When considering personal insurance lines, “more” is almost always better. More coverage means more financial protection against the bodily threats and risks that inevitably come with life. When you prescribe your clients medical insurance, you dutifully advise them to have a comprehensive policy that fits into their budget but covers them as completely as possible. When you prescribe your clients life insurance you take the same stance, finding them as much appropriate coverage as they can afford to allow for financial protection of the family as well as estate planning. But when it comes to disability income insurance, mistakenly, the same approach isn’t always followed.
Many millions of Americans work for a living, earning a regular paycheck that provides for the necessities of life (food, shelter, clothing, transportation, insurance premiums, education, etc.) for themselves and their families, but most lack sufficient income protection. It’s inherently natural to disbelieve in one’s own morbidity and physical demise, yet statistics show that a healthy person is at least three times more susceptible to disablement from accident or sickness than to death during their career. Disability insurance is quite often overlooked or simply an afterthought—and that needs to change in this country.
Much of the U.S. workforce that is covered by some form of disability insurance is under the impression that employer-sponsored benefits are sufficient to their insurance needs and individual income protection plans aren’t necessary. For many Americans, of modest levels of income, that is true. A group long term DI program provides minimal, but enough insurance protection to most industries and occupations. But what about those that make more money than the average American?
Consider an executive making $300,000 per year. Is a group LTD plan, providing 60 percent of income up to $10,000 per month, going to allow enough protection to maintain that person’s lifestyle or the lifestyles of their spouse and children? Families with a high net worth require more insurance than most, as their average expense ratio is significantly higher than an average household.
It is clearly an agent best practice to prescribe a prospective client with as much disability insurance as they can get their hands on. In addition to group coverage, domestic carriers offer small layers of individual insurance. But for anyone in this country making over $250,000 annually, supplemental or excess high-limit DI is a must to bring income protection levels up to more appropriate ranges from 65 to 75 percent of income. Those are the magic numbers.
The U.S. Department of Labor and DI experts throughout the country have maintained for decades that a working American should have at least 65 percent of his/her income insured in the hopes of providing for one’s family during a period of total disablement. Some high-limit DI carriers, in certain cases, are now participating with coverage up to 75 percent of one’s income, if any in-force benefits happen to be taxable, to better allow for more substantial income protection.
Make it an integral part of your repertoire to teach your clients that, in addition to life and health insurances, disability income protection is a necessity and having less than 65 percent of their income insured just isn’t going to cut it. Insurance is all about preparation for the unknown and planning for the worst case scenario. A vast majority of Americans, even the wealthy, fail to maintain significant savings and liquid assets in cases of emergencies like unforeseen disablement. Retirement programs are certainly gaining in popularity and more people in this country are planning for their futures after retirement, but they are severely lacking in protection for the here and now during their working careers.
And after you have convinced them of the fundamental importance of disability insurance, you must make those additional efforts to show them that some DI just isn’t enough DI. Underinsurance provides a false sense of security for which you don’t want to be responsible. As an advisor you owe it to your clientele to get them appropriately insured to high-limit DI levels so they can economically care for themselves and their families if they were to suffer a short or long term impairment. You are not selling them just another redundant piece of paper. You are providing them with financial freedom from potential disaster.
But after you have exhausted group LTD and domestic individual insurance sources, where else can you turn if your clients can’t acquire coverage traditionally either due to a health or occupation concern or due to a benefit participation limit issue? U.S. carriers won’t allow for the participation limits that your high net worth clients need, but the Surplus Lines market including companies like Lloyd’s of London will. The “secondary” or specialty markets hold the unique ability to be more flexible and accommodating to clients with more to risk than most.
These markets have been participants in U.S.-based risk for almost forty years, and their products and offerings have thoughtfully evolved into the best accompaniment to American disability coverage. Long term “own-occupation” benefits with generous payment schedules including monthly and lump sum payouts are available to clients needing more than what U.S. carriers are willing to offer.
The right tools are at your disposal. Use them. Revisit clients you have assisted in the past. Be relentless. Pound it into their brains that disability insurance indemnifies their greatest asset—their income. Without their ability to work and earn a fair living their lives will be irrevocably changed, and income protection insurance is the safeguard. Further, stress that being underinsured is risky and more dangerous than anticipated. It is in your clients’ best interests and your due diligence to prescribe income protection of at least 65 percent of one’s adjusted gross income. With sincerity and guidance, your clients and their families will be properly protected from the financial roadblocks life sends their way.