The following is the fifth story in the Grandpa Moneybags series. The first lesson was "Patience and the 401(k)." Created by Hurlow Wealth Management Group, Grandpa Moneybags (aka Charlie Kest) is a fictional character who shares lessons that parents and grandparents can use to introduce financial concepts to family members and encourage a dialogue between generations.
Calling Home For Advice: A Grandpa Moneybags Story
Charlie put down the book he was reading when his phone rang last night, just after 9:30 pm. He'd been thinking about canceling the landline, however, seeing his daughter's name on the caller ID, he realized that his girls would never forget their former home phone number. He doubted anyone knew his cell number without looking it up.
"Hi, Dad, it's Katie," Charlie's oldest daughter announced. "If you have a few minutes, we'd like your advice on something. Is it too late?"
"Of course not. What's the problem. How can I help?"
"Well, it's not a problem exactly. Actually, Mark can probably explain it better. Hold on a second, let me give the phone to him."
Charlie's mind raced, thinking about possible scenarios that would cause his daughter and son-in-law to need his advice. Were they thinking about moving back from California for a new job opportunity (Charlie's dream), starting a business, expanding the family? Health issue?
"Hi Dad, how are you?"
"I'm good, Mark. How about you? What's going on?"
"Katie and I are having a discussion, and we'd like your opinion. What are your thoughts about disability insurance?"
"For you or me?" Charlie questioned.
"For me," Mark replied.
"Oh good cause I certainly don't need it," Charlie chuckled.
"An old buddy of mine called and tried to sell me a policy. I had a group policy through my old job, but this new company doesn't offer one. Anyway, the kids are getting older, we have an emergency fund, so I'm not sure if I need it anymore. What do you think?"
"Well, I'm not an insurance expert, but I recently attended a presentation on this topic. So I can tell you what my advisor told me." Charlie replied. "But first, I want you to know that my house is open; you could always come live with me if anything ever happened. Not that you want to, but my children and grandchildren will never be homeless. That includes you. Got it?"
"Got it. And thanks. We wouldn't want to burden you, but we appreciate the offer." Mark said.
"It wouldn't be a burden. You are family. We take care of each other. Now, since you asked about disability insurance, here's what I think. You are right to question your friend's motivation for you to buy insurance. Before you call him back, decide if you need insurance, then how much insurance, and finally, get a few quotes. Compare the rates and the policy features he is offering with what you've already found out.
Since you have an emergency fund, you'll probably only need long-term disability insurance. Six months is a typical elimination period for those policies, meaning you would be out of work for six months due to your disability before you received any benefits.
The benefit is likely only to cover a maximum of 60% of your income, but that's something to check. Ask how much will the insurer pay you if you become disabled?
The big five disability insurance companies are Guardian, The Standard, Principal, Ameritas, MassMutual. Does your buddy work at one of these companies?"
"Actually, no," Mark responded.
"That's not necessarily a problem, just get quotes from at least a few of the other ones before talking to him again.
When you compare quotes, in addition to your monthly benefit, you'll be looking to see:
- If the policy covers your occupation or any occupation? For example, if you can't do your job as a software developer but could do some other job, would the disability policy still pay? The own occupation policies are more expensive. I'm not sure if you need it because you're not on your feet all day. Almost 40% of long-term disability claims result from musculoskeletal disorders (27.6%) or injuries (12%).
- Is it guaranteed renewable or non-cancellable? The insurance company can raise premiums with a guaranteed renewable policy, but non-cancellable means the insurer cannot cancel your policy or raise your premium.
- What happens if you get better? Will you get partial or residual benefits? At what age does it stop paying? Usually, it is at retirement.
- Does it allow future purchases? If you expect your income to increase significantly, this option will enable an increase in policy benefit as income rises.
- Do the benefits increase for inflation?
- Any travel restrictions? Do you have any desire to live overseas? Some insurers will stop paying if you don't live in the United States.
- Finally, how much will it cost? What is the bottom line?
There are a few other things to consider, but these are the major options you want to understand.
I'll send you a sample table my advisor provided at the presentation. Then, you can fill in when talking with the insurance companies. Does this help?"
"Yes, that's great. I appreciate your insights."
"How are those grandsons of mine doing?"
"Keith and Bobby are starting baseball season soon, and I'm taking them camping this weekend. They're both on the honor roll."
"Wow, I just looked at the time. Sorry, it must be getting late there. I'll let you go." Mark said apologetically.
"Tell those boys; Grandpa Moneybags says hi, and tell Katie I love her. Call anytime, day or night. It's really no bother."
"I will. We love you too, dad."
Charlie hung up the phone and reflected for a moment. While Mark had called him "dad" since the wedding almost fifteen years ago, Charlie's heart surged with love for his son for the first time in their relationship. Charlie realized that he had given his daughters fatherly advice many times over the past four decades, but this was the first time his son needed his help. So before he went to bed, he made a point to send Mark an email with the information he promised and signed the message, Love, Dad.
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