Income Protection: Are You Asking These 3 Questions?

If illness kept these workers off the job, disability insurance would help pay their bills. (AP Photo/Reed Saxon)If illness kept these workers off the job, disability insurance would help pay their bills. (AP Photo/Reed Saxon)

If you specialize in selling disability insurance, congratulations. You might be more interested in another article.

If you, like many agents and brokers, sell income protection on a occasion, when you can find the time, this article is for you.

As a trusted advisor, you go out of your way to safeguard your clients and the employees who work at your clients’ firms from loss. Undoubtedly, their major assets, like their homes and cars, are protected. But what about their most important financial resource?

Our Council for Disability Awareness (CDA) research tells us that 90% of America’s wage earners rank their ability to earn an income as their most valuable financial resource. Not surprising, since income is the only source most wage earners can count on to pay for their home or accumulate savings and possessions.

Paradoxically, CDA research also says that 40% of those same wage earners “have never really thought about” protecting their ability to earn a paycheck.

The root cause of this disconnect lies in a profound lack of awareness on the part of most income earners about the risk of disability and how an income loss can devastate their finances. The lack of awareness stems from a knowledge gap coupled with people’s innate reluctance to believe that a serious illness or injury will affect them personally.

Some advisors say they rarely bring up income protection because their customers don’t ask about it. And many advisors assume only older consumers are interested in financial planning. The reality: Nearly two-thirds of consumers say it’s important to start planning financially for a potential loss of income “in their 20s” or “at any age.”

The CDA uncovered these and other insights in our 2011 consumer and advisor “Disability Divide” research study. The study reveals meaningful variances between what consumers perceive about their disability risk and advisors’ assumptions about those perceptions. In many cases, advisors’ and consumers’ perceptions were different still from reality.

Understanding disability statistics is important. But insight into how consumers think about disability can lead to a conversation that truly resonates. Consider starting a dialogue with your clients by asking these key questions.

1. How long could you survive without your income?

The divide: 65% of consumers say they could survive without their paycheck less than a year, and most say they’d depend on sources like sick or vacation leave, a partner’s income, or debt. This is an overly optimistic assumption, because usually these sources are inadequate. For their part, advisors (88%) recognize that consumers are even worse off than they believe.

The takeaway: Consumers’ perceived safety nets are often full of holes. Many funding sources they reference would not cover living expenses for an extended period. What’s more, most people don’t understand their disability insurance coverage—or even know if they have any.

Why it’s important: Most everyone’s financial security depends on their income, so any complete financial plan must address how to protect it. The good news? Consumers are more open to a discussion about protecting their income than ever before.

2. What do you think the chances are that someone will become disabled during his or her working career?

The divide: 83% of consumers say “a disability could happen to anyone at any time.” Only 35% of advisors thought consumers would agree with this statement.

The takeaway: Consumers think disabilities occur more frequently than advisors assume they do.

Why it’s important: People who depend on their income may be more open to discussing ways to protect it than you think. There is real opportunity to engage consumers in conversation about maintaining financial independence if illness or injury strikes.

3. What do you think your chances are of becoming disabled?

The divide: While most consumers believe that “disability could happen to anyone at any time,” they think their own chances are only one or two in 100. Many advisors estimate those chances as high as one in 10.  Both groups would be surprised to learn that the actual odds of missing work for an extended period of time due to a disability are as high as one in four during the average working career.

The takeaway: Denial almost always makes consumers believe others’ disability risk is higher than their own. However, consumers who knew someone who had experienced a disability rated their own risk as higher.

Why it’s important: Advisors who find ways of making the risk personal will find that consumers are more likely to take steps to protect their financial security. Ask whether your client knows anyone with a common condition such as back pain, heart disease, or depression, to get consumers thinking about disability protection. .

by Barry Lundquist

Barry Lundquist is president of the Council for Disability Awareness (CDA), Portland, Maine, a nonprofit disability awareness education group

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