Nov 1, 2019
What’s the difference between long-term and short-term disability insurance? And do you really need it? Michael answers!Listen to "E257: Should I Buy Disability Insurance?" on Spreaker.
What’s the difference between long-term and short-term disability insurance? And do you really need it? Michael answers!
Sponsored by: Acuity Scheduling & The Jojoba Company Holiday Packs.
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Michael Reynolds Hey, everyone. Welcome to the Massage Business Blueprint podcast, where we discuss the business side of massage therapy. I am Michael Reynolds.
Allissa Haines And I’m Allissa Haines.
MR We’re your hosts. Welcome. We’re glad you’ve joined us today.
AH We are glad you’ve joined us.
MR Allissa, how was — yeah. We are. We’re very glad, super glad. And we really mean it. We’re sincere. We love our community. So thank you very much.
So how is your Halloween season shaping up, Allissa?
AH It’s going well. We haven’t had all the pre-Halloween events that you have.
AH [Laughing]. So the kids have not even — with the exception of trying them on for a friend we had over at the house, the kids have not even worn their Halloween costumes, so their costumes will be one-hit wonders on actual Halloween. I know we’ve discussed the costumes and stuff before, but yeah, we just bought Halloween candy yesterday. So only like three days in advance of Halloween. But we did both take the day off because he can’t get home from work in time if he actually goes into work because his commute is horrible. And I was like, yeah, I don’t — I’m going to take a day off. I’m — and it might as well be Halloween. And actually, I’m excited because I have the whole day set aside to work on Blueprint stuff and then Halloween with the kids.
AH So what have you been up to? What events did you and Spider-Man hit this weekend?
MR [Laughing]. Well, obviously we’re recording this before Halloween. So this will go out on November 1st, so hopefully our Halloweens went well. But yeah. We’ve gone to — it was the Headless Horseman festival at this local museum-type place where it’s, like, there’s all sorts of activities and you go on a hayride and people scare you and the Headless Horseman rides beside you on a real horse and scares you and everything, so. We’ve discovered that Eli really — he gets scared. Like, he’s young enough that he gets scared at stuff like that, but he likes being scared. He’s a thrill seeker, so he’s like, oh, I’m so scared; let’s do it again. [Laughing].
AH Oh, man. You guys are so screwed.
MR I know. So he went to the haunted house like three times. It was terrifying for him, but he wanted to do it over and over again. So he’s really into scary stuff. And he brought a pretend skull to school today for his Halloween show-and-tell. So I’m sure he’ll terrify the other kids with this human-looking skull in his show-and-tell box, so. Yeah. That’s what going on in our world.
AH Nice. You know, we used to do this —
MR We’re all into Halloween.
AH I’m going to wax nostalgic for a moment. We used to do this thing at our local Audubon Society, like our nature site. They’d do something called the Halloween Prowl. And it was nice because it was cool but not scary. And you’d walk one of the nature paths with a guide, and it’s all lit up with lanterns. And you’d stop at a few different parts, and there would be a volunteer dressed up as some kind of nature-y animal. The first one you hit was like — was actually a person as like a Druid who would talk about the actual ancient Druid origins of Halloween. And it was really cool. And then the next one would be, like, someone dressed up like a flying squirrel.
AH And last year they actually had someone harnessed up into a tree. And she pretended she was a flying squirrel, and she told people all about flying squirrel, like, habitat and stuff. And it’s great. There’s always, like, three volunteers, the whole thing takes 45 minutes, and you end at a campfire with another Druid and you do a harvest season dance-around-the-campfire thing.
MR I would really like that. That sounds cool.
AH It is so great. But we didn’t do it this year. We asked the kids if they wanted to do it, and they were like, yeah, but they were kind of like, meh. But they’re getting a little old for it. Like, it’s — it’d be perfect for you guys at your — like, with Eli’s age.
AH I — ours are almost 13 and 11, so they’re kind of like, meh. So we were going to do it, but then we just forgot to register. So we didn’t do it this year. And yesterday we were like, aw, we’re not doing the Halloween Prowl.
AH But I’m so excited because I think in, like, two years my grandson’s going to be old enough — he’s going to — he’ll be three, so he’ll be, like, really into it. And I think that’ll be awesome.
AH So I’m psyched up for — and he’s — I forget what his costume is. Oh, it’s a monkey with a banana.
AH Oh, my gosh. I’m going to put a picture — we’re going to put pictures up of all of our kids in their Halloween costumes.
Okay. Enough nostalgia. What’s our topic today, Michael? Sorry.
MR Well, actually, this episode is way too long already, so I’m going to add to it a little bit more for one more minute because I was really impressed. We also went to this Halloween game party thing on Saturday. And it was put on by the local high school, and it was put on by all the high school kids, and it was a fundraiser for Riley Children’s Hospital. And so you would go there and you’d make a donation, and they had little stations set up with Halloween games and haunted houses and stuff, and it was really cool. Like, all these young high school kids were there being great with the kids, doing fundraising, being super nice and just — like, it really restored my faith in our young people for the day. So I was just really excited to see that, so.
AH Aw. That’s really nice. Was that where the corn pit was?
MR No, that was at the —
AH That was another thing?
MR — Headless Horseman thing. Yeah.
AH [Laughing]. It was pretty cool.
AH You guys are living it. All right —
MR We still found corn in his underwear like three days later.
MR So anyway. So yeah. So onto — we actually do have a topic, I promise. We’re not just talking about a Halloween stuff all day. Our topic is disability insurance, so.
AH Good times.
MR Good times. So bringing it back to [laughing] — so from fun to the most depressing topic. No.
Disability insurance is something that’s come up a lot lately. It seems like we’ve had a few conversations about it in the community in the premium group, and people have been just kind of mentioning stuff here and there and seems to be kind of a topic, so we thought we would discuss it today, so.
AH Yeah. And I looked into it myself — I looked into short-term disability insurance myself a couple months ago and was like, holy wow, this is very interesting.
AH And I’ll give my opinions on it later, but in general, Michael, what is disability insurance?
MR Yeah. Do you want me to kick it off?
So disability insurance is insurance that kicks in when you are unable to work, when you have an injury, a disability, something that happens where it keeps you from working and therefore interrupts your income.
So there’s two kinds of — general two kinds of insurance. There’s short-term disability and long-term disability. And I’ll kind of just talk about the general definitions, what they do, we’ll have a halftime, and then we’ll kind of dig into pros and cons after that, so.
So short-term disability is designed to cover a disability or an injury that keeps you from working in the short-term. So typically, it’s a three- to six-month type of time frame. It can be shorter, but in general, it’s like, hey, you broke your arm or you have a hand injury or something happened where you’re not able to do massage work for a period of time, usually one, two, three months, four months, five months maybe. Something like that. Something that is going to get better. Something that has an end point in terms of the limitation, and you will be back to work in a certain short period of time. So that’s what short-term disability is designed for.
One example of a — kind of a big-name company you’ve probably heard of is Aflac. They’re one of the leading — or one of the most popular or well-known providers of short-term disability. I’m not endorsing them, but I want to point out that’s kind of one of the companies you hear of when you hear of short-term disability. There’s many others as well.
AH Yeah. And also if you’re — if you are a member of a professional organization or a chamber of commerce or things like that, you can often investigate your short-term disability options through that membership.
MR Yeah. Most associations have some option, so. So that is short-term disability.
Long-term disability, by contrast, is what you would expect. It is for longer-term issues that keep you from working. It can be indefinite. It can be the rest of your life. It can be years. It can be — I think the average — when I was doing some research, the average claim or period for long-term disability is 35 months, so it can be — but it can be longer than that. It can be indefinite. So long-term disability is when there is something that happens that keeps you from working for an indefinite or a longer period of time. And long-term disability then kicks in and is designed to provide income for you to replace a portion of that income that you would have gotten from working. So that’s basically it.
There’s, again, long — many different options for long-term disability. Many professional associations offer it as well. You can buy it directly through brokers. You can buy it through an employer if you’re a W-2 employee, which I know many of our listeners are not, or most are not. But if you do happen to be a W-2 employee, many employers will also offer it as a benefit as well. So that’s what long-term disability is for.
So that’s kind of the general definitions. What would you add, Allissa? Anything I’ve missed or…
AH No. I think that is very clear.
So we’ve had lots of questions about it. You know, what should I do? Which one do I need? Do I need both? So let’s get that after our halftime. So let’s do our halftime sponsor, and then we’ll cover those things. So today, our halftime sponsor is Jojoba for the holidays.
AH Yay, [laughing] Jojoba for the holidays.
Sponsor message This year, Jojoba is making it easy for you to share the love of jojoba and take the hassle out of holiday gifting. I am so excited about these Holiday Gift Packs — available in packs of 12 or 14 — and they make fantastic gifts for clients and family and friends and just when you have to have lots of little gifts on hand because you don’t know if you’re going to run into people that you’re going to feel like you need to give them a gift. Jojoba is offering these packs at cost, so they are a ridiculously good value for you and an affordable option for client gifts and stocking stuffers. Each little gift bag includes a 1-oz. bottle of jojoba, a $5 gift card towards any future purchase on jojoba, and it’s wrapped in this really cute burlap gift bag with a gift tag and this really festive red and white string. And it’s nice because the bag is big enough so that if you gift a little item to your clients or you want to add some kind of local restaurant gift card or — what did they say? Local soap, like, something that’s made locally or a tiny little mini sample size of, like, local honey, like, some honey manufacturers, like, makers — what do you call them? Apiary? I don’t know — make. I got off track. Herbal tea bags, a nail file, all kinds of things like that will fit in this little bag. It’s so cute. The 12 pack is only $24; the 24 pack is $48. So you’re getting these for 2 bucks each, which is ridiculous. And as an added bonus, you get free shipping. So the gift packs are going to be available for a limited time from now — or you can pre-order now, November 1st, shipping starts on November 4th, and they’ll take orders through December 15th. So you can go to massagebusinessblueprint.com/holiday, and that’ll get you to all the Jojoba holiday info. You can order a pack of 12 or 24. I know that this ad went really long. But seriously, you guys, Joba came down to — Jojoba came to my office a couple weeks ago to — and we did some filming, and I got to see the gift packs. And they left me with some, and I actually gave one away already. And my client was like, these are the coolest. And I just put some fancy tea bags in there. A lot of times my office smells like peppermint tea because I drink a lot of peppermint tea, so I put some peppermint tea bags in there. And it’s just so — it’s just — it’s an awesome little gift bag. And if you do gifting with your clients, this is ridiculously affordable. So massagebusinessblueprint.com/holiday.
MR And folks, that is how much we love Jojoba.
AH Yeah. It’s a really great —
AH It’s just great. I mean, it’s just a wonderful gifting idea, so. And it takes — it just takes the stress out of it. It takes the expense out of it. It’s just so affordable.
AH Anyhow, let’s talk more about disability insurance, shall we?
MR Let’s do. The exciting topic of — man, everything else we’re talking about is more exciting than disability insurance. So we should keep talking about Halloween and jojoba if we could.
MR But anyways, I’m sure people want to know about short-term disability and long-term — okay. So short-term disability, let’s talk about the pros and cons. Let’s start with short-term.
So short-term — by the way, let me preface this by saying there’s no right or wrong for any of this stuff. It depends on your individual situation. So we’re going to give our opinions and give you some kind of framework for thinking about it. But we’re not here to say you should never buy short-term disability or you should never buy long-term; you should always buy this. It’s not that way. It’s more about — just be sure you’re thinking about it logically. So we’re going to talk in those terms, so.
So short-term disability. The pro of short-term disability is the benefit, of course. It pays out when you are temporarily injured or unable to work. That’s the whole point of the benefit is to replace income. It often kicks in either right away or within a couple weeks or pretty immediately — and immediately is defined as usually within a couple weeks — but some can have longer waiting periods. Some policies can have different kind of waiting periods.
So Allissa, I know you did some research and you talked to some members, and there’s some different waiting periods you’ve seen, right?
AH Yeah. I — there was a 30-day wait in the one that I investigated. Or —
MR Got you.
MR And then we had a member report 60 days, right?
AH Yes. Yes. Which is a little — well, we’ll get to the cons. So I’ll let you just carry on.
MR Yeah. [Laughing]. So be advised that, in general, from what I’ve seen, short-term disability is truly designed to be something that kicks in right away because the whole point of short-term disability is you need it right now in the short-term. So within two weeks is pretty reasonable; 30 to 60 days seems like it’s getting a little bit unreasonable in my opinion. So you want to be careful about that waiting period and make sure you really research that if you are looking at short-term disability policies.
So the downsides of short-term disability. Sometimes it can be expensive. It can often be as expensive as long-term disability in some cases. So depending on where you get it or what your options are, you want to look at the cost. I was doing some research on Aflac, and it can be anywhere from $50 to $100 a month depending on the policy and the income replacement and how much income you’re making and all those factors. So it’s not an inexpensive, necessarily, policy. It can be, but it can also be expensive. So be sure you do some research on comparing options if you’re looking at this.
Often, the benefits are not — I shouldn’t say “often”. I should say “sometimes” because there’s no one size fits all here. But sometimes the benefits are not that great. You can get low payout amounts. The waiting periods can be inconvenient, as we alluded to a couple minutes ago here. So there’s a lot of gray area and a lot of complexity and different options out there.
And so I — my opinion is it is sometimes easy for people to say, oh, short-term disability sounds great; let’s buy it, and that’ll cover me. And the fine print reveals that maybe the waiting period is a month, the payout is maybe difficult to get under certain circumstances, the payout is low, the policy’s expensive. There’s all sorts of things you want to watch out for. So it’s not that short-term disability as a general rule is bad, it’s that it can sometimes be difficult for people to find a good policy and make a good choice because it can be confusing. That’s kind of my take on it.
So what would you add, Allissa?
AH Yeah. And I know you’re going to get into alternative options if you don’t want to do a short-term disability, but I will say that I investigated a short-term disability policy through my professional organization, and I was not impressed. The rates were not terrible, but — and you had to choose a policy length. So if I wanted a policy that would pay me for one month of missed work, it would obviously cost less than if I wanted a policy that would pay me for three months of less work — of lost work. But the rates weren’t ridiculous, but there was a waiting period of a month, I think, so that you’re going to lose a month of wages no matter what.
And also, if I got hurt at work, the payout would be, like, half. It was weird. It was really weird. And when I looked at it, I was like, this doesn’t seem like a good deal, and I think I would choose an alternative option, which we will talk about at the end. So I — it was surprising to me to hear that there were so many weird caveats about it, especially the “if I get hurt at work.” Like, I spend probably half my time at work. If I’m going to get hurt somewhere, it’s just as likely going to be at work as anywhere else. [Laughing].
MR Probably going to be at work. [Laughing].
AH So yeah. That really bothered me and made me decide that this was — part of what made me decide this was definitely not the option for me.
But let’s — tell me about long-term disability options.
MR All right. Long-term disability is, as you might expect, again, it’s for the long-term. So the pros or the up-sides of long-term disability is it can pay out when you’re disabled and not able to work for the long-term. So it can be indefinite or a very long period of time — something with a very long recovery time, or maybe an indefinite recovery time.
So it generally — there’s different options and different variations here. But generally, the general rule is it replaces about 60 percent of your income. So that’s kind of what it’s designed to do is replace a portion of your income. Now, you want to be careful about this one piece of it here is you want to make sure that your premiums are paid post-tax. Now, this is generally going to be the case for most of our listeners because a lot of them are self-employed. A lot of you are kind of — you’re a solo massage therapist, you’re not a W-2 employee, and so you’re likely going to be paying it — the premium post-tax if you have a policy directly. But be aware that if you are getting long-term disability through an employer or you’re paying it through some pre-tax method, then you are going to be taxed on the benefit. If you are paying it post-tax, you are not going to be taxed on the benefit. And so it effectively is going to act like replacing your income, for the most part, because after taxes you’d get about, you know, let’s say 70-ish percent of your income anyway. So at this point, you’re kind of reaching that almost replacement number.
So anyway, the point is you want to — if at all possible, you want to pay your premiums for long-term disability with after-tax money that has already been taxed, you’re taking home. So if you’re confused about that, talk to your accountant about it. Make sure that’s being handled that way, so.
The downsides or the cons of long-term disability is really it — there’s a waiting period that’s a bit longer. So it’s usually about 90 days. It can vary, but the average or the general rule is it’s about a 90-day waiting period. So that means that if you get injured, you’ve got about three months to wait until your long-term disability income benefit kicks in and starts paying you.
So a lot of people say, well, what am I going to do in that 90 days? Well, we’re going to talk about that. Short-term disability is one option, but we’re going to talk about another option as well. So that’s kind of the — the really — the main downside is just that waiting period.
Any other downsides or details you know about long-term disability you want to share, Allissa?
AH No. I think you covered it.
MR All right. So let’s talk about kind of what to do — what should you do or how to think about it, so.
So in my opinion — and I think Allissa’s opinion — well, she’ll share as well. But in my opinion, short-term disability is not awesome. I’m not a huge fan of it. Now, in some cases, it might make sense, but in general, I’m not a huge fan of it. The reason is this. So a temporary disability is often better handled through your personal savings like your emergency fund. We advise people to have an emergency fund anyway. Like, you need to have this anyway. So when you have this in place, your emergency fund or your short-term savings becomes your short-term disability because you are able to pay yourself out of that savings or use that savings to pay your expenses as you are recovering from whatever injury is keeping you from working. The nice thing is you’re keeping your money if you don’t need to use it.
So with short-term disability — so the whole point of insurance companies — like, insurance companies are out to make money. This is no secret. We all know this. And for them to make money, they have to count on the statistics of most people not using their service. And so if you have a short-term disability policy, the more people use the service — more people use the policy and get injured and use it, the less money the insurance company makes. So they know — their statistics are all set up to understand that most people likely are not going to use this policy. So you are statistically likely to not ever need the policy.
So that being the case, I would rather bet on building up my own short-term savings and my own emergency fund and have it there if I need it. But if I don’t need it, I haven’t been paying premiums every month that I’ll never get back. Instead, I’m paying myself those premiums, and I’m putting those premiums into my savings account. And the statistics — the odds are I’ll never use it, so I’ve got that money to keep. Now, if I do use it, of course, then I’m — the odds are, again — the odds are that I won’t use it, but if I do, I have it available. But likely you’ll be able to keep that money.
So that’s what I like to do. I’m really a more of a fan of anything that — and this goes for any type of insurance at all. I even talk about for pet insurance or whatever. Any kind of smaller, short-term type of insurance, it’s often worth looking at is it better for me and more financially logical to self-insure through my own savings?
So that’s kind of my take on it. What would you say, Allissa?
AH I a hundred percent agree, and that was exactly what I walked away with after my phone call investigating short-term disability insurance was that — and I said that out loud to the woman. [Laughing].
AH I was like, so why would I buy this instead of just keeping three months of expenses in the bank? And she was like, well, a lot of people just can’t handle saving that much money. And I was like, oh, I’m not one of those people; I’m good, thanks.
AH And yeah. It did really encourage me to spiff up and — like, my new goal is to get six months of business expenses in the bank and then six months of personal expenses in the bank, which is a lofty goal. It’s going to take me another year at least. But that’s, like — yeah. It just — it was a reminder of, oh, you just need a really good emergency fund for me in my situation would be a better bet.
MR Yeah. Cool.
Now, I’ve heard some people say, you know what? I have both. I have a long — or I have a short-term savings account, I have an emergency fund, and I also buy short-term disability because if I am injured, then I don’t want to drain my savings from my injury, which is valid. I mean, some people — if you have the additional income to pay the premiums and that doesn’t keep you from doing other things like saving for retirement or paying off debt or whatever your cash flow is going toward, then that’s certainly a viable option. I just tend to not go that direction. But keep in mind it’s individual choice for your situation.
All right. Long-term disability. So I always — I shouldn’t say “always” because there’s never no absolutes, but I generally recommend long-term disability for everybody who works because it is virtually impossible to self-insure. When you think about it, a long-term disability is something that keeps you from working for potentially years, so it’s virtually impossible to save up years and years’ worth of expenses in the bank. It’s just not going to happen. So that is something that is impossible to self-insure.
It makes a lot of sense to get long-term disability. So I’m a big fan of long-term disability. I think especially massage therapists who are very hands-on, obviously an injury can really sideline you for the foreseeable future if you have an injury. I think it’s a great idea. I think it makes a lot of sense. So I’m a big fan of long-term disability. I do recommend it generally for massage therapists and most people because it is so hard to self-insure.
And I think the professional associations offer that as well, right?
AH I have no idea. [Laughing].
MR Okay. [Laughing]. We should look into that.
AH I was just logging into one now to find — to look —
MR Yeah. Yeah.
AH — to consider that, but.
MR And you can buy directly. There’s brokers — there’s insurance brokers, so look for someone you trust in your area if you want, or there’s plenty of — Policygenius is one that has online policies as well. There’s a lot of places to get it. And you can certainly shop around and look for the best premiums and the best products, but I do advise looking into it.
AH All right. Yeah.
AH And that’s something I don’t have that I should probably look into, so I’m going to put that on my to-do list.
MR Well, it’s kind of like life insurance. Life insurance is one of those things it’s impossible to self-insure as well. And many of us don’t have it because it’s something — it’s not fun to pay for, you know? It’s like, oh, well, if I die, these people that are financially dependent on me are going to need income. And we know this intellectually, but it’s so far off and this abstract concept of it happening, and it’s a premium you’re paying that you’re not getting back and you’re not getting benefit for it in the short-term. It’s just kind of one of those things that it’s difficult to stomach paying for, but it’s one of those things where if you do need it or if your family needs or if your — whoever’s depending on you needs it, then it’s critical to have, so. Yeah. It’s just one of those things that it’s a good idea. So there you have it.
AH All right. Yeah. We did an — I feel like we did an episode a while back about if — how to know if you need life insurance or not, too, so I will find that.
AH I’m pretty sure we did that.
AH Yeah. And — sorry, I’m still searching to see if there is an option. Da-da-da-da-da. You know, I only — I only asked about short-term disability, so I don’t know if long-term is available through the organization. I don’t know.
AH So there we go.
MR Well, we should look into that.
AH Okay. [Laughing].
MR So look into it in your organization. [Laughing]. But again —
AH I am not at all helpful to you. But anyhow —
MR There is plenty of places to look. And again, Policygenius is one I’ve seen recently that’s advertising a lot. Individual brokers offer it. So look around. There’s plenty of places to get long-term disability. All right.
AH Sweet. All right. We’ve covered it. Let’s get out of here.
MR We did. Let’s get out of here. All right.
Thanks, everyone, for joining us today. We appreciate you being with us. A reminder our website is massagebusinessblueprint.com. You can check us out there for more info. And if you’re not a member of our premium community, consider checking that out as well. It’s a amazing group of really smart massage therapists like you. We’d love to have you join us. So you can send questions or comments to firstname.lastname@example.org. Thanks for joining us today. Have an awesome day. We’ll see you next time.