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.
The discussion about income replacement insurance is part of a well-rounded advice offering to clients, but it’s also an effective way to go about building a practice as well. Many professionals and executives who need private or additional DI are the highly sought after high-net-worth clients that advisors prefer to serve.
So how do some advisors so effectively incorporate DI sales into their practice?
Sun Life advisor Barry Zapshalla makes a point of embracing and promoting holistic planning when working with clients. And that includes providing information on income replacement.
“It doesn’t matter what walk of life individuals are in, they need to know that information. Once they know it, they have the opportunity to make choices,” he says. “Advisors who are actively in the insurance and risk market need to be knowledgeable about all the pieces of that puzzle. Knowledge is important in the area of disability, just as it is in retirement planning.”
Zapshalla goes on to point out that knowledge is particularly important when it comes to disability sales because the plans tend to have more rules, more guidelines and more definitions than other programs being sold in the marketplace.
“The rules and guidelines for claims need to be reasonably and fairly explained to the client,” he says. “It’s very important that the client be empowered to know what benefits they have and how they work.”
The discussion is important for informed decision making on the client’s part, but also to save a considerable amount of aggravation if the time comes to make a claim.
Zapshalla describes a situation where a client was upset about a 90-day waiting period. After consulting his notes about the sale, he reminded the client that he had the option to purchase a policy with 30-, 60- or 90-day waiting periods. “He was happy with the 90-day because it was lower cost. When I reminded him of that, he understood.”
Beyond individual policy sales, DI insurance can also be used for key employee salary continuation and for business buy-sell agreements as well, if the terms of the agreement line up with the policy triggers and funding amounts. Disability buy-sell agreements and policies are more complex to arrange than typical buy-sell agreements where life insurance is used to buy out surviving relatives after a business partner dies.
Regardless of whether the would-be policyholder is a small business partnership looking for protection or an individual without sufficient coverage of their own, Zapshalla says it is important to provide education and information about the product.
“We need to provide information to our clients about it,” says Zapshalla. “Having adequate disability coverage is not just about replacing income. Advisors should share with their clients that it’s a quality of life plan.”