The New Face of Financial Planning
Income Protection for Every American
Over the past few years, Americans have rethought and reprioritized their financial lives. The effects of a weakening labor market, collapsing credit, declining home values and spiraling stock prices have hit hard and far. Many investors have seen their net worth cut in half. And with a fifth of the labor force without a job, almost everyone knows someone who was or is unemployed.
As a result, our financial focus has changed. Overall, we're more cautious and risk-adverse. Instead of stocks, mutual funds and aggressive investment portfolios, we're buzzing about income protection, budgeting and savings. One's ability to earn a living is considered most valuable when it comes to achieving long-term financial security.
Although priorities have shifted, the majority of Americans have been slow on the uptake. A recent survey shows 78 percent of Americans "would feel devastated" if they became disabled and unable to work, yet just 10 percent have protected their income from such risk. (2009 Data by Northwestern Mutual) Now more than ever, it's important for financial planners to go beyond traditional tactics and move into a proactive, income preservation-based plan.
The New Face of Financial Planning
Regardless of income bracket, all working Americans need solid plans to protect both their assets and their incomes. Income protection should be first priority. Think about it – if your clients lose their ability to earn a living and start to struggle, their assets are the first thing they'll cash in as a survival strategy. Then they'll have fewer assets to protect. Worse yet, they may end up with no assets to protect at all! It's even more important for those with limited income because it will take longer to recover financially from income loss, asset loss or debilitating illness.
All signs point to a disability insurance boom. As a financial expert, are you ready to ride the income protection wave? Here are a few ways to get prepared:
- Understand the need and tell the story. In most cases, product features and benefits do not sell disability insurance. Most people feel invincible and do not see themselves disabled and therefore do not think they need the product. To get their attention, you need to pull on their heartstrings. Share statistics, tell personal stories or use an analogy. For example, a bicycle salesperson once said, "My sales shot up 400 percent when I stopped talking about frame design and started talking about sunny days, fresh air and great family memories." How does this analogy apply to disability insurance? Don't waste your energy selling policy features until you've built the need. If you fail to make your client believe disability is a REAL exposure, she will never care about the features or benefits. She won't even care how much it costs! To sell disability insurance, you have to start by making the need real.
- Teach clients that income protection is not icing on the cake – it's the cake plate. Without income, it's not possible to enjoy other layers of personal protection.
- Preempt potential price objections by using eye-opening odds of loss and the price of coverage comparisons. Most people don't realize disability coverage is actually more affordable than home and auto insurance, yet the odds of loss are higher.
Coverage comparison example:
- Promote the idea that some coverage is better than no coverage. If affordability truly is an issue, offer them a disability insurance policy with a lower benefit and a future purchase option so they can easily increase coverage as their income increases. Critical Illness coverage is also a great alternative for those with tight budgets or medical impairments.
- Pay attention to the disabling definition and understand all policies are not created equal. The disabling definition is the most important, central part of the disability insurance policy. Think of it as the heart — without the heart, nothing else works. Understand the disabling definition of every policy you quote. Here's how they work, in order of desirability:
- Own Occupation definition (True Own Occ.): Whenever possible, use disability insurance policies that contain the Own Occupation definition. Make sure your clients know the difference. While most DI policies use the Own Occupation definition, your competitors' policies probably don't. And, contrary to popular belief, policies with the Own Occupation definition cost little more than other policies.
- Modified Own Occ. definition: The most commonly used, the Modified Own Occ. definition still provides solid income protection. However, you should strive to get the Own Occupation definition if it's available and appropriate for your client's occupation. Some carriers offer this definition as a benefit rider.
- Any Occupation definition (Gainful Occ.): These definitions are most commonly found in group long-term disability policies, or in add-on policies that come as part of a multi-line coverage bundle. If your client already has a client-sponsored plan, check the definition. If it's Any Occupation, educate your client about the risk involved and offer supplementary protection. Never offer these types of disability insurance policies on a stand-alone basis.
- Don't reinvent the wheel. You don't need to be an expert, but you do need an expert partner. Partner with a quality disability insurance distributor and let them shop the market, compare options and help you through the underwriting process.
- Focus on follow-up. The vast majority of disability insurance sales fall through for one simple reason: The producer doesn't follow up. If you are disciplined with your quote follow-up, you will win more sales. It's as simple as that.
|Asset||Value||Annual Protection Cost||Daily Protection Cost|
Estimated odds of becoming disabled compared to other losses:
|Asset||Odds of Loss|
|Vehicles Totaled||1 out of 20|
|House Burned||1 out of 100|
|Boat Totaled||1 out of 15|
|Disability||1 out of 3|
As you can see, the chance of becoming disabled and unable to earn a living is much greater than the chance of losing other assets. When your client understands this simple truth, his willingness to buy will significantly increase.
Over the coming years, income protection for every American will gain momentum. Now that you're prepared, make disability insurance part of your go-forward strategy. It will protect your clients' income, and it will help secure your own.