Disability income (DI) insurance isn’t the sexiest or most lucrative offering in an insurance advisor’s lineup. The policies have a lot of moving parts, clauses and conditions, a lot of clients are already insured and there are no large ticket sales if you’re selling to the average middle class client. But DI is an important part of the puzzle for anyone who makes a point of offering holistic advice.
On the surface there are a lot of inherent challenges to get past when selling DI, but some advisors have built entire practices around the product.
Susan Laufer, owner of Qualified Financial Services in Toronto, began selling DI almost 18 years ago, after nearly 20 years of working as an occupational therapist. In her healthcare career, she also helped set up programs on homecare and assisted devices.
“I felt very strongly that you had to protect yourself in case of disability,” she says. “It was a natural for me because I worked in healthcare and helped people after disability.”
Today, her practice, which initially served young professionals who needed income replacement insurance, serves many of the same clients who now need life products, other living benefits, as well as retirement and estate planning.
There are good reasons to sell DI, but there are also a number of challenges.
Proponents point out that virtually everyone needs income replacement insurance. Mortality statistics suggest the average 25-year-old has a 58% chance of being disabled for longer than 90 days at some point during their lifetime. The likelihood drops slightly as people get older, but the length of time the average person will be disabled increases. A 45-year-old has a 40% chance of being disabled longer than 90 days but the average duration of disability is 3.2 years.
The 45 year old is also likely earning more, has fewer years left to recover from financial setbacks and typically has more obligations than the 25-year-old.
On the downside for advisors, even amid widespread cuts to employer-sponsored benefits, disability insurance is still a widespread offering and many clients are already covered.
Unlike life insurance, where you can buy virtually any amount, subject to underwriter approval, the amount of disability insurance a client can purchase is limited to the amount they earn, and their existing coverage needs to be taken into consideration when making an application for additional coverage.
The hurdles don’t end there. Underwriting is often more stringent; definitions vary from carrier to carrier; and there are exclusion periods. The proof clients need to provide at the time of a claim can also make the product more difficult to appreciate or understand.
The number of policies that come back with ratings or exclusions can also be a turn-off. Clients can become annoyed or discouraged and advisors can find themselves doing a lot of extra legwork without earning a commission at the end of it all.
“You could do all the work and you won’t get any money. You only get paid if something sells,” says Laufer. “If someone is declined, you for sure don’t get any money. In a lot of cases it’s a much harder sell.”
All of that said, there is a natural market of clients for whom private disability insurance products are an essential part of their larger financial plans: Professionals, such as doctors and dentists, often do not benefit from having employer-sponsored disability benefits.
CEOs or others who receive substantial bonuses that aren’t covered by group insurance can also top up their benefits by purchasing a private plan.
Business owners, particularly those in the process of setting up employer-sponsored benefits for their staff, are also often amenable to having a discussion about opting out of the group disability coverage in favour of their own private plans.