Broker Check

Insane Advice from A Professional: Cadillac DI Policies

| February 15, 2019
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As an established physician, one of the questions I think you need to ask yourself, is how can I cut down on my costs in order to save for retirement?

Back when you were a resident or a fellow, having good or even great disability income (DI) coverage was necessary.

After all back then, you had almost no money to your name and the rest of your career ahead of you. A debilitating injury could have cost you millions of dollars in earnings and savings.

Here you are 10, 20, or 30 years down the road, you’ve saved money in your retirement plan and socked away dough in the bank and investment accounts. Maybe you have 100k, 500k, 1 million, or 2 million to your name.

When was the last time your advisor reviewed over your DI policy?

Do you have a Cadillac with all the bells & whistles?

How necessary is this disability policy today?

Could you use the more fuel-efficient Prius instead of the gas-guzzling Cadillac SUV? Wait a minute, I resemble that remark!

Anyhow, if you have 5 years, 10 years, or 15 years left to work, it may still have some value to you.

However, I would suggest that a cheaper, more reasonable policy is necessary at this point in your career.

Of course, you can always shop out and look at a different place. In some cases, that may make sense.

In addition, make sure to check within your current policy because that’s the easiest, quickest way to do it.

Consider that there are 3 main levers that determine the cost of your policy:

  1. Monthly Benefit- the monthly paycheck you would receive from an insurance company in lieu of your disability (assuming total disability or a percentage for partial disability). The higher the benefit, the higher the cost. The lower the benefit, the lower the cost.
  2. Benefit Period- the maximum length that your benefit can last. This could be 2 years, 5 years, 10 years, to age 65, or to age 67. The longer the period, the higher the cost. The shorter the period, the lower the cost.
  3. Waiting Period- the amount of time from claim accepted to the time your monthly benefit starts. This is a little different- the longer the insurance company doesn’t have to pay your claim, the bigger the discount they will give you. The longer the period, the lower the cost. The shorter the period, the higher the cost.

While it is incredibly difficult to get a more expansive policy with greater coverage, the great news is that every DI policy I am aware of allows you to pull the lever on REDUCING the cost of your policy.

You can decrease your monthly benefit, decrease your benefit period, and increase the waiting period.

Also, review over all of your riders- the extras with the policy. What are the bells and whistles that your policy has available?

Do you still need COLA, catastrophic disability, or many of the other riders?

I would argue with a substantial portfolio, many (if not all) of these may not be necessary.

6.1 Action Step:  Review your disability policy. Consider how long you have to work. Look to lower the costs of the policy by pulling on one or all of the 3 levers that I’ve mentioned. Also, review over your riders and consider eliminating some of them in order to lower the costs.

Advisory services through Capital Advisory Group Advisory Services LLC and securities through United Planners Financial Services of America, a Limited Partnership. Member FINRA and SIPC. The Capital Advisory Group Advisory Services, LLC (CAG) and United Planners Financial Services are not affiliated.

The views expressed are those of the author and may not reflect the views of United Planners Financial Services. Material discussed is meant to provide general information and it is not to be construed as specific investment, tax, or legal advice. Individual needs vary & require consideration of your unique objectives & financial situation

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