It's not uncommon to talk to a financial professional who tells me that they don't "do" disability insurance, but as I follow up, they quickly respond that it's an important component to a complete financial plan. I just don't understand… We agree that it's important, but they don't feel the urgency or competency to give their client a chance to address the problem of no income.
As financial professionals, we can't put our client's in a padded room and protect them against injury or illness, but we can help them mitigate the financial consequences. Therefore as an effort to help professionals develop their practice in this area, I've put together five ideas to consider:
#1 Close More Deals by Working in the DI Market
The next 18 years are PRIME for success!
You've heard about Millennials right? I bet you never thought how they effect your strategy for the disability income insurance market.
- This year Millennials are between about 17 and 35 years old.(1)
- They are the largest cohort of US population ($83.1M) surpassing Baby Boomers by about 7.7M.(1)
- The average new policy-owner is age 36.(2)
Based on the facts above we can correlate that there should be about 18 prosperous years ahead for those financial professionals who can confidently and clearly communicate the importance of income protection.
Need a Refresher For IDI?
Step One - Setting the Need
- How much income does your client make and where does their income go?
- How long could your client keep up their lifestyle if their income stopped?
- Is that okay?
Step Two - Assessing Current Situation
- Does your client have group long-term disability through their employer or an individual disability insurance plan in force?
- Does the existing coverage provide enough monthly benefit if they become disabled?
- Will the existing coverage pay a benefit under circumstances your client expects?
Step Three - Close Any Gaps in Current Situation
- Do you have expertise (or a resource) to provide your client multiple options to address gaps discovered in Step Two?
Cites: (1)https://www.census.gov/newsroom/press-releases/2015/cb15-113.html; (2) Guardian Life new issues for IDI from 2011-2016, excluding non-underwritten group medical conversions.
#2 Close More Deals by Knowing Insurable Interest
How much income does it take for your client to qualify for $1,000 of supplemental disability insurance if they have a 60% group LTD plan?
ONLY $43,250 of annual income!
Many financial professionals are astonished to realize exactly where their client's group long-term disability insurance falls short. So now that I have your attention, is it important as a financial professional to deliver adequate income protection if a client's income should become compromised? Of course it is and insurable interest is an important factor in your assessment.
Insurable interest is the value of some thing or event for which an insurance policy is purchased to mitigate risk of loss. In the case of homeowners insurance, the value of a house would be insurable interest, or for life insurance some consider human life value. As for disability insurance, insurable interest is generally the income loss attributable to an individual employee or business owner.
The concept of insurable interest is an important step to evaluating your client's cash flow strategies. So before you address the four threats to income, it's critical to nail down how much income is at risk.
Many professionals simply check the box when the topic of disability insurance comes up; especially if their client has coverage through work. Consider this, if your client makes $100,000 and has a 60% group long-term disability plan, is she adequately covered? It depends on if she thinks reduced income of $49,261.25 is good enough. Which is precisely what would come to them with 60% group LTD replacement taxable benefit.
Finally, you may want to know about other areas to find insurable interest and coverage gaps:
- benefit caps on group long-term disability;
- group LTD plans that don't include bonus or commission income as insurable interest;
- business-owners who have buy-sell agreements;
- overhead expenses;
- loan payments;
#3 Close More Deals by Applying the Right Plan
Dare to be different, think outside the box, and wow your client with a customized plan to suit their unique needs. While almost every other financial professional is discussing income protection with 90-day elimination periods and age-65 benefits, I'm encouraging those who work with me to slow down and realize that you have more options to consider.
Certainly the typical plan with 90-day elimination period and benefits to age 65 may be appropriate for some, consider delivering a different strategy to your client.
Everybody needs a hug so apply the HUG plan (idea credit - Shannon Hsu). This plan covers Housing cost, Utilities, and Groceries, HUG. It's an ideal strategy for folks making annual incomes at or below $50,000 where most often folks in this cohort need income replacement quickly and could live within a limited budget or social security disability if conditions continued. Therefore I like to design this plan with a 30-day elimination period and two to five year benefit period.
Some folks don't need a hug, but instead need to cover disabling situations that last a year or more. These folks typically are really high earners and have access to liquid assets to sustain their lifestyle for a year or more. I pair extended benefits in the form of a lump sum payment or lifetime indemnity with a longer elimination period to provide robust benefits if an extended disability situation occurs.
Don't fall in to the trap thinking one size fits all in the income protection space. CLOSE MORE DEALS BY APPLYING THE RIGHT PLAN.
#4 Close More Deals by Knowing Which Markets to Cultivate
ANYONE who earns income would probably feel financially stressed if they could not work. This is equally true for the manual labor as it is for the corner office executive. If income is interrupted, most everyone feels the financial stress of limited cash flow.
The highly compensated executive has much more at stake if income stops and only Social Security benefits remain (if those are even a factor). If sick or injured and not able to work, an executive making $250,000 a year needs to replace about $15,341.94 of tax-free benefit in order to keep up his same income trajectory if sick or injured and can't work. If it's a forty year-old business-owner and he is on claim for 25 years, have you considered how much benefit is generated by a $15,341.94 per month policy? With a 3% COLA it an astounding $6,712,270.15 of benefit paid - tax-free!
So then why are physicians, dentists, executives, engineers, attorneys, veterinarians, and other highly compensated professionals ideal DI markets? Because they often have A LOT of income at stake.
#5 Close More Deals by Being Different
Being different than your competition sells.
For some being different could simply be defined by taking a leap of faith and talking about income protection strategies when you haven't done so in previous years and for others it may be re-thinking their strategies.
For younger clients - consider longer benefit periods and increase options so that their policy can grow as their income increases;
For older clients - consider longer elimination periods and include a catastrophic benefit rider;
For modest income earners - keep the elimination period short, but consider lowering the benefit period to keep premiums low;
For high income earners - consider moving the elimination period longer, but add an extended benefit like Graded Lifetime or Lump Sum;
The point here is that following the crowd of typical financial professionals with a 90 day elimination period with benefit through age 65 may not be the ideal plan for your client.
Set yourself apart from your peer financial professionals by discussing income protection strategies others miss.
As my meager attempt to wrap a bow around these ideas, we must understand that reduction or elimination of income has a multi-layered effect financially - much like ripples created when a rock is thrown into a still pond. First it may be inconvenient, then short-term goals are impacted, next retirement starts to look a whole lot different, and finally future legacy ideas are no longer attainable.
Cash flow, specifically the cash flow generated by earned income is necessary, precious, and fragile.
Remember, we can't protect our client's against the threat of injury or illness, but we can help them mitigate the financial consequences.