DI Coverage: Insuring The ‘Golden Goose’

Discussing income protection insurance with clients isn’t always a main topic of conversation.

Many advisors don’t address disability income insurance with their clients. One common reason may be because clients often decline coverage; they never imagine something will happen to them, often not making income protection insurance a priority. However, according to the Social Security Administration, one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach normal retirement age.

When broaching the subject to clients, I explain the importance of income protection insurance by asking this question: “How long can you financially sustain yourself without a paycheck?”

Clients often state they could survive one or two weeks without a paycheck. This exercise helps them begin to grasp the importance of this protection.

Whether you are explaining the best form of personal income coverage to a new client or advising on current coverage with a long-term client, I encourage you to be properly educated on the topic to better serve your clients and equip them for future financial success.

How To Address Income Protection Insurance With Clients

When addressing income protection insurance with clients, explain it as income replacement if they’re too sick or too hurt to work. Coverage takes about 90 days to kick in. A general reference for the amount of coverage needed to replace income is 60%-70% of their take-home pay. If clients pay the premium after tax, benefits are received income tax free.

It’s helpful to mention to clients that this form of income kicks in if they are unable to complete the day-to-day duties of their occupation due to serious illness or injury. Not to be confused with critical illness insurance, income protection insurance is disbursed in monthly payments, whereas critical illness insurance is received as a lump sum upon diagnosis of a specific illness. Critical illness insurance is not defined by job duties but instead triggered by a specific qualifying illness.

Leverage Visuals To Boost Understanding

Beyond explaining what income protection insurance is and why clients might need it, it’s also helpful to use visual aids. To help put this topic in perspective, I often share an idea I learned at an MDRT annual meeting, leveraging a goose and her golden egg.

I have a toy goose with a golden egg that I pull out to display to clients. Then I tell them, “You are a goose, I am a goose. Think of yourself as a goose who lays golden eggs. The goose represents you and how hard you work every day to create golden eggs or, in your case, money that may be taken for granted. You purchase insurance for the valuable items in your life, such as your cars, jewelry and homes. If you total your car, you simply purchase another car with the golden eggs you keep laying. Yet if something were to happen to the goose, there is no other goose. That means there are no more golden eggs either.”

Visuals not only help clients understand complex subjects more easily but are also easier to remember than a verbal or written explanation. Explaining income protection insurance to clients with visuals such as this helps break down a more serious topic in a fun, lighthearted way. It also gets them thinking about what their family’s life might be like if something were to happen to the “goose.”

Convincing Clients It’s A Worthy Investment

One of the most common questions I run into with clients is whether income protection insurance is a worthy investment. If a client is considering investing in income insurance protection, I use a chart to share with them how much money they will make while working by the time they reach 67. For example, if a client is currently 30 years old and earns an annual salary of $60,000, they will have earned at least $2,220,000 when they reach age 67.

However, if they didn’t invest in income protection insurance and were injured at age 30, their income wouldn’t be protected or replaced. Once a client sees a visual chart of their personal finances and understands how much money they will make while working — and how much they’ll miss out on if they can’t work — they realize income protection insurance not only insures them in their time of need but also ensures their financial trajectory isn’t derailed.

When assisting a client with their financial future, address the importance of having a stable income if they are unable to work. But also help your client focus on having the necessary resources to safely recover. For a client who is injured or ill, the recovery process can be arduous; they will need to focus on getting better physically, mentally and emotionally. Income protection insurance helps ensure clients have financial stability in the future while also providing peace of mind during uncertain times.

Ann Baker Ronn, CLU, ChFC, LUTCF, is the insurance director of AFP Group, an investment advisor representative with Ameritas Investment, and previously served as a member of the Ameritas Field Advisory Cabinet. Ann is the owner of Income Protection Solutions in Houston and a third-generation member of the insurance and financial profession. She has qualified for annual membership in MDRT and is a past Court of the Table member. She may be contacted at [email protected].