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There are a lot of moving parts to a disability policy, and this tends to lead to a lot of questions about what is covered and when. How long after a disability do benefits begin? What happens if you are disabled for a long time and prices of good steadily climb? These are some of the factors that can have a tremendous impact on your financial future.

In this episode, Billy discusses how to choose the proper elimination period, how to protect your policy from inflation, and why it sometimes makes the most financial sense to select the more expensive benefit when you first get your policy.

Highlights from this episode include:

  • How to save even more money while still getting great disability coverage (1:16)
  • The most financially sensible amount of time to wait before your policy pays you (2:17)
  • The optional coverage that protects your policy from the devastating affects of inflation (3:56)
  • How you can adjust your policy to match your needs as they change over time (6:30)
  • Do this now to prevent the insurance company from denying you coverage when you need it most (7:15)

To ask questions on insurance coverage or to get a quote, please don’t hesitate to call us anytime at 704-270-2376, and I’d be glad to discuss your specific situation with you.

Read Full Transcript

Hi, I'm Billy Gwaltney and this is the CYA podcast. This show is for the physician who understands the importance of protecting everything you've worked so hard to achieve. Each week I'll bring you tips and advice to help you cut through the clutter and misinformation and show you exactly what you need to preserve your income and way of life. If you're ready to achieve the peace of mind that only financial security can bring. Let's get started.

Welcome to this episode. Oh, the cover your assets podcast. The title of today's program is what are the elimination period and Cola rider? Great question. The elimination period. Let's start with that and then we'll talk about the Cola rider. The elimination period is the length of time you quote unquote self-insure from the date of a disability, which is the date of an injury or the date of diagnosis until you receive your first benefit check. Usually it's expressed as either 90 days or 180 days. The longer you're willing to wait, the lower the premium you pay it. In the meantime, some companies would have an elimination period of 60 days or even 30 the cost is is a lot higher for those. I can't think of any clients that have gone with that. With one of those the 60 or 30 you could also have a 365 day elimination kind of on the other end can think of maybe one or two clients that have that.

(01:25): The vast majority choose between 90 and 180 days. Most pick 90 but we do have a good percentage that pick 180 and I'm often asked which one is preferable. You know what is advisable to do and I typically respond with what I believe in my professional opinion to be the case, which is this personal decision that depends on your particular situation. My focus as a disability expert and what I'm paid to do is to make sure that the quality of the coverage is there, that you have the true specialty on occupation, definition of disability, that you have the long term residual benefit that you had the long term recovery benefit when it comes to how soon a check shows up, that's really up to you if you do the math, if a claims ever filed it, the math is certainly in the favor of a shorter elimination period.

(02:15): Of course you could wipe out any savings from a, from a less expensive policy with a longer elimination period. You could save that money for over a decade and then be disabled and if you had a shorter elimination period, that extra three months of benefit is going to wipe out any cost savings you would have had from the less expensive policy. But that said, it's still a personal call depending on how much risk you want to transfer to the insurance company. And one thing to keep in mind is that generally speaking, if you start with a 90 day elimination period and you later down the road again talking about the policies that I broker with the top companies and the true specialty marketplace, if you want to switch to 180 day elimination period in the future, you can do that and reduce the cost back down to what the one 80 180 day elimination policy was before and that's easy to do it.

(03:13): You sign a form and they drop the premium down. It's more complicated. This go the other direction to go from 180 day to a 90 day elimination, you would have to go back through medical underwriting and so this a little more hassle to do that, but it's still possible for the most part, you kind of want to stick with whichever one you go with at the outset of the policy, but again, if he did start with 90 day, you could drop down to one 80 easier than you could do the reverse. The cost of living adjustment rider or Cola riders is commonly referred to stands for and inflation hedge that is added to the policy if you want it, if you pay for it, where benefits would be increased once your own claim. And so what happens is if you're disabled in the first policy year, the first 12 months, the benefit is going to be paid whatever your policy benefit States.

(04:12): And then in the 13th month they would bump it up by typically a fixed percentage, let's say 3% and it's usually either compound interest or simple interest. There's also certain companies that have options where so range where they'll say, okay, the cost of living adjustment rider is going to pay you zero to 6% depending on the consumer price index and whatever that is each year we'll credit that amount to your policy and then we'll compound that each year. It, depending on how you see it, it is possible to pay for that rider in that scenario. And if you are disabled at a period of time when there's low to no inflation, you could be paying for a rider that's not gonna pay you anything but that you still have the upside as well. It could allow you to to catch up to 6% of the benefit or the inflation if it runs that high.

(05:04): And so there's kind of pluses and minuses to that compound interest. Just a quick snapshot of what that means as a refresher course is the second year the interest is going to be added to the initial benefit and then the third year that the interest is added to the second year's total benefit and it's going to continue that way. So each year the increases on the previous year's full benefit amount and so it's going to grow quicker. A simple interest is where is calculated at the time of claim based on the benefit payable at that time. And it's going to be the same percentage added to the policy each year. So it's not going to compound as it grows. It's going to be the same amount this added. It'll still grow just not as quick as the compound interest. I hope that makes sense. It made sense in my head when I was going through it, but if I didn't make that clear, let me, and I can explain it to you in more detail.

(05:59): It's not required to have the cost of living adjustment rider Kohler rider. If you were disabled in your 30s if you're younger and you could potentially collect for 25 or 35 years, you would probably be glad some kind of inflation protection was on your policy, but again, it's not required. It is possible to have it on your policy and then take it off later. If you get into later years and you still have, you want to have coverage, but you're saying, Hey, it doesn't, it's not as beneficial to have this Cola rider on here anymore. It's easy to take that off. Again, you sign a form and they'll drop it off. Most of our younger clients try to get it if it's, if it's affordable in their budget. And I understand there are times when that feels like it's not the case. And so I'm sensitive to that.

(06:47): And again, some get at while they're younger and they remove it down the road once the importance of it has lessened. That said you would want to have the cost of living rider on your policy at the time you purchase it unless you're okay going back from medical underwriting to add it later. If you, if you didn't have it on your policy, you wanted to add it, you would have to go back through the medical underwriting process to add it. Typically, again, working with the top tier companies that offer the true specialty coverage, there are always exceptions and so I'm just giving you my experience and expertise based on what we see in being in this marketplace all the time. Hope you found this helpful. I would be happy to arrange a conversation with you to discuss your situation or answer questions. My cell is (704) 270-2376 again, that's (704) 270-2376 and again, I'd be glad to discuss your particular situation anytime and until we meet again, this is Billy Gwaltney. Thank you. As always, we are time. I'm grateful for that. Take care.

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