When should a client purchase paycheck protection? While everyone’s situation is different, there are three considerations to use to guide your client to making the purchase decision best for them. It usually comes down to the following three factors:
1. Earning potential
2. Risk factors
3. Impact of lost income
Step 1: Estimating earnings
In 2016, the average salary of a recent college graduate was $50,556. Using 3% as the estimated average annual increase for 2018, a 25-year-old earning $50,556 today would see the following salaries:
| Age | Salary |
| 30 | $58,608 |
| 35 | $67,943 |
| 40 | $78,764 |
| 45 | $91,309 |
| 50 | $ 105,853 |
Step 2: Assessing risk of disability
Now let’s look at the likelihood of suffering a disability and how long that disability might prevent someone from earning an income. The most common waiting period for individual disability income insurance is 90 days. The likelihood of a disability lasting more than 90 days hovers around 50% for 25-year-olds to 35-year-olds. And although the probability of suffering a 90+ day disability decreases as we age, the number of months disabled increases.
| Age | Salary estimate | Likelihood of disability lasting > 90 days |
# of months |
| 30 | $58,608 | 51% | 55 |
| 35 | $67,943 | 48% | 61 |
| 40 | $78,764 | 44% | 64 |
| 45 | $91,309 | 40% | 68 |
| 50 | $105,853 | 34% | 74 |
Source: NAIC Commissioner’s Disability Table A, currently used to price IDI products
Step 3: Assessing the financial risk
| Age | Salary estimate | Likelihood of disability lasting > 90 days |
# of months disabled |
Lost wages |
| 30 | $58,608 | 51% | 55 | $268,621 |
| 35 | $67,943 | 48% | 61 | $345,377 |
| 40 | $78,764 | 44% | 64 | $446,332 |
| 45 | $91,309 | 40% | 68 | $563,076 |
| 50 | $105,853 | 34% | 74 | $652,760 |
This last assessment, estimating the financial risk of a disability, is the real headline. On average, a 30-something, with a 50/50 chance of becoming disabled for more than 90 days, stands to lose more than a quarter of a million dollars while disabled; a 45-year-old more than half of a million dollars. The financial risk is considerable. There are other financial impacts not factored into this equation, like the impact to retirement assets when unable to contribute to retirement savings accounts.
Final consideration: the affordability of paycheck protection
The economic impacts are indisputable and the potential for loss can be devastating. This risk is easily mitigated with an individual disability income insurance policy premium that ranges between 1 to 3 percent of salary. For the 35-year-old, the annual premium is likely to be between $600 and $1,700.
It’s difficult to argue with these outcomes especially in light of such an affordable solution. At any age, disability insurance is a wise choice. Younger clients have the added advantage of generally lower premiums but higher likelihoods; older clients have the extra incentive of increased disability periods and larger income losses.
Whatever the age, amount of coverage, or income, your DIS representative will provide quotes from top-tier carriers for the perfect disability solution for your client. Call us today for a quote or for marketing tools and sales ideas.
