Financially squeezed families often times cannot budget for both life insurance and disability insurance.
If despite the client’s best efforts he or she cannot budget for both, yet each is key to a secure financial future, how should you advise your client?
It’s a tough decision; however, if the client is relatively young–say 37 to 40–the surviving spouse after a period of mourning, will adjust their lifestyle and get back to work or take a different job.
Given that, allocating more dollars to disability insurance than to life insurance would likely be the most prudent decision because a disabling illness or sickness is the greater risk during the working years. Statistics show that a person is 3 times more likely to become disabled during his or her working years than to die an untimely death.
If the client already has life or disability insurance in place, but wants to cancel coverage due to an unforseen financial situation, do everything you can to help them avoid this action. It is often more expensive to pick up the insurance later, and the client’s health may have changed, making it difficult to replace the coverage at a later date.
Depending on the client’s circumstances, these five tactics may help the client allocate limited insurance funds and avoid the need to cancel existing policies:
- Review with the client, his or her discretionary spending. Suggest to the client that they spend less on discretionary purchases, so they can meet their premiums. Remind them that their income may fluctuate, but their need to insure against risks is unlikely to change.
- Encourage your clients to buy life insurance with an eye toward flexibility. If the client has not purchased life insurance yet, suggest that he or she may want to consider buying several smaller policies, rather than one large policy. If times get tough, the client has the flexibility of dropping one small policy and still have some coverage.
- Scale back the disability income policy. To make a disability income policy more affordable, the client can opt for a longer elimination period (90 days is the average) or choose to recieve the benefits for a shorter period fo time (2-5 years).
- Look for help from riders. Some life insurance policies have riders for disability income protection and vice versa. This is not an ideal way to provide disability income or life insurance protection for your clients. However, if the option is to have no disability or life protection, some protection is better than no protection.
- Don’t overbuy. Consider the risk and the options available to cover the risk. Encourage clients to be prudent, but not overzealous. Disability income should cover up to 60% of the client’s income. The rule of thumb for life insurance is 5 to 7 times annual income.
Call Souce Brokerage, Inc. We can help you design DI and Life plans as well as provide quotes that will fit your client’s budget.