We often hear brokers say: “My client received a preferred plus rating for life insurance, so he or she will have no problems getting a preferred offer for disability income.” Yet, the risks are not equal. Here’s why:
The average life expectancy for men and women in the U.S. is well past social security retirement age and into the late 70s for males and early 80s for females. Underwriting for life insurance, especially term life, is based on never having to pay out a benefit because of the high likelihood that the term will expire before the insured dies.
On the other hand, 40 percent of workers age 40 will have a long term disability event before age 65, according to the JHA Fact Book. The risks of a disability claim are higher, even though we are living longer.
Consider a disability policy that pays the insured $10,000 a month until age 67. If the insured is permanently disabled at age 40, he or she will receive a total payout of $3,240,ooo until age 67—much higher than most life insurance payouts. And the total payout will be even higher for insured individuals with higher incomes and higher disability income benefits.
Common Causes for Disability Claims
It can also be helpful to understand common causes for disability claims because they are not usually fatal, but more likely to be disabling. Many will be surprised to learn that most claims are caused by illnesses, not injury. In fact, only seven percent of claims are caused by injury.
The largest number of claims for men and women during their working years are due to cardiovascular issues and muscle-skeletal system/connective tissue problems–backs being the number one cause for disability in this category. Mental nervous/substance abuse make-up 18 percent of the claims. A notable exception among females is pregnancy. Females age 29-39 claims due to complications of pregnancy are them most prominent claims type.
What does all this mean for your clients?
- Since they are more likely to be disabled than to die during their working years, they need disability income to protect their paychecks.
- The earlier in their working years they apply for disability income the better because it will be less costly and they will be healthier.
- Prepare your clients during the application process by noting the possibility for a high claim payout if the insured is disabled and the likelihood for a modified offer, often only temporarily, if they have been treated for muscle-skeletal issue or other illness.
Working with a disability income specialist at Source Brokerage Inc., can also help you streamline the underwriting process. We can do an informal inquiry with underwriters so you and your clients know what to expect.