Higher wage earners early in their careers are an important target demographic for individual disability income (IDI) insurance sales, because they have many years of future earnings to protect — what we might call their “yet worth.”
For example, if a 32-year-old graduating medical resident signs a $200,000-per-year employment contract, he or she is counting on future earnings of well more than $7 million. An IDI policy will help protect this significant yet worth by paying as much as 80 percent of the insured’s salary each month, should he or she become sick or injured and unable to work.
The first challenge with young professionals is getting them to understand their need for income protection. Some may assume they’re protected against income loss by an employer-sponsored group long-term disability (LTD) plan. But even though group LTD provides a valuable foundation, it usually falls far short of fully protecting the incomes of higher earners, due to limitations on the maximum benefit or the types of earnings covered. And young professionals often have a hard time believing they may one day become so sick or injured that they won’t be able to work. In reality, those entering the workforce today have about a 25 percent risk of becoming disabled at some point in their careers.
The good news is once this group understands the risk, they’ll want to find a solution, creating a lucrative selling opportunity for brokers. At that point, the task is to match the individual client to the most appropriate IDI product available. Here are some important considerations:
- Elimination period and benefit period. It sometimes is a good strategy to extend the elimination period or shorten the benefit period as a way to lower the cost of an IDI policy. But be careful here. Does your client truly have adequate savings or other assets to weather a long elimination period — the time required to be disabled before benefits begin? And given that the goal is to replace yet worth, a two-year or five-year benefit duration is simply not appropriate for most higher earners with long careers ahead of them.
- Total disability definition. For many occupations, a general definition will suffice. But often this target demographic has highly specialized duties, and, therefore needs a definition to match. The most notable examples are surgeons and trial attorneys, whose incomes depend on fine motor skills or being in full voice. A definition that includes specialty protection is crucial for them.
- Residual coverage. Is your client a business owner, or a professional with trailing receivables? If so, pay special attention to the residual disability definition. Residual applies when a sickness or injury keeps people from working full-time but doesn’t totally disable them. Most policies require the insured to prove loss of income to obtain a residual benefit. That can be a poor fit for clients with significant trailing receivables. Instead, look for a contract that allows the residual benefit to be paid if the person has suffered loss of time or duties but is still receiving full income.
- Limitations. Anxiety and depression can affect someone’s ability to work, just as cancer and diabetes can, yet many IDI contracts limit and restrict coverage of these types of conditions to a 24-month benefit period. Policies that offer extended benefit periods without any specific limitations on coverage for mental health issues and disorders will provide your clients with the broadest possible coverage.
It’s important to keep in mind that all IDI policies share certain core traits but not all contracts are alike. Which one should a client buy? Along with the above specific examples of how to choose certain contract provisions, here is some general advice: Because we can’t know how a person might become disabled in the future, the more inclusive the policy language, the better protected your clients will be. The more expansive the policy language, the more expensive it will be, as it will pay a benefit in a wider variety of circumstances than a more limited policy.
No one wants to spend more in insurance premiums than is necessary, but it’s wise for the broker and the prospective client to focus just as much time and attention on what happens at claim time as what is happening at point of sale. A policy that is properly matched to the occupation, and that offers the most complete protection, will cost a little more up front but potentially deliver a lot more if and when a claim happens.