Are your prepared for a disability? Are your clients? The least popular insurance policy and so often not sold is disability insurance. Disability insurance should be a part of every working individual from 22-60’s portfolio. However, it is not. The major reason for this is the cost and the fact that it is called disability insurance. In addition to that it is considered for the upper echelon, who usually do not need it but it is something that people utilize and think it is not for them.
The first reason why this type of policy is not utilized is the fact it is called disability insurance. The word disability conjures an image of Christopher Reeves and most people do not see this ever happening to them. The truth is, according to the Life Insurance Marketing Association, is that most disabilities come from mental nervous issues, back injuries, chronic sicknesses like cancer. Thus we should not be calling it disability, but Sickness and Injury insurance. We also know from LIMRA that 1 in 3 working adults between the ages of 18 and 65 will be disabled for 90 days or longer. Most people according the United States Federal Reserve have a savings reserve of less than 2 weeks in their accounts. SO if you are sick or injured for an extended period of time this could hurt the family.
The second reason is the cost. The cost is perceived too high for something no one will ever use. Younger advisors do not present it because they know they cannot afford it and thus clients are left out in the cold. Older advisors and agents do not sell it because it can be too complicated and there are many underwriting issues that can come up. However, having it can help. Here is a short video from Mass Mutual describing how disability can help.
The next reason is the common objections:
- I’ll never get disabled – 1 in 3 are disabled for more than 90 days in their working life from 18-65.
- The government will take care of me – While there is Social Security Disability – From the SS website: Disability insurance cannot be applied for till 6 months of disability. Once an application is received the average application review and decision opportunity is 18 months. WOW! 24 MONTHS BEFORE YOU MIGHT RECIVE BENEFITS, HERE IS MORE: 97% of all first time applications are denied for benefits for multiple reasons including incomplete forms, not a severe enough disability, or fraud. Okay, so the government will not really help. Now the good thing is once you are approved, you will back benefits to the date you were qualified for disability. However, maintaining financial stability till then might be tough.
- I have it at work - Most companies offer this benefit. It usually pays 50-60%. However most are coordinated with social security benefits, meaning that the monthly benefit is significantly reduced based on your expected social security amount. As seen above this can take up to 24 months. While some income will come in it will not be a whole lot.
Some common riders that can be used are:
- COLA – Inflation Protection after a disability. Tied to the CPI usually 3-4%
- FIO – Future Insurability or Income Option. This allows one to protect new income raises while working without going through underwriting again
- Own Occupation – Protects your ability to do your own occupation, easier definition to qualify for
- Partial Disability – Pays a benefit if you can only do some work, or lose significant income but are still working.
Rodney Mogen, is the president of solveurpuzzles, a business focused company. Solve ur puzzles helps three groups: Small Businesses, Financial Advisors/Agents, and Local Government Entities. Rodney is also a small business advisor focused on developing financial strategies for small business owners and helping them develop their own strategy and ideas to grow, sell, develop the way they want. He is focused on creating proper financial strategies for Advisors and business owners to assist them in their day to day duties by solving their financial puzzles. Rodney is also the Director of Financial Strategy for The Evans Group. Check out more information at www.solvurpuzzles.com.