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For all of the joking around we do in this episode, we actually like disability insurance a lot. What we're a bit annoyed with is the fact that there are a great many agents, insurance marketers and insurance companies that love to talk about the underserved disability insurance market.
Now, they base that on the fact that so few people actually own an individual disability insurance policy.
But is the market really underserved?
Probably not.
Yes there are undoubtedly people out there that should have a DI policy and don't have one. That exists in every market and is not exclusive to the insurance world.
There are certainly some people who work in particular occupations who should definitely have it. Physicians as an example should most certainly have it but in our experience most of them do.
For most people that spend a majority of their time sitting behind a desk, it's a much tougher product to own and for an insurance salesperson to justify the expense.
The product becomes much more important when you are more specialized in what you do. To the average American worker, there is no specialized skill behind what he or she does, so he or she tends to devalue his or her wage earning opportunity
This doesn’t mean they are right. They probably should own the product, but it can be tough for people to justify the cost and to find the value in paying the premiums (which aren't insignificant).
Working with Disability Insurance is Tough
There's a big reason that not too many agents focus on writing disability insurance. It's really difficult to sell to prospective clients and then you learn that part is just the first step.
How do I put this delicately? Underwriting sucks. Yes it is arduous, extensive, and takes a while. Additionally, you will be asked even more detailed questions about any health issues you've had and you will be asked to open up your financials to the underwriting process–tax returns, income statements etc. Not a process that most people relish.
What's more challenging is that most people are way over confident about their health and they don’t appreciate DI until after they need it. Of course at that point, like any other type of insurance, it's not possible to purchase.
Despite all the downsides and difficulties, we think it's a product you should own.
A few things to consider:
– 1 out of 3 working men experience a disabling event for at least two years throughout their working carriers and 1 out of 2 women experience the same
– 50% of all personal bankruptcies are caused by some sort of disability
– 50% of all mortgage foreclosures are caused by disabilities
Saying that the disability market is NOT under-served because not everyone needs an own-occupation policy is like saying that the life insurance market isn’t under-served because so many whole life policies are poorly designed.
Hogwash.
The disability market is GROSSLY underserved. There is a valid debate as to whether everyone and their mom needs an own-occupation policy, to be sure, and whether too many agent push the own occupation in instances where they know it is perhaps a bit much. However, econ 101: Protect things you can’t afford to lose.
People are completely missing the boat on protecting (via disability and life insurance) their most valuable and taken-for-granted asset: their ability to direct their life energy towards productive, profitable output with modest effort.
Hi Dan,
I’m not so sure you quite go the point–that or you decided to go off on some other wild tangent unrelated to this post…and why you chose to do it here would be odd.
Own-occ or not doesn’t really matter, and our contention isn’t that there may not be a lot of good reason for people to buy disability insurance–which could…theoretically…mean that there is a slightly under-served market.
But–and it’s a big but–the notion that there are all these people out there who need to hear from the insurance salesman(woman) because he or she can save their lives with disability insurance is nonsense and in reality the insurance industry isn’t interested (not even remotely) in “saving” the lives (or should we say livelihoods?) of all those under-served people (that’s why we have occ classes and strict underwriting in the first place).
And Econ 101 is not protect the things you can’t afford to lose. It’s supply and demand, marginal utility, and generally an introduction to the IS-LM model (been there; done that). Risk is generally a subset of intermediate to advanced Micro-economics (also been there and done that).
And, not to pick a fight, but technically the less ideal a candidate you are for own-occ coverage (i.e. the less precise your material and substantial duties) the less valuable disability insurance becomes to you. This is purely mathematical fact. It’s expected value (a foundational actuarial concept) at its core. E.g. there are far fewer circumstances that would qualify me for claim vs. a General Surgeon. If I get Carpal Tunnel, I simply wear weird braces and maybe get surgery and my fingers aren’t as nimble. If I hit the wrong key while typing and make a typo, no one dies–we’ve proven this numerous times on The Insurance Pro Blog. It’s a totally different story for the Surgeon.
The greater the number of events that can put you on claim, the higher the probability of being on claim, and therefore the higher the expected value of the disability policy for a given level of benefit amount. Occ-class pricing accommodates this slightly, but certainly not totally.
We’re not suggesting people opt out of buying it. Quite the contrary. Or even the agents ignore it. But fact is those who most benefit from it tend to have it (i.e. the marketplace or key prospects for it isn’t all that under-served). My own anecdotal experience with this comes from the numerous physicians who contact us for life insurance policies. We always ask them about disability insurance (as we do everyone we talk to mostly) and they all bought it back in residency. The profession best served by it is pretty well served by the industry.