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Disability Income Insurance: The Foundation for any Well-Built Financial Plan

A financial plan has many important pieces, but the client’s ability to earn an income is what makes everything else possible. People insure their homes, cars and other personal property, yet they fail to insure the one thing that makes all these possible: their income. For the majority of people, their ability to get up and go to work everyday is their greatest asset. In terms of present value, many people do not realize that their lifetime earning potential can far exceed that of properties or investments they own.

So, if income is interrupted because of a disability, how will savings and expenses be affected? Covering normal daily expenses in such a scenario may be difficult enough, but when compounded with the additional expenses of medical treatment, physical therapy or special medical equipment, it can be near possible without careful financial planning. Indeed, a study published by the Council for Disability Awareness found only 57% of adults have enough savings to cover 6 months of normal expenses [1]. The same study reported only 28% of adults believe their income is important enough to protect it with disability insurance.

What might explain the disparity between the need for disability insurance and the actual number of people who believe it’s necessary? Well, the fact that workers believe they are more likely to win the lottery than suffer a disability might explain it1. Just for the record, the actual odds are 1 in about 300 million to win the lottery[2] versus a 1 in 4 chance of suffering a disability[3].

These facts lead me to believe that this seems to be more of psychological phenomenon rather than a matter of the public being misinformed. Sure, reaching out to better inform our clients on the facts surrounding disability may scare a few into action but, if I’m correctly reading the tea leaves, it seems most would prefer to focus their attention on positive outcomes (i.e. winning the lottery), regardless of the odds, rather than address the adverse possibility of disability.

To take the impact of psychology one step further, most consumers probably have a good idea of how much everyday staples they purchase, such as milk and eggs, should cost. They know when they’re getting a good deal, and they know when they’re being ripped off. Unfortunately, when it comes to pricing disability insurance, most of our clients or prospects don’t even have a general understanding of how it works. What we tend to see is that younger insureds severely overestimate the cost and older people underestimate pricing. Undoubtedly, this cost ambiguity leads to procrastination, especially if a person does not have a trusted source to reach out to for pricing.

Since it is too late for us to become psychologists, what can we do as advisors is to make sure we are prompting as many people as possible into action. We believe in the importance of properly educating the consumer, pricing and presenting as much of the competitive marketplace as possible and sometimes temporarily relenting to the customer’s right to believe in the power of 1 in 300 million, but continuing the conversation throughout the relationship.






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