Disability insurance is one of a person’s biggest assets. Ask clients this question and make these points. Would you be able to afford your car, home, even put food on the table, without a paycheck? Two of those three I previously mentioned you cover with insurance, so why not your income? If there was a 1 in 4 chance of winning the lottery would you play? You are already playing the DI lottery with no coverage. One out of four people will become disabled before they retire, so if you don’t have coverage you are playing a high stakes game of paycheck roulette.
When it comes to disability insurance some people think, what is it? Why do I need it? What are the benefits? We will dive into all of these questions below.
Disability insurance pays a portion of one’s income if they were to become disabled due to an injury or come down with a disabling illness. The portion paid is about 60% of gross income. The insurance carriers can’t over insure with 100% or even 80% or income or there is no reason to go out and try to find work. To start receiving benefits the claimant has to go through what is called an elimination period. Typically it is 90 days of disability, but there are many more options from which to choose. There are 30 days, 60, days, 180 days, even 365 days for elimination period options. What’s the difference you ask? The shorter the elimination period the more expensive coverage will be. A 30 day elimination period is more expensive than a 180 day elimination period. If one were to become disabled and out of work for 30 days and has chosen the 30 day elimination period then the benefits would begin. If the 180 day period was chosen, the client would have to be disabled for 180 days for the benefit to begin.
Occupation also plays a part in pricing and benefit choices. A construction worker is a higher risk class then a person who works at a desk all day. Insurance companies put policyholders into occupational risk categories. In this example the construction worker would be a higher risk then the desk worker. What does that mean? The construction worker would pay a slightly higher premium than the person who works at a desk.
Asking why people need disability insurance is a good question. For starters, how long could someone survive without a paycheck? One of the most common pushbacks is, well I’m young and healthy, but more than one in four 20-year-olds will experience a disability for 90 days or more before they reach age 67, according to the Social Security Administration. Another reason to look at coverage at a younger age is it is less expensive than at an older age.
There are many benefits when purchasing Disability Income coverage. Some of the most important reasons are below, along with some value added riders (benefits) that can be added to the policy.
Return of Premium rider allows a percentage of all premiums paid for the policy to be returned to your client upon policy lapse, cancellation or the client’s death.
Guaranteed Insurability rider gives the option to increase the base policy monthly benefits by purchasing additional amounts of insurance without going back through underwriting.
Automatic Benefit Increase rider increases the base policy monthly benefit by a percentage (different with each company) of the original benefit. Amount will increase each year until benefit has increased to maximum amount allowed.
Waiver of Premium rider will waive the premiums due if one is totally disabled and meets the elimination period chosen.