Phil Apostolico: Disability and Long-Term Care Coverage

Phil Apostolico joins Coach Pete and Peter Richon to discuss disability and long-term care insurance. This April 2011 interview explores the situations coverage is intended to address and the planning questions families face. Call 800-661-7383 or text PLAN to 600-700. Transcript Automatically transcribed from this episode; timestamps are approximate. 00:00 And welcome back to The Financial Safari, your weekly show aimed at educating you about your money, about your finances, and your financial decision-making. Peter Rashan here, along with published financial author, cash flow income planning coach, the nation's 401K and IRA rollover specialist, Coach Pete D’Arruda. And, Coach Pete, we've got a very special guest in the studio. Phil Apostolico is here, and he is our disability specialist. He's going to be talking about long-term, short-term disabilities, the effect they can have on your family's income, and how you can protect yourself from those disabilities. Phil, thanks for coming in today. No, I appreciate it. Thanks for inviting me. I'm going to ask you a couple questions as we begin, and then I want to get into some more detail. But first of all, for people listening, I know they've heard of it. I mean, everyone knows someone who's been disabled, right? Sure. Yeah. Oh, absolutely. 00:45 And I know statistics show us that you're more apt to be disabled than die, right? Three and a half times more, yeah. Wow. So, but, all right, let's start out. What is disability insurance, then, and why is it important? Well, what disability insurance really is, it's income replacement. If you can't do the material duties of your job. You know, it's interesting in talking to a lot of individuals, and they'll spend $700, $800 a year to insure their house. Or they'll spend, you know, $400 or $500 a year to insure their car. But what's their biggest asset that they have is their ability to earn an income. Well, what happens if you become disabled? And that could be anything. You know, let's say you're out, you know, pruning your hedges, and you fall and you break your leg, and you can't do the material duties of your job. You know, how are you going to replace that income? 01:32 So, that's really what it is. Disability insurance really is income protection or income insurance. Now, here's something that I've heard over the years, and I want to really address this with you, because it is something, it's a dirty trick that's played sometimes out there in the disability world, because there are a lot of different companies and a lot of different policies. Yep. Explain to folks, especially those in the medical fields or the higher income fields that they do specific jobs, what same or own occupation disability is and why that is extremely important. If they have a disability policy, they get it out right now and get a review of it. Oh, absolutely. And in the industry, they call it own-ock, your own occupation. And basically what that is, is to be able to do the material duties of your job. So, let's say that you work on a keyboard every day. 02:19 You're a programmer. Well, if you can't, if you don't have the ability or lose the ability to type, well, then you can't do the material duties of your job. And if you don't have own-occupation or own-ock, well, you can do a job. What job can you do? Well, you can be a greeter at Walmart or you can work at McDonald's or whatever it may be. So, if you don't have own-occupation, then they're going to say, well, your claim is denied because you can do another job. You could physically go back to work, just not the work that you were doing before. Just not in your own job. So, you want your own occupation and, again, the ability to do the material duties of your job. And then, again, that income that you were generating at your own job could be drastically reduced if that claim is denied, if you have to go back into a different field. Absolutely. Well, yeah, let's say you're a surgeon and you work with your hands and you're preparing your wife a nice dinner one night and you're cutting some tomatoes up and you cut one of your fingers off. 03:10 Well, now you can't do surgery. I wouldn't want you working on me. You can't even work on a tomato. What are you working on me for? You're so good with a knife and tail. But if you don't have the right policy, they will say, well, you can answer the phone right beside that receptionist. That's right. Or you can teach. Or you can do something else. Sure. And so we are going to deny your claim and, therefore, that policy is almost useless in my opinion. Absolutely. But if you do have own-occupation type of policy, you can file and be approved for this claim? Absolutely. Yeah. And, again, that's the key. There's no sense of happening if you don't have an own-occupation. You're wasting your money. Don't even buy it. Okay. Well, what about group insurance plans? I know that a lot of companies provide some type of disability for their employees. Yes. So am I covered for my own occupation or if I was disabled at work, away from work? 03:58 Yeah. There's a couple things you need to remember, the difference between an individual policy and a group policy. So with an individual policy, basically you take it out. You're paying the premiums. Now, you're paying the premiums after tax. You're taking your after-tax dollars to pay that premium. Therefore, that benefit becomes tax-free. Now, if you have a group policy at work, typically how it is is, and, again, the individual really needs to talk to their HR manager. The most you can get is 60% of your salary. So if you made $150,000 last year, but $60,000 was bonus, well, then you really only have $90,000 worth of coverage. And if your employer only has 50%, now guess what? Now you're getting a benefit of $45,000. That's taxable. So if your tax rate is 30%, now we can do the math. 04:47 And now all of a sudden you're making $30,000 a year. The other thing is, again, if you become disabled, you have other bills that are going to go up, COBRA, things like that, because you're going to need health insurance. So you really need to look into that, number one, and understand the numbers, because the vast majority of people do have a group policy. But what they don't realize is what does it actually cover. The other thing about a group policy is that it's based on the age or the aggregate. So every five years, the cost of that is going to go up also based on your salary. So it's better to get an individual policy then, isn't it, for yourself? Or even if you have a group, get an individual policy on top of it? Yeah, if you have a group policy, yeah, because for the price, you can't beat a group policy. And it's there, and if your employer is putting money into it, absolutely. Yeah, but you can stack a policy on top of it. And then the other thing, it's transferable. So if you leave company A and go to company B, and now they don't have disability or offer that. 05:36 You've got your own policy. You've got your own policy that you're taking with you. So you're more portable, and you can break away from what we call golden handcuffs. That's when an employer gives you some benefits that you don't want to leave. Absolutely. You get your own policy. Now, difference between, or you hear these terms, long-term and short-term disability. What's the difference, and why is it important to have both? Well, with short-term disability, it's exactly what it means. It's for short-term illnesses. So typically, how they work for a short-term policy is typically there's a five-day elimination period. So if you miss five days, then the short-term is going to kick in. And it's going to go anywhere from, depending on the type of policy you have, anywhere from day six to maybe day 90 or day 180. And that's going to pay those short-term. Now, that's very expensive, a short-term disability, because obviously a lot of things can happen for you to be out of work for six days. 06:25 When you look at long-term or disability insurance, if you look at a 90-day elimination period, well, we go back to the ad. Well, if you break your leg, in all probability, you're going to be back and work with 90 days. So there's a less chance where the insurance carrier is going to have to pay that out. But short-term basically covers you to that period until your long-term kicks in. Now, there's other things that you need to talk to your employer about, the difference between short-term and long-term in terms of your job and things like that. So you really need to talk to your HR manager on that one. Okay. So it's as important that people get informed, because too many people call every single week. And again, folks, the number to call is 800-661-7383 if you have any questions on if you have a disability policy or if you have the right one. We'll get you in touch with Phil, and he'll make sure to analyze it for you and put you in the place you need to be. 07:14 But we get questions where people aren't familiar with disability or they have one policy. They're not sure if it's short-term or long-term, and that's a big thing. And then now there's a specialized policy. As we get over 65, there's no more disability insurance. What's the most important insurance then, Phil? Well, there's two of them, actually. Well, everybody talks about Social Security now, obviously, once you retire 65 or 67 or whatever it turns into in the future. But the other piece of that, as we talk about, is long-term care. You know, I think we all know somebody where that's been an issue. And when you look at a lot of the facilities now, it's $200 to $300 a day, a day. So, you know, if you have assets, how are you going to protect those assets? And that's what long-term care insurance does. And the other thing about long-term care, people think that, well, it's once I get into a nursing home. 08:01 Well, the vast majority of time where people are disabled is in the home where you have a caregiver. So you might have a spouse or a family member. Well, now with the long-term care policies, they're designed that if you have a nurse come in or a home specialist, that that long-term care policy will pay for that. Because from their perspective, number one, people want to stay in their house. And if they stay in their house, they're going to do better. And obviously, the second piece says it's less expensive to take care of somebody in their home versus in a long-term care facility. Okay. So that's a relatively new option that's come about. Is that in-home care side of the company? Yeah, I'd say in the last probably five or six years because the carriers really see that there's a need out there. And the other piece is that, you know. It's cheaper for the carriers, too, so it's got to be a value for them. That's where most people want to be at home. And that's where people want to stay. Actually, before the long-term care facilities were developed, that's where people were. 08:49 That's where people were, yeah. There's no choice, right? Typically, it was the daughters. But now, you know, we're a transient society. And it's always interesting talking to people. And they're like, well, you know what? My daughter's going to take care of me. Well, where does your daughter live? Well, we're based out of Raleigh. Well, if your daughter lives in Atlanta, is she going to move here? Yeah. And even if she lives here, does she have a job? Well, yeah. Does she have a family? Well, does she really want to do that? And then the other thing is I'll look to the husband and say, you know, do you really want your daughter, you know, taking care of you? And, you know, typically the eyes get real big and no, not really. Think about what, you know, the phrase taking care of really means. That's 24-7, 24 hours a day, seven days a week. And everything you're doing alone now, now you want your child to help you with. That's kind of, that's not good for the child to have to see either. So, and you can drain your assets if you don't have the proper protection in place. 09:35 Now, the problem with long-term care insurance that we hear over and over again is it's use it or lose it and price increases. But you have a way where there's a way where they don't have to worry about that in the future, correct? Yeah, there's a number of policies because, again, that's always the big thing you hear about long-term care insurance is it's expensive and what if I don't need it? Well, if you have a whole life policy or permanent policy, there's a rider, and most of these riders are free, that you can actually take 2% of the death benefit per year and apply that to long-term care. So a lot of people feel really comfortable with that for two reasons. Number one, they know they're paying into something that they're pretty sure they're going to need eventually. So you know you're going to probably die. Well, you are going to die. About 100% chance of that, right? And pay taxes, right? Yep. So then the other piece there gives you the option that if you do need it, it's there. So depending on the plan for a lot of people, if you have $100,000, 2% a year is really not going to help you out. 10:27 But if you structure it right, you have all your investments done correctly, it's going to really save you a lot of money in the long term. And a rider means an attachment. So a lot of people hear that word rider. It's a bad name in the health insurance industry because it means they're not going to pay. But this means they will give you a no-cost attachment a lot of times, which can turn your life insurance policy into a way to get some of that benefit before you pass away. And then it will keep people from having to basically dip into their savings accounts to pay for long-term care if done the right way. Yeah. And now life insurance is a bad word with a lot of people, but I've never heard a widow say, my husband had too much life insurance. Think about that for a minute. Yeah, that's true. Folks, he's Phil Apostolico. He's our disability specialist. If you would like more information on short-term, long-term disability, long-term care insurance, we can give us a call and put you in touch, get you the information on those type of policies. 11:18 Again, the number 800-661-7383. 800-661-7383. And Phil, we certainly appreciate the time here in the studio sharing this information. No, I really enjoyed it. Thanks for having me. Thanks for coming in today, Phil. We'll be right back after this, folks. We'll be right back.