase that benefit. And, uh, you don't have to go through that underwriting again, because that can be an arduous process. Um, especially if you're not as healthy as you were 10 years ago, right? Um, so go ahead and get that, and then you can always drop it off. The next thing that you want to consider is the duration of that benefit, right. Um, and so. Uh, do you want to hedge the risk for two years? Do you want to hedge the risk for five years, 10 years, or till age 65? When social security kicks in. And so these are all things that you would need to consider. Now I would say if you're extremely young, Still on your late twenties, early thirties, that till age 65 may not be needed. Um, just because, uh, you're going to have plenty of time to accumulate assuming that you're saving properly things of that nature. You're going to have time to accumulate wealth. Um, and so if you get this policy at age 30 and you've had it for, let's say 15 years, but in that 15 years, you've saved a significant amount of money. Or you could live off of it for more than, um, 10 years or something like that. Then maybe, uh, utilizing the till age 65, doesn't make sense. So the most common that I see again is from two years to five years. Uh, cause most injuries you're going to be able to bounce back. And so the other thing to consider is obviously worst case scenario. And you have to consider is my spouse working? Do they have significant ends income? Or can they go out and get a job that produces significant income? Um, and then another thing you want to consider, oftentimes I'll have couples that are both physicians or attorneys. And they decide, Hey, we're only going to get one disability policy on one of us. And over the next 5, 10, 15 years, we're going to save the other person's salary. Right. And so they're essentially saving half of their salary. And so if one of us. Well, one, the probability of both of us becoming disabled is not, um, very great. And then two, if one becomes disabled one, we've saved a significant amount over that time, but two, we still have that other person's income that we've been living off of. Can can comfortably live off of. Uh, moving forward. And so those are some things that you would want to consider. Um, and so, uh, DEI is super important. Uh, like I said, in the beginning, you do not want to go through life. And our go through your medical school law school residency, um, working to become a partner at a law firm and, and then get to that point and become injured and have nothing to show for it. Right. And so this is why that is important. You're mitigating that risk. You're taking that risk off the table. You're giving it to that insurance carrier. And you're saying, Hey, The work that I put in now, it is still worth it, or at least mostly worth it if I become disabled. Um, and so keep that in mind. So next week we'll talk about, uh, the importance of life insurance, some pitfalls in life insurance. We all have, we all know those gurus on a Tik TOK and Instagram and all that saying that you can. Become Uber wealthy. If you just invest in this life insurance policy. So we'll debunk some of those, uh, notions. And, uh, we'll keep chugging along. So again, this is recorded on YouTube. Now go ahead and subscribe to that channel. Want to come out with some different type of content on. On YouTube as well, not just the podcast here. The next couple of months or so. And so go ahead and subscribe to that. And if you like this content or you think it's valuable to someone, you know, go ahead and share it with a friend, leave a five star review on your favorite podcasting app or give it a, like, if you're listening on YouTube, Thanks again. This podcast is for educational purposes only. It is not meant to be financial or investment advice. If you have questions about your specific situation, please, CK tax legal, financial, or insurance professional. To consider your specific needs. Please keep Palm valley wealth management in mind when making those considerations.
