How individual disability insurance took my firm to the next level

By Bryan Kuderna

Think about why you got into the business. Whether your business is insurance, investments or a combination of the countless financial planning products and strategies that comprise our industry. It may have been 30 years ago, 10 years ago, or just a few months ago. Chances are a recruiter, a mentor or some other contact in the business said something that resonated with you and your passions.

Over the years, I’ve seen financial professionals enter the field because of the popular lure of investing, hoping to emulate Warren Buffett and other icons referenced in business school. Others were intrigued by the timeless benefits of life insurance, being there to deliver a check to a widow in her gravest time of need. Some financial professionals just love business and the ideal of consulting entrepreneurs on how to become better entrepreneurs. Since 2008, as a financial professional straight out of college, I have yet to hear a single one of the hundreds of professionals I’ve worked with ever say they dreamed of selling disability insurance.

How ironic it may be for me to describe how disability insurance launched my firm to heights I could not have expected. I believe there are two reasons for this unfortunate disconnect between financial professionals and the individual disability insurance marketplace.

Reason #1:  There are two types of financial professionals, those who know how important disability income protection is and those who do not. It’s the industry’s job to inform the latter.

Reason #2: Financial professionals already are well aware of the importance of disability income protection but simply do not know how to sell it. I’ll address both the why’s for Reason #1 and the how’s for Reason #2.

If you find your clients do not seem interested in having the disability conversation, it may often be a symptom of your not being fully interested in it. So go back to any of those motives that began your career in financial services – whether it’s retirement planning, college savings, estate planning, business consulting, etc. Put yourself in your client’s shoes and you’ll quickly see the goals are the same, achieving wealth through any of these areas of focus, and doing so efficiently and with peace of mind.

There’s a quote from Aristotle that says, “The life of money-making is one undertaken under compulsion, and wealth is evidently not the good we are seeking; for it is merely useful and for the sake of something else.” I empathize with the great philosopher and spend much of my narrative in financial planning referencing wealth in its original meaning, from the old English word “weal,” which means well-being.

Once the stage has been set, and the client’s vision of wealth has been defined, along with your expertise to help them get there, then you can take a step back.

Achieving any of these goals, whether modest or opulent, requires money, and that takes work. Lose the ability to work, the ability to generate an income, and the rest of your client’s plans become secondary, if even still possible.

People often go to great lengths to accumulate stuff including cars and houses. They spend money on vacations, education, retirement and so on. They take what they consider to be necessary steps to protect that stuff — auto insurance, homeowners’ insurance, flood insurance, student loans, retirement planning and life insurance. But every piece of that plan starts with money, with income and with a healthy able-bodied worker.

Health vs. wealth

There is a popular saying that goes, “People spend their health chasing wealth, only to then spend their wealth chasing health.” This is a common scenario, common because it’s the result for many people when things go how they’re supposed to go (i.e., work a long career and then encounter health issues in the later years of retirement).

Imagine a scenario in which, “People spend their health chasing wealth, and then have no wealth to chase health.” This is the sad instance in which someone does not complete their career according to plan, and unpreparedly encounters illness or injury while still in their prime.  Data shows that this is not a “can’t possibly ever happen to me” case, as the Social Security Administration reports more than one in four 20-year-olds will become disabled before reaching retirement age.

So if Reason #1 has been solved and all advisors understand the importance of disability income protection in their planning process, it is time to understand how it can be sold. In line with the narrative introduced above, I coach clients through a holistic planning process inspired by protection first. I often reference a four-step planning process:

1. Protection
2. Build liquidity.
3. Eliminate bad debt.
4. Accumulate wealth.

After the financial professional and the client agree on these steps, disability insurance is natural to the conversation. However, misinformation often becomes the holdup to the sale. Semi-informed clients understand the need for disability insurance, but not necessarily individual disability insurance.

Employer coverage isn’t enough

Many clients think they are already adequately covered through the government or their employer. However, Social Security disability, on average, only awards 31% of claims. This is a result of a fairly strict definition of disability, in which, “The law defines disability as the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment(s) which can be expected to result in death, or which has lasted or can be expected to last for a continuous period of not less than 12 months.”

As for being covered through work, many people confuse short-term disability insurance (which has a benefit period of three months or six months) with long-term disability (which may extend until the policyholder reaches retirement age). Furthermore, even when covered by group long-term disability insurance, this coverage is often not portable, meaning that when you leave the employer, you leave the coverage. In addition, group long-term DI offsets for other disability benefits or earned income, may be taxed as ordinary income to the beneficiary, can only cover a portion of the employee’s income, and is subject to rate and benefit changes.

In contrast, individual DI may offer the opportunity to fully protect your client’s income with own-occupation definitions and guarantee rates and benefits by being noncancellable/guaranteed renewable.

I have leveraged individual disability insurance to market to the medical and dental market.  While these professions have an elevated need for specific coverage due to the physical aspects of their job, all humans are susceptible to injury and illness, making IDI universally applicable.  I’ve also worked with carriers that offer a student loan protection rider to help many young professionals concerned about not being able to pay their biggest debt if they were knocked out of work.

IDI has served as a great entrée to further financial planning. Some financial professionals might even find themselves focusing, or even limiting, their practice to disability insurance. This profitable product line often holds less liability, maintenance, consumer confusion and compliance than the investment realm or full-scale financial planning.

I’ve used these concepts to take my firm to the next level, while protecting clients from arguably their biggest financial threat.  If you want to be a true financial advocate, start by incorporating disability insurance in your planning process.

Bryan Kuderna is a Certified Financial Planner and founder of Kuderna Financial Team, a New Jersey-based financial services firm. He is the author of What Should I Do With My Money?: Economic Insights to Build Wealth Amid Chaos. Contact him at [email protected].

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 50 TICE BLVD, SUITE 280, WOODCLIFF LAKE NJ, 07677, 973-244-4420. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. KUDERNA FINANCIAL TEAM is not an affiliate or subsidiary of PAS or Guardian. CA Insurance License Number - 0K04194.

The opinions expressed are those of the author and not necessarily those Guardian or its subsidiaries.