If you've been following along for the month, the answer is probably somewhat intuitive, but we'll dive into it a little deeper, and discuss a nuance topic or two that haven't really been brought up until today.
I'd Write more Disability Insurance if only…
If only the underwriting weren't such a nightmare. We've discussed it several times already. Though I can't help but note that this is such a cop-out. The fact of the matter is, the threat of illness or injury (and 90+% of the time it's illness not injury) that takes you out of work for at least 90 days is pretty high. About 1 our of every 3 working males and 1 out of 2 working females will go out for illness or injury at some point during their working lives. The average amount of time out is 2 years. That's 2 years with no earned income. Could you be out of work (i.e. not earn any income) for 2 years and not be in serious financial trouble?
If you're like most people the answer is no. 50% of all personal bankruptcies and 50% of all mortgage foreclosures are caused by long term disabilities.
What about Social Security?
Only a novice asks this question. The elimination period is 5 months. The majority of claims applications are declined their first time through, causing the applicant to wait another 5 months before reapplying. Social Security Disability uses an any-occupation definition of disability and comes with the stipulation that you are only eligible if you are expected to die within the next 12 months or have suffered from a debilitating condition from which you are not expected to ever recover. On top of that, SSDI, like group disability insurance, is focused on accommodating the lowest common denominator.
I'm not trying to be demeaning, but do you really want the same system designed to be a safety net for gas station clerks to be your only shield of protection?
There was a time when just about every major insurance name offered disability insurance, and then along came a change to the Financial Accounting Standards Board in the early 90's that radically forced reserve requirements for disability insurance risk retention. A lot of companies exited the market at this time as the increase in required reserves made the product less attractive.
This decline in proprietary offerings has left a lot of career agents without a product to sell. And while lots of agents like to think of themselves as “Holistic,” truth is they have contract requirements to meet, and you don't get there by selling some other company's products. This decline has brought with it a far smaller number of agents who put forth an effort to discuss this product with their clients.
Still Disability Insurance is mostly a Specialists' product.
I'd be remiss if I didn't mention that merely having a proprietary product with which to meet your quotas (and qualify for special bonus trips to warmer climates in the Winter) isn't necessarily enough to make an agent focus on the product. A lot of the major carriers that still have a product only see their agents on average write a few cases a year.
Too Many Generalists, not Enough Specialists
I don't mean this in the traditional sense. What I mean is too many insurance agents want to pretend to be “Financial Advisors.” They buy into complex, and expensive, selling systems that allow them to make impressive model portfolios and perform pre-programmed Monte Carlo Simulations while they fight with people with far more specialized knowledge and way better in-home research resources for your investment dollars in an IRA, 401k, etc. They waste their time naming their practice “Something Impressive” Financial, but in truth all they really want to do is talk about insurance. And with their distraction trying to be a pro stock picker, they end up being a mediocre insurance pro.
I don't believe it's true that only agents who specifically specialize in disability insurance can be good resources for the product. I do believe it's true that if you want to be really good at the insurance business, you need to stop dabbling in the stock market business. That's not to say you should completely ignore it. But if you spend more time style-boxing mutual funds or discussing your Pacific Rim strategy, drop your insurance license, hook up with a quality Broker/Dealer and just commit already. You aren't doing anyone any favors being lack-luster at both.
Ignore It if you Wish, but do so at Your Own Peril
Most of us agree that lying at the core of anyone's financial plan is their income. We've all probably drawn out a pyramid on a notepad (maybe even a napkin) and placed income at the bottom of the pyramid to signify its importance. It only seems natural then that we at least take a moment to note the importance to our clients that protecting that income is mission critical. I'll appeal to personal greed for a moment.
For clients, to preserve lifestyle. For agents, to preserve business. If you're client goes out due to a long term disability and has no disability insurance because you figured it was too much of frustration to go through the motions, how do you keep generating income off this individual? Sell waiver of premium on their life insurance? Even that's becoming less common.
I once met an attorney who specialized in litigating agents who failed to talk to their clients about disability insurance when their clients become sick or hurt and couldn't work, fascinating individual. Seemed a little far-fetched to me at first, but when it comes to the American judicial system, anything is possible.
I'll end with the compensation discussion. Most of us know that disability insurance pays less, on average, than life insurance. It's harder to get approved. There's a more stringent cap on how much if someone can have. And the first year commission as a percentage of the premium is typically less.
I understand that agents and brokers are in this business to make money, and want to spend most of their time focusing on business that will maximize profits. But the disability insurance conversation really doesn't take much time at all. It cant significantly improve ones financial situation from a protection against a very bad situation, and protects against a peril that is pretty common. Don't ignore disability insurance, it's too important, and don't forget about it once May ends.