Recent research highlights an important opportunity for producers to help their clients gain essential income protection for themselves and their families.
Studies sponsored by The Guardian Life Insurance Company of America and its wholly owned stock subsidiary, Berkshire Life Insurance Company of America, document some basic gaps in working Americans’ financial knowledge in general and disability insurance in particular. But the studies also suggest that people seem ready to act to improve their financial security, perhaps with a little encouragement from an insurance professional. Consider:
• More than 30 percent of respondents to a Berkshire Life survey said they are prepared to pay more than 10 percent of their monthly salary for disability income (DI) protection, even though coverage typically costs far less — closer to 2 percent.
• Seventy-eight percent of those surveyed reported they would accept a lower salary in exchange for income protection.
• A slim majority (58 percent) of respondents who already have some form of DI coverage stated that they understand it, while at the same time a significant portion (24 percent) confessed they never actually review their coverage.
• Nearly half (48 percent) of workers covered by group DI products didn’t know that benefits derived from employer-paid coverage are taxable.
Curiously, many producers themselves are not familiar or comfortable with DI coverage, perhaps because of misconceptions or a natural tendency to stick with the familiar.
Add to the mix the fact that leading-edge DI carriers have been busy upgrading their policies to address today’s market conditions, such as the prevalence of 401(k) plans and other defined contribution plans that require employees to assume more personal responsibility for their retirement planning. It then becomes clear that producers need to take a fresh look at DI.
Selling them on DI
A common myth about DI is that the typical disability claim stems from a physical injury of the sort associated with blue-collar jobs — the kind of event that might be covered by workers’ comp. The reality, in contrast, is that the vast majority of DI claims deal with cancer, heart disease, chronic back pain, and psychiatric conditions — health problems that cut across all demographics and are generally not work-related.
Successful DI producers have learned that prospects are more motivated to hear about and ultimately buy the product if the sales conversation revolves around protecting a lifestyle (and thus the income required to support it) instead of merely the probability that they will be stricken by a disabling disease.
Consumers tend to underestimate the chance that they will become disabled, so you may want to introduce your clients to facts about the likelihood and types of illnesses that cause disabilities. But the conversation doesn’t need to become an exercise in probability and statistics. Provoking fear doesn’t help much, either. It is more important to simply educate consumers and encourage a conversation that emphasizes the importance of protecting their lifestyle. A simple one-page fact sheet may be useful.
Direct sequential questions that inspire people to buy their first DI policy — or supplement insufficient existing group coverage — include:
• What percentage of your income do you need to pay basic living expenses?
• If you couldn’t work due to unforeseen circumstances, how long could your family stay afloat?
• What lifestyle sacrifices would be required to sustain you or your family financially through a long-term disability?
While the answers to those questions won’t be at your client’s fingertips, the message will be clear. And engaging prospects in a dialogue is much more productive than lecturing.
As the conversation progresses, questions about funding a retirement income also naturally arise. Some DI policies include optional coverage for maintaining 401(k) contributions — a significant benefit for people unable to afford keeping up those payments during a disability, with devastating consequences for future financial security.
Also, the extra financial needs of small business owners and professionals in private practice are a key part of the DI discussion. When serving the business owner market, it is important for producers to partner with carriers whose DI products include overhead expense maintenance and partner buy-out coverage.
In today’s world, where people in all income strata are living paycheck to paycheck and small businesses are fueling economic growth, market conditions are extremely favorable for DI sales. Income protection is particularly important in a low-savings environment where consumers have little to no economic cushion on which to survive an injury or illness-induced financial setback. And small businesses are particularly vulnerable when business protection, such as buy-sell agreements, does not have built in safety nets for a partner’s disability.
For producers who have a large DI practice, financial rewards can be significant, including generous year-one compensation coupled with traditionally high renewal compensation rates, not to mention referrals from clients who appreciate the fact that you’ve helped them build a solid financial base for their family, business partners, employees, and loved ones. For those reasons and more, getting up to speed and comfortable with selling DI is well worth the effort.
Matthew Gottfried, ASA is director of disability income for Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian Life Insurance Company of America, New York, NY. He can be reached at matthew_gottfried@berkshirelife.com.
Individual DI policies are divided into three basic categories:
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True own-occupation: Top-of-the-line protection providing a benefit if the policyholder cannot work in their own occupation. It will still provide a benefit even if the policyholder is earning an income in another occupation. |
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Modified “own-occ” coverage: Provides a benefit as long as the policyholder cannot work in their own occupation and is not otherwise at work. |
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“Any occ:” Pays a benefit only if the policyholder is unable to work in any job they are qualified for and capable of performing. |
In addition to being physically and emotionally devastating, a disability can be catastrophic from a financial perspective without adequate disability income coverage. Further, not all disabilities are “total,” thus heightening the importance of coverage with partial (“residual”) benefits if the policyholder’s disability allows them to work only part time.
Finally, not to be overlooked are “recovery benefits” that provide benefits while the policyholder builds back to pre-disability earning capacity.
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