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What if your clients' paychecks stop coming?

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“If you were to become sick or injured and couldn’t work, how would you pay your bills?”

The most trusted financial advisors have been asking their clients that question for decades.

How do wage earners respond?

My group, the Council for Disability Awareness (CDA), asked working Americans that question. We reported the revealing results in our most recent Disability Divide Consumer Awareness Study.

We found that many wage earners have never even thought about, let alone prepared for, the possibility of experiencing a disabling illness or injury.

The most common response? Respondents said they’d cover their financial obligations by tapping sick pay and vacation time from their employer. That will help a wage earner get by for a few weeks, but then what? The next most popular response was “disability insurance,” followed by “spouse’s income,” “debt,” and “help from family and friends.”

What about counting on a spouse’s income? For most two-income families, depending upon one partner’s income if the other becomes disabled is a financial house of cards. Usually, both partners work because they have to. Most couples are spending the majority of both paychecks to keep things afloat while everyone is healthy.

Many families have little savings, and what savings they do have are usually earmarked for future financial obligations: buying a home, saving for tuitions or a wedding, or funds for retirement.

Even the loss of one income can put the household into financial crisis. Other considerations come into play. When one spouse or partner becomes disabled, it makes it difficult for the healthy spouse to work a full schedule given his or her responsibility to provide care, transportation to medical appointments, child care, and handle other special needs that arise. And additional expenses may be incurred to hire the necessary extra help.

A final factor to consider is when the family depends on two incomes, the risk of a disability-related income loss doubles: each partner has a disability risk, and it may take just one disability to decimate the family’s finances.

Depending on credit cards or loans to pay the bills? Not the best idea. Credit cards, of course, need to be paid off, and interest and penalties can snowball and become overwhelming. Banks typically won’t make new loans to customers that have no income. Debt adds to the income loss problem, rather than solving it.

Unless one is fortunate enough to have wealthy and generous family or friends, “getting help from family or friends” is not a logical source either. It’s a safe bet that most wage earners have not confirmed in advance that their family or friends would be willing or able to provide financial support in the aftermath of a disability.

A couple of lessons can be learned from these findings.

First, despite the fact that income is the most valuable financial resource for most wage earners, few have thought much about how to protect it, and fewer still have a plan that will hold together should a disability strike. So unless someone happens to be independently wealthy and not in need of employment income, a well thought-out plan that includes disability insurance is the only sensible way to protect against what ranks as one of the most significant, if not the most significant, threat to an individual’s or a family’s long-term financial stability.

Every trusted financial professional must ask every prospect and client, “If you were to become sick or injured and couldn’t work, how would you pay your bills?”

Insurance exists to protect what is most important to people. No financial plan can be complete without addressing the need for income protection.

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