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DI Insurance: How to fix the money management conversation

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Financial gurus often tell consumers to follow the money-management trifecta to start building financial security:

  1. Pay down debt.
  2. Build a rainy day fund.
  3. Save for retirement.

I would assert that they’re missing a critical first step: Protect income.  Sure, financial pundits might discuss how important income protection is down the road, but that could be too late.  The best time to talk to clients about income protection is now. After all, without an income:

  • How far could clients get with their rainy day savings?

  • What kind of dent could they make in their debt?

  • How could they save for retirement?

Most people can’t visualize what could prevent them from earning an income. They might think, “If I lose my job, certainly I’d get another one.” But, what if they’re not healthy enough? What if they can’t get another job because they’re physically or emotionally unable?

Most of us take our health for granted. We think we’re invincible, that we’ll always be healthy and able to work. In reality, unexpected illnesses and injuries happen all the time. According to the Social Security Administration, one in four of today’s 20-year-olds will develop a serious illness or injury that prevents them from working before retirement.

We need to change the money management conversation now.  Lead with income protection, instead of making it an after-thought.  This is especially true for the more than 80 million millennials in the workforce. They are just starting their careers and are only beginning to build financial security.  Chances are, most of them don’t realize they’re missing a huge component to that security: income protection.

One of the best ways to put income protection in place is with individual disability income insurance:

  • It’s affordable.  The typical daily cost is about the same as what we pay for a latte or gallon of gas. And the younger clients are, the less expensive it is. As we age, the risk increases that our health will take a turn for the worse. When clients buy coverage early, they not only protect their income, they protect their insurability.  Most policies have features that help increase future benefits without requiring medical underwriting. So, no matter how their health changes, those clients can make sure their benefit amount keeps pace with income growth.

  • It’s portable. The policy is individually owned, so it’s not contingent on an employer’s benefits package. Employees today change jobs and careers often.  By some estimates, millennials change jobs every three and a half years.  There’s no guarantee that an employer will provide group disability benefits. Indeed, according to the Bureau of Labor Statistics, only 31 percent of employers do. 

  •  It’s tax-free.  The benefit amount promised by the policy is what the client receives (as long as premiums are paid with after-tax dollars). There are no surprises when the check arrives each month.

For most clients, the concept of income protection is new.  So, how do you bring it into the conversation?  Here are two ways:

Offer a financial review.  Help clients see what income is coming in and what expenses are going out.  Talk to them about how they would cover expenses if their income stopped. Most of those expenses won’t go away just because the client can no longer work.  Then ask about other financial goals. How would those goals change if there were no income to achieve them?

Discuss asset management. For clients further along in their financial strategies, talk about asset management. Just like other investments, income is an asset and needs to be managed like one.  Your clients probably diversify their investment assets. Why?  To protect them from costly swings in the market.  Explain how income their most valuable asset needs the same level of protection.

If you have these conversations with clients and they don’t purchase disability income insurance, it’s not that they aren’t insuring against that risk. It’s that they’ve agreed to self-insure that risk, whether they realize it or not.

That means they’ll need to find their own way to make up lost income. That could include draining savings (perhaps money ear-marked for retirement), adding to their debt load or relying on family and friends.  

In most cases, self-insuring is not a dependable strategy (especially considering that disabilities can last for years).  But at least you had the conversation with them.  That’s a big step in the right direction.