Merriam-Webster defines Essentiality as: essential nature, essence, an essential quality, property or aspect. This has never been more applicable or appropriate when used when considering the topic of Protecting your client’s most valuable asset, their ability to earn and grow their Income.
Income Protection (i.e., Disability Insurance or DI) is a vital, yet often overlooked, aspect of financial planning. It provides a safety net for individuals who become unable to work due to illness or injury, ensuring that they can still maintain their standard of living. This article explores the essentiality of Income Protection (DI), outlining who needs it, why they need it, types of coverage, what it covers, when it’s necessary, and how to obtain it.
Who Needs their Income Protected?
The simple answer is: everyone who relies on their income to meet their financial obligations. Income Protection is the cornerstone of a successful financial strategy. Think of the clients or prospects you already know that are:
Employees: Whether salaried worker or an hourly employee, if their paycheck is their primary source of income, DI is crucial.
Self-Employed Individuals: Entrepreneurs and freelancers, who don’t have employer-provided benefits, need DI to protect against income loss.
Young Professionals: Those just starting their careers may feel invincible, but accidents and illnesses can happen to anyone, at any age.
High-Income Earners: Professionals such as doctors, lawyers, and executives often have substantial financial commitments. DI helps protect their lifestyle and investments.
Primary Breadwinners: Individuals whose income supports their family need DI to ensure their dependents are taken care of in the event of a disability.
Why Do They Need It?
Your client’s ability to earn an income is arguably their most valuable asset. DI replaces a portion of their income if they are unable to work due to a disability, ensuring they can cover their living expenses.
Financial Stability: Without DI, your client may have to dip into savings, investments, or retirement funds to cover their costs, jeopardizing their financial future.
Debt Repayment: Many people have significant debts, such as mortgages, car loans, and student loans. DI helps your clients stay on top of these obligations, even if they can’t work.
Medical Expenses: Disabilities often come with additional medical costs. DI can help cover these expenses, reducing financial strain.
Peace of Mind: Knowing your clients have a financial safety net allows them to focus on recovery and reduces the stress associated with financial uncertainty.
What types of Disability Insurance are there and what do they cover?
Disability insurance generally covers a percentage of your pre-disability income, typically between 60-80%. Here’s a closer look at what it provides:
Short-Term Disability Insurance: This type of coverage provides benefits for a limited period, usually up to six months, and is designed to cover temporary disabilities resulting from injuries or illnesses. This is normally provided by employers as an employee benefit although there are some Short-Term Individual policies available in the market.
Long-Term Disability Insurance: This kicks in after short-term coverage ends and can provide benefits for several years or even until retirement age, depending on the policy. This too is normally provided by the employer.
Individual Disability Insurance: This is personal coverage that is owned and controlled by the insured. Group STD and LTD are wonderful benefits but they may not be enough to cover the insured’s expenses and are only available while the employee works at that particular company. Individual DI can supplement the employer provided benefits and provide financial security no matter what happens to their job and the loss of their employee benefits.
Partial Disability: Some policies offer benefits if you can work but only in a limited capacity, providing partial income replacement.
Own-Occupation vs. Any-Occupation: Policies can vary in terms of what qualifies as a disability. “Own-occupation” policies provide benefits if you can’t perform your specific job, while “any-occupation” policies only pay if you can’t work in any job.
When Is Disability Insurance Necessary?
The ideal time to get disability insurance is before your client needs it. Here’s why:
Younger and Healthier: Premiums are typically lower when our clients are young and healthy. Waiting until they are older or have health issues can make DI more expensive or even unattainable.
Life Changes: Significant life events, such as getting married, buying a home, or having children, increase your client’s financial responsibilities, making DI even more essential.
Career Milestones: As your clients advance in their careers and their income grows, ensuring that income is protected becomes increasingly important.
How to Obtain Disability Insurance for your Clients?
First, there has never been a better time to discuss Income Protection with your clients. There are many quality DI carriers that have made obtaining DI easier today than at any point in history.
Second, you don’t have to be a DI expert to discuss Income Protection with your clients. There are excellent resources to support your Income Protection efforts. Carrier Wholesalers and Brokerage General Agents are the ones who can help you.
Third, Financial Advisors and Insurance Professionals (Advisors) tend to fit in to three categories, just know that there are industry resources experts and resources to help you no matter which category you fit in:
1) Advisor wants to have the Income Protection conversation with their clients on their own. You will need to work closely with a Brokerage General Agent or Wholesaler who will provide you with the pre-sale support including finding the right carrier and illustrations. They will also process your applications and help you all the way through policy placement.
2) Advisor wants to have the Income Protection conversation but wants to have an expert help present the solutions. This is commonly known as a concierge or exclusive service model. There are many DI Experts available to work with you in this fashion.
3) Advisor has clients that need to have the Income Protection conversation but would rather have a DI Expert handle it. Same as number 2, these same DI Experts can take the referral from you and handle it from A to Z.
Conclusion
The Income Protection conversation is Essential to a sound financial plan. It protects your client’s income, maintains their financial stability, and provides peace of mind. Whether your client is an employee, self-employed, a young professional, a high-income earner, or the primary breadwinner, DI ensures that they and their loved ones are financially secure in the face of unexpected health challenges. Don’t wait until it’s too late—evaluate your client’s needs, explore their options, and secure the proper coverage that will safeguard their financial future.