Philip Snyder of The Warner Companies (guest; father of host Jeff Snyder) breaks down why disability insurance matters and how it works.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now is Philip Snyder. He’s an, sorry, three, two, one.
Joining me now is Philip Snyder with The Warner Companies and for full disclosure, he’s also my father. Dad, great to see you. Thanks for joining us this morning.
Phillip Snyder, CLU, The Warner Companies
Hi, Jeff, good to see you again.
Jeffrey Snyder, Broadcast Retirement Network
Yep, and happy belated birthday, although I already said happy birthday. We celebrated, but happy birthday again, maybe is the right way. Well, thank you, and to you.
Thank you, thank you. Another year older and wiser. Okay, dad, we’re gonna talk about disability insurance.
It’s important, what it is, it’s importance, what it covers. But let me take a step back because a lot of people will say disability, disability, disability. Doesn’t Social Security, if I become disabled, doesn’t Social Security cover disability?
What say you?
Phillip Snyder, CLU, The Warner Companies
Sure, there is an SSDI benefit that you, I’ll say, may be eligible for. There are criteria that the Social Security Administration has, not only in terms of the nature of the disability, but your years of coverage paying into the system. Those are factors that determine, A, your eligibility, and B, the amount of benefit that you’re gonna receive if in fact your claim is approved.
Jeffrey Snyder, Broadcast Retirement Network
Okay, so you gotta go through this process. I would imagine that given Social Security trust fund challenges, that that process is probably even more, there’s probably even more scrutinizing.
Phillip Snyder, CLU, The Warner Companies
Well, yeah, and you need to understand the SSDI benefits are long-term benefits. In order to be eligible to receive a benefit, your disability either has to be projected to last at least one year, and or it’s going to end in death. So those are the fundamental underlying criteria.
If neither of those are valid in terms of seeking funds from the SSDI, it’s unlikely you get paid. Having said that, it’s a submission process, probably takes into about eight months for the process finalized one way or the other, but benefits are typically paid retroactively to the sixth month. So that’s just a broad brush of how the system may work.
Jeffrey Snyder, Broadcast Retirement Network
Okay, so waiting upwards of at least eight months to at least get consideration. So let’s fast forward to our topic today is why do I need, let’s talk about Jeff Snyder. Let’s talk about people like Jeff Snyder, modest person from humble beginnings.
Why would I need disability? It’s true, but why would I need disability insurance?
Phillip Snyder, CLU, The Warner Companies
Well, you are effectively generating your own income. You’re surrounded by some helpers, but by and large, you’re the business. You’re the driver of your income.
So if in fact you can’t work, where does your income come from? Your expenses may go down marginally, not as much as people anticipate, but where is your income? What’s your revenue source thereafter?
Yours is totally contingent for the most part on you and your performance. So in the absence of that, it has to come from somewhere. It may come in small part from social security long-term.
It may come from savings, but by and large, if they’re not adequate enough to sustain you, then you need disability benefits from a source, and that could likely be insurance.
Jeffrey Snyder, Broadcast Retirement Network
So this is really about covering your bills. So let’s separate it a little bit from life insurance, because I guess life insurance is you’re dead. So you’re paying a beneficiary or a claimant, the beneficiary, but how do I make that distinction?
Because some people have watched the show, hopefully, and they’ve heard us talk about life insurance, but how do you make the distinction between this disability? Are you just really insuring your paycheck?
Phillip Snyder, CLU, The Warner Companies
Well, every case is different, first of all. If you have a lot of assets, you may need no disability insurance, or you may need a diminished amount, a small amount, just to make up the shortfall and to cover potential inflationary adjustments to your needs in the future. On the other hand, most people aren’t in that position.
Most people have to get up every day, go to work, and earn their pay. And so consequently, it’s just a simple mathematical calculation. What are my ongoing expenses?
What are my variable expenses? What am I not anticipating that could be an expense? And what income do I have to cover it?
Jeffrey Snyder, Broadcast Retirement Network
Would this be a benefit, I wanna talk about where to get it in a second, but is this a benefit, like people are probably watching this and they’re saying, well, Jeff Snyder, he’s in his early to mid 50s, he’s an old guy, but are we talking, is it better to get this type of benefit early on in your career? So like someone who’s 22 versus someone that’s my age at age 53, 54?
Phillip Snyder, CLU, The Warner Companies
Well, if we’re talking, there are different types of products. We’ll talk about that in a second. But if you’re talking about you directly purchasing from an insurance company, disability insurance, it’s gonna be more expensive to buy at age 50 than it will be at age 40, for example.
Then again, you won’t pay the premiums from age 40 to age 50 but you also won’t have the coverage. So I would say you should obtain the coverage as early as possible. Most individual policies that are purchased, one-on-one purchases, guarantee premiums at least to age 65.
So once you buy the coverage, the rate can’t change and the benefits can’t change. The only one who can make those changes is you as the policy owner. So you have a lot of control in that respect.
But I think starting earlier is better.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, well, I can understand that because it’s better to, just like the long-term care discussion we’ve had, the sooner you lock it in or you get it, the better off I think you’re gonna be. And your circumstances are probably better off earlier than later.
Phillip Snyder, CLU, The Warner Companies
Because you don’t know what can happen in that hypothetical 10-year period. A lot can happen, a lot does happen to people.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, it’s called, you know, we’re all playing in the game of life. All right, so I remember when I was a W2 employee, a part of corporate America, small, large firms, there was an employer benefit that covered disability. Sometimes the employer paid it and it didn’t seem very robust.
So is that the best way to go about getting the coverage we’re talking about this morning?
Phillip Snyder, CLU, The Warner Companies
Well, it may be. Again, it’s a function of individuality. Depends on your circumstances, depends on your income, nature of your job and so forth.
For average people, that might be the best source. When I say average, I mean, people of normal means, you know, hardworking people and earn a salary every day. They’re never gonna be affluent.
They’re never gonna have huge incomes, but they’re gonna manage their lives effectively. That type of coverage through the employer is probably the best source, at least initially. You don’t own that source.
So if, in fact, you leave that employer, you’re then looking to your next employer to provide a comparable benefit if possible. But that’s typically employer paid. It’s typically benefits that would continue for long-term, age 65, 67.
It’s generally a percentage of your base monthly income, typically not including bonuses or other financial incentives. So you can ensure your basic income, let’s say for 60%, that’s the most typical percentage that these types of plans, group plans, pay. And the employer can pay the premium.
That premium, that benefit, if the employer pays the premium, is taxable. So that 60% or 66 and 2 3rds percent of your income, that benefit is going to be income taxable. The employer, in some cases, the employer can impute the premium to you, and you have to pay tax on the premium, and that would render the benefit income tax-free.
So those are some variances in how to handle that. But that’s group insurance.
Jeffrey Snyder, Broadcast Retirement Network
Right, you’re part of a pool. I guess they rate it based on a hypothetical group of people. Let’s talk about buying it from an insurance company.
So I get something from the employer, and now I’m gonna go out and I see, I may not be affluent, but I have a need for it. What’s the type of, is this more like term insurance where you don’t build, or is it more like whole life where you build a cash value?
Phillip Snyder, CLU, The Warner Companies
No, there’s typically no equity in a disability income product. So use it or lose it. So use it or lose it.
Typically, there were in years gone by, cash value disability policies. I think for the most part, that concept’s gone by the wayside. Putting in extra money and kind of betting against yourself type of thing, you’ll get cash back if you don’t use the policy.
But I think those things are, for the most part, gone by the wayside. So what you’re doing is you’re going to an insurance company, you’re trying to buy coverage that supplements the coverage provided by your employer. You apply for the policy, you own the policy, you pay for the policy.
If in fact the policy is needed to generate benefits, those benefits are income tax free. The problem is there aren’t that many carriers selling the product one-on-one any longer. Some will sell it on a multi-life situation where you’re insuring, let’s say, a group of employees, 10, 15, 20, even it could be down to as few as three, or hundreds of employees for coverage over and above the group plan, that those kinds of plans are more attractive from a pricing and from an underwriting standpoint because they typically guarantee the issue of coverage.
If you’re one-on-one, you’re applying for insurance, you’re gonna pay a high premium, they’re not inexpensive policies, but you own the policy, the rate will be locked in for your working years. So that’s how those things work.
Jeffrey Snyder, Broadcast Retirement Network
Let me ask you, just using me as a hypothetical, when you say they’re pricey, what would something like that be a month for me? I mean, obviously you haven’t run any, we’ve not run any illustrations, but I mean, are we talking $150? Are we talking $600?
Are we talking $1,000? Or is it just really based on what your paycheck will be today and in the future?
Phillip Snyder, CLU, The Warner Companies
It could run in this, it depends on the level of the benefit, the configuration of the benefits, the elimination period before benefits kick in, the type of work you do, which executive type work tends to be less expensive to ensure than let’s say physical work, things of that nature, but it could run a meaningful benefit for you, someone such as yourself could be a couple of thousand dollars a year.
Jeffrey Snyder, Broadcast Retirement Network
It’s not inexpensive. No, it’s not what I was thinking, but still it’s not inexpensive and you gotta budget for that. I was just thinking about that.
And then I gotta close out because we only have about a minute and a half left, but do I have to take a physical, like I do for life insurance or for other types of insurances? What’s the process? I would imagine you also do illustrations to show what things will be today, tomorrow and in the future.
Phillip Snyder, CLU, The Warner Companies
You meet with an insurance agent, a broker, an advisor, whatever the case may be, you determine what your need may be, you determine, then you look at a bunch of illustrations. That broker will probably look at a couple of different carriers and solicit illustrations. You decide which one you wanna purchase with the benefits you wanna purchase.
You apply to that insurance company and the insurance company underwrites the policy. Typically you wouldn’t need an exam, although they could ask for an exam, but they’ll gather your medical records and go from there.
Jeffrey Snyder, Broadcast Retirement Network
And just kind of thinking about that, what if I have a pre, what if I have like Lyme disease? I’m just trying to think about something or ALS or something like that.
Phillip Snyder, CLU, The Warner Companies
Would that just blow up your coverage completely and you’re just- If you had Lyme disease, maybe not, but if you had ALS, probably you wouldn’t qualify for individual policies.
Jeffrey Snyder, Broadcast Retirement Network
Okay, but you would still, but could you still get a group policy if he has one of these diseases?
Phillip Snyder, CLU, The Warner Companies
If you’re applying for an, under a group policy, they’re all guaranteed, a group long-term disability is a guaranteed issue. It may have some pre-existing condition limitations, things that may not be covered for a period of time, but by and large, you’ll get the coverage. If you apply for individual coverage on a multi-life basis, for example, if you’re a lawyer in a law firm and we have a hundred lawyers to insure, you could probably get $15,000 or more a month of maybe more disability insurance, individual insurance, guarantee issue.
So there’s no underwriting and there’s no pre-existing condition limits.
Jeffrey Snyder, Broadcast Retirement Network
So someone who falls in the category, they’re going individually, they’re not gonna get approved because they have one of these horrific maladies. Could be. What do you do?
Do you just find another vehicle to, I’m just trying to help people out maybe who may fall in this category because it’s possible.
Phillip Snyder, CLU, The Warner Companies
You may find, I’ll call it a special carrier in the marketplace that would issue coverage, but would clearly exclude your malady, maybe permanent. Got it. And, or they may charge a higher premium for your policy than a standard risk might otherwise pay.
Jeffrey Snyder, Broadcast Retirement Network
Got it. Yeah, I mean, it’s, you know.
Phillip Snyder, CLU, The Warner Companies
But you could really underwrite this. Any insurance agent or broker should be able to, who’s been in this marketplace, should be able to guide you and should be able to gather whatever negative medical information you may have and kind of pre-underwrite so you don’t apply to a company and then out of the blue, you get declined and then you have to start all over again. You should do that ahead of time.
Jeffrey Snyder, Broadcast Retirement Network
Yeah. Well, Dad, you know, I was thinking as we’re talking, I gotta close out the show, but we should do a history of life insurance because I think that, I’m not saying that you were there at the beginning, but I think it would be pretty interesting to kind of understand how, where the life insurance industry came from, just like I find it fascinating where the retirement industry and pensions and things came from.
But we’re gonna have to leave it there. Thanks for making time. Thanks for pinch hitting this week and making time out of your wonderful morning.
We appreciate it.
Phillip Snyder, CLU, The Warner Companies
You can see the beautiful weather. All right, talk with you soon. Have a good day.