The Rebirth of Disability Insurance

The Post-Pandemic Market

Before 2020, disability insurance was often a grudge purchase. It was something that advisors had to push.

Now, clients are starting conversations about the product.

The recent premium and policy count increases show that clients aren't just nodding along. They're sealing the deal.

The shock of the COVID pandemic helped clients see income protection gaps as visceral rather than theoretical. That increased the odds that clients' intent-to-buy would lead to real sales.

Although the 2022-2023 inflation spike made cost-of-living adjustment riders seem more relevant, it also exposed a critical vulnerability: Because the cost of living increased dramatically, inflation made benefits that seemed adequate in 2019 look insufficient just a few years later.

The impact of cost increases led to demand for higher base benefits and for inflation-indexed features.

Workforce Changes

The COVID-19 pandemic caused many people to work at home.

"Hybrid" work arrangements caused coverage gaps. They also complicated client and advisor use of "own-occupation definitions," or disability insurance policy provisions that help insureds who become disabled collect benefits if they are unable to perform well in their own occupations.

Workers are also using more mental health care. The surge in claims related to mental health is clashing with insurer assumptions about how often claims will occur, how long claims will last and what kinds of support structures will be available to help workers return to work.

Today, disability insurance must address both traditional physical risks and the growing reality of mental health-related work interruptions.

Advisors must be prepared to help clients understand the facts of each type of policy and any riders they're interested in, to ensure that clients are getting the most out of their benefits and not just following trends.

Managing Trends Across Generations

In each phase of life, disability insurance plays a very different role.

Members of every age group are more concerned about protecting their income, but advisors must be conscious of the general needs of all age groups.

For example, younger professionals in their 20s and 30s often face crushing debt-to-income ratios.

Between student loans and new mortgages, those young professionals' cash flow streams have zero margin for error.

Young professionals see disability insurance as existential protection, because they see that one disability could trigger a cascade of defaults.

Advisors should focus on offering affordable comprehensive coverage to younger clients, as underwriting is easier and premiums are lowest at these ages.

On the other hand, mid-career clients in their 30s, 40s and 50s are at their peak earnings power, often with dependents, and they're more focused on coverage quality.

They've seen colleagues become disabled and understand the lifestyle impact.

They want true own-occupation definitions, residual/partial disability features and future increase option (FIO) riders that keep pace with rising incomes.

The Pre-Retirees:

When working with mid-career clients, advisors must avoid relying on generic formulas. Instead, hosts must ensure that the coverage purchased matches the clients' actual financial obligations.

Pre-retirees in their 50s through 60s shift their focus to claim mechanics and benefit coordination.

They're concerned about claim duration through retirement, Social Security disability insurance integration and Medicare coordination.

Members of this group are far less concerned with return-to-work incentives, but they may want to work part-time.

Pre-retirees view disability insurance as the bridge protecting their final earning years and retirement security. That makes it easier for advisors to help guide the pre-retirees towards the best policies for their situations.

The New Advisors

Focusing less on transactional product sales and more on comprehensive income protection planning will help advisors stand out from the crowd.

Today's market demands advisors who understand benefit coordination, inflation protection and the intersection of public and private disability systems. Those who master this complexity will thrive.

Adam D. Sendzischew, CFP, CLU, AWMA, AAMS, TEP, CEPA, is a principal of Jones Lowry. He specializes in advanced life insurance strategies. He has been a member of the Million Dollar Round Table for nine years.

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