One of the most significant challenges advisors face is how to help clients address the myriad of financial decisions that could impact their households. Retirement planning tends to receive great attention because it’s an easy conversation to initiate and often a focus for clients already.
Comparatively few clients, however, consider the potential impact of losing their ability to generate an income due to disability.
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Especially amid the Covid-19 outbreak over the last few weeks, it’s that much more important for individuals and families to forward-think about how they will financially survive if they cannot work, and advisors need to step up to proactively support clients on this matter.
Meanwhile, financial advisors find that trying to cover clients with private disability insurance policies is often a very complex process — entailing both medical and financial underwriting as well as historical tax documentation. Due to the complexity for advisors and lack of expressed demand by clients, preparing for disability tends to be a drastically under-addressed topic of conversation.
This pattern is reflected by the data we analyze at Asset-Map, which indicates our retirement funding calculator is the most-run analysis engine by advisors using the platform. The least-run is the disability funding scenario, despite representing the most significant exposure for many clients.
Our data further demonstrates that for over 1 million people within the Asset-Map platform, the average replacement income in the event of a disability is less than 20%! That’s a scary statistic, considering more than one in four 20-year-olds today can expect to be out of work for at least a year due to a disabling condition before they reach normal retirement age.
Thus, a significant number of American families are at risk because their goals, savings and payments of financial obligations are almost universally tied to their ability to generate income. The bottom line is most people just can’t afford to take an 80% pay cut for an extended period of time. Can you afford it?
Our goal is to illuminate the issues involved by helping advisors determine how much income replacement coverage is available to a client in the event of a disability, and then clearly communicate their specific exposure. We condense that data and communication into one convenient page called a Disability Target-Map.
The question then becomes, “If we were to be disabled, where will the money come from?” If there’s no realistic answer, the advisor should either discuss group or personal disability insurance with their client or help devise a “parachute plan” dictating how their expenses could be drastically reduced.
Whether or not you utilize planning tools, the greater priority is being proactive about discussing the potential for disability with clients. Although this can certainly be a complicated topic, the data reveals a widespread problem and not enough action to address it. I believe we as advisors need to take the initiative and start having these conversations now, before it’s possibly too late for many clients.
Adam Holt, CFP, ChFC, is the chief executive officer and founder of Asset-Map, a company that develops visual communication tools.