American families spend more than they earn. The result of that spending is that only 40 percent of adult Americans have any savings earmarked for emergencies, and 71 percent live from paycheck to paycheck, without enough savings to survive a disability. Economic conditions have decreased the number of savers and eroded the savings of those who still have a small emergency fund. Against this backdrop, the number of Americans with disabilities continues to rise. This is not a happy combination.
A survey by the Council for Disability Awareness revealed that 83 percent of respondents believe a disability can happen to anyone at any time, but they don't think it will ever happen to them. The odds, however, are not in their favor: One in three Americans entering the workforce today will suffer a disability prior to retirement. Moreover, when a disability happens, expenses inevitably increase, so those few with savings may exhaust their funds sooner than they expected.
Additionally, investment portfolios and 401(k) balances have taken a hit. The inability to retire in comfort has resulted in more workers remaining actively employed in their later years. These prospects and clients have a firsthand understanding of the results of an economic downturn and want to be assured of a safety net in the event they become disabled and can't complete their dreams and goals. Holes in the Safety Net
Some of your clients believe that if they become disabled they can take advantage of the Social Security Disability Income (SSDI) program, but the news there is even worse. The Social Security Administration received 10 million new claims in 2009, up from 8.2 million in 2004. That is a whopping 22-percent increase in just five years—and that's not the worst of it. Government auditors project that within the next four to seven years, SSDI will run out of money.
So, your prospects and clients have little or no personal savings to fall back on, and the government program they might otherwise rely on for subsistence-level benefits is going broke. I reiterate: How can you not discuss this DI solution with your clients?
Once an advisor has crossed that line of logic, the second question is nearly always, "What is the best policy for my clients?" The answer to that is simple: The best policy is the one that is in force when your client files a claim. That may sound like a flippant answer, but it illustrates an important point. Many advisors find it easy to get wrapped up in the mechanics of the contracts. Don't. Remember that from the client's perspective, what you sell is ultimately less important than what you solve.
Whether you aspire to become a DI expert or simply want to round out your product offerings, start by finding a strategic partner. There are firms in the marketplace that specialize in working with advisors and helping them with the strategies, tactics and plans of DI coverage. That said, there are some considerations, tools and techniques you will want to have ready. Good or Cheap, Not Both
There is good DI insurance and there is cheap DI insurance, but there is no good, cheap DI insurance. A base contract with all available riders can cost as much as two to three percent of a client's gross income. For some clients, that is a perfectly digestible premium. For others, it creates an insurmountable barrier. Yet with a bit of thoughtful planning, acceptable levels of protection can be designed for all clients, regardless of income or budget.
First, remember that when you purchase any product, you are hiring it to do a job. Think of it in terms of buying a car. A Chevy and a Bentley both will get you from point A to point B. The price points of those options are wildly different, but there are, indeed, buyers for both.
Remember the "best contract" definition and begin your discussion with "good, basic transportation." Clients should be offered a base (total only) contract with a residual (partial disability) rider as a starting point. There are many useful riders to be considered, but they all have a cost. As an advisor, you can't let that cost get in the way of your client's need to have good, basic "transportation."
The underlying plan design itself can also be a way to mitigate the cost to a more affordable point. Most of us are used to having a plan with a benefit that pays until the client is age 65. That is a great design, if it is affordable. A benefit that is paid for five years is less expensive, and is a good fit with the statistical length of the average disability, which is 2.5 to 3 years. Even in the unfortunate event that the disability lasts longer than the average, advisors should not discount the tremendous help that five years of benefits will provide. Don't let the "perfect" be the enemy of the "good" when designing your clients' plans.
Successful advisors who want to deepen client relationships know that today's challenging economic conditions actually create an opportunity to have this most important of conversations with their prospects and clients.
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