For Consideration by Insurance Advisors
As an insurance agent or broker, you dedicate considerable time, effort and direct hard-dollar expense to pursue the quest of planning for the financial security of your clients. Fundamental to their financial wellbeing is the creation of an income cash flow, under any contingency, adequate to match the outgoing cash flow also known as expenses. The same is to be said for insurance advisors themselves, and while it is widely known that disability insurance is the basis of any client’s sound financial plan, it is also a fantastic wellspring of wealth accumulation for licensed producers.
The major concerns that insurance advisors easily recognize are the contingencies that affect cash flow such as unemployment, business failure, getting too old to earn money, becoming sick or injured and, in consideration of dependents, the aspect of dying. Being extremely wealthy or having a passive cash flow sufficient to be used as a substitute for earned income are of course ideal solutions for all of these contingencies, so advisors strive to create one of these solutions for their clients, typically the latter. Death is certain and disablement is possible, but it’s hard for people accept the fact that either could happen before one fully collects retirement income proceeds. Usually with reservation, some inadequate amount of life and disability insurance is acquired.
A financial plan is then conceived and the parts are put together to create, for the client, a model that will bridge chasms of diminished or disappearing cash flow. Attention is then quickly focused on retirement income, and plans are set-up to create the funds that will provide retirement income cash flow.
People that hesitantly admit they could get sick or hurt during their working years refuse to believe they will ever be truly disabled. As advisors, we have all heard typical rebuttals by uninformed and careless clients about their own morbidity and doubt of their premature physical demise. Those that do believe they could suffer disablement tend to underestimate the need for replacement income, often citing the false reliability of family support and financial savings.
Are these cliché thoughts of consumers also the thoughts of producers as they ponder their own mortality and morbidity and their own financial plans?
We who are brokers and agents have the ultimate personal financial planning tool. A brilliant financial plan can be created unlike anything outside the insurance business. Our unique and dynamic tool is our ability to receive and maintain policy renewal commissions, especially those that are guaranteed for the life of a policy. In cash-flow terms, renewal commissions produce the equivalent of millions of dollars of wealth while outperforming the strongest of investment vehicles. They prove to be magnificent deferred compensation providing the finest of passive income.
The average annual premium of an individual disability income policy is approximately $4,000. Two or three average-sized cases per month will produce about $100,000 of annualized premium volume. In 10 years, the in-force premium would hit $1,000,000 annualized. Based on a high-limit DI renewal commission of 10%, a broker would have renewal income of $100,000 per year. Insurance renewal commissions provide a far greater return than any savings account or annuity and perform better than most investment portfolios.