Disability Insurance is a complicated issue, especially for clients that don’t do their homework to, in effect learn enough to become their own disability expert.
In the old days, disability insurance was perceived to be expensive, both from the point of view of the client, and more interestingly, from the point of view of the agents that were in charge of promoting the concept.
That’s right, I said “concept”. Disability insurance was looked at as a concept, as if it were an ‘ideal’. An ideal is something we strive for, but is unlikely to be a reality for a variety of reasons that don’t make practical application possible.
But here’s the rub. Can you truly live without disability insurance if you do not have ‘any’? How many millions of dollars does your talent represent?
Say you are a self employed professional in your forties. You have worked hard to become a high paid professional. You know that you are able to contract out your talent because you are really good at what you do. In short, your experience has made you high in demand. The high demand for your talent has left you short-witted, because you are so much in demand, you could spend hours doing work, and it is taking it’s toll on you in some physiological way, AND YOU KNOW IT!
You may look at the amount per project or hour you can charge, and rightfully pat yourself on the back. But then it hits you…..what if I can’t do this anymore? This is high stress, and it’s like trying to make hay while the sun shines. Eventually it may rain again!
Truthfully, you start to realize that the only thing that could really mess up this great deal is disability. So, you say to yourself, where do I look and who do I trust?
The market for disability insurance is becoming higher in demand but there have NEVER been many agents who are interested enough to market it, and fewer who can actually assess your needs accurately. Are you getting the feeling the writer of this column is professing his own level of expertise? Well, your right. I won’t apologize for it either. I have paid my dues in this industry, know the score, and have been doing this for 20 or more years now.
There are points related to professionalism that could be made here that could fill a small book, and for the sake of brevity, I will touch on the necessary bare bones issues.
There are two forms of disability insurance on the street today – traditional monthly disability, and the new kid, critical illness.
Critical Illness is a form of hybrid disability that has unique aspects similar to life insurance – it pays a tax free lump sum, not monthly income, and pays in the event of a given medical tragedy happening to you. You must survive the event 30 days, and meet the very specific definition of what it means to have undergone the ‘event’.
The critics of critical illness coverage say that it is an expensive form of disability, and it may not pay. I fall into this group, but this is not to say I do not see the value of the coverage. I just need to look at it with common dollars and “sense”, and see where it truly fits in to protecting clients.
Let’s take an example…
A professional in a solid field has had a traditional disability policy for 15 years, but has never increased the coverage. The policy was sold with ability to buy more insurance as needed to cover increasing income, but these options were never exercised. To make it affordable, the policy was sold with incremental rate increases every five years, and it is becoming an expensive proposition in the client’s current age range, being 45 years old.
On top of this, the client was introduced to critical illness coverage two years ago, and for the face amount below $200,000 the premium was significant. In fact, the premium was just as much as the disability plan.
As this portfolio of disability coverage is assessed, the ‘differences of opinion’ are obvious, and it is also obvious that the disability program was not ‘planned’, it was a culmination of piecemeal product sales. But, the truth is, the combination of premiums has been determined by the client to be so expensive, he is not sure why he has what he has, and is at a point of thinking he should cancel out the relatively pricey critical illness plan. In truth, under the conditions the product was sold, he likely should never have taken it out in the first place, and will lose lots of money in two years. Live and learn.
In discussion with the client, it is determined the true risk of disability. The spouse is well off financially, and therefore while some disability is required, it is determined that should the client be disabled, the minimum required to maintain reasonable lifestyle is basically representative of covering off the mortgage payment, as long as the spouse works.
Knowing the true risk, it is easier to determine the best course of action. In looking at disability insurance, it needs to be discussed if living without income for three months is ok, and if so, lots of premium can be saved. The client being a professional, can also get very low cost per $100 of coverage.
The critical illness policy was never really assessed as to where it fit in. Covering off only two or three years of income, the reality of it’s effectiveness for the cost comes into question. In short, as long as a true disability plan underlines the needs, the critical illness should be looked at as a luxury addition, but by no means critical (sorry for the pun). It becomes a question of financial budget. Paying for this in a bad disability structure makes little to no sense, and it is no wonder these plans often get cancelled in budget cuts.
Well, the analysis leads to comprehensive, in tune coverage that will cover the client to age 65 and beyond, with additional coverage options without proving health. The savings are also significant. The new structure coming in at 35% of the current expenses, and meaning more! In fact, it is based on the maximum amount the client is eligible for and twice the minimum need of covering off the mortgage!
In these times, there are two things that are true – the need for protection, but also, the need for cost effective protection, that trims the fat, and ensures we are going to be financially ok in tough times.
Craig Ferguson is the owner/broker of Craig Ferguson Insurance Services, and Integrity Insurance Planning. Operating under these banners, and also BenefitsOntario. He is a father of four teenagers, and has been in the insurance industry since 1988. Contact Craig at 1.866.856.6799, extension 201.
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