Disability Insurance Traps and Pitfalls

by admin on December 21, 2011

One thing I did not anticipate after getting married was how much insurance I was going to end up getting. I used to think life insurance and disability insurance was something “old” people worried about. Unfortunately for me, I guess I am now in that bucket and I am still in my 20s. I wanted to talk to you about a couple tips that might help you when you are shopping around for disability insurance. Until recently, I had never worked for an employer who provided disability insurance for their employees. This is probably why I had not heard of insurance before, however my grandfather is probably laughing in heaven and calling me a mule right now. After listening to a financial counsel talk show, the host seemed pretty adamant that listeners get the insurance or supplemental if they had it through an employer.

Why get disability insurance?

The statistics show that you are significantly more likely to become disabled than die prematurely. Pretty cut and dry. On the other hand this didn’t really register in my stubborn head until I was sitting at a light at East-West Connector and Atlanta Road. Apparently in Georgia, a red light does not necessarily mean red until after several seconds. Even then you should probably look to whatever side is opposite where you are turning in case some fool is on his iPhone. After seeing a near miss, I decided maybe this disability insurance thing is worth looking into. After all, Jury Duty taught me there are plenty of crazies out there.

Disability Plan Decisions?

Besides where to apply, the two most important details to look for are the periods (both for elimination and coverage) and the own-occ coverage.  The two most common elimination periods are going to be 90 day and 180 day policies.  All an elimination period means is the amount of time you have to pay out of pocket before disability insurance kicks in.  If I’m in a hospital getting countless surgeries but im home on day 90 then I am S-O-L in terms of my policy picking up any costs.  180 day plans are going to cost you less money but this means that you need to have a 6 month emergency fund ready in case you ever get disabled.  I believe 90 day is more reasonable since most people don’t have 6 month emergency funds (myself included BAH!). Coverage period is going to be something like 65 years old or 70 years old.  I really could care less which age it is, but make sure it’s one of those two so you’re not 55 disabled and up a creek.

Lastly make sure the coverage is “own-occ” or own occupation coverage.  This means that if you can’t perform your exact occupation then you are disabled.  Some plans do not have this and will then move to a percentage of occupation type thing.  For example, if I am disabled such that I can’t sit or stand, it would be pretty hard for me to be an analyst and ride a desk all day.  With own-occ coverage, I’d begin getting disability payments after my 90 day elimination period.  If you didn’t have own-occ, and now have what is called “any-occ” then you potentially may not get a check.  For example, lets say my main job is being a financial analyst however on the side I get paid to teach finance at Georgia Tech.  If I can’t perform my duties as a financial analyst but am not disabled enough such that I can still teach, my insurance company will not allow me to get the check.  Any-occ policies are going to be cheaper, but I do not think they are worth the risk.

Where did I apply?

I decided to apply via two methods and hoped to come to a conclusion on what gave me comfort after getting further down the road into the application process.  Some people go through an insurance agent.  Others go through these kayak.com equivalent sites like Zander insurance where the site shops several insurance companies at once.  I decided to do both.  After all when banks compete you win!  Okay well insurance companies and no you probably lose.  Maybe.

Pit falls to watch out for when signing up?

When shopping around, the biggest thing to watch out for when signing up is when the insurer will ask for a check with your application.  Agents will conveniently have you fill out a billing sheet which leads you to believe they just want to know how you will pay your premiums in the future.  I filled one out thinking this and said annual premiums.  Fortunately, I did not have a check on me or I may have given him one.  What the insurance agent is doing is masked under “contingent coverage.”  By giving the check then and assuming nothing comes back during underwriting, you are covered under insurance from the moment you give him or her the check.  In my opinion it is more the agent trying to get you locked up as a sale rather than trying to protect you.  For me I was willing to take the risk of a month delay in coverage.  However some people would enjoy the piece of mind of being covered immediately but this limits your ability to shop policies around.  Don’t let an agent tell you a check is required with the application!  It is only required if you want immediate coverage.

Concluding Thoughts

At the end of the day, these policies are going to run you $30-40 a month which is expensive for the amount of money they’re promising but I still think it is worth it.  Some will say that you can get quadruple bypass surgery and be recovered in under the amount of time it takes the elimination period to kick in.  This is true (i looked it up – can’t believe how little time it takes the sternum to heal).  Deciding to buy this is like deciding to buy stocks, it’s all about how much risk you are willing to take.  Best of luck and hope neither you nor I ever have to execute on a disability policy.

 

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Is a MBA worth it?

by David on August 6, 2011

GT MBA Tuition Keeps Increasing

Everyday I feel like another one of my friends is considering doing an MBA in the near future. It got me thinking about why people do them and if they even should do a MBA. Briefly, I’m going to explore some reasons for doing a MBA, describe why I chose to do one, and then go into my fast and crude analysis on if it’s worth it to you from a financial perspective.

One of the biggest lessons I have learned in doing the MBA is that it gets harder to do one the longer your wait to start. The hardest part of the MBA is not the MBA itself. It is the time management process of juggling your schoolwork, career, family, and social life. Throw CPA, CFA, or some FINRA Series exam on top of that and you got yourself some stressful months ahead.

Why do an MBA?
Career Change – Many of my peers chose to do their MBA in order to launch into a new field. I recall one student who had a 20 year career in IT and was now wanting to go into clean energy. Usually you see engineers looking to move to finance or something radical. I think the most value a MBA has in this category of changing careers. It gives you enough times to get the course work and to network with others in the industry you are looking to get into.

Launch a start up – For those looking to start their own business or find partners to start something, the MBA is absolutely for you. Most MBA programs have elective courses geared towards start ups. Georgia Tech has three in particular: Venture Creation, E-commerce, and Entrepreneurial Finance. Most professors serve as great advisers for would be entrepreneurs as well. I have seen many willing to help students in any way they can whether it be themselves or through their network.

“Checking the box” – I put everyone looking for a raise and promotion in the box. I have yet to meet a MBA graduate who did not get at least a raise or a promotion if not both. In addition, those students wishing to look more employable to employers fit this bill. Hell every job description on indeed these days has “MBA desired” or “MBA preferred.” The MBA makes it that much easier to both get those initial interviews and change employers with ease.

But is the MBA actually worth it?
Day after day we see commodity prices, health care premiums, auto, homeowners, life and other insurance premiums keep going up. Colleges are no exception. My tuition alone starting in Fall 2009 was $727 per credit hour. It increased each year so far and is currently at $917 per credit hour. That is a 12.3% CAGR (compound annual growth rate).

Alice in Wonderland had it right: “I wonder if I’ve been changed in the night? Let me think. Was I the same when I got up this morning? I almost think I can remember feeling a little different. But if I’m not the same, the next question is ‘Who in the world am I?’ Ah, that’s the great puzzle!”

This got me thinking that for poor freshmen starting MBA that they’re going to be paying a lot more than I did. Time to run through the numbers to see what I spent on my MBA and to see if it is even worth it. Click here for my analysis on the MBA. When I finish, I will have spent over $51,062 on this degree. Someone pinch me! @$%^! Given the way tuition rates are going, you would think people would not flock to the degree. Many news articles out there will show you that MBA applications are up. Sitting in a cube and seeing the fantastic 9% unemployment numbers, many decide to protect themselves and be more employable by going for that M-B-A. Now it is time to see if it is even going to be worth it given these tuition rates.

I decided to do an IRR analysis which I am biased to because we use it in investment banking a good bit. Yes it is not perfect and no analysis ever is. Critics may argue that I was too conservative for leaving off anticipated bonus payments, but I wanted to be conservative and only looked at salary expectations. To run through an example, Peter Gibbons a student at Georgia Tech is graduating. He makes $65,000 at his current job doing TPS reports. After going through OCR (on campus recruiting, yea you learn lame acronyms in MBA), Peter gets his Post-MBA offer to make super TPS reports at a rival company but he gets a fat $20,000 raise and is now making $85,000. The GT career office shows that $85,000 is roughly the average salary for our graduates so this example has some real merit. The purchase consideration is equal to what I paid for school and those classmates who started with me. I assumed a 5% annual base increase which is not great but it not terrible neither. A 20% tax rate is reasonable based on some numbers I ran on a napkin using the 2011 Tax Table by the IRS. Since we make money almost forever, I did a terminal value of 12x. Feel free to change the assumptions and see what IRR results. In our example, Peter hit a 10% IRR. Not too bad given the returns on savings accounts these days. Given that tuition is going up each year, current freshmen are projected to finish at around a $65,000 cost. Plugging that in drops the IRR to 4%. Sure I’m leaving out bonuses, and it is probably higher. What the model suggests is that a MBA is a deal right now and is worth it. HOWEVER, if costs go too much further to where a tech MBA is $70k/80+ it starts to get to be pretty ridiculous.

Based on this, I am thankful to be wrapping up and graduating in May 2012. Screenshots of the example are shown below:

Georgia Tech MBA Costs

Georgia Tech MBA IRR Analysis{ 0 comments }

Quote of the month – June 2011

June 1, 2011

“I learned this…that if one advances confidently in the direction of his dreams and endeavors to live the life which he has imagined, he will meet a success unexpected in the common hours…If you have built castles in the air, your work need not be lost; that is where they should be. Now put the [...]

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Quote of the month – February 2011

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