SPEAKER_00 0:00

Quick question. When was the last time you gave your insurance a serious review? For a lot of young families, the honest answer is it's been a while. Today I'm talking with Dan Sulvent, managing director at First Element Insurance Planners on how best to think this all through. Life insurance, long-term disability, and the property and liability coverage most people forget about until it's too late. Quick disclosure before we get into it. I'm a fee-on financial planner. I'm not licensed to sell insurance and I don't receive any referral fees, commissions, or compensation of any kind from Dan or First Element Insurance. I bring third party partners into client conversations when I feel it is the best fit for their unique needs. This is a practical, no sales pitch primer for anyone building a family and trying to manage risk the right way. Welcome everybody to another episode of the Sandwich Bread Podcast. I'm your host, Tom Kaminsky. These are conversations about life and money for the sandwich generation. And I'm very excited for today to have on our show Dan Sullivan. He is the managing director at First Element Insurance Planners. Welcome, Dan.

SPEAKER_01 0:58

Thank you, Tom. Great to be here.

SPEAKER_00 0:59

Dan's the managing director at First Element Insurance Planners, and he uses his background with insurance planning and legal counseling to help fee-only advisory firms provide client-friendly friendly solutions for their own clients in proactive ways. I'm a fee only financial planner, meaning that I am not licensed to sell insurance. And so when a client has an insurance need that I identify, that's where I'll leverage Dan's firm and his services to find really good, low-cost, appropriate solutions for the clients.

SPEAKER_01 1:31

That was a great description.

SPEAKER_00 1:32

So, Dan, tell us a little bit about your background. Sure. I know you got your law degree from St. Louis University in 2011, but what what kind of led you down the path of uh joining First Element?

SPEAKER_01 1:44

Yeah. So when I graduated from law school, I started my legal career in litigation and uh most of what I was doing related to insurance. So six to seven years in, I kept feeling the same thing that whether I was in court or in a deposition or just meeting with the client, just feeling like this could have been avoided if the right planning had been done. And so ultimately I decided I want to be looking at what what risks people are facing and try to mitigate those rather than being in the world of cleaning up the messes. I decided that uh going down the planning route was gonna be better for myself.

SPEAKER_00 2:22

Get out in front of the problems rather than litigate on the back end. Um and then what attracted you to first element?

SPEAKER_01 2:29

I was able to use my insurance law background, my knowledge about the way the contractor, the way the the industry works. That really drew me to this side of things and first element.

SPEAKER_00 2:42

When an a financial advisor is licensed to sell insurance, there can be a conflict there, right? I present a policy to you and I stand to earn a commission upfront and potentially ongoing for the product that you purchase. And so, what a lot of advisors do, like myself, is we don't get licensed to sell insurance or fee only, meaning that we don't derive fees from commissions, but it creates a need for a partner to fill that gap.

SPEAKER_01 3:06

And so the people on our team are they're all salaried, they're not themselves earning commissions from any one client that they're helping. We work directly with the advisor to make sure that they're comfortable with the recommendation before that's presented to the client.

SPEAKER_00 3:21

Well, let's get into the kind of key topics for today's episode. We are looking at most common risks facing young families and the insurance you should consider to try to offset those risks. So let's jump into probably the best known insurance out there, uh, and that is life insurance. Absolutely high-level, you know, what what are some important questions, Dan, that a young family should consider relative to life insurance?

SPEAKER_01 3:47

Absolutely. A financial planner once said, and he wanted his clients not to be simply consumers of insurance, he wanted his clients to be managers of risk. And so that's the way we that's the lens through which we try to look at all of this. It really just starts with what is the need? That's the most important question. How long do I need this insurance? Probably the first question to ask when you're thinking about life insurance. The conversation is a little bit more bid talking about death, but um you know if I were to die, I'm 40 years old between now and when I turn 65, you know, that is that's when I need life insurance. That's when there's the biggest risk to my family because I'm earning an income that partially supports my family. There are some people who have a need no matter when they die. Um, you know, for most people, especially people that are in their 30s and 40s, it's coverage for a specific period of time. So term life insurance is going to be the best option because it's the most cost of effective way to guarantee that that coverage is available.

SPEAKER_00 4:50

Yeah, I like that framing of rather than consumers of insurance managers of risk, because my clients, I'm like, I'm like, hopefully these premiums are wasted money, right? We're like, we don't want to use life insurance. That means someone died. We're creating a bridge to the next phase of your life or your financial situation. It's a safety net for a period of time that you need insurance because your income is too valuable or your college savings needs are too much, and then hopefully reduce or eliminate the life insurance as their net worths grow. I think uh you need to know the reasons why why you're why you're getting life insurance. Let's understand that the risk you're trying to offset, Dan, from your side of the fence, with you and your team, you know, purchasing and reviewing tens of thousands of policies a year. What are some common pitfalls you see with life insurance?

SPEAKER_01 5:37

That's gonna be the the death benefit that's needed. Yeah, and this is a a really big one, and we see it a lot. Somebody will either say 10 times my salary or my brother-in-law got five hundred thousand dollars in death benefit, so I'm gonna get five hundred thousand dollars of death benefit, things like that where you're not really thinking through how much do I need. We have a very simple calculator that we use to help clients. It's not an it's not a difficult assessment. So taking those extra two, three, maybe five minutes to go through that and arrive at the number that's gonna be most appropriate for your family is a good thing to do.

SPEAKER_00 6:17

That's great. So if your neighbor has two million in term life, don't just say, I will, I guess I need that too. You know, and spend a little bit of time. And if you're working with a financial professional, they should be proactively helping you with this, but lean on them and say, This is what I'm thinking. All right, what's the next one you see, Dan?

SPEAKER_01 6:32

Another one that we see is what I call paralysis by analysis. There's so much out there, there's different types of products you can choose among different term lengths, different death benefit amounts. And if you don't know what you need, it can be difficult to make a decision that you feel confident about. And I think this is something that Tom, you and other financial planners can really help your clients with dialing in this is the type of product that I would recommend for your situation. This is the length of coverage I think you need and the amount that would be appropriate. And but yeah, without that kind of direction, it can just be difficult to know what you need.

SPEAKER_00 7:11

And sometimes we see a paralysis when they get to the premiums, where it's this is the thousands potentially of dollars you are gonna throw away, quote unquote, each year for the purchase of an insurance policy. If it's better to have insurance than not, you know, in almost all cases when there's a need. And so I have these different strategies I'll use to just try to get us moving, you know, in the right direction.

SPEAKER_01 7:33

Yeah, yeah. Laddering coverage is a good one. If it's a situation where the money for premiums is tight right now, then buying a shorter duration to cover the gap right now and letting them come back later when they feel like they're on better financial footing to pay premiums on a policy that's going to take them for the rest of their duration can also help.

SPEAKER_00 7:55

Yeah, smart. Okay, and then uh next common pitfall uh we've got choosing a product that doesn't meet their needs. So tell us a little bit about that, Dan.

SPEAKER_01 8:03

Yeah, uh when it comes to product types that are not appropriate for the client's needs, usually what we find is one of two things. It's using a permanent product to try to solve a temporary need. So whole life insurance, other types of permanent insurance, instead of the term life insurance leads to a uh a far higher premium, usually at the expense of getting the right amount of death benefit. And so that is that's a very common pitfall. Another is using what's called annual renewable term insurance versus level term insurance. With a level term policy, if it's a 10-year term, you have a guaranteed premium for 10 years. With an annual renewable term policy, the premium goes up each year that it renews. The early years premiums are very low and they can be attractive. But once you get into your 40s and 50s and beyond, those premiums start going up and they go up very rapidly. So choosing a level term premium at the start, even if the annual renewable term looks attractive from a premium standpoint, usually makes a lot of sense because in the long run it'll be a lower price.

SPEAKER_00 9:17

So we touched on the idea of laddering insurance. And for the audience, that's basically procuring a couple of different policies that are very similar, right? You've got a life insurance need of two million dollars. Maybe we instead of purchasing one two million dollar life insurance policy, we buy a million dollar, a five hundred thousand, and a five hundred thousand. And essentially you're breaking that policy into chunks that you can then uh sunset at short at the appropriate duration. Um, that can save you on some premium cost. Do you have any other strategies that that you see out there to help lower premiums for folks?

SPEAKER_01 9:49

Sure. The biggest one has to do with underwriting. So by just gathering some very basic health information at the beginning of the process, we can make sure that first we're setting appropriate expectations for here's what we think the premium is going to be based on what you told us about yourself. There are dozens and dozens of insurance carriers out there who are helping clients with term life insurance. So different carriers look at different risks differently. And if there's one carrier that's gonna look at it more a certain risk, uh smoking cigars or uh a health condition, something like that, if they're gonna look at it differently from another carrier, then we want to go to the carrier who's gonna look at it more favorably. And that's something that can help reduce premiums as well.

SPEAKER_00 10:31

I kind of frame this with my clients as the interview before the interview.

SPEAKER_01 10:35

Yeah, the the way I think of it is it it's a low-stakes introduction to the invasiveness that can happen to an empress application product uh process. So you're you're going to have to answer questions having to do with your health, having to do with if you've ever used nicotine or other substances, what your family's health is, generally speaking. So those aren't always the most comfortable questions. And if you've had experience having to answer them when you're just talking with our team or uh your insurance provider, then when it actually comes time to answer those questions for the carrier, it's a little more it's just it's old hat.

SPEAKER_00 11:14

Awesome. So that concludes the life insurance section, which it's toughest, in my view, for the consumer to digest. So next up, let's jump into long-term disability insurance. Um Dan, what are your thoughts on on this general category?

SPEAKER_01 11:27

It's another really important way to protect your income. What most people don't think about is the fact that during your career, you're much more likely to be disabled than you are to pass away.

SPEAKER_00 11:42

Yeah, and I I've heard the statistic, Dan. Um 20 as something like 24, 25% of individuals will use long-term disability at some point there during their career from the start of their working years, so age 22 through 65.

SPEAKER_01 11:57

I believe it's about one in eight that will have a longer disability, uh, more than five years.

SPEAKER_00 12:04

Well, in my view, as a planner, I worry more about long-term disability for my clients than life insurance. Both are super important and need to be addressed. But if my families have a couple young kids and one primary source of income for the family, first thing I look at is if they became disabil disabled for a long period of time, what would that mean for their family cash flow? Could they survive on the disability payments? And if the answer is no, to clear we need to close that gap and and address that with an insurance policy.

SPEAKER_01 12:36

Yeah. One thing we do find is that people have uh sort of a misconception that disability is for when you get injured. And if I were injured, I work at a desk. So unless there was something that really altered my mental capacity or my ability to type or something like that, I I'm still gonna keep working. The reality is that most disability claims are actually due to illness, with cancer being uh a big one, unfortunately. But if you think about the last time you had a really bad flu or were really ill, and were you able to work? I've been shut down for several days because I was, you know, sick to the point where I couldn't work. Now imagine something that was much more severe as far as illness goes. And I think that that is a helpful perspective when thinking about the the potential risk and the potential consequences of of truly not being able to work because of illness.

SPEAKER_00 13:27

Yeah. Okay. And and again, you know, much more commonly used than life insurance. Each person's health history is super unique. So, but what roughly do you see as a broad stroke for the listeners?

SPEAKER_01 13:39

Yeah, and it can be more expensive in terms of premiums, a higher premium than what you would get with your term life insurance, because as we've already discussed, the likelihood of needing it is higher. It does vary based on the person and uh their health history, a number of different factors. But typically what we see is for the the amount of of income that you're covering, about one to four percent of that income.

SPEAKER_00 14:04

Got it. What should folks how should they think about analyzing their current coverage? You know, where should they start, what should they look at, and then how should they think about identifying any gaps and and how how best to fill that with insurance?

SPEAKER_01 14:15

Yeah, look, luckily many employers offer this as an employee benefit. So start with what does your group plan cover? Often it's up to 60%, but it might have a lower cap. So it's important to know what that's providing. And then looking at if I were disabled long term, would that benefit amount be sufficient for my needs, my family's needs? And often what people decide to do then is supplement that group coverage with an individual disability.

SPEAKER_00 14:48

Yep. So for the listeners, you know, if you've got a great employer and they provide long-term disability group coverage with a really powerful benefit, but they often have caps. Maybe it's 60% of your income they'll cover, but it caps at $10,000 a month. Well, if your income, your take home is say $400,000 a year, uh, then 60% of that is $240,000 a year. Well, if it caps at $10,000 a month, this disability policy will actually only cover $120,000 a year of your income. So you're currently making $400,000, but you're gonna your disability policy will only cover $120. Right. And so I I illuminate that for my clients and say we have a big gap here. Is your family comfortable based on your spending to live off of $120,000 a year? If the answer is no, which is often the case, then you can analyze and fill that space with the supplemental policy. I'll also add a note for folks when you're analyzing your policy, talk to your employer and ask them if if this will be a tax-free disability benefit or a taxable benefit. So you're looking at $120,000 a year tax-free. And so that's where this 60% number, I find that like 66% really getting a lot closer to actually replicating your net tax paycheck that you take home.

SPEAKER_01 16:04

And I also I can't give tax or legal advice. So as Tom said, consult your tax counsel before making decisions. But if it is a taxable benefit, that's another area where an individual plan can step in and cover some of that ground. Because typically with that, with an individual long-term disability plan, you're paying with after tax dollars, and so the benefit is received income tax-free. So that is where that can help.

SPEAKER_00 16:29

So ping your HR representative if you do have disability insurance and asking them how are these premiums paid and will the benefit be tax-free or taxable? Excellent, Dan. All right. I I think you had a note on here, which I think is very smart. For folks that are credentialed, whatever your industry is, you're part of a trade association, explore long-term disability group benefits through that trade association or professional credentialing network. I I personally have procured a long-term disability policy for myself because purchasing it based on yourself uh can be more expensive. But in the a group environment, there can be some price uh purchase pricing purchasing power and and premiums may be a little bit lower for you. Um, one last comment, Dan. There is one specific component of long-term disability policies that I think is really important for folks to understand. Definition of disability. Could you walk us through own occupation versus any occupation?

SPEAKER_01 17:23

Yes. So the the definition of disability is critical because it really determines whether you're going to get a benefit paid in many situations. So own occupation is going to be the highest level of coverage you can get. And what it what it basically means is that if you're disabil, if you're disabled and can no longer do the material and substantial duties of your own occupation, the job that you were trained and educated for, then that triggers a disability benefit. Any occupation, by contrast, is if you can no longer do the job duties of any occupation, that's when disability benefits are triggered. So, you know, if you are a surgeon and you badly injure your hand and you can no longer do surgery, then with an own occupation definition of disability, you'd be entitled to benefits under that plan, even if you could do something else. If you could go and be a medical professor or something like that.

SPEAKER_00 18:20

Got it.

SPEAKER_01 18:21

Within any occupation definition, as long as you can do any job working as a greeter at a store or anything like that, then you wouldn't be able to collect benefits on your plan. There's sort of a spectrum of coverage. So definitely something to talk to your financial professional or HR representative.

SPEAKER_00 18:39

Understand the definition of disability, spend a little bit of time on that. Know what you're getting into with the purchase of that policy and be comfortable with that because uh it can be a huge component of how you get paid or if you get paid at all. Next up for a young family is property and liability. And what we mean by that is home, auto, and umbrella coverages. Dan, do you just have some general guidance for this category that you'd like to share?

SPEAKER_01 19:02

Sure. I think there are a lot of people who would say that they don't know when the last time they reviewed their home and auto coverages. Just making sure that you understand what your insurance policies are covering is an important thing to do. So starting with reviews, that's that's a really big one. Yeah. When it comes to home insurance, the biggest thing there is sure that the limit of liability is appropriate given the current cost to rebuild the home. There are many people out there who have insurance coverage that if they were to lose their home, say in a fire, they would be out five to six figures in out-of-pocket costs because of the fact that the cost to rebuild homes has gone up. The value of their home has gone up, but their coverage has not changed. So that's a that's a big piece to to make sure is um is reviewed and is appropriate for your situation.

SPEAKER_00 20:02

Yeah, very important. Those are things we look at. And I'll I'll kind of play the other side of the coin on this one a little bit too. Sometimes I see folks way overinsured because the land itself is extremely valuable, but the rebuilding costs on the home are substantially lower. And if it's you were insured for two million, but really the rebuilding costs are 600,000, let's have that dialogue with the insurance professional and understand where we might be overinsured. But to Dan's point, much more commonly I'll see potential underinsurance because building costs are just far different since COVID. Honestly, every year it continues to go up pretty substantially from inflation, and there can be a big gap there.

SPEAKER_01 20:41

You're right, it can go either way.

SPEAKER_00 20:42

Then auto coverage, you have kind of general guidelines for auto other than review regularly.

SPEAKER_01 20:49

Review regularly, and especially if you're getting to the um the point where you've got teenage drivers, that's definitely a good time to review because the costs go up substantially at that point. So that's um that's that that's an important one to hit. Making sure that you've got all the different coverages that are offered that are important to your life. Liability, certainly, collision, comprehensive, making sure that your limits there are appropriate given your situation is a is a good thing to do.

SPEAKER_00 21:19

And then last but not least, another important one, umbrella coverage. General thoughts on that one?

SPEAKER_01 21:24

Yeah, this is one that's overlooked, I think, too often. And it's a it's a big potential risk because if you drive to work, if you have people over your house, there are lots of situations that we put ourselves in on a regular basis where we could be liable for somebody else's injury. You know, if I'm at fault in an auto accident and somebody's injured, then they have a claim against me personally. So making sure that the appropriate amount of coverage there is there to cover a potential lawsuit and a judgment against me is something that I definitely want to have in place. So umbrella coverage is relatively cheap for what you're getting. So adding that is a good move.

SPEAKER_00 22:06

Yeah, it sounds like it'd be expensive when you say, well, we'll get a two million dollar umbrella policy. Often it's a few hundred bucks a year in premiums and and very important, your finances change pretty dramatically when you graduate from school, you pay off your loans, and then you suddenly have a pretty high-paying job and your net worth starts to grow. You know, we want to you want to understand what assets you've got that might be exposed to a lawsuit and insure accordingly. Very important. I with my clients, I look at that annually because their net worths change pretty quickly. So analyze and reanalyze regularly. That's right, man. Outstanding. All right, Dan, that concludes this episode. Today we ran through life insurance considerations, what to consider, common pitfalls, tips for improving premiums, long-term disability insurance, then property liability, just high-level considerations as you build your family and grow your family for property, auto, umbrella, home coverages to ensure that you're you're staying on top of your game there as well. Um, so we covered a lot of ground in this episode, but I I thought for our younger family audience, this might be a great high level primer as you think about your insurance. So anything else you'd like to add, Dan? Thank you.

SPEAKER_01 23:15

The last thing I'll say is work with your financial planner, get the um get the advice that you need and do the things you need to do to manage the risks in your life. Thank you, Tom. Really appreciate it being here.

SPEAKER_00 23:25

Thanks so much, Dan. Everybody have a great week. Thanks for tuning in. All right.