What every advisor needs to know about insuring their clients' paychecks
By Thomas Wong Mr. Wong is Regional Individual Disability Manager for The Guardian Life Insurance Company of America. Wong joined Guardian in 1994 and works closely with financial professionals to promote Guardian’s individual disability insurance products. He was previously a Marketing Services Specialist and an insurance agent. Visit Guardian Life.
Chances are your clients already insure their life, their car, and their home. But they often overlook insuring their most important asset — their ability to earn an income.
That paycheck is the primary source of funding for a lifetime of things, from basic necessities to their long-term hopes and dreams. The millions earned over the course of a forty or fifty year career is surely an asset worth insuring. But what would happen to your clients if their income stopped because of illness or injury?
Without a paycheck, how long could they pay rent and utilities, buy groceries, make student loan payments, etc.? In all likelihood, life as they know it would be thrown significantly off course. The alarming fact is that one in four of today's 20-year-olds will become disabled before they retire.1 And if you're thinking that most disabilities are the result of freak accidents, you're in for a surprise.
The vast majority of disabilities, about 90%, are caused by various forms of illness including cancer, mental disorders like anxiety and depression, muscle and back problems, and heart disease.2
What to Look for in a Disability Income Policy
May is Disability Insurance Awareness Month (DIAM), which presents a great opportunity to speak with your clients about their disability income insurance needs. Disability income insurance (DI) can help replace income if your client becomes too sick or hurt to work.
It provides a buffer against the unexpected. Your client may have group DI coverage through their employer which is a great start. However, it could leave gaps in their coverage. Therefore, it might be worth exploring the possibility of supplementing their group coverage with an individual disability insurance (IDI) policy. And if they don’t have any DI, an individual DI policy can help.
Should disability strike, DI provides income that can be used to keep their household running as well as to help them adjust to their changed circumstances. But before you go shopping for an IDI policy, you need to know what features to look for to get income protection your client can count on:
How Disability is Defined
The definition of Total Disability outlines what constitutes being totally disabled.
- If a policy defines Total Disability as inability to return to work in any occupation, then it would typically pay benefits only if your client was unable to perform any job, either their own or a job in a new field or occupation
- If the policy defines Total Disability as an inability to work in your client’s own occupation, it typically pays benefits if they cannot perform the duties of the occupation they were engaged in prior to becoming ill or injured
Coverage for a Partial Disability and/or Recovery
A policy's Residual Disability benefit provides protection in the event of partial disability or during a recovery period.
- Typically payable in an amount that is proportionate to the loss of income suffered due to sickness or injury
- Supports your client’s financial recovery while they recover physically
- Not available with most group plans
Flexibility to Tailor Coverage to Your Client’s Specific Needs
Both now and in the future, options (also called "riders") like these let your client:
- Increase coverage as their income grows with no medical insurability requirement3
- Adjust benefits to help keep pace with the cost of living
- Safeguard retirement contributions
- Continue student loan payments
Most professionals expect to change jobs or employers multiple times during the course of their career
Your client can take individual DI coverage with them when they change jobs
Group Long-Term Disability (Group LTD) plans typically are not portable.
To avoid the possibility of losing coverage just when they need it most, guide your clients to select a policy that's both non-cancellable and guaranteed renewable to age 65—with premiums also guaranteed until age 65.
- With group or association group coverage, your clients run the risk of being dropped and left unprotected at a time in life when, due to age or to a change in health, it would be very difficult to qualify for coverage from another provider.
Remember, the cost of individual disability income protection is age-based, so your clients can lock in a lower rate by buying when they are young and in good health. Your clients have made a significant investment of time and money to build their careers with the promise of financial security and the other rewards a successful profession provides.
But should they become too ill or injured to work, that promise evaporates. As their financial representive, you play a critical role in ensuring their greatest asset is properly protected.
1 U.S. Social Security Administration Fact Sheet, January 2015.
2 Council for Disability Awareness 2014 Long-Term Disability Claims Review.
3 Restrictions and limitations apply. The amount of additional coverage available will be financially underwritten based on the amount of disability insurance you have or are eligible to receive, as well as your income at the time you apply. Individual disability income products underwritten and issued by Berkshire Life Insurance Company of America, Pittsfield, MA, a wholly owned stock subsidiary of The Guardian Life Insurance Company of America (Guardian), New York, or provided by Guardian. Product provisions and availability may vary by state. Optional riders are available for an additional premium.