Financial planning begins with income planning, and an income plan must start by providing some form of guarantee that a source of income will always be available in the event of a disability during a person’s working career. Disability insurance protects the one thing that allows all other wealth creation – income.
There are some key issues for professional insurance agents to consider when evaluating the needs of their clients. However, we tend to dwell on numbers and occupational classifications from field underwriting guides. Perhaps there are more appropriate ways to approach your clients’ needs.
Think income percentage, not benefit amount
In the event of a disability, most people will need to replace between 65 and 75 percent of their income just to stay afloat, regardless of their income level. Such third-party sources as the U.S. Labor Department show us that most people are within six weeks of personal bankruptcy. Higher income earners are not immune to this problem, as they tend to buy larger and more expensive homes, automobiles, furnishings, etc. As income rises, so does the desire to own more expensive items, so the percentage of required income doesn’t change.
A person earning $100,000 a year will most likely need a monthly disability benefit of $5,416 to $6,250 (65 and 75 percent of prior income, respectively). A person earning $500,000 a year will need the same percentage of income replacement, but with the monthly benefit adjusted to between $27,083 and $31,250 (65 and 75 percent of prior income, respectively).
Don’t get caught up in the dollar amount of the monthly benefit, for you will often miss the forest for the trees. Thinking in terms of the percentage of required income replacement eliminates these barriers and forces you to think about the total risk exposure. But what happens when the carrier’s limits are too low for your client’s real needs? Certain disability insurance companies do indeed offer higher limits than others. It will be important for you to get to know which carriers these are, so that you can offer a sound disability financial plan.
Think creatively, not by the book
Sometimes, producers encounter a case that may at first appear to be uninsurable. As a professional insurance agent, it is our duty to explore options – not to say, “I cannot help you at all.”
Special occupations, such as oil rig workers, firefighters, pilots, athletes, and entertainers may seem uninsurable, but there are indeed insurance companies that will consider covering these types of workers.
What about age? Many producers may assume that disability insurance sales must stop at age 60. However, certain markets may, under certain circumstances, write people much older than 60.