Income Protection Through The Generations

Why Disability Insurance Should be a Priority for Millennials… and Advisors

by Steve Sperka

Millennials are the undeniable future of the industry. This large, highly educated generation is projected to comprise nearly half of the workforce by 2020 .

In addition to their own earning potential, Millennials stand to inherit trillions in wealth transfer in the next few decades. As these client demographics shift, advisors must focus on adapting their approach to engage Millennials who, while young, are demonstrating financial maturity beyond their years.

Findings from Northwestern Mutual’s 2015 Planning & Progress Study reveal that this generation, even more than their older counterparts, consider themselves disciplined financial planners. They are also realistic about the future, with nearly three quarters (73%) expecting to work past retirement age because they do not believe social safety nets will take care of their needs. This may explain why half of Millennials have set financial goals as compared to 2 in 5 older Americans.

Against this backdrop, cultivating this segment early is likely to yield strong returns over time — and the scope of the opportunity is significant. Our 2015 Planning & Progress Study indicates that only 16% of Millennials have sought advice from a financial professional while just half of that small group has actually established an ongoing relationship with an advisor.

However, penetrating Millennials requires overcoming perceptual barriers. Our research found that the two top reasons Millennials do not use advisors is because they think they need a certain amount of assets and/or that they cannot afford it. So, how does one unlock this tremendous potential? Disability insurance (DI) may just be the key.

DI and Millennials = Perfect Combination

Disability insurance is an intuitive gateway to the Millennial demographic for a number of reasons. First, given the relatively low premiums, disability insurance is affordable. Second, it is directly responsive to the financial concerns and sensibilities of Millennials. Multiple studies, including our own, have suggested that surviving the financial crisis has made this generation risk-averse, inclined to save, and focused on retirement security.

Finally, our Planning & Progress Study revealed that unplanned financial emergencies, insufficient savings to retire comfortably, and unplanned medical expenses top the list of Millennial financial fears. Considering that a disability can turn that trifecta into an instant reality is likely to predispose this group to messaging around income accumulation and asset protection. Moreover, this is a virtually untapped market. Statistic from the US Labor Bureau indicate that two thirds of the workforce does not have access to disability insurance through its employers and only 5% of Millennials own individual disability policies, per NM data. Our experience shows that disability insurance can be an effective relationship-building tool as new NM advisors who are successful selling DI tend to see five times more client retention.

Making the Case

In addition to covering the practical aspects (i.e., short vs. long term DI options, costs), the following are a number of key messages that are likely to resonate with Millennials when positioning the benefits of individual disability insurance:

• This CAN happen to you – As is common with youth, Millennials tend to view themselves as invincible. The reality, however, is quite different. One in four of today's 20-year-olds will become disabled before they retire, according to US Social Security Administration estimates.
• Focus on your physical not financial health – Group disability income typically covers up to 60% of a paycheck and is taxable, which results in less than half of one’s salary and may not be enough to cover routine expenses. Individual policies offer more flexibility because they supplement the gap in income and the benefits typically are not taxed.
• Maintain your hard-earned financial freedom – Millennials are faced with some of the highest unemployment rates in decades, making them even more appreciative of the security and independent lifestyle that a job/steady paycheck provides. Lack of income protection in the event of a disability can upend that lifestyle quickly, making the need to move back home or rely on parents for support a distinct possibility. In fact, per Life Happens research, nearly half of Americans would find themselves in financial trouble in just one month or less after incurring a disability.
• Protect your future – It is not surprising that reducing debt is a priority for Millennials given the monumental student loan burden facing this generation. A disability without income protection has the potential to not only deplete a nest egg but create financial disruption that can take years to unravel. In contrast, individual DI coverage may allow an employee to continue 401(k) contributions and minimize the possibility of accumulating more debt to defray living expenses.
• You can take it with you – Unlike group coverage, individual DI is portable and can move with a policyholder as he or she transitions through different employment opportunities.

May is Disability Insurance Awareness Month and an opportune time to initiate conversations with existing clients who have Millennial family members or Millennial prospects. Aside from developing a plan to engage Millennials, it is important to carefully consider which disability solutions to present to clients.

Important factors to assess include a history of claims payments, corporate financial strength, solid financial ratings, and corporate structure. Mutual companies, for example, have participating policies, which creates potential for dividends that can lower premium amounts.

Northwestern Mutual is the marketing name for The Northwestern Mutual Life Insurance Company (NM), Milwaukee, WI (life and disability insurance, annuities, and life insurance with long-term care benefits) and its subsidiaries.

[1] University of North Carolina Kenan-Flagler Business School. Maximizing Millennials in the Workplace (2012).

[2] The Greater Wealth Transfer Report, Accenture 2012.

[3] U.S. Bureau of Labor Statistics, Insurance Benefits, Access, Participation and Take-Up Rates, National Compensation Survey, March 2013.

[4] The Disability Survey conducted by Kelton Research on behalf of Life Happens, April 2012