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Financial Planning > Tax Planning

How to Protect Clients Against the Financial and Emotional Effects of Disability

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Despite signs of an economic recovery, many Americans are still not feeling financially secure. In fact, according to the eighth annual MetLife Study of Employee Benefit Trends, approximately 62 percent of full-time employees are very concerned about whether they would have enough money to pay bills during a period of sudden income loss.

However, many individuals do not have the appropriate amount of coverage to ensure that their family would be financially protected if the breadwinner were disabled. Here, producers have an ideal opportunity to educate clients about the important role that disability income insurance plays in a comprehensive financial plan for their family.

Educating the client
An individual’s ability to earn an income has been, and will likely continue to be, their most important asset. Despite this, Americans remain unfamiliar with the benefits of individual disability income protection. According to the new MetLife Study of the Emotional and Financial Impact of Disability, three in five individuals who have been out of work for at least six months because of a disability did not have any disability income insurance protection. According to the study, of those who did have coverage, only about one-third of their income, on average, was protected. This is probably insufficient for their needs since financial recovery among survey participants was slow — only 17 percent of those whose disability occurred at least a year ago felt that they had completely recovered financially.

Have you discussed your clients’ financial needs with them? In the event of a loss of income, will your clients be able to meet such financial obligations as mortgage payments, monthly bills, saving for retirement, and paying for their childrens’ education?

Assessing potential coverage gaps
After you have examined your clients’ financial needs, review any coverage they may have in place through their employer.

Traditionally, employees look first to employers for disability protection. However, the amount of coverage they receive through these plans may not be enough to meet their needs.

Many long-term disability plans offered by employers only cover up to 60 percent of an employee’s salary and exclude bonuses and commissions. In addition, if the employer is funding the premium for the coverage, any benefits received will most likely be taxable to the employee. Producers can help clients understand the potential limitations of a group long-term disability plan and the need to expand their safety net.

When combined with a group long-term disability plan, supplemental individual disability insurance can provide a more appropriate level of income protection. The product usually covers additional sources of compensation, and when the employee pays the premium with after-tax dollars, the benefits received are tax-free.

There are other advantages to purchasing supplemental disability insurance. For one, an individual disability policy may have guaranteed rates for the life of the policy and since it is individually owned, the employee can take the coverage with them if they leave their current employer.

The benefits of having adequate coverage in place
There are significant benefits to having the right amount of coverage in place should a disabling accident or illness occur. The MetLife Study of the Emotional and Financial Impact of Disability found that having adequate coverage in place can blunt the severity of the effects of a disability. An overwhelming majority of study participants (90 percent) who said they had inadequate coverage felt that their disability had a major or devastating effect on their emotional lives, compared with 63 percent of those who felt their coverage was at least somewhat adequate. Financially, 88 percent of those with inadequate coverage said the disability had a major or devastating impact on their feelings of financial security, compared with 61 percent of those who felt that their coverage was at least somewhat adequate.

While clients may be aware of their financial vulnerability, it is up to you to help them move from education to action when it comes to protecting their income. Now more than ever, it is vital to help clients shore up their financial safety net and understand their families’ protection needs.

Lynn Dumais is the product head for MetLife’s Individual Disability Income (IDI) business. She can be reached at [email protected] or 813-983-4002.


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