Disability insurance is a tough sale when compared to life insurance. Your healthy and fit clients don't think a disability will ever happen to them. But as advisors you know the statics that show a 45-year-old is three times more likely to suffer a disability lasting longer than 90 days than they are to die before the age of 65. When your client is out of work due to a stroke, debilitating disease, or chronic pain, they are losing their biggest asset - their ability to earn an income! As advisors, once we wrap our heads around that disability insurance IS income protection, the conversation continues with your clients.
Typical employer-provided group long term disability (LTD) limits are in the $15,000 per month range, which covers about $300,000 of annual income with a 60% income replacement ratio. Traditional group LTD insurance can also be supplemented by a second layer in the form of a supplemental plan using individual disability income insurance (IDI). These two plans can increase disability replacement income to a combined $35,000 per month or so, which is deemed adequate for salaries in the $700,000 range.
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High limit disability income protection is most often utilized to supplement an individual’s U.S. disability insurance coverage to provide adequate protection for high income earners. This type of coverage typically provides an “own occupation” definition of disability.
So, who needs high limit disability insurance? There are two general qualifiers for individuals who purchase disability insurance from the Excess & Surplus market. The first is often a circumstance of underinsurance. The most common example of underinsurance is when there is a gap in what an individual qualifies for and what the U.S. disability insurance markets can offer, therefore they require a supplemental policy (often referred to as an “excess” or “surplus” lines policy) to enhance a domestic disability plan with inadequate benefits. Individuals earning in excess of $700,000 annually represent a significant segment of this class.
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The second is when a void exists in the U.S. disability insurance markets and the coverage an individual is seeking is simply unavailable. This class is comprised of professional athletes (NFL, MLB, NBA, NHL), entertainers (actors, actresses, musicians, artists, producers, writers, etc.). Coverage for this class is written from dollar one through the Excess & Surplus Lines market.
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The bottom line is that there exists an exceptional opportunity for advisors to present unique solutions to fully protect highly compensated clients' future income by supplementing what is offered by traditional carriers. Rebranding disability insurance to mean income protection will help keep the conversation moving forward. Income protection implies that your clients are in control of their future and have laid out a plan to protect their estate and family.
