If you were to ask your client during your next review meeting, “What is your most valuable asset?”, what do you think they would say? Most would probably identify their car or their house, maybe a set of jewelry, or maybe even a collection of autographed baseball cards upon first thought. The qualifications for what are deemed to be one’s “most valuable” asset can vary from person to person. However, there is one common asset that is both figuratively, and literally, the most valuable to all people: their income.
Your ability to earn an income is what allows you to afford and accumulate all other assets in your life. Your annual earnings permit you to buy your dream house, your dream car, save for the future, and build your net worth. Knowing this, it would make sense to take the necessary steps to protect this asset, wouldn’t it? That is where disability income insurance comes in.
If you were to start your career with an annual salary of $70,000 with a yearly increase of 2.5%, which is the average rate of inflation in the U.S. over the last ten years, and worked for 35 years, your career earnings would be approximately $3.85 million dollars. Now, if you had a $3.85 million dollar sport car sitting in the garage, you’d have some insurance on it, right? Of course you would! By the way, the value of that sport car depreciates each time you roll it out and take it for a drive, unlike your income. So, having a disability income policy to safeguard your earnings for when life doesn’t go according to plan can prove to be a very wise decision, specifically during the years when you are building your net worth which for most people is from their late 20s through their early-60s.
So, how does a disability insurance policy work? Traditionally, this policy would be structured to pay a specified monthly amount to the policy owner if that person were to become disabled and could no longer perform the occupational duties of their job for an extended period. There is typically a duration of time, called the elimination period, that must elapse before the policy benefit would be payable to the policyowner. This period begins as soon as the insurance provider is notified by the physician of the policy owner that they have become disabled and cannot carry on with their normal, occupational responsibilities. The nature of the disability can be that of the mental or physical sort and does not have to be a result of an event, or series of events that took place in the work environment. One may receive the monthly benefit from their policy for as long as they are disabled up to a specified age which can reach as high as age 67 or 70.
The definition of disability varies from policy to policy. Normally, the insured would stop receiving benefits once they are fully recovered and can return to performing their occupational duties. However, there are certain riders that can be added that will allow the policy owner to continue receiving benefits even after recovering from the disability and returning to earning a normal income. This is known as a True Own Occupation rider which allows the continuation of benefits to be paid to the policy owner in addition to earning income from another job, as long as they are working a profession that is outside of the occupation that is defined within their disability policy. Not all insurance providers who solicit disability insurance have this type of rider, and those who do will charge extra for it to be added. This specific rider is especially good for those who have high-earning occupations such as medical professionals, lawyers, accountants, and architects.
In today’s market, most personal disability policies will only supplement a majority of a person’s annually earned wages, usually anywhere from 55-70%. However, it is a better alternative than having to figure out a way to supplement the normally expected income, while also attempting to recover from the disability event that put them in a new position of financial burden. Keep in mind, these policies are not intended to be kept by their owners for the duration of their lives. Ideally, the policy will be put in place in the beginning of one’s professional working years and can be discontinued once the insured has achieved their financial goals and no longer are reliant on a continuous stream of earned income, due to the assets they have accumulated that will carry them through the rest of their living years.
Like all insurance, disability insurance it is cheaper the younger and healthier you are. This is why it is advantageous to acquire it in the early working years, so the coverage is in place and available when you are more likely to need it, which for most people is in their 40s and 50s when their bodies are not as durable. Many have life insurance to protect and provide for their loved ones. Talk with your clients about having disability income insurance to protect and provide for not only their loved ones, but themselves!