The Ethical Sale of Disability Insurance
I’ll never forget the first day of my college internship as a financial sales representative at a company, where, coincidentally, I would work ten years later! I was given the task of creating a “Dreamboard”. The board was to be made up of pictures of who I thought I could be 20-30 years down the road if everything went as planned… A mansion with a pool, Ferrari in the garage, membership at an exclusive golf club, little kids and a beautiful wife, exotic destinations for vacation, an ornate office decorated with awards, etc. In short, a Millennial’s vision of success!
So, ask yourself, if you had it all, what could possibly go wrong? Lawsuit- $52,900 (average for personal injury claim according to a 2017 Martindale-Nolo Research. 2017). The same survey puts the damage after an average home (yours maybe) catches fire at $203,400. Edmunds notes that when a car gets totaled, it costs $18,800, the price of an average used car. Okay, you’re doing well with a six-figure salary, but suddenly find yourself out of that job. According to the National Bureau of Labor Statistics, the average cost of three months of unemployment is $25,000. And how much do the experts put the cost of early death? An eyepopping $6,046,208 (assumed earnings to Age 65 for a 30-year-old making $100,000 with a 3% COLA). Divorced? There goes half!
Let that morbid paragraph sink in for a moment. An average person or family doesn’t think of these dire possibilities and take some contingency measures. Not many, however, prioritize these situations by asking the right questions. Like which of the above carries the greatest financial exposure?
Premature Death (typical industry jargon, as if we all reach a point where death is no longer premature and gladly welcomed!). Fortunately, 80% of men and 86% of women will live out their careers to Age 70.
Most people, however, ignore the other very real catastrophe with a very high probability – sickness or injury.
According to the Social Security Administration, one in four Americans will suffer a disability before retirement. And yet it’s often the least discussed item by financial advisors and consumers alike. As against 290 million life insurance policies, there are only 546,000 disability insurance policies in-force today (source: statista.com).
The current state of Disability Insurance begs the question, how did we get here and why are we staying here? The problem lies in the customer’s perception of value versus realized cost: Disability simply cannot happen to me! Neither can “premature death”, so why so many life insurance policies? One of the reasons could be that term life insurance is relatively inexpensive. The pricier alternatives like Whole Life insurance provide a guaranteed Death Benefit to family and/or guaranteed Cash Value. Again, the finality of death convinces us that the only financial fix against death is life insurance.
Disability, on the other hand, need not be permanent. Even if one did become disabled, which can’t possibly happen, at least one can rebound from it and continue to work, right? Naturally, the consumer asks why pay for a disability insurance policy when it may never be used? Couple that with the inability to purchase a participating policy with Cash Values and the consumer is left with apparently poor choices.
That is why, Individual Disability Insurance is not bought, but sold. The product is sold on the strength of stories that motivate the consumer to act in their best self-interests. Even as a successful insurance agent, Individual Disability Insurance was admittedly the last financial product I added to my plan. I adhered to the previously mentioned attitudes as the general public does. It wasn’t until I heard two very compelling stories that I took action.
Financial planning is not a science, or else we would all follow a textbook to prosperity.
A senior partner at my firm put it this way: If you were to go your entire career paying your Disability Insurance premiums at about 1-2% of your income and make it all the way to retirement age without a hitch, that lost opportunity cost would amount to a small mistake.
Conversely, if you were to forgo disability insurance and one day wake up unable to perform your duty, with a family and business on the line, then it’s a catastrophic mistake. Financial planning boils down to making the trade between small mistakes and big mistakes. I listened to him carefully and it made perfect sense to the money-smart me. Yet, I passed up buying income protection!
It wasn’t until a mentor of mine shared an impactful story of his favorite client that the lightbulb went on. He served as the wealth manager to an iconic attorney making nearly $1million per year. As an avid marathon runner and passionate lawyer, the client swore to practice law for life, even if from the confines of a wheelchair. It took a solid two years of convincing from my friend to persuade this client to buy disability insurance.
Fast forward another year and my friend received an out-of-the-blue call from the attorney’s paralegal, asking about any disability insurance. Sadly, this unstoppable lawyer lost his only son in a car accident. Two years transpired before he was able to walk back in the office, let alone practice law. During those two dark years, the check that kept his household afloat came not from his firm, but rather an insurance company.
We can never know what could one day derail our “Dreamboard”. Less than 10% of all disabilities come from an injury, notes the Council for Disability Awareness, Long-Term Disability Claims Review, 2012. The other 90% are not as visible.
Stories sell disability insurance, not numbers. Being referred to a cardiac surgeon suffering from migraines and severe dry-eye following a popular Lasik surgery, blindsided by a denial letter from his insurance carrier siting an “Any Occupation Definition” he did not even notice, is a story. Providing checks to an Orthodontist, a father and husband, suffering from carpel tunnel, while teaching at a renowned college because of his “True-Own Occupation Definition”, is a story.
A client is not fixated on knowing that the product or plan are right, but rather by knowing that you are right. A financial advisor looking to succeed in the disability insurance marketplace must first become their own biggest customer. Then it is easy to relay those same stories that pushed you towards maximum protection along to your prospects. There are financial decisions and emotional decisions, thoroughly understand both and unlock your potential to make the most ethical of sales, disability insurance.