DI Underinsurance Can Be Financially Devastating
Many millions of Americans work for a living, earning regular paychecks that provide for the necessities of life (food, shelter, clothing, transportation, insurance premiums, education, etc.) for themselves and their families, but most lack sufficient income protection. It’s inherently understandable to disbelieve in one’s own morbidity and physical demise, yet statistics show that a healthy person is at least three times more susceptible to disablement from accident or sickness than to death during their career. Disability insurance is often overlooked, undervalued and many times remains an afterthought of consumers and insurance professionals alike. That must change.
Much of the U.S. workforce that is covered by some form of disability insurance is under the impression that governmental or employer-sponsored DI benefits are sufficient to their insurance needs, and supplementary individual income protection plans are an unnecessary expense. A group long-term DI program provides minimal, but possibly enough insurance protection for occupations with modest earnings potential. But what about the clients that are fortunate enough to make more money than the average American?
Consider an executive making $300,000 per year. Is a group LTD plan providing 60% of income up to $10,000 per month going to allow enough protection to maintain that person’s lifestyle or the lifestyles of his/her spouse and children? Families with a high-net worth require more insurance than most, as their average expense ratio is significantly higher than an average household.
It is important to prescribe a prospective client with as much disability insurance as the client can get their hands on. In addition to group coverage, domestic carriers offer small layers of individual insurance. But for anyone in this country making over $250,000 annually, supplemental or excess, high-limit DI is a must to bring income protection levels up to more appropriate ranges from 65% to 75% of income, dependent upon benefit taxability. Those are the magic numbers.
The U.S. Department of Labor as well as industry experts have maintained for decades that a working American should have at least 65% of his/her income insured in the hopes of providing for one’s family during a period of total disablement. But underinsurance with regards to disablement remains a serious financial problem in this country.
It is imperative that you teach your clients that in addition to life and health insurances, disability income protection is a necessity, and having less than 65% of their income insured just isn’t going to cut it. Insurance is all about preparation for the unknown and planning for the worst-case scenario. A vast majority of Americans, even the wealthy, fail to maintain significant savings and liquid assets in cases of emergency like unforeseen disablement. Retirement programs and conservative investment vehicles are certainly important in the planning of financial futures after clients cease working, but many are severely lacking in protection for the here and now during their working careers.
Realizing disability insurance is important is only half the battle. Acquiring sufficient levels of insurance is the key to sound financial planning. Underinsurance provides a false sense of security for which you don’t want to be responsible. As an advisor you owe it to your clientele to get them appropriately insured to high-limit DI levels so they can economically care for themselves and their families if they were to suffer a short or long-term impairment. You are providing financial freedom from potential disaster.