Happy New Year! Welcome to 2020 and a clean slate of new resolutions. If you are not talking to your clients every week about disability insurance, this is a great time to make it part of your new year planning. To start, you’ll need to make a list of clients who are good candidates for various types of disability insurance. To make it easier for you, we’ve given you a few scenarios that should be on your radar. Remember, everyone who needs to work usually needs some type of disability insurance. So, our number one request for illustrations is for individual disability insurance clients who work full time. The following list was designed to help you recognize opportunities that are sometimes not recognized and should be part of your 2020 planning.
Client: Business owner
Product: Business Overhead Expense Disability Insurance (BOE)
Think small business, usually a professional, such as a dentist, attorney, engineer, physician, architect, CPA, or any small business in which the firm is supported by an individual owner or two. You most likely have these clients in your database. When someone owns a business, they usually will have fixed expenses that they’ve obligated themselves to pay, regardless of whether they have the ability to work or not. The rent or mortgage still needs to be paid, the support staff still need their incomes, business equipment leases still need to be paid, the utilities, business loans, and other monthly obligations still need to be paid. Every business owner should look into BOE insurance. Be resolved to talk to your business owner clients about BOE coverage.
Client: Firms with multiple partners and a business operating agreement
Product: Disability Buy Out
Think about the firms you insure in which you have put in a life insurance policy to help fund a buy/sell agreement. I’m sure you can think of many cases in which you’ve put in life insurance, but didn’t even discuss the disability insurance aspect. Most operating agreements or buy/sell agreements have some type of disability provision…and if not, then there should be a provision to address what will occur if a partner is disabled.
Client: Business owner or individual client
Product: Loan Protection
If you have been selling life insurance for more than a few years, you most likely have been asked for life insurance to cover a loan or mortgage. This is a great entre to discuss disability insurance. Since most clients are more likely to suffer a disability than pass away before the end of a loan period, a plan should be in place in case of a disability. For a business, without some type of disability loan protection, even if the business owner survives, the business may not survive without disability coverage. For the individual who has a mortgage, having disability insurance is a must as well. For many people, full recovery from a disability may never happen and a permanent disability may become reality. If so, how will the mortgage be paid? In addition, most people have many other expenses that still must be paid regardless of whether they work or not.
Client: Dual income, no kids yet
Product: Personal Disability Insurance
These tend to be your younger clients who may be first time home buyers or clients requesting rental insurance or car insurance. You may have talked to them about some life insurance and perhaps they took your advice and bought a policy. Most people don’t realize that the risk of becoming disabled before age 65 is greater than that of passing. If one member of the couple gets disabled, the couple will have two financial pressures: First, the couple will naturally feel stress due to a decrease or total loss of income. The couple was relying on this income to pay their expenses and maintain their lifestyle. Second, due to the disability, many individuals will experience a sudden increase in unanticipated expenses. These include home and car modifications to accommodate the disabled partner, and extra medical bills for expenses not covered by insurance. An individual disability plan on one or both spouses will sometimes resonate better than some other types of insurance that may have been suggested.
This is not an all-inclusive list, as there are Key-Person DI policies, Retirement Security DI products, Guaranteed Standard Issue products, and Surplus Lines products that can fill many different needs. It’s essential to keep disability insurance on the top of your list of products to present.
If it hasn’t happened yet, there will most likely come a day when a client becomes disabled and wants to know the type of disability coverage they have with you. What will be your answer? Work with your manager, MGA, mentor, or just sit down and create a plan to review your book of business for disability insurance opportunities. It could be the best holiday gift you give your clients and their loved ones.
May you and your family have a happy and healthy New Year and a great 2020!
Numbers Don’t Lie
The need for individual disability insurance (IDI) is real. IDI is not a luxury item purchase—like an expensive pair of handmade Italian dress shoes or the latest smartphone.
Buying disability insurance is not on most people’s to-do list, but neither are the possible tragic results of not having disability insurance. Some of the horror stories people experienced have been, but not limited to: Going bankrupt; having a home foreclosed due to not being able to pay the mortgage; getting evicted from an office for not being able to afford the lease; or watching a car get repossessed. When someone unexpectedly becomes too sick or too injured to work, and does not have disability insurance, unpleasant consequences can occur.
Let’s look at the numbers. Numbers don’t lie. So, let’s first look at one important number, someone’s income. Typically, this is usually the most important number a lender wants to know when a client applies for a mortgage, a lease, or a loan. If a client is disabled and doesn’t have an income, it would be very challenging to obtain a mortgage, lease or loan.
So, let’s say a client is working and successfully secures a loan, but later becomes sick or injured and can no longer meet the contractual obligations on that loan. Now what? To our knowledge, most loans do not have a provision that would waive the obligation if someone becomes disabled. The mortgage is still due, the car payments are still due, the rent or lease would still be due as well. When a client has disability insurance, the policy can help to provide funds for these obligations that still need to be paid.
We all likely agree that having an emergency plan in case one of our clients, or even ourselves, becomes totally disabled is very important. Yet, it’s perplexing to see so many financial planners or advisors that haven’t addressed the issue, or even worse, have taken a client’s word that there is sufficient protection. Next time a client says that they have a disability plan, go down that path with them. Ask them how much coverage they have in force or to describe the exclusions or the taxability of the benefit, in which case you most likely will see a blank stare as a client tries to come up with an answer or even an understanding of what you are asking. Which adviser are you? One that asks questions and has your client give you the DI policy to review, or one that checks a box and hopes your client really understands the importance of the issues? Could you imagine having a doctor ask you for the diagnosis of a medical condition? Even worse, could you imagine a cancer surgeon who refuses to discuss performing life-saving operations on patients because the surgery is “strenuous” or perhaps not as “interesting” to the surgeon as perhaps another type of surgery. As advisors, it’s important to see the plan and discuss with your client the best way to protect himself in case a disability was to prevent him from working.
As you initiate a conversation about IDI with your client, you may ask questions to help your client see the need. You may ask, “What is the longest number of vacation days you’ve ever taken?” Most clients will say two weeks or possibly slightly longer. When you ask the reason they didn’t continue on vacation, the answer typically is that they had to get back to work.
The statistics are staggering and should give any advisor or client important reasons that disability insurance should be at the forefront of any plan. In addition, the plan and products should be reviewed in detail every few years. Too many clients and unfortunately too many advisors do not take these statistics to heart:
Just over one in four of today’s 20 year-olds will become disabled before they retire. (Disabilitycanhappen.org Council For Disability Awareness)
Approximately 90 percent of disabilities are caused by illnesses, not accidents. (Council for Disability Awareness 2013 Long-Term Disability Claims Review)
The Top five causes of disability claims that last longer than six months (Council for Disability Awareness 2015 Long Term Disability Claims Review):
A 2014 study of consumer bankruptcy filings identified the following as primary reasons (Disabilitycanhappen.org Council For Disability Awareness):
The average Social Security Disability Income (SSDI) benefit as of January 2018 was $1,197 per month. (Disabilitycanhappen.org Council For Disability Awareness: Social Security Administration, Monthly Statistical Snapshot, February 2018)
That $1,197 above equates to $14,364 annually – barely above the poverty guideline of $12,140 for a one-person household, and below the guideline of $16,640 for a two-person household. (Disabilitycanhappen.org Council For Disability Awareness: ASPE, Poverty Guidelines 2018)
Only 48 percent of American adults indicate they have enough savings to cover three months of living expenses in the event they’re not earning income. (Disabilitycanhappen.org Council For Disability Awareness: Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2016 (PDF), page 26.)
Numbers don’t lie. The more you talk about disability planning, the more clients will want to have a plan. Most plans involve disability insurance, but even if your client was unable to obtain the insurance due to various medical or financial reasons, at least the planning process took place and you have the opportunity to create alternative plans. How many clients have you discussed IDI with over the years? The training and opportunity is there, you just need to reach out to an IMO agency like ours or a few of the companies that specialize in offering training for disability insurance.