Are you having conversations with your clients about the importance of income protection?
The need for advisors to provide income protection advice to clients is crucial, now more than ever.
The current economic impacts of the global pandemic have highlighted that many individuals are living paycheck to paycheck. The pandemic has also shed light on how an unpredictable situation beyond a person’s control can affect income and financial security, providing an opportunity for advisors to offer appropriate solutions to meet their needs.
During this time, advisors have a critical opening to be speaking to clients, not only about the impacts of the pandemic but about how an unexpected event can damage future financial stability.
Many people aren’t aware of the long-term income protection that individual disability insurance (IDI) can provide should they become unable to work due to a disability. Just as life insurance pays beneficiaries for a loss, IDI can pay a monthly benefit to replace income for an individual that is unable to work due to a serious illness or injury. By sharing a few key considerations, advisors can easily emphasize how IDI can protect income and equip clients with a layer of financial security to help them face the unexpected with confidence.
Why IDI Is Important
Everyone has expenses. Most people haven’t or don’t want to consider how they would make ends meet in light of a disabling event, yet there are monthly costs almost everyone must cover, such as a mortgage, car payment, student loan debt and other recurring expenses. Should a client become unable to work, their expenses will likely continue and compound without a long-term solution for paying them.
During a disabling event, the stress of keeping up with paying bills is the last thing a person needs to deal with and think about. This stress can even further impact the effects of the disabling condition and impede recovery. Clients are working hard to bring in income that supports their families and lifestyle. Helping them put a plan in place to cover lost income if they experience a disability can provide a sound foundation of future stability for them and their families.
Many people rely on their whole income, not just base pay. They need both their base salary and incentive income to maintain their financial stability and lifestyle. Therefore, they should seek to protect all sources of income.
It’s important for clients to understand that while some employers provide base-level disability insurance, that coverage likely has caps limiting monthly benefits and excludes the incentive pay they have come to depend on. It’s also important to note that should a client leave their employer, that coverage may not go with them. IDI is portable income protection that stays with the individual no matter where they work.
Who Needs IDI?
All working Americans need a safety net in case of illness or injury. High income earners tend to have larger expenses and financial commitments to protect.
This is true for professionals who have invested in additional schooling for specialized expertise, such as doctors or lawyers. In addition, professionals whose jobs require precise physical movement, such as surgeons, are especially at risk if they lose their physical abilities. These individuals have put a significant amount of training and work into their professions to establish their high level of income. A disabling illness or injury could put this in jeopardy.
Many young people feel immune to the impact of a disabling illness or injury, but they are not. In fact, at least one-quarter of today’s twenty-year-olds can expect to be without work due to a disabling event before they reach retirement. It’s never too early for them to consider insurance to protect their income. Plus, individuals can lock in IDI rates when they are young and healthy and the coverage can grow with them as their incomes increase.
How IDI Works
IDI offers a true income replacement. IDI doesn’t just offer a single lump sum of money without regard to income or lifestyle. IDI benefit amounts are determined at time of policy issue and based on the actual amount the insured individual was earning before their disability, including incentive and bonus pay. While most income replacement doesn’t cover 100% of pre-disability earnings, IDI does consider the policyowner’s full income. Depending on the benefit period applied for, this stream of income can continue until the age of 65 or 67, making it a true long-term income replacement solution.
Whether advisors are already sharing the importance of income protection with clients or they are interested in how they can better meet their clients’ individual, unique needs, having a conversation with clients about their financial plan in light of a long-term illness or accident is crucial. Advisors can help their clients build a solid foundation of financial security that helps prepare them for the unexpected, even when they think it won’t happen to them.
Jeremy Horner is assistant vice president of individual disability insurance at The Standard.