The Science of Aging Well: How Your Beliefs Affect Your Health
Editor’s Note: Facts do not change your clients’ behavior when it comes to understanding their risk for being out of work due to an injury or illness. Bob Herum presents a primer on how to alter your discussion about the impact of disability on financial plans.
Traditionally, the disability industry provides an abundance of statistics to support the marketing efforts of financial professionals. The information shows prospects the risk of becoming disabled is high and there is a need to purchase a product to insure against the financial impact a disability can cause.
Helping Your Clients Understand the Risk of Income Interruption
And yet despite the data, many individuals simply don’t see a sickness or injury happening to them. Consider younger working individuals, many of whom likely haven’t seen friends or family members struggle with an illness or injury or the financial impact of such a disability. If they have seen a friend or family member with a disability, they likely perceived it as something that happens the older you become and thus put off purchasing coverage.
You can help your clients and prospects understand the chances of becoming disabled and the importance of protecting their income by changing the conversations you’re having with them.
As financial professionals, your mission is to listen to your clients’ goals and aspirations and to help them develop a financial plan to fulfil their objectives. Be prepared. You’ll likely need to explain the challenges their plan may face and how to mitigate those risks.
Although you’re aware of the risks involving a disability, translating that knowledge into an actionable plan for your clients is the challenge. My suggestion is that you look at the information through the eyes of your clients and help them focus on tools that can increase the odds of them meeting their short-term and long-term goals. The disability conversation and purchasing disability insurance is one of the tools in your toolbox.
Emergency Savings and Employer-Provided Disability Insurance
First, identify what your clients have in place. Do they have emergency savings and/or disability coverage through their employer that can take care of their immediate needs? Ask good questions or use some type of fact-finding form to home in on what your clients need to do in the short term. The goal is to ensure they are positioned to cover costs with revenue earmarked for such a contingency. Short and/or long-term disability coverage through work can significantly help weather the immediate issues that come with a disability. However, a thorough review of their employer-provided benefits will likely uncover additional needs.
The following needs to be understood and reviewed as part of your discussion:
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- Does the employer pay the premium? If so, the benefits are likely taxable1.
- Short-term disability insurance, whether insured or self-funded by the employer, can pay benefits for up to 26 weeks2. Is there group long-term disability coverage in place that will begin paying when the short-term disability plan stops payment?
- What percentage of earnings are covered? Typically, group long-term plans cover 60 percent of base earnings3.
- What is the cap on the group long-term disability plan? Group long-term disability plans have a cap typically between $4,000 and $25,000 a month1. Common maximums, particularly for smaller employers, cover between $5-10,000/month.
- Does the group plan cover all income types or only base monthly earnings? Most group long-term disability plans cover only base earnings4.
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How Much? How Soon? How Long?
Following the review of your clients’ savings and any work coverage, your role is to talk through the options that address how to insure against any shortfalls.
At its core, the disability discussion should center on the following three questions:
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- How much? What amount of income stream is needed to cover expenses and to prevent the need to liquidate assets such as a 401k or IRA?
- How soon? When does the replacement income need to start? Having a plan for short-term exposure allows you to focus on the longer-term planning. A 90-day elimination period is common for most individual disability policies.
- How long? What length of time does the replacement income need to be in place? Most individual disability policies have benefit periods to age 65 or even age 67. Depending on your clients’ financial plan and how long they need or want benefits to be payable, it’s possible a lesser benefit duration will suffice and provide a significant premiums savings in the disability policy.
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Like all such planning, you likely can’t solve for every permutation but by having the deeper conversations with your clients, you help them create a plan that provides the best chance to succeed – allowing them to weather a disability and still fulfill their goals and aspirations.
1 https://www.nolo.com/legal-encyclopedia/ How Much Does Long-Term Disability Pay?
2 https: //National Compensation Survey: Glossary of Employee Benefit Terms (bls.gov )
3 https://www.iii.org/article/Will my employer provide disability coverage?
4 Group and Individual Disability Insurance Definition (investopedia.com)
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