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Tag: flexibility

 

There is a major reason for young professionals to buy disability insurance that often gets over looked: portability. And given the nature of the Millennial Generation, this aspect of DI can not be stressed enough.

I saw a statistic that said that 85% of the Millennial Generation will switch jobs at least four times. This is substantial, even greater than what Gen X experienced. With this shifting in jobs and careers reaching an all time high, it is critical for a young person to do what they can to protect their insurability so that they do not become stuck in a position and unable to leave because of dependency upon the benefits.

Paralleling this is the fact that many young people start life in a technical field (such as engineering), that requires training and education, often because of being pushed by their parents. After experiencing their chosen field though they realize that they hate it, and transition out of it. Very often they found their own company (like I did), or decide (a la Monty Python) “and now, for something completely different.” Unless they have planned ahead though they can become uninsurable for a period until they have an earnings history, leaving them exposed for a period while ramping up their new venture. Thus they are most vulnerable at the worst potential time.

Furthermore, when this new business owner (or photographer, or writer in my case) can qualify for disability coverage, it is often at a lower occupational class (a measure of risk based on what you do, that reflects your premiums. Engineers and accountants are the lowest risk people on the planet. Demolitions experts not so much.). Business owners are higher risk because of the higher stress and the sales aspects that are inherent in being self employed or in a start-up. Thus, delaying the purchase of disability insurance ultimately costs the young client more, and potentially reduces the strength of their benefits substantially.

But if they purchase portable disability coverage and leave being an engineer, according to the insurance company they are still a boring engineer for risk purposes, even if they decide they want to try and become the second coming of The Macho Man Randy Savage (ooo, yeahhh!).

Many people found their own gig because they want the freedom and flexibility it can create. Purchasing portable disability insurance early in your professional career lays the groundwork for that freedom in the future. It is a very small price to pay to have more options later.

One of the things that younger clients always ask me: why should I do X?
X generally is an action, whether it is starting the financial planning process itself, purchasing a specific product, or allocating a certain amount to savings of some form or another. I would say that 90% of the questions I get from Millenial clients fall in this arena.
And there are always a myriad of answers. But there is one that seems to apply to essentially every single one, and is an underlying theme in the planning I do. This theme is of “Flexibility”.
Now as a martial artist I was taught early on that flexibility is one of the keys to power, in that it allows you to accelerate over a greater distance, and actually at a greater rate. It also helps prevent injury.
Financially it is very similar. Having flexibility in your planning allows you to have multiple options at any given decision point, so you are not forced along a single track (which is probably not where you want to be). It allows you to take the “less bad option”, or even have good ones to chose from.
Furthermore, it can allow you to take advantage of The Golden Rule (those who have the gold make the rules), because flexibility can give you access to capital to do things like buy when the market is in the toilet, or start a company, or other things that require quickly getting your hands on money when others can’t. It also allows you to literally pick up and change scenery too if need be, because you can.
And that is the reason to do many of the things I and other financial advisers suggest: because you can now. Later you might not be able to. Better to have the option though, because having a choice is always better than having the choice made for you because there is no other course.

So I couldn’t sleep the other night and was doing work at about 2 a.m. and flipping through channels. I stopped on the movie “Wild Hogs”, specifically when the bad biker gang lead by Ray Liota (what a great bad guy!) was getting ready to fight Tim “The Tool Man” Taylor’s buddies. Liota has a tire iron and yells something along the lines of “Send out the money or I’ll break his legs!”
The geeky buddy yells back “I’m a computer programmer! I can work from a wheel chair!”
“Then I’ll break his hands!”
“Send out the money!”
Funny from my nerd side. But right on target from an insurance perspective in a lot of ways.
Most employers provide disability insurance at a basic level for their employees. But the biggest flaw is that the coverage is typically an “Any Occupation” coverage, as opposed to an “Own Occupation” coverage. What is the difference, and why does it matter?
If you spent four years or more going to college to get a specialized degree such as engineering or accounting or law or medicine, do you want to have to do something else that you are definitely not trained for, and did not spend a gazillion bucks on tuition and tons of time studying for? How would you like to be told “Hey, you can’t use a keyboard anymore, but you can flip burgers. You have to go to work at the Golden Arches because your XYZ Tech Company disability insurance won’t cover you.” Can happen, does happen, saw it happen.
Own Occupation (called own occ in the insurance world) says that if you can not do exactly what you were doing before, you are covered. And typically the benefits will pay monthly for a long time (like out to retirement age), and be adjusted for inflation each year. Sort of protects that investment in education, eh?
Most group coverage uses an Any Occupation definition. Now if it is free and you can not opt out, you should take it because free is good, and you have to take it anyway. But if you can opt out and get your own coverage it will be better for you. Why?
1.Own Occ, like we just talked about.
2.You are younger and healthier than the average employee, so it should cost you less for similar benefits outside the company.
3.It is portable. If you switch companies, you still take your coverage. And if you decide to do something more risky (start your own business, do something less specialized, join a biker gang, etc) you maintain your superior coverage.
4.You are healthy now. You might not be so healthy later, when you are old and fat and married and have kids and mortgages and tons of worries like I do. You can at least get your own Disability Insurance (DI) now, maybe not so later.
All this, for the cost of a beer or two or so a week. Not bad.
Now, if your employer gives you free coverage, take it and supplement it with individual coverage to cover as much of your paycheck as you can, and create additional flexibility for your future by getting a rider on your individual policy to purchase more later when your circumstances change.