The Money with Katie Show: The Critical Insurance Most People Don’t Realize They’re Missing

Episode Release Date: November 13, 2024

Host: Katie Gaddy Tossan
Guest: Lacey Galonsky
Sponsor Contributions: Fidelity, Betterment, NetSuite by Oracle, Mint Mobile

1. Introduction

In this compelling episode of The Money with Katie Show, hosted by Katie Gaddy Tossan of Morning Brew, the focus shifts from the previously discussed whole life insurance to a vital yet often overlooked facet of personal finance: long-term disability (LTD) insurance. The episode delves deep into why LTD insurance is essential, especially for high earners, through the real-life experience of Lacey Galonsky.

2. Lacey’s Story: Sudden Sensory Neurohearing Loss

The episode begins with Lacey introducing her harrowing experience with sudden sensory neurohearing loss, a rare condition affecting approximately 60,000 people annually in the U.S. ([02:02]). Diagnosed while holding a high-stress, high-income position at a major investment bank, Lacey found her career abruptly derailed when she woke up one morning unable to hear from her left ear ([02:31]).

Notable Quote:
Lacey: "I woke up on a Saturday morning, no hearing at all on the left side... I was supposed to fly the next day for work to go back to headquarters for a series of big meetings that week." ([03:21])

3. Importance of Long Term Disability Insurance

Katie sets the stage by highlighting the significance of protecting one's income, especially when high earnings are tied to demanding careers. She underscores that while health and life insurance are commonly addressed, long-term disability insurance often remains neglected until a crisis occurs.

Key Insight:
For high earners who aren't yet "rich," protecting their ability to continue earning is crucial. The Social Security administration notes that 1 in 420 people will experience a disability before retirement ([00:23]).

4. Lacey’s Insurance Policy: Details and Benefits

Lacey shares her proactive decision to invest in a private long-term disability insurance policy through MassMutual in 2009. Initially, she secured a policy providing $10,000 per month in after-tax income, which she later increased to $15,000 per month with annual premiums rising from $5,000 to $6,800 ([08:51]). This decision was influenced by advice from her former boss and personal experiences witnessing the financial devastation faced by friends without adequate coverage.

Notable Quote:
Lacey: "Everyone should, period, full stop." ([09:17])

5. Navigating Insurance Claims and Employer Relations

When Lacey's disability struck, her employer-provided LTD coverage was insufficient. Her independent policy ensured she continued receiving $15,933 annually with cost-of-living adjustments (COLA) until age 65 ([10:55]). However, the claims process was fraught with challenges, including initial denial and protracted appeals, necessitating the support of a disability specialist attorney. This experience highlighted the complexities and potential delays inherent in relying solely on employer-provided benefits.

Notable Quote:
Lacey: "I needed to hire a disability specialist attorney and I needed to get a therapist because I needed to make sure I had support." ([37:44])

6. Private vs. Employer-Provided Disability Insurance

Katie contrasts private LTD insurance with employer-provided policies, explaining that while the latter might offer basic coverage, private policies can bridge significant gaps for high earners. Lacey’s case exemplifies how private insurance can provide substantial financial support when employer policies fall short.

Key Points:

• Benefit Amounts: Employer policies often cap benefits (e.g., $20,000/month) which may not suffice for high earners.
• Policy Flexibility: Private policies offer options like own occupation clauses, COLA, and ability to increase coverage without additional medical exams ([31:29]).

Notable Quote:
Lacey: "Own occupation insurance protects you for the rest of your working life, which is defined to end at 65." ([32:32])

7. Insights from CFP Katie Song

In a segment with Katie Song, a fee-only Certified Financial Planner (CFP), the discussion centers on the critical nature of LTD insurance for self-employed individuals and primary earners. Katie Song emphasizes that while employer-provided policies are beneficial, they often need supplementation to ensure comprehensive coverage.

Notable Quote:
Katie Song: "The lowest hanging fruit of the people who need it are the ones who can get it through work. So if you're like, you're a W2 and it's one of the employee benefits that's offered to you, take it, sign up for the maximum amount." ([53:07])

8. Practical Advice and Considerations

The episode concludes with actionable advice for listeners considering LTD insurance:

• Assess Your Needs: Determine if you’re a high earner or a primary income provider.
• Understand Policy Features: Look for own occupation clauses, COLA, and flexibility in coverage amounts.
• Evaluate Elimination and Benefit Periods: Similar to car insurance decisions, choose what aligns with your financial safety net.
• Seek Professional Guidance: Engage with disability specialist attorneys and financial planners to navigate complex claims and optimize coverage ([56:34]).

Notable Quote:
Katie Gaddy Tossan: "If the most valuable asset you own is your ability to earn income, you might consider getting a quote for a private long term disability policy." ([66:26])

9. Real-World Implications and Closing Thoughts

Lacey’s story is a testament to the importance of being financially prepared for unforeseen disabilities. Her experience underscores that while insurance may seem expensive, the financial stability it provides in times of crisis is invaluable. The episode wraps up by encouraging listeners to evaluate their own insurance needs critically and seek policies that offer adequate protection tailored to their unique circumstances.

Key Takeaways:

• Long-Term Disability Insurance is Essential: Especially for high earners and primary income providers.
• Private Policies Offer Greater Flexibility: Features like own occupation clauses and COLA make them superior in safeguarding income.
• Proactive Financial Planning: Engaging with professionals can ensure you secure the best possible coverage.
• Understand Your Employer’s Offerings: Supplement employer-provided LTD insurance with private policies if necessary.

Final Quote:
Lacey: "Hopefully, never ever, ever need your benefits but God forbid you do." ([52:40])

Resources Mentioned:

• Fidelity App: Recurring investments scheduling ([00:02]).
• Betterment: Automated investing tools – betterment.com
• NetSuite by Oracle: Business management solutions – netsuite.com/richGirl
• Mint Mobile: Affordable wireless plans – mintmobile.com/mwk

This episode highlights the critical intersection of personal finance and insurance, offering listeners invaluable insights into safeguarding their most significant asset—their ability to earn income.