The Ultimate Financial Planning
Agents, brokers, advisors, planners, and other producers dedicate considerable time, effort, and money to plan for their clients’ financial wellbeing. The goal is to create adequate cash flow to match expenses under any contingency.
Events that affect cash flow include becoming unemployed, having a business failure, getting too old to earn money, getting sick or hurt and, in consideration of dependents, dying. The best solution for all of these contingencies is being rich or at least having enough passive cash flow to substitute for earned income.
People often dismiss the possibility of unemployment or a business failure with a shrug and a comment like, “I would just start over with a new business or a new job and I would rely upon my rainy day reserves.” It is hard for some people to accept that death could happen before they fully collect their retirement income proceeds. Usually with procrastination, people acquire some inadequate amount of life insurance. People who do admit they could get sick or hurt refuse to believe they could ever be truly disabled. “I come from healthy stock and I’m a careful driver,” are clichés producers often hear from the uninformed and careless client. Do advisors say the same things when they think about their own mortality, morbidity, and financial plans? Maybe?
We producers have the ultimate financial planning tool. We can create a brilliant financial plan that is unlike anything outside the insurance business. Our unique planning tool is in the form of our renewal commissions on disability insurance – especially since this guaranteed for the life of the policy. In terms of cash flow, it produces the equivalent of millions of dollars of wealth and outperforms the best investments. It is magnificent deferred compensation and the finest of passive income.
The industry annual premium on individual disability income averages $2,000 to $4,000. One average sized case per week for 50 weeks can easily produce $100,000 of premium in force. In 10 years, the in-force premium is $1 million. A broker would have renewal income of $1 million per year based on a 10% renewal. A disability account of $1 million in premiums can be done easily in 10 years or less. In contrast, you would have to save $1,000 a month from after-tax earnings for 83 years to save $1 million.
Group insurance renewals are unpredictable due to the cancellation by insurer or plan sponsor, a change in the broker-of-record, or a change because of a merger, acquisition, or business failure. In contrast, individual disability income is difficult to replace; people tend to keep it, so persistency is excellent; no broker-of record letter is involved, and there are reliable rates and coverage.