The Tony Steuer Podcast

Get Ready with Maxwell Schmitz: Financial Literacy and Disability Insurance

October 30, 2020 Tony Steuer
The Tony Steuer Podcast
Get Ready with Maxwell Schmitz: Financial Literacy and Disability Insurance
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The Tony Steuer Podcast
Get Ready with Maxwell Schmitz: Financial Literacy and Disability Insurance
Oct 30, 2020
Tony Steuer

“The most important thing is to make sure that obligations to your family can be met under any circumstances and yes, that’s going to involve adequate insurance. And, it’s more than that, it’s making sure that you’re diligently saving, that you’re building your emergency fund and not living outside of your means.” - Maxwell Schmitz

In this episode of Get Ready, I spoke with Maxwell Schmitz, Maxwell Schmitz, the Insurance Resource for Certified Financial Planners about the importance of disability insurance and what to consider during your employer’s insurance open enrollment. We also discussed Max’s financial literacy philosophy and his thoughts on financial preparedness. 

Bio: Maxwell Schmitz joined DI & LTC Insurance Services as a third-generation DI specialist in the bottom of the recession in 2009. Since then he has developed a specialty in working with CFPs and RIAs to consult and implement proper disability planning for their clients. Max and I also co-authored The Questions and Answers on Disability Insurance Workbook.

Connect with Maxwell Schmitz:

LinkedIn: (here)

Website: DI & LTC Insurance Services (here)

Show Notes Transcript

“The most important thing is to make sure that obligations to your family can be met under any circumstances and yes, that’s going to involve adequate insurance. And, it’s more than that, it’s making sure that you’re diligently saving, that you’re building your emergency fund and not living outside of your means.” - Maxwell Schmitz

In this episode of Get Ready, I spoke with Maxwell Schmitz, Maxwell Schmitz, the Insurance Resource for Certified Financial Planners about the importance of disability insurance and what to consider during your employer’s insurance open enrollment. We also discussed Max’s financial literacy philosophy and his thoughts on financial preparedness. 

Bio: Maxwell Schmitz joined DI & LTC Insurance Services as a third-generation DI specialist in the bottom of the recession in 2009. Since then he has developed a specialty in working with CFPs and RIAs to consult and implement proper disability planning for their clients. Max and I also co-authored The Questions and Answers on Disability Insurance Workbook.

Connect with Maxwell Schmitz:

LinkedIn: (here)

Website: DI & LTC Insurance Services (here)

Speaker 1:

Welcome to the Get Ready with Tony Steuer podcast. I'm pleased to be joined today by Maxwell Schmitz . In this episode, we'll be discussing disability insurance and group insurance open enrollment along with Max's financial education philosophy. Max, welcome to get ready. Thank you, Tony. Good to be back. Appreciate that . It's great to have you on again. Thanks for joining me. Here's a quick bio on Max. Maxwell Schmitz joined DI and LTC insurance services as a third generation disability insurance specialist and a bottom of the recession in 2009. Since then, Max has developed a specialty in working with CFPs , certified financial planners and RIAs to consult and implement a proper disability planning for their clients. Max, and I also c oauthored The Questions and Answers on Disability Insurance Workbook. S o, M ax, let's get into it.

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Can you share a little bit about yourself and how you got started in insurance? Oh, sure. Yeah. I mean doesn't every kid grow up dreaming of being an insurance professional, right. Insurance professionals are not exactly firefighters and w e're, we're going through all of it right now. My three y ear o ld it's fun. But, u m, but yeah, no, I mean obviously, you know, a joke, but at the same time, it's not that far from the truth. I mean, my, my grandfather started a disability agency in the seventies, brought my dad into it, u m, who brought my mom into it and lo and behold, my sister and I a re, are keeping it g oing. So, u m, yeah, I mean, it was something I knew I'd always do because my folks, y ou k now, they c oached every Little League team we were ever on a nd c haperone every field trip. And I thought it was so cool and fun from a young age, but really had no idea what I was getting myself into ultimately. U m, but, u h, once I finally learned and understood what they were doing on a daily basis, I definitely came to appreciate the, u h, you know, the mission.

Speaker 1:

And now I can't imagine doing anything else. So, I mean, honestly, we were just talking about this a little bit beforehand, but what's more noble than helping families and businesses in their moment of greatest need. So it's pretty impactful work and I think I'll be sticking around for awhile . Well , that's great. And I think you hit on such a key point there that it's, this is such an important business. As people forget, the mission of insurance is to provide a financial safety net. And if you don't have a financial safety net, then where are you? Um , so you know, it's great. And I also liked that you use the word cool and insurance in the same sentence. That doesn't happen very often.

Speaker 2:

Yeah. I don't know if that was intentional, but it definitely, you know, sometimes I like to think of myself as cool in small doses.

Speaker 1:

Well, you may be cool. It's just the insurance part. So , um, can you share a little bit about your philosophy on financial preparedness?

Speaker 2:

Sure. I mean, my philosophy is pretty straightforward . Um, you know, there are a few basic measures you can take to keep the engine harming when you're in a tough spot from like a health emergency or some other disaster. Um, but you know, that means different things to different people. Of course. So , um, to me it's about providing for others or at least , uh , you know, very, at the very least meeting your obligations to those who count on you, whether that's your family or your could be your creditors , uh, or your employees. Uh , but yeah, I mean, nothing fancy from my perspective, but I , and this is probably a more loaded tape than I'm intending, but I'm more like the millionaire next door kind of philosophy where you're going just gotta live within your means, protect what you earn, save diligently and, you know, don't make any sudden movements, but maybe if you calculated risks here and there and you'll be just fine.

Speaker 1:

That's great. I mean, that's, that's a simple philosophy and I , I think that's what works with a pupil and I hope that resonates with our listeners. So, you know, as we talk about it, you do a lot of , um, writing and physios. Um, why do you feel that financial education is so important?

Speaker 2:

I love this question. I mean, on the one hand it's obvious, right? I mean, education is important in the sense that it gives people control of their own destiny. I really believe that. Um , b ecause yo u u ltimately, you don't know what you don't know. Right. And when you have that like foreboding sense that you don't have a handle on your own financial health, then frankly you just feel anxious, no nstop. And it's, it's almost like there's like a secret club, like the Illuminati or lizard people or p izza gate or some wild theory you use to like fill that void. That's occupied by all these unknown unknowns. Um , a nd so it's easy to think that you, you wouldn't belong in th at a ctual honor society. Um , b ut, but that's all hogwash. I mean, really anyone who wants to can do it, I firmly believe that that education is the great equalizer when it comes to financial literacy, especially, but you know, any background, any locale. And th at c ould be my privilege showing to o. I want to be aware of that cognizant of where I stand and where I came from and all that. But I do believe anyone can overcome financial obstacles to live their best lives. So I'll be some obstacles are definitely going to be greater. Um , i t's something that we collectively just kind of have to believe to keep marching board, to keep striving, to become better people, to serve people better and, yo u k n ow, create value for others in a ll simultaneously living out our own dreams.

Speaker 1:

Well, that's great. And , uh, you know , that makes a lot of sense is that it does come back down to education. Knowledge is power. And I think as you point out, not all of us have the same access to education while at the same time as we have to change that conversation, you know, I always point out the people spend more time researching their next TV or computer gaming system than they do their net , their financial surface product. Right . And then they wonder why something happened to them. Uh, but it's, it's gonna take time for that value to come through, you know, our society.

Speaker 2:

Yeah. I mean, it's hard to get , to put your head down and focus when you don't really know what the first step or what the next step is, but it's really about accomplishing that first step and just knowing, all right. You know, maybe it's as easy as Googling , uh, you know, how does an annuity work or something like that before you actually just throw all your money into one?

Speaker 1:

Yeah. That that's a good philosophy, know what you're doing. So, you know, your , your specialty is disability insurance. Um , what do you feel people should know about disability insurance?

Speaker 2:

I think that the top thing I want to say, just if this is going to be boiled down to like a three-second clip would be it's affordable. I mean, everyone always overshoots the premium in their mind, literally just this morning before this call , um, it was showing some quotes , uh, to an advisors working with a realtor. And we were trying to undershoot it, come in at something around a hundred bucks a month. Um, that would just be some , you know, like a palatable take away , um, for this particular client. And he came back, he was like, Oh, wow, that's way cheaper than I thought, you know , I was ready to pay, you know, upwards of 200 a month. And so I think people just tend to kind of overshoot that premium in their own mind and, you know, and actually saw a really great study on this recently where the plan designs are just, you know, people don't understand how flexible they are , uh, that you can almost meet any price point . So that would be my number one thing is to tell t hem that, you know, we, we can find a plan that works for you. U h there's there's no doubt a bout t hat in my mind, u h, for 99% of our population. The second thing is just the utilization rate on these plans. I mean, disability is very rarely caused by a Mack truck hitting you at 25 miles an hour. It's it's musculoskeletal, it's cancer, it's heart disease, it's mental health. This is, we all know people that have a ll, s ome, some people have all four of those issues. U h, but for every, you know, $1 premium that's collected by I DI carrier that 60 cents is paid directly to those in need. And I think that's pretty amazing. I mean, it's not that far off from some charitable organizations that are paying out less than 80 cents of every dollar collected. I'm not, I'm not p aying these corporations to be charitable entities by any means, but I do think it helps people understand like the purpose behind the premium. In many cases, you know, w e're, we're paying into this big pool of money collectively to help someone in serious need to cover their daily living expenses. I mean, that t hat's, this is the ultimate product for b leeding h earts. I mean, we're all lifting each other up when we buy V I.

Speaker 1:

Definitely. Well, and I think you hit on a really interesting point. There is comparing it to , um, how much a nonprofit spends the money to bring in. And again, I I'm with you, we shouldn't , uh, equate nonprofits and insurance companies because they're definitely not the same, but I think the last payout ratio, which is what you're talking about, about how much benefit is paid out as compared to the premium is rather similar , uh , to nonprofits after they cleared their overhead expenses, you know, how much you put into what's called their program expenses. And I think, you know , that's important for people to realize is that, you know, insurance companies collect premiums, but they also pay claims. Right . And you know, there's two sides to that coin. And that's a great question to ask is if you can get that information from an insurance company is how much they're paying back out. You know, that's a good sign of a company that's in it for, you know, t hat that's a quote unquote, better b uy. U m, I had another guest last week and, you know, he talked about the fact that people don't recognize that the cost of insurance is not the premium, right. They're not the same thing. I mean, would you agree with that?

Speaker 2:

I absolutely would . And it's something I haven't really uncovered that much with clients, but I think there's something there where, you know, you really got to identify the core features of what this stuff is and what the money goes to and what the aggregate potential payout be for some of these , especially in the disability setting where you're looking at share , maybe it's , it feels like 10,000 a month might not be that much, especially if you're making upwards of 300,000 years , something like that. But , um, 10,000 a month over 35 years is going to be closer to $4 million. So there's something there that I think people, you know, we need to try to bring to the surface for people.

Speaker 1:

Definitely. And I think you bring up a really valuable point. There is, and it's something I've tried to point out to people and said, it's more about the leverage of your premium as compared to the total benefit pool than just the premium on a standalone point. If, you know, if the insurance company is putting up a million dollars and you're putting up a thousand dollars a year, that's pretty good leverage you can't complain about that. Um, you know, cause where else are you going to get that kind of return on your money? Now, granted, there may be a 50% chance that get that return, but if you do get that return yeah. I'll take those odds every day. So , um, I think that's important. So, you know, this is time of year. Um, I know from my wife, she has her opening enrollment packet. Um, well , what do you recommend that people consider when reviewing their disability insurance options at open enrollment time?

Speaker 2:

Yeah, no. So I, I do these reviews with people all the time and I think, well, first of all, the first thing that I'm looking at is, you know, what is the basic benefit structure? How much does it pay? How long does it pay? How long do I have to wait to access these benefits? Typically there's a waiting period. Um, but the next key things I would look for in any policy group or individual are the definitions for both total and partial, but are sometimes known as residual disability. Uh, and that's really where the rubber meets the road on these types of plans. And there are a lot of plans out there that have a huge gap in this area too. I mean, many association plans are here . Voluntary group plans come with a definition of a partial that cannot be accessed unless they're first on a total disability claim. And that to me is unconscionable. I mean, you think about the majority of disability claims being degenerative it's musculoskeletal claims, cancer claims, respiratory issues , uh , even mental health issues mean generally none of those things are going to hit you like that Mack truck I was talking about, but they creep up on people and it's a long fight to manage the effects of those illnesses. Um , and so if you can't access a partial disability benefit to cover an income loss during that period of degeneration, then your policy is really not that valuable at all. So just something to think about, but other things to consider are, you know, does your policy provide a taxable benefit? Uh, that can be a big problem. If your benefit is going to be capped at 60% of your pre-disability income , uh, in California, we would have to pay federal and state income tax on that amount. So you're actually walking away with about 40% or even less of your original paycheck. And, you know, I think it just comes down to the simple question. Can you live off of 40% of your paycheck? And I don't know that many people who could answer affirmatively this day and age.

Speaker 1:

Yeah. I think the best takeaway from that, well , there's , there's a lot of great takeaways from that, but the basic one is I think people overlook that t heir group disability insurance isn't full disability insurance. It's a portion of the disability insurance that they need. I t's just like the group life insurance people know that they need to get more life insurance than they get through their group, employer insurance. A nd I think it's the same thing with disability insurance is that we need to change that conversation. So people realize that the disability insurance they get and you and I have worked on this as executives always get a ccess disability insurance. And there's a lot of programs that are built just for executives to purchase that, u m, excess disability insurance. So I think that's the bottom line is maybe we need to come up with a tool that shows people like, Hey, this is how much disability insurance you're really getting.

Speaker 2:

Yeah. I mean, one of the, one of the key points, especially in the executive marketplaces, what type of compensation di scover? I mean, there, there are a lot of home and living expenses being financed with compensation from RSUs and other equity agreements. And none of that is considered an, a group LTD plan. And more to the point, I guess actually sales, commissions, bonuses, even ownership, distributions are typically not covered under those group plans. So, you know, if that income is important to you, it's important to your family an d i t makes all the sentence in the world to supplement th e g roup disability pl an.

Speaker 1:

That's great. That's great. Um , well thanks for sharing that. So , um, would you have any other advice for people , uh, based on your experience on open enrollment?

Speaker 2:

Yeah. There's a couple of notes here. You know, I did have sort of like a David Letterman, top 10 thing arranged, but I'm not going to go there. Um, but you know, just some talking points, like I think it's really important to understand that premiums can and do, and actually are guaranteed to change in many cases, they're tiered by age. So your premiums are gonna go up with some of these , um, carrier plans, especially if the block is performing poorly, say you're in a group of real estate agents or something like that, where you're all buying with this voluntary association plant . If it turn the market tanks and real estate agents gone a higher rate of claim, all of a sudden , uh , that block is going to experience either a huge rate increase potentially, or your group sponsor can just outright cancel the plan. So it's not going to be portable in that many cases either if you do have some type of cancellation, if it's an employer paid group plan, for instance, and your employer has to scale back sound familiar in 2020. Um, and that means that you might not be able to walk away with your policy , uh, or carry it on going forward on an individual basis. You , and, you know , that might not be that meaningful of a change if you're left uncovered and you're still perfectly healthy, you can go clap for your own, no big deal, but if you're uninsurable and you've gotten a chronic condition that is going to make things really complicated or, you know, would result in an exclusion that can be really, you know, the difference between you being able to pay for your kid's education or not, or your home. I mean, it really, it could be disastrous. So , um, you know, that's a big factor as well as the point that really not all illnesses are treated equally. Self-reported symptoms are not covered in many of these group plans. Um, and then, you know, these groups, these guarantee issue products, which again, really kind of underscores the group marketplace , uh, it means you really expect financial underwriting at time of claim. Um , because remember they're not looking at your financials before you apply, they're looking at it at time of claim when you need the money. And so that can be a really bitter pill for people to swallow , um , in many cases as well.

Speaker 1:

Definitely. And I think those are also points that are applicable to other parts , uh, of the insurance package. Um, not all parts are relevant to other , uh, insurance plans, but I know with health insurance, if you have a small employer and one of the employers contracts cancer and has a large claim that impacts the group medical insurance, and you may end up all paying more for group health insurance and, u h, with life insurance, the same thing as s he may find that the it's not portable on, you know, you've been counting on that, u h, group life insurance. S o I think those are great principles for people to consider i t o pened enrollment. So, you know, you and I h ave talked about this a lot between ourselves. U m, how do you feel that we can improve financial literacy and financial education?

Speaker 2:

Oh man, I wish I had the answer. The best thing I can come up with is just increased visibility, which is, you know, it's great in this era of social media. There's so many awesome accounts and people across all platforms in this, in this realm of financial literacy. Um, but this is also the enemy in a lot cases too. You can imagine like there's so many get rich quick schemes, especially on Tik TOK , a lot of kumbaya attention lately. It's like these guys on, you know, Bitcoin and all that. Not saying it's a bad thing to diversify, but they're saying put it all in there. And it just scares me to think what sort of financial advice people are getting on some of these mediums. But , um, but you know, really that, that visibility and especially in my role of the disability visibility, I think is really important because it's something that so many people just grapple with alone and in an isolated manner now more than ever. Um, and you know, they don't go, they don't want to externalize what they're going through. Um, and you know, that probably has a lot to do with society upbringing and everything like that. But at the same time, you know, we really need to rally around people who are experiencing hardships like that. And , and I think that visibility really has kind of come a little bit more than a surface with the advent of social media and , and people, you know , being, you know , visibly empathetic. I think it's a beautiful thing.

Speaker 1:

Yeah. Yeah . That's a great point. Um, I , I, I would agree with you on all those things that improving financial literacy. And of course I don't have a being answer either, and that's partially why I'm doing this podcast and , uh, you know, it's to find out what everybody else thinks. And also to help, you know, as

Speaker 2:

We all talk about this is, you know, to bring great financial literacy content and thought leadership, excuse me, out there to people. So this is one of my ending questions is what's your number one tip on b eing financially prepared? Yeah, I th ink p robably know wh ere I ' m, what angle I'm going to take on this one. But, u m , to me it's all about it. Y ou could really kind of generalize this one too, though, but it's about protecting your net. Th at really is the most important thing to me is, is j us t make sure your obligations to your family can be met under any circumstance. And yes, that's going to involve adequate insurance. Um, but you know, it's more than that too. It's just, it's making sure that you're, you kno w , di ligently saving and, um , and that you' re, yo u're building your, your, your emergency fund, um , and not living outside your mea ns. It's just protect your , not make sure that you're squared away in your own home. And then I think that will give you a lot more freedom to do things that you want to do. Um, if you have a curiosity or something like that, so, right . That's great advice. You know, it's starting at the beginning , um, which is, which is where we entered the conversation on , uh , disability insurance is about having your safety net , um , some accent and I'll put , um, all the links and your social media links into the show notes. Well , where can people learn more about you? Um, yeah, I mean, our website is still, the main resource has got a lot of great features and pieces on there. Our blog is one of our sort of prized, u m, you know, aspects of our business. U h, so our website is d ai-ltc.com. U h, and you know, I love Instagram, so you can catch us on there as well. It's D I a N D LTC, D IA a nd LTC. Okay, fantastic. And also I'd urge people to follow max on, u h, LinkedIn, max posts, some great stuff on LinkedIn. So if you're active on LinkedIn, u h, that's a great place, u h, to follow max and, u h, get some great ideas. U m, so max, u h, thanks again for joining us today. Y eah, my pleasure. Thank you, Tony. Thanks you guys for listening to appreciate it. Definitely. Thank you everybody for tuning in, and please remember to subscribe to the, get ready with Tony s carer podcast until next time.