Disability Insurance

That disability insurance, unlike something like a nice dinner or even a cup of coffee, needs to be sold is a long accepted truth in the world of disability insurance agents and financial planners. Clients do not walk in the door of their insurance agent and say “We should review my need for disability insurance.”

Except when they do, which is not very often. The exceptions include physicians and people who have recently had a health scare or who know someone that was recently disabled. Often, if the client has experienced the health scare him or herself (say a heart attack or cancer), they are no longer insurable.

Why is this so? Why do so few of us seek out such a protection? (I will return to the topic of physicians and why they do buy disability insurance in a future post).

…disability insurance is, well, insurance. A subject known to make eyes glaze over by the mere utterance of the word…

My unscientific thoughts on this subject begin with the fact that disability insurance is, well, insurance. A subject known to make eyes glaze over by the mere utterance of the word. If I am on a plane and not feeling chatty, usually a mention to the person in the next seat that I am an “insurance agent” will quickly lead said flyer to quickly put their headphones on and look out the window (and on occasion will lead to an interesting exchange).

Insurance, whether health insurance or car insurance or even disability insurance, requires us to plan ahead for a time when something has gone wrong. Unlike the cup of coffee that I consume right now (and enjoy the taste as well as the caffeine buzz), insurance is more elusive. I buy now. I pay now. It is protecting me now. But the benefits before making a claim are intangible. The main one being the oft-quoted ability “to sleep well at night,” a benefit which I fully endorse. But for most people imagining a future where they will need to collect a check from an insurance company does not offer the thrill of imagining what they will look like with that new pair of shoes.

Also, most people do not even know that disability insurance exists, or at best have a vague idea of what it is. They know about health insurance certainly. The idea of covering potentially bankrupting medical costs motivates many (but even here often the young and healthy not so much) to buy health insurance. But the idea of replacing lost income is a foreign idea to most of us. Or, we think we are covered through our jobs—and sometimes that is the case (more on that in another blog), but often much less adequately than we believe.

Disability pays us a check when disabled by illness or injury and unable to work. The idea is that most of us would very quickly find ourselves in dire financial straits without our paycheck. So the need for disability insurance is significant for most people. Thus, it needs to be “sold,” it is not usually bought. But how to do this?

When I bought my first car in Seattle back in the 80’s, after negotiating the price of a stripped down Camry – stick shift and practically no additions beside a radio – I had to face the finance guy. I recall seeing on his desk a sign that read: “Create Need.” He had more options to sell me – options that I felt I did not need (and could not afford). But the sale of disability is a different ballgame. There is no need to “create need”, but there is a skill that the best possess to get a reluctant client to consider shelling out 2% of their income for a future of disability as yet unforeseen, one that help avoids a potentially disastrous financial downside, but which offers very little upside.

There are many approaches to selling IDI and as for me I prefer the notion of helping the client to plan strategically and yet realistically for a future that is hard to predict. Whether it is setting aside money for retirement or buying insurance for a home or protecting your most important financial asset, i.e. your income; the idea is to identify and develop a plan for major financial situations in one’s life.

One very successful financial planner I know, one whose investment skills are much in demand, does it something like this:

At the first meeting with a prospective client, he asks if he or she has a plan in place in the event of a disability. He tells him or her that the very best investment strategy will come to naught if there is no income to fund the strategy, and for most people income is dependent on their ability to work. If the client in fact has a plan, he moves on; if the client does not have a plan, they review together whether or not he or she has a group LTD plan at work and if it is adequate for his or her situation (not all are). If it is, he moves on. If not, he says: “I have a solution. I work with only one disability insurance carrier—one that I trust (rather unusual). I can get you a quote. It will not be inexpensive, but it will be a good policy. You are free to go elsewhere if you want to review other products and come back to me for planning your investments, but I strongly recommend that you have a plan.”

This very successful financial planner does not make them buy a policy from him to work with him. He even tells them he is not an expert in disability insurance and encourages them to find an expert if they so choose. He just knows it to be important. He sells a lot of IDI.