I speak to many producers who struggle with selling the need for disability income to their clients. Their clients believe that they can self-insure against disability (e.g. rely on spouses second income, borrow from credit cards, use savings). In every one of these cases, these individuals all make the following two mistakes:
- They minimize the degree of the risk and;
- They underestimate how financially exposed they would be if they were to become disabled.
Most people consider a permanent disability is something that will never happen to them. However, the statistics suggest otherwise:
- If you are age 35, chances are one in three that you will be disabled for at least six months during the course of your carreer.
- Men have a 43% chance of becoming disabled during their working years.
- Women have a 54% chance.
- At age 42, it is four times more likely that you will become seriously disabled during your working years than that you will die.
Self-insurance works for small hiccups, not castastrophic life events. This is why we protect our biggest assets and income against big unexpected events with auto insurance, homeowners insurance and life insurance. As you can see from the statistics, disability is a relatively high-percentage risk that carries a much less-than-modest financial consequence.
Explain to your reluctant clients that they can choose to retain the relatively high risk at great peril to all their financial planning or transfer the risk by purchasing a long-term disability policy. When presented with these facts, most clients choose the latter.