Insurance Considerations for Dentists

Art Wiederman: And hello, everyone, and welcome to another edition of The Art of Dental Finance and Management podcast with Art Wiederman, CPA. Welcome to my podcast. I'm your host, Art Wiederman. I am a dental division director at the incredible CPA firm of Eide Bailey. I work out of Tustin, California. I live in Laguna Beach, which is where I always joke are the World Broadcasting headquarters of the Art of Dental Finance podcast here in South Orange County. And it's very, very nice. Early April day. And in my continuing attempt to keep you updated on finance and management issues today, we're going to hit one of the seven topics of financial planning, and that's insurance. We haven't talked about insurance in a while. Nobody likes to talk about insurance. You know why? Because if you have to use your insurance, I mean, something bad has happened. You got disabled. God forbid you passed or somebody passed away, you have to go into a nursing home or something like that. But folks, I'll tell you, one of my frustrations in the work I've done in almost 40 years is that our clients many times either don't have any coverage or don't have sufficient coverage. So we have the man here, Zach Schnitzler, who's an insurance specialist here at Eide Bailey, who works in our financial planning group. And every day of his professional career, he's working with our clients to make sure that they have the right insurance. And trust me, folks, I have shot down more bad insurance policies in my life than I care to remember. And so we'll talk to Zach about that. But first, I want to make my usual announcements First, thanking my wonderful marketing partner Decisions in Dentistry magazine, which is the premier excuse me, clinical magazine for dentistry in the country. Incredible articles on clinical issues. Uptodate researched a who's who of clinicians. They are also getting into the dental world and you're going to start seeing a lot of stuff on their website about dentistry. They already have my podcast on there and I'm helping them with that. We're all excited about what they're doing. They have 140 continuing education courses that they can provide to you at an incredibly reasonable price. So go to their website. WWw.decisionsindentistry.com. So we're now about a third of the way through 2023. We're three years past the beginning of the COVID 19 pandemic. It's just incredible to believe that the time has gone by so fast and so quickly and we've been through so much. And so make sure that as you listen to this podcast and you're I'm sure the first thing you're thinking about is to make sure I've got my taxes paid in and I'm doing my good tax planning. If you have any big events in your life going on, you're selling your dental practice, you're selling a piece of property, you've got a big income event happening, you have a big donation you're making. Make sure you get with your CPA if you're working. This is what I always tell people is if you're working with a really good CPA, stay with them. If they're taking care of you, if they're on top of things, if they're trying to find you ways to save money, if they understand your profession, which I think is really important, I always tell people, stay with it. But if you're having some issues and you're not getting the attention that you really need, we're here for you. And ideally, we work with over a thousand dentists in all of our offices across the western United States. We in Southern California work with about 300 of them. And if there's something you need And by the way, as a podcast listener, if you have a an issue or a need or have a resource that you're looking for, you know, I'm looking for this or I'm looking for someone who's a broker in this area or whatever between me and my my colleagues at the Academy of Dental CPAs. We certainly can help you. And if you're looking for a good dental CPA, we've got the best in the country here in our group. We also do. A fantastic job as you're going to hear from Zac a little later here on financial planning. I have seen several of our clients go through our financial planning process and one of the things guys about financial planning and I've worked with financial planning is all over the place, financial planners all over the place. And I hate when I deal with financial planners where it is obvious that the only thing they care about is selling a product to get compensation. And I've learned over the years as a as a financial planner myself and through the the great folks in our financial planning group is that the financial planning process is just that. It's a process and it takes time and it takes numerous meetings to find out what it is that you are all about, what you need, what you're looking for. And yes, there are financial products that are involved in the delivery of financial planning services, but those should be near the end. You know, we've got to figure out what you need and what you want. And insurance is certainly one of those. And we're going to get into that topic today. I do want to share with you that if you are in Northern California. We are doing with the California Dental Association. We're doing two live events. One is going to be on Saturday morning, June 10th. We're calling it out now and next program, which means we are gearing this towards younger dentists who are just getting started in the profession or dentists that have maybe been out for 3 to 5 years and are thinking, okay, I've been an associate dentist. I'm thinking about buying a practice. I'm thinking about starting one from scratch or going into a partnership. Well, we got you covered. So the California Dental Association, along with my friend Katie Fanelli from the CDA and the folks from the dentist insurance company TDC are really good friends at Bank of America Dental Practice Solutions and myself. We're going to be speaking. So I want you to write this down because I would love to see you at the event and come say I'm a podcast listener. I even love that even more. So Saturday morning, June 10th, from 10 to 230 in the afternoon, we are going to be at the Almanac Brew Company in the city of Alameda and again 10 to 230. And because it is a brewery, I would bet dimes, $2, there's going to be some beer and wine there because there was at the event we did in San Diego and it was really good. The other event that we're doing is in the city of Sacramento. We're going to be doing that at the Aurora Event Center, a center, a youth program in downtown Sacramento, which is walking distance from the CTA offices. And I'm I'm in 40 years. I've never been to the CTA offices in Sacramento, just never got the chance. But I'm going to go hang out with them in the afternoon and then you'll walk over to the venue that is going to be from 530 till 10 p.m.. And the great thing about the the live seminar is you're going to have time to talk to each of us and get your questions answered. So June 10th in Alameda and June 22nd in Sacramento, we hope to see you. All right. Let's get to our topic today. My guest, Zachary Schnitzler, is an insurance specialist with Eye Bailey. He's like I said, every day of his career, he's working with not only dentists, but every single type of person out there on their insurance needs. So, Zack, welcome to the Art of Dental Finance management. Okay. I should know the name of by after almost five years. I should know the name of my podcast. Welcome Zach, to the Art of Dental Finance and Management podcast.

Zachary Schnitzler: Thanks for having me.

Art Wiederman: So I understand that before we get started, you have a very important message you must share with our audience. So I will let you do that and then we'll get started talking about insurance.

Zachary Schnitzler: Thank you. As a financial adviser, I must read some disclosures, so we'll get through those and dig in.

Art Wiederman: And I want to just say member, member, FDIC, before you start. Go ahead.

Zachary Schnitzler: Financial Advisor Offers Investment Advisory Services through Eide Bailey Advisors LLC, a registered investment Advisor. Securities offered through United Planners Financial Services, a member of FINRA and SIPC. I Bailey Financial Services LLC is the holding company for Bailey Advisors, LLC and Eide Bailey Agency LLC, which is wholly owned and operated under Eide Bailey LLP. Insurance products are offered or issued under I Bailey Agency, LLC Eide Bailey Advisors. LLC employees can also be licensed as insurance agents. Producers of Eide Bailey Agency, LLC, Eide Bailey Financial Services and its subsidiaries are not affiliated with United Planners. Not all products and services are available in all states. Let's get started. Art.

Art Wiederman: Okay, so are you required to have a golf handicap of under 20? Pursuant to that statement.

Zachary Schnitzler: You might have to. If you're looking at me, I do qualify under that statement.

Art Wiederman: Oh, no.

Zachary Schnitzler: You are right.

Art Wiederman: You and I like to get out and hit the white ball. All right. Well, first, tell us a little bit about your professional journey here.

Zachary Schnitzler: Sure. So I've been in insurance my entire career, right out of college, so about 12 years. And of course, as any young kid, they want to get into life and disability insurance. So I was just pumped to be that. And I'm just kidding. But when I went to college for for finance, the protection side was kind of where I fell into right away. I loved it. And and here we are. I've been with the Eide Bailey for about four of the years, largely working with business owners on their personal and business life and disability insurance needs.

Art Wiederman: All right. Well, let's start talking about life insurance, because that's the big one that everybody needs. And we talk about we're going to talk about every aspect of it today. I always tell clients that there's two reasons that you need to own life insurance. One is income replacement. The other is estate settlement costs. So when you're talking to a client and you're starting the conversation, okay, let's talk about life insurance. Explain these needs as to why people need them. And if there's a need, I must let me know.

Zachary Schnitzler: Yeah, you covered the big ones. You know, certain segment of clients maybe have some other needs and we'll dive into those later. But we added Bailey Financial services call them seasons, right? Just just like in most of the U.S., we have four seasons. There's seasons in a person's financial planning life as well, and that includes protection. So income replacement is really the first season, you know, Right. You come out of college potentially with a lot of debt, might have a very high income, could have a family, whether married, no kids or married multiple kids. So income replacement is really the first topic that we talk about in the first season.

Art Wiederman: And I always thought to see I always that there are three seasons Roberts's inductees and in baseball season I guess they're different I must be mistaken.

Zachary Schnitzler: For me it's hockey season and I talked about the baseball thing.

Art Wiederman: But I'm for it, unfortunately. Well, actually, will this podcast is going to come out in about a little over a month, so you'll be right in the middle of the of the NHL playoffs. So what's your team.

Zachary Schnitzler: Minnesota wild are they're in it.

Art Wiederman: Yeah well I'm a I'm here in the home of the Anaheim Mighty Ducks and it's very hard to be an Anaheim Mighty Ducks fan lately but anyway.

Zachary Schnitzler: Looks like it.

Art Wiederman:

Yeah it does look like. Anyway so. And then a state settlement cause at the moment, you know, unless you've got a humongous estate, that's not really a big deal, right?

Zachary Schnitzler: Correct. Yeah. That all could be changing in a couple of years where, you know, a lot of folks use life insurance to pay estate tax or to create liquidity to pay estate tax. As of now, the exemption limit allowed by the government is, you know, north of 22 million. That could be cut in back to closer to 12 million in 2026. So a lot more clients will have liability is for the government for sure.

Art Wiederman: Yeah, and especially especially doctors. Remember your main assets that make up your estate are your dental practice which has a value, your retirement plan, your your home, any properties that you own. And you know, again, remember the you know, we might get into this today is, you know, the way you own the life insurance. So if you're not careful that life insurance could end up part of that estate and exacerbate the problem that you haven't felt. Let's let's talk real quick about just the ownership of the policy. Yeah. So when you you know, someone's going to buy insurance, it doesn't matter what kind of insurance, right, Zach? As far as ownership, it's it's a life insurance. You're betting you're paying money. Okay. And on the bet that you're going to die in the insurance company is taking your money in the bet that you're going to live. And if you live, they keep your money. If you die, they pay you the money. It's pretty simple concept. But how do you like talk about the ownership aspect of it? How do you want to own it? Do you want to own it? Art Weidman and Lynn Peterman Do I want to own in my revocable living trust? Do I want to have SpongeBob on who's going to own this insurance?

Zachary Schnitzler: Yeah. So everything I owned individually would be included in an estate. So we typically life insurance. Then be north of a million. Well, let's use we. I know. Are we like the number of 3 million for doctors. Let's use 3 million for our example. Well, if let's say it's 2027 and doctors, a state is worth $10 million. Sure. And he owns a $3 million life insurance policy. Individually? Well, now, as he passes away, his estate is worth 13 million. He might have estate tax issues.

Art Wiederman: And that can be 50%. So you could be taking half the insurance and using it to pay state taxes. So. Zach, how should if they have an estate that's getting at or near that? You know, first of all, folks, if you're married, they've got to have and we're not going to get into estate planning today, but they've got to have the AB trust set up. But we want to make sure that's what we ask them to do. But but but as far as that, how do we want them to own the insurance? Is there a type of a how do we do that?

Zachary Schnitzler: Well, first and foremost, obviously consult a good attorney and a good CPA. Yeah, but I mean, there are easy, easy ways to own insurance outside of an estate, and that's through what we typically call irrevocable, irrevocable life insurance trust. Very simple document.

Art Wiederman: And islet.

Zachary Schnitzler: Call it and I'll it. Yep, yep.

Art Wiederman: Yep.

Zachary Schnitzler: So anything owned by that irrevocable life Insurance Trust is going to be outside of an estate, not subject to any estate tax, whether it's 40 or 50%.

Art Wiederman: Q So as I remember how this works, you know, basically you set up the trust. The policy is owned by the trusts. It's in the name of the trust, and you make a gift every year of the premium amount into the trust, right? That's pretty much how it works.

Zachary Schnitzler: Correct. Yeah. And the government allows you to make. Gifts up to a certain amount and with life insurance premiums is generally pretty low to what the actual death benefit is. Typically, that can be done tax free.

Art Wiederman: So so the message here is make sure that you own your insurance policy in the correct manner. Okay.

Zachary Schnitzler: So I'm gonna I'm going to say one more thing, because a lot of folks have revocable trust.

Art Wiederman: Yep.

Zachary Schnitzler: And unfortunately, those those would not work in this situation. So that's the key. It has to be an irrevocable trust where you essentially lose control of that gift that you've put into it.

Art Wiederman: And the insurance agent must make sure that the policy, the owner of the policy is in the name of the irrevocable trust, not in the name of your revocable trust.

Zachary Schnitzler: So we run into it a lot. I mean, I'm sure you know his own policies. Yep.

Art Wiederman: All right, so before we get into the different types of insurance, Zach, I always get the question, how much do I need? You mentioned 3 million to talk to me. I mean, everybody is different, right? I mean, if you've got a $5 million mortgage, you have a different conversation. And someone who's debt free, if you're single with and you are and you're leaving your whole estate to Chuey, the French bulldog, that happens to be my French bulldog. It's a different conversation. So walk me through the process of determining what are you guys do to determine the recommendation of how much insurer life insurance someone needs to?

Zachary Schnitzler: Isn't your beneficiary right now Just need to go?

Art Wiederman: Well, right. So see it again. Depends. If the two boys, Forest and Nathan, are not nice to me, they actually will become the beneficiary. He will be. And he doesn't understand that. So anyway, enough about you. But yeah. Yeah. No, he is not, though. I promise. Yeah.

Zachary Schnitzler: During the working years, my typical recommendation for the vast majority of clients, as you mentioned, things are different for some, but is about seven times income plus debt.

Art Wiederman: Oh, interesting. Okay, so I have a dentist who's making $300,000 a year. A very real number in my world. So that's seven times three work. Like we're always required to do math by law on this podcast. So that's 2.1 million. And maybe they have debt of, you know, $400,000 in their house. So that number in your example, might be two and a half, right?

Zachary Schnitzler: Correct.

Art Wiederman: Do you sometimes put a little more in there or that's a starting place?

Zachary Schnitzler: That's kind of that's that's my starting point. And really the minimum that I would want people to have now is anything above that is really personal preference. Some folks like to be more insured. Some don't mind being, you know, hey, this is good enough for us. And it really comes down to the conversation at hand and really putting together what the client wants to see happen.

Art Wiederman: Right. And again, it is, again, Zach, a significant and thorough discussion of the client's entire situation. I mean, you may run into a situation, Zach, where you have a a 50 year old business owner and a spouse and they have four parents, you know, two each who are in their eighties who all maybe haven't accumulated assets. So it's possible that you might need to provide for long term care of those parents if something happens to you. Right. I mean, that's another thing. I mean, there's all kinds of things that can happen, right?

Zachary Schnitzler: Yeah, A lot of a lot of in a lot of states, somebody has to pay the bill, right?

Art Wiederman: Exactly. And the government's not going to do it. So I have this I've used this for years. I'd be curious on your thoughts on this. So I've used we talked about the number of 3 million. So I think you need enough money to do three things. I think you need enough money to pay off your house. And I would also say your debts. Number two, you need enough money to put how many other children you have through college. And remember, if you have a one and a two year old and you know, if you want to go to I mean, you want to go to Yale University, you're talking $75,000 a year, maybe more. But that's if that's today. If you have a one or two year old, you have to put an inflation factor of that. And that's probably going to be double. You got to have that amount of money and then you got to have a pot of money. I think in your account for your surviving spouse that he or she can live their life and pay their bills. Now, if you've got two doctors that are each making $400,000 a year, it's different story. But is that kind of an analysis you use sometimes, that thinking in that range?

Zachary Schnitzler: Exactly. So I, I like people to think about it this way. We ensure our cars, right? Cars have value. We ensure our house. Our house has value. And then you have this thing in the corner over here that just spits out money every single year. And a lot of people under insure that thing, the human right that is generating all this money. So depending on the runway, you know, if it's a longer doctor, that calculation might be higher. But if it's a doctor with 15 years left of income, it might be a little bit lower. But yes, there needs to be a good pot of money to live a life, you know, to allow a spouse and or a family to live a lifestyle that they want.

Art Wiederman: Okay. We're going to get into some of the different types of insurance and then I'm going to give you a chance. I want you to talk a little bit about what you guys do in your in the financial planning group. But let's start off I mean, in my you know, in my feeble little brain, I know that there is term insurance. Yes, I know there's whole life insurance and I know there's permanent universal variable. Universal Universal Studios. I mean, whatever. Whatever they have. Right. So let's start off with the easiest one. Let's talk about term insurance. Just talk a little about the basics. And when would term insurance generally and again, we understand that everybody's situation is different, but when would term insurance be appropriate for somebody?

Zachary Schnitzler: Yeah, I think most workers, most people working likely need some form of term insurance. Term insurance is the word term, I should say, means temporary. The insurance company knows they are likely not going to have to pay a death claim on term insurance. And what do they do? Because they know that the premium is extremely low typically. Okay, So the leverage itself on the life insurance is extremely high. You know, we have to pay the premium. It's probably something we're probably not going to use and hopefully not. Right, Right. Hopefully not. But it does cover that person that's just spitting out money through their career. When they need it most. So term insurance lines up with income replacement. Perfect thing that lines up with it.

Art Wiederman: Now, what are the other things I want to talk about is we talked about the two main reasons that you need Insurance Act, which is income replacement and estate settlement costs. But there are other reasons. One of them being like a there's two that I can think of in the Dell world. One is the buy sell policy when you're when you have a partner. So let's say we have two Dennis out there that are partners and one of them one of them sadly passes away and insurance is going to cover that. And the other one the other one is when a bank requires you to buy a life insurance policy. So, Doctor, you go out and you buy a practice for $800,000. You get a loan from the bank for $800,000. And the bank says, Hey, we need you to go out and get a life insurance policy with us as the beneficiary in case you die to pay this loan off. So in that situation, are we looking at the same conversation.

Zachary Schnitzler: The same type of product ownership would be different. You know, we see two, two real types of buy sell arrangements. One is a corporate owned life insurance, right? One is cross purchased. So let's say there's two partners in a dental practice. They individually would just buy insurance on the other. Right. Okay. The on the corporate side that that's better if there are a lot of owners. So if there's five dentists owners in one group, it might be better just a and cleaner just to have the corporation itself own it. Art. There's one other type. Key person. Yeah, that's true. Right. So a lot of people listening here today might on a practice that has employee dentists that are very crucial to operations. Right. Right. Something were to happen to them. How easy is it to replace that person? Well, we'll see. We'll see. This company is putting key person life insurance on their top performers as well.

Art Wiederman: And that's going to be in your larger groups, maybe in your group practice as your DSOs. But but yeah, that is that is a good point. The next type of insurance Zach his whole life I know that's like the first permanent insurance that they can go with. There we go. All right. All right. Okay. All right, strap in, folks. We're going to be talking about permanent insurance now. Okay. Here we go. You're going to accumulate 20 zillion dollars in cash right now. All right. All right. So explain the basic. What is whole life? How does it work and when do we use it?

Zachary Schnitzler: I think this is going to be the most listened to section of the podcast, because I bet you a lot of our our dental listeners out there have been I hate to use the word pitched, but likely pitched some form of whole life or even universal life, which we'll get into. So whole life insurance in itself is a mix of life insurance coverage and cash accumulation. Right, is a very expensive form of cash accumulation. So. Can it can it perform? Yes. I see whole life as a very fixed interest type of option that should be safe, but likely won't see all that much in the actual return on the investment. And it takes a while to even see a return to this. You have some thoughts?

Art Wiederman: Yes. This is one of the things that, okay, it's time for Mr. Williamson to get up on his soapbox. Zach, this is the one of the things I've seen over the years. I know you've seen it, too. Your career in insurance is a an insurance agent, financial planner, broker, whatever you want, whoever it is. Right? They bring a client. This illustration and the illustration shows that if you contribute this amount of money when you're 60 years old or 65 years old, you're going to have x millions of dollars. And doctors, you get to take that tax free. It's tax free. You don't pay any taxes on it. The insurance industry has figured this out. And then I look at these things and I've looked at several of them where the doctors say, wait a minute, I bought this like 25 years ago. And he told me I was going to have all this money and there's 150,000 in there. So isn't there a little bit of I hate to use or bait and switch, but these illustrations that talk about that a little bit.

Zachary Schnitzler: Yeah, illustrations are just projections that any advisor can really there are some regulations, but the insurance industry itself is not all that regulated. Okay, so things can change and they often do. I mean, as you've mentioned, you've ran into policies that have not worked out like they were supposed to. I see it almost weekly. And before.

Art Wiederman: You do.

Zachary Schnitzler: And here here is my big challenge with whole life. And I'll bring in the other types of permanent insurance, too. There are typically massive upfront costs. If your money is not accumulating right away, sequence of returns show that you will be behind the eight ball.

Art Wiederman: Okay. So so my understanding, Zach, is that when you buy a permanent insurance product, there's really three components because all insurance, as I understand it, is term insurance. If you break it down, all insurance is it's a mathematical actuarial calculation that the insurance company makes that says there are X number of 54 year olds in this country, and this is the percentage of them they're going to die and blah, blah, blah. So we have this amount that goes into a pool that the insurance company accumulates to spread out the risk to pay the death benefit. The second we have is the quote unquote, investment part of this. Right. Which is the portion that goes into some sort of investment, whether it be stocks or bonds or whatever. And the third part are what we call the administrative costs. And that is not only the administrative costs to run the insurance companies, but to pay the agent their commission, which many times they get a front rate.

Zachary Schnitzler: So that's what I see as the the largest problem here is typically commission is paid upfront. Okay. So if. If a. Doctor puts in $50,000 in the first year. Yeah, I'd say the typical agent in this state. I don't want to, you know, point fingers at any, but we all know them. Uh huh. Well, would likely get a commission that's close to that 50 grand. What does that mean for your cash value year 100?

Art Wiederman: Yeah. And, and. And that money is lost.

Zachary Schnitzler: It's so your start. My my biggest problem with the traditional designs of whole life. Universal life. Variable universal life are that our these clients are starting from nothing, even in one year. Okay. So it takes a long, long runway to actually see some performance because of that.

Art Wiederman: Okay. So let's get a little bit into the other types, which I mean the whole life. So would you ever want would you ever recommend whole life whole life insurance for a client?

Zachary Schnitzler: That's the fixed low yield strategy. Um, like, like we mentioned before it. If you hold it long enough, you could a person could start taking distributions tax free. That's the main advantage. And I do want to get into that a little later. Yes, it can. We it can make sense. But our clients here need to understand what it is. So whole life is really a bucket for. Safe, low yield money if that's up to a person's risk tolerance.

Art Wiederman: But do you recommend that they first fund a retire a qualified retirement plan before they even think about using the money for this?

Zachary Schnitzler: Typically, yes.

Art Wiederman: Yeah. Okay. So let's talk about the variable. We got a lot of other stuff I want to get to. Variable. Universal. Universal. I mean, what are the ones that have all the bells and whistles and that that that's where these insurance agents get trained so that they can suck you into writing that $100,000 check on day one.

Zachary Schnitzler: I mentioned risk tolerance again. So universal life itself, in its purest form as an insurance company has a stated interest rate that they'll pay. And that can change. Every year we get over to indexed universal life, which could be tied to a particular index on the market. A lot of times we see the S&P 500. There you will have some downside protection, typically about 0%, but you also have some upside protection or upside ability in the form of a cap. So let's hypothetically say a certain account has a cap of 10%. The S&P goes up by 15%. This particular policy would earn ten. The insurance company would keep the rest. The trade off for the insurance company. And good for the consumer. If the S&P, you know, we've seen a lot of market movement lately. Right. If the if the S&P is down 20%, the account would get zero. Then we get over to variable universal life insurance, and that is where a policy can be designed to look and feel like a typical investment portfolio with mutual funds, bonds, etc.. And so that that might be the highest upside if people are looking for that tax deferred accumulation. But it also is going to come with the most risk. So if we go back to it's about having a conversation, getting to know your advisor, getting to know, you know, having a good relationship between adviser and doctor, and really figuring out if something makes sense. What is it?

Art Wiederman: All right. So before we get into some of the other stuff, talk a little bit, Zach, about what you guys do, What I believe as far as just the financial planning process and how the insurance fits into. And then I want to give you an opportunity to give out your contact information. And the other thing is, if somebody in our audience and we have thousands and thousands of people that listen to this podcast, someone gets approached with an insurance policy. Are you willing to take a minute and just take a look at it and basically be an impartial third party and say yay or nay? Can can you do that for our listeners?

Zachary Schnitzler: Absolutely. We do policy reviews, multiple of them weekly, and it's one of our favorite things to do. We take a very honest approach. You know, I am my license to sell insurance. Yes, I am. But also want to do it the right way. I'm on I'm still on the younger side of my career and I'm going to be here when, you know, we need these distributions and I want them to be there. Right. So I. Baily Financial services as a whole. We we are holistic financial planners. We're not people chasing market returns. We're not people pitching the latest and greatest annuity or insurance product. We want to know your your whole picture for both short term and long term goals and insurance fits into that, right? It could be income replacement short term. It could be tax deferred accumulation on a permanent life insurance product. It could be an asset protection. Discussion for long term care could be talking about an estate plan. So we want to talk about the why, not the what exactly.

Art Wiederman: So if someone had a question, they had a policy. Maybe they're in the process of just starting to think about, Oh my gosh, Grandpa just passed away. I really need to get my estate and my my act together and they want you to look at something or they're interested in doing a financial plan or just even talking about what's entailed in a financial plan. What's the best way for them to get a hold of you?

Zachary Schnitzler: Yeah, so my direct phone number goes right to my office. 7012398567. Once again, 7012398567. I'd be happy to help.

Art Wiederman: And you have an email address?

Zachary Schnitzler: I do. It's a doozy. Well, your last name being Schnitzler. Yeah, well, I got a.

Art Wiederman: Wieder, man, so, you know, like, we don't. We don't. We don't pick on names.

Zachary Schnitzler: Yeah. Yep. So it is the zSchnitzler@EideBailey.com.

Art Wiederman: And that's CCH, and I tease the LCR. Good.

Zachary Schnitzler: It's. It's very German.

Art Wiederman: Well, you know, there you go. So we were talking about the you know, insurance is an investment building of cash value where you take out loans in the tax free aspect. So before we talk about insurance as an investment, Zach, you wanted to make some comments about the taxability and the tax deferred growth and how you get money. So make some comments about how that works.

Zachary Schnitzler: Yes, I mean, so far we've maybe scared some folks, right? It's like we've said, expensive, bad.

Art Wiederman: Bad, bad, bad. You got.

Zachary Schnitzler: A bad. Yeah, You need a long runway. These these products can be designed with the client's best interest in mind.

Art Wiederman: And they could. And they could. And again, you know, the only reason that we might be showing a negative tilt on this is because Zach and I have seen so many bad players who are in it to get a big commission. It happens with annuities, it happens with life insurance, it happens with other financial products. And, you know, if you're a good salesman, you can talk somebody into just about anything but these. There is a place for permanent life insurance in a financial plan. So. So talk about the tax aspects here.

Zachary Schnitzler: Yeah. So. So first and foremost, when I say designed appropriately, these can be designed with no surrender charge, where in year one where the cap, the cash you put in is still yours, it's you don't have that huge, huge upfront hit. And in order to do that, the advisor themselves has to take a trial based commission. But guess what? That's really good for the client.

Art Wiederman: Yeah, because.

Zachary Schnitzler: Yeah.

Art Wiederman: Why don't you go ahead.

Zachary Schnitzler: So it might be a conspiracy theory, but I think insurance companies like to give people upfront commissions. So the advisor helps out during sale and then slowly, slowly, slowly backs away and out of the client's life.

Art Wiederman: Well, that that's.

Zachary Schnitzler: Not right. If if you take it in the form more of a fee where or a trail based commission. Well, that adviser, you know, it's all based on the account value. That adviser needs to help and operate in your best interests. So it looks it looks and feels more like your traditional advisory fee. Right. Get with an adviser. And guess what? It's in the client's best interest. Almost always.

Art Wiederman: I mean, investment advisors get traditionally somewhere in the neighborhood of give or take, 1% of assets under management. Right. And I mean, if you were to say, okay, well, you're going to be here for 30 years, so just pay me 30% of your portfolio upfront. You're right. There's no incentive for them to stick around to make sure because they've already gotten paid. But but are most of the folks out there who are selling insurance, are they getting paid upfront?

Zachary Schnitzler: Oh, yes. Okay. So my number one number one thing, these can this can work if it's designed appropriately. And I think part of my opinion, part of designing something appropriately, if cash value accumulation is involved, is to not have a huge upfront surrender charge hit. But it it like so like I said, it can work. It's just we have to be very careful. I mean, these these designs aren't the ones that are shown. A lot of insurance agents don't have to have a securities license. So it's very easy to get an insurance license. Okay. Right. So and that's what they're selling. Oh, look at this investment. But it is very easy for them to get that and likely not in the client's best interest. So it can work and we could talk about why and how.

Art Wiederman: Well, Yes. So let's do that. Let's walk through the the the situation. So Dr. Lederman had when he was 35 years old, bought a universal insurance policy from ABC Insurance Company. And he's been funding it, you know, 30,000 a year for, you know, 30 years. And now there's theoretically there's maybe a half a million dollars or cash value. It doesn't matter what the number is. So there's a half million dollars of cash value. And he says, oh, well, you know, gosh, I got to send Junior to Stanford because he got in or she got in to Stanford, and Stanford's not cheap, so I don't have a whole lot of other money. So he's not even telling me about this insurance thing. I mean, how does this work? So I got a half a million dollars and I need 75 grand for the first year tuition at STEM. Walk through the mechanics of how that works.

Zachary Schnitzler: Or long as it was designed. Right. That money should be able to be pulled out tax free. Here's how. So life insurance works as FIFO, I call it. First in, first out. So your first. The distribution from the policy can be in the form of a withdrawal. It's literally taking your premiums back. Okay. So you put in you put in 30,000 a year for ten years. You have put in 300,000. It's now worth 500,000. Okay. Right. That first 300,000, whether you take it in one year over time is going to be tax free because it's a it's taking your own money back. Okay. Let's say Stanford's really, really expensive and you need more than that. Well, then we change to what we call policy loans. They look and feel and everybody knows what a loan is. They look and feel exactly like that. You're taking money back from yourself. Now, this is also where to be careful. This is the back end of what makes. Cash accumulation life insurance. Challenging is that it really depends on what the loan rate is. One of the biggest companies in the nation who will not be named.

Art Wiederman: Now, we will not be naming companies.

Zachary Schnitzler: Has for the longest time, even a couple of years ago when interest rates were next to nothing, had a loan rate of 8% to take your own money back, they charged you. They will charge you 8%.

Art Wiederman: All right.

Zachary Schnitzler: There's another. Reason why things aren't working out sometimes, Right? Right. So it's very, very important to look at what the actual loan rates are going to be that a lot of them have guaranteed. Loan rates, a lot of them are near 0%. All better for the client. So these are things that we need to look at before making a decision.

Art Wiederman: And you have to read the policy.

Zachary Schnitzler: Yeah. Okay. Or have somebody you trust do it for sure. Whether that be a attorney, financial adviser.

Art Wiederman: Okay. What kind of writers do we need to have on a life insurance policy? What do you recommend?

Zachary Schnitzler: Once again, somewhat depends on the season, but maybe we have a young doctor that has two kids. You should be able to add child writers for very, very cheap. I don't necessarily always believe in child life insurance, but if I do this, you know, but this is where I would do it because it's so inexpensive. Okay. Okay. So that's that's early in life. Getting closer to the middle of a career or the end of a career. A long term care writer is available and extremely advantageous to add. So, you know, right now it could be used in this policy for income replacement or death benefit, whatever. But now we can keep this policy past retirement and we can use the death benefit early for potential long term care expenses.

Art Wiederman: Okay. So those are a couple of good writers. I want to hit disability and then just briefly hit long term care. So long term disability insurance, how much should a I mean, how much should a dentist apply for and how does that work?

Zachary Schnitzler: Yes, I think long term disability very important, obviously. Right. If, uh, if I'm a doctor, I lose a hand or a finger. Might not be able to do what I'm doing anymore. We'll get to a couple of things on that, too. So really, I'm. My recommendation is to get as much as possible through the standard market. Yeah, you can always get access with weirder insurance companies in Europe and and whatnot, but it typically runs, you know, it's typically anywhere from 60 to 70% of income.

Art Wiederman: Yeah, it used it used to be years ago when I started in the financial advisory business that they, they would allow you to take 100%. But then people would say, I cut off a little piece of my finger and now I need to be fully disabled. And the insurance companies got gut wise to that. And so now they limit you to to to that amount. Yeah. Doctors, you want to apply for as much as you can get. End of discussion. Okay. There's there's there's own occupation. Any occupation. I mean, what are the different types? They're talking about that.

Zachary Schnitzler: Yes. There's also important. I wouldn't even buy disability insurance if I didn't have an own occupation rider. What does that mean? If you cannot be a dentist anymore, this pays.

Art Wiederman: Right? So yeah. And it's got and the now talk about the language of these contracts. Now, I have been an expert. I'm an expert witness and I have I worked with a wonderful and I'll mention his name one of my good friends in the work that I do is Randy Currie. He's a an attorney in Newport Beach, California, and he spends his life fighting with insurance companies over what their contracts say. And Zach, you've read disability contracts if you ever watched the TV show Law and Order Doc, don't you know the word vague and ambiguous comes up? I mean, you. I'm sure you've read these policies, right?

Zachary Schnitzler: Yeah. Yes. Yeah, Well, you know, they're bad. They can they can be depending on company, depending on company. That's you know, that brings up a good point is the research. The companies you're with, Duke is there. There might be the ones giving you a paycheck in the future.

Art Wiederman: Are there any are there any provisions in these policies that someone should be looking at?

Zachary Schnitzler: Yeah. So who's doctor is defining disability? Is it your own personal doctor or is it the insurance companies doctor? Right. That's the key. That's okay. One.

Art Wiederman: Are any of these provisions negotiable with the insurance company?

Zachary Schnitzler: Typically, no.

Art Wiederman: Right. So So it could.

Zachary Schnitzler: Be shopping process on who you want to work with.

Art Wiederman: Now, obviously, if, God forbid, someone's in an auto accident and they become a quadriplegic and they're in a wheelchair, it really doesn't matter whose doctor diagnoses this or not. But in other instances, the insurance company's doctor could come up with a different answer. And I'm sure we've seen seen all of that. And then the other thing I think we should chat about on disability is partial disability, because that's where I've I've really got involved. I've had several doctors that I've worked with with my friend Randy on on policies. And we we look at these policies and the doctor is disabled for a period of time but then is able to come back a little bit. How does that all work?

Zachary Schnitzler: Yep, yep. It's it's it's huge. You know, there is. If in some policies you're not permanently disabled, it could. Might not pay. Or let's say your income before disability was 400,000. While now you can come back. But it's only part time. You're making 200,000. If you don't have a certain rider on that contract, they could deny the claim if you go back to work. So there should be a residual disability type of rider on there. Absolutely.

Art Wiederman: And I will tell you, doctors, if, God forbid, you get disabled in a partial situation, you you need to find somebody who understands how this works because the insurance company's goal in life, any insurance company, their goal is to collect as much money in premiums as they can and to pay out as little in benefits as they can. Is that really accurate, Zach?

Zachary Schnitzler: Yeah, they're making money somehow, right? And you can see their names on a lot of football stadiums around the country, too.

Art Wiederman: Exactly. Exactly. There you go. Elimination period in a disability policy. What does that mean?

Zachary Schnitzler: So that that is the time between when disability started in the day, if somebody was disabled to when benefits will actually pay, The typical elimination period that we see and also recommend is about 90 days, because it does. It does. Fit kind of the premium to benefit ratio is best at that in most circumstances.

Art Wiederman: And that's one of the reasons that most financial planners that talk about the fact that you need to have an emergency savings fund of 3 to 6 months. And one of the reasons they talk about that is because if you get disabled and if you stop working in, your income ceases to exist, that if you have a disability policy that has a 90 day elimination, which as I understand, the 90 day is really 120 days, it's really like an extra month. They don't tell you that. But but if you don't have four months of liquid living expenses and unfortunately some of my clients, as much money as they make, they live paycheck to paycheck. And that's not only debtors, it's all business owners. There are many of them who do. If you don't have four months of liquid cash to pay your bills, you got a problem. And that's why the elimination period is important and why a a an emergency savings fund is important. What kind of riders on a disability policy? Then we'll touch on long term care and finish this up.

Zachary Schnitzler: While we talked about the partial disability. Right. Very important. One thing that not a lot think about is inflation. Your. Your. Let's say $200,000 a year disability benefit is worth a lot more now than it is in ten years. So we like to always at a cost of cost of living adjustment, which is typically about a 3% increase every year to the benefit. And, you know, there are some other ones that can help cover long term care costs, etc.. Those are more optional to us.

Art Wiederman: Okay. Well, in the time we have left, I know long term care insurance is a big deal. You know, we see, you know, sadly, more and more people having to battle dementia and Alzheimer's and we get older. And, you know, I don't have the golf swing I had when I was 30. Now that I'm 60, almost 64. I hit a couple of good shots yesterday, but a couple of them I would like to have back. We'll have that conversation another time. So. So and I've experienced it in my family with my mother in law, you know, having long term care and what that does. So talk about the discussion you have with clients about one. It's not a pleasant conversation and.

Zachary Schnitzler: Often.

Art Wiederman: It is.

Zachary Schnitzler: Not, but it is important.

Art Wiederman: But talk about it.

Zachary Schnitzler: Yeah, I mentioned seasons at the beginning of the podcast and this is one of the, you know, maybe the third season that we talk about. A doctor is getting closer to retirement. Now what we've built up a lot of assets. You know, that's the fun part of financial planning. Look at how you're doing and you're going to retire. Great. You're going have plenty of money left. Oh, wait. End of life is the biggest risk to assets in the form of long term care. You know, around the country, we're averaging probably 10,000 per month higher, lower in some parts of the country. And average stay for relatively healthy people is typically around four and a half, five years. Okay. Yes.

Art Wiederman: So, you know, we've built 100, $120,000 a year time for five years. That's $600,000. That's a lot of money.

Zachary Schnitzler: Yup. And in future dollars, I mean, gosh, that could be millions, you know. So how do we protect against that? Well, and ideally, financial services, we want every single one of our clients to have a long term care plan That does not always necessarily mean buying insurance, but long term care insurance can help alleviate that risk. And the conversation from our perspective is purely about asset protection. You know, we're not going to don't want to go, well, what kind of room do you want? A roommate? You want a private room, You know, do you want assisted living? Do you want to stay home? We do. You know, we talk a little bit about things like that, but for us, it's all about asset protection.

Art Wiederman: Right. And so. So do you. I know there are policies where you can make a lump sum payment and you're good for life, right? There are those. What? Talk about some of the details of of insurance. You know, What is it? I mean, what? First of all, what age do you recommend that people buy this? I mean, you're not going to get a really good rate if you start buying it when you're 92, right?

Zachary Schnitzler: Yeah. I mean, yeah, when I started in this industry about 12 years ago, we were planning around, you know, between age 60 and 65. Right. Well, with the with where the long term care industry has gone. You know, more people are on claim, more people are living longer. They say people are living longer. It doesn't necessarily mean in a good state, put it that way. Exactly. So we're really having this conversation even starting at about age 45 nowadays, because it is an opportunity where you'll have all options available. There's pay as you go long term care insurance, there's a lump sum, there's life insurance that has a long term care rider. We really like that, those type of strategies. Because you know what we we as advisors know that a pool of money is going to pay out somehow makes at least me feel really good. So lots of ways to do it. But the key is to have a plan, whether it involves insurance or not.

Art Wiederman: Now, if you have $100 million in a invested assets or real estate. I may not be as big of an issue, but if you are looking at, you know, leaving a pool of money to children or. French bulldogs or whoever you're leaving the money to, Right? This is this is really, really important. And I would say that there's most of my clients probably don't have this coverage. Do most of the folks that come in to see you, they don't have this coverage.

Zachary Schnitzler: Now, but it has been on their mind. Typically, it seems like everybody has a parent or grandparent or not that has been going through some form of long term care stay and they are shocked by what the premiums. All right. Sorry. Excuse me. What the cost of care actually is. Oh, yeah, a lot more expensive than the Ritz-Carlton and Laguna Niguel, I can tell you that.

Art Wiederman: Yeah, No, I can. I don't doubt that. And I have again, we saw it about eight or nine years ago with my mother in law. It was at that time it was a very good facility and it was about 70 $500 a month. And I know I know with inflation, everything has gone up and the cost of caregivers. And does this long term care, is that cover in-home care, too, or is it just at a facility?

Zachary Schnitzler: But the good products typically cover the whole range. So. Let's go through one more topic and that's what type of long term care policy is that? There's two types reimbursement and indemnity. Indemnity means cash. Which one do you think is easier to work with, with the insurance company or.

Art Wiederman: I wasn't prepared. The cash?

Zachary Schnitzler: Yes. Yeah. Okay.

Art Wiederman: I got it.

Zachary Schnitzler: Right. But yeah, cash is king, right? Cash is king. Yeah. So instead of having to have a child or a spouse, keep receipts and get reimbursed from the insurance company, if a person cannot complete two of six activities of daily living per week, go back to that doctor thing. Watch out for what the policy language says. Let's say it's your doctor. The policy pays cash. You can do whatever you want with it. All modification. Home health care pay a child to take care of you?

Art Wiederman: Well, and there's a lot of people out there, a lot of elderly people who who will refuse. They want to be in their home. And there are a lot of children who are good children who say, mom, dad, grandma, grandpa, we want you to be at home. We don't want to put you in a facility. So it's a big it's a big deal, a big discussion. And that's why it's important to read the policy. Well, my friend Zach Zach Schnitzler of Idaho Financial Services, great information. I mean, we could do a separate podcast on every one of these subtopics that we we did. But it's a really important thing. It's something that you guys are talking to your clients about every single day. And, you know, whether you work or dentist, not that it doesn't matter. People are people. And any last thoughts before I'm going to let you give out your contact information one more time.

Zachary Schnitzler: Yes. You know, throughout today's podcast, we've talked about some a lot of positives. We've also talked about a lot of negatives. We've talked through Read your policy. The key is to find a good advisor that you trust, period. That person can be your the expert with you to help guide through some of these details inside the policies. That's what they are supposed to do. So find a good adviser that you trust.

Art Wiederman: That doctors think about. And again, this is not I don't need to do a sales pitch for, I believe, financial services. They they have an amazing reputation. They just have the best information. That's why they're on my podcast. But the fact is, think about how you present the case and think about your philosophy. Everything that you do for your patients is for their total health and wellness and well-being. Whether or not it brings you money. So it's the same thing in the financial services business, the person that you're working with and folks, if you've got a really good financial planner. You should continue to work with them. Absolutely. Okay. But if you've got somebody who it just seems like every single conversation is about a product that you need to buy because they they want to make another commission. That and again, you can probably have a good smell meter on that. Hey, Zach, stay with me as I take the podcast out. Thank you so much. So much. One more time before we. Before we go, your phone number and your email address.

Zachary Schnitzler: Yes. Zac Schnitzler, insurance specialist that I'd barely 7012398567 email zSchnitzler@eideBailey.com. Thanks for having me.

Art Wiederman: Hey, thanks again. Hang hang out with me until we take the podcast out. Folks, thank you again for the honor and the privilege of your time. We've got a lot of great, great content coming up here. In 2023, We're going to be talking about selling your practice to a dealer. So should you do it, What should you be watching out for? We're going to be talking about the statistics of what's going on in dentistry. We're going to be talking about hip hop. What do you need to know about hip? A hip has changed so, so much. We're talking about my my good friend, the podcast that came out this morning, which is April 12th when we're recording. This is my dear friend Deborah Englehart. Nash, If you listen to that podcast, it is a one hour course on how to present the case to patients and how to communicate with your patients. I am also I've joined the Speaking consulting network, the SC End folks. If you're looking for a speaker, whether it's for your dental society, your dental group, your study club, you know, a first kid's birthday party, whatever you need, I can I can come out and give talks. It's something that I want to do in the next part of my career because I just really enjoy it. So give me a call. If you need somebody, please check out our wonderful Friends of Decisions in Dentistry magazine. WW w.decisionsindentistry.com. 140 great, fantastic continuing education courses, clinical courses at a very reasonable price again, www.decision dentistry account. Make sure if you're in Northern California that you come and see us at our two courses June 10th in Alameda and June 22nd in Sacramento. Go to WWw.CDA/programs and you can register for these two great programs. I will be there personally. I would love to meet you if you're a podcast listener and would that folks. My name is Art Lederman, dental Division director at the CPA firm of Eide Bailey. I work out of Southern California. Thank you so much for listening to my podcast, The Art of Dental Finance and Management with Art Lederman, CPA, and we'll see you next time. Bye bye.