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Protecting the Golden Goose

For more than a year, Jeff Murphy delayed signing up for a long-term disability insurance policy because of the monthly premium cost. Six months after he finally decided to sign up, Jeff was diagnosed with a rare form of cancer at the age of 32. He quickly started an aggressive treatment plan and was able to make a full recovery. Had Jeff waited to sign up for coverage, he would have been left uninsurable and unable to protect his stay-at-home wife and their two children.

Unfortunately, not everyone is as lucky as Jeff. Many people believe there is no chance they will become sick or disabled and unable to work. However, the Life and Health Insurance Foundation for Education has found that one in five workers will experience an illness or accident that will keep them out of work for at least a year before they reach age 65.

Are Your Clients Prepared?

Most advisors spend more time focusing on life insurance than on DI, but the fact is that DI protects the most valuable asset people own: their ability to earn an income. Without it, most financial plans will fail. However, as DI is the least-understood form of insurance, many planners leave their clients unprotected because clients have a misperception that DI is too expensive and too difficult to get. 

The loss of an income is the worst type of loss your clients can experience. How long can they go without an income? Do they have an emergency fund? What happens if they are unable to return to work for three, six or eight months or more? 

Remember the fable about the goose that laid golden eggs? One day the farmer got greedy and killed the goose so he could get all the eggs out at once, but then discovered there was nothing left and he had killed off his chance of getting any more golden eggs. To bring lightness to a serious conversation, I often ask my clients, “If you had a goose that laid a golden egg every day, would you insure the egg or the goose?” 

For most clients, the center of their financial plan is the continuation of their income-earning ability, and this witty comparison seems to put things into perspective for them. Even so, you will have clients who question the importance of DI. Here are a few reasons clients believe they don’t need DI, and how advisors can reposition the conversation.

Coverage Through Work

Many of my clients tell me that they don’t need DI because they are covered through employee benefits at work. While that’s great, the conversation should never end there. It’s important to review what a client’s policy will cover, because it’s extremely likely that their group insurance is not enough and they will need the extra protection available through an individual policy.

Monthly Premium Cost

Many clients are hesitant to sign up for DI because of the monthly premium. The price will depend on factors such as the client’s occupation, income, waiting periods for benefits to begin and optional features such as cost-of-living adjustments. Because independent DI tends to become more expensive as clients age, you should always recommend that your clients buy a policy as soon as they start working, so they can lock in lower rates. If a client claims they can’t afford the premium, remind them that they definitely can’t afford a disability.

Young and Healthy

Younger clients often overlook DI. However, according to the Council for Disability Awareness, about one in four of today’s 20-year-olds will become disabled before they retire. Young clients are more likely to be living paycheck to paycheck, and a sudden disability could be a devastating loss. Educate clients on the long-term effects disability can create. Clients need to protect their golden goose, or they might not see any golden eggs.

Social Security Has Disability Coverage

Social Security disability covers most workers after they reach a certain age. It is capped at a maximum monthly payment regardless of the worker’s salary. On the contrary, private DI can cover about 70 percent of a worker’s salary at any age when a disability arises. Even if your client qualifies for Social Security disability, we know that the benefits are usually not sufficient for most people. According to the Social Security Administration, the average monthly benefit is $1,004.

DI may not be the first thing our clients think about, but the truth is that a client’s most valuable asset is the ability to go to work each day and earn an income. The loss of their income undermines their ability to cover all of their other financial needs. Disability causes nearly 50 percent of all mortgage foreclosures and 350,000 personal bankruptcies each year. Let’s give our clients the peace of mind of knowing that they won’t be out on the street if they become disabled. 

Ann Baker Ronn, LUTCF, CLU, ChFC, launched her business, Income Protection Solutions, in 2013. She is an 18-year Qualifying and Life MDRT member and a three-time Court of the Table qualifier. Ann may be contacted at [email protected] .

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