An Advisors' Guide to Excess & Surplus Disability Insurance

Debunking Four Disability Insurance Myths for Ultra-High-Income Clients

Posted Wed, May, 8th, 2024
By Exceptional Risk Advisors

Disability insurance often faces skepticism among high-income earners, who may believe they are immune to such risks. As May marks Disability Insurance Awareness Month, let's dispel four common myths surrounding disability insurance for ultra-high-income clients.

Disability insurance, often referred to as disability income protection, is a crucial insurance product safeguarding an individual's income in the event of serious illness or injury.  Protecting highly compensated individuals, those earning in excess of $500,000 annually, takes a specialized approach.  In this post, we will tackle four myths associated with disability insurance for ultra-high-income clients.

Myth 1: Heart Disease is the Leading Cause of Long-Term Disability Claims

Reality: While heart disease may top the charts as the leading cause of death in the U.S., it surprisingly ranks fifth in terms of new long-term disability claims. This can be attributed to the proactive steps Americans take to prevent heart disease, such as managing cholesterol levels, quitting smoking, and staying active.

Statistics reveal that a 45-year-old is three times more likely to experience a disability lasting over 90 days than to pass away before reaching 65. When a client faces time off work due to a stroke, debilitating illness, or chronic pain, they are essentially losing their most valuable asset - their ability to generate income.

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Myth 2:  No Options for Clients Who Have Maxed Out the Traditional DI Market

Reality: For the average worker, a standard benefit of a 60% income replacement ratio can be met with Group Long Term Disability and Supplemental IDI coverage. However, when it comes to highly compensated individuals, these traditional options may fall short. What many advisors may not realize is that there exists a third layer of disability insurance in the excess and surplus markets, such as Lloyds of London. With monthly benefit limits reaching up to $250,000, this coverage can cater to individuals earning $5 million annually, providing a deeper level of protection.

Myth 3: Lloyd's of London is Exclusive to Celebrities and Athletes

Reality: The Lloyd's of London market caters to two distinct groups of individuals seeking disability insurance. The first group includes A-list celebrities and professional athletes who require specialized coverage not available in the U.S. disability insurance markets. The second group consists of individuals who are significantly underinsured, highlighting the gap between what they qualify for and what traditional U.S. disability insurance can provide.

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Myth 4: Disability Insurance is Too Expensive

Reality: Imagine your client, a thriving 45-year-old earning $1 million annually with another 20 years of work ahead. This translates to a staggering $20 million future asset that remains underinsured.  A savvy advisor will pose the question, "What asset do you own worth $20 million is left uninsured or underinsured?" The likely answer - nothing! For a relatively healthy individual in their mid-40s, the premium for disability insurance is typically a small fraction of their yearly earnings. This investment not only safeguards their generational wealth but also secures their lasting legacy.

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High-income clients often overlook the necessity of disability insurance, assuming they're insulated from financial risk.  Debunking these myths underscores the critical role disability insurance plays in safeguarding their livelihood and financial security.  It's essential for advisors to be well-versed in these realities to guide clients effectively.

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