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October 30, 2003 at 07:00 PM
Adjust Your Assumptions For Impaired Risk DI Cases
By
There is an old folk saying that implies that making assumptions is not good. However, insurance professionals know that sound assumptions are the foundation upon which the financial industry is built.
Lets see how this applies to disability income insurance, especially where impaired risk applicants are concerned.
Every insurance professional spends his or her career forming a set of assumptions about risk management and financial planning. These assumptions are based on experience, education and industry product training. We use them to help guide our clients in making hard decisions about the future.
Good agents study, take courses and keep up-to-date with industry publications in order to expand their knowledge and increase the set of assumptions upon which they base their advice to clients. The fact of our business–and veteran agents can attest to this–is that statistics and experience both often show we usually are right.
For example, we know planning works. Insurance works. And diversification of asset works. The “wise old tales” of the business are wise because they are right. As my father, a disability specialist for more than 30 years, often said, “No one receiving a claim ever says they bought too much or offers to give it back.” How do you argue with that?
But do we occasionally get so confident in the principles of the business that we forget to apply them to people as individuals, not statistics? Are we sometimes so convinced our assumptions about financial planning are “right” that we forget some clients do not fit the mold and need to take a different path?
Where many advisors fall into trouble is when they encounter clients who, due to health issues, occupations, financials, or foreign travel or residence, do not fit the norms of our business. Unfortunately, many advisors fail to adjust their set of assumptions to meet the unusual needs of these individuals.
That is understandable, given that the industry focuses on protecting the risks of not just one person, but thousands of people. Occasionally, though, what applies to the large group conflicts with what is best for one person. So you, the advisor, become the great equalizer. As such, you need to strive to see your client as an individual, set aside your assumptions when necessary and find the best tools available to serve that clients needs. This is especially important when dealing with clients in any impaired risk situation, be it life, health, disability, annuities or long term care insurance.
Let me illustrate by using the insurance model with which I am most familiar: The DI insurance sale to a less than healthy client. Every week, I see cases involving the following two assumptions that result in lack of proper protection for the client.
