3 things agents should know about disability insurance
Disability causes home foreclosures 16 times more often than death does.
With May being Disability Insurance Awareness Month, there’s really no better time to review the need-to-knows for the insurance product that replaces up to 60% of your client’s income in the event physical injury, medical illness or mental health issues leave them unable to work and make a living.
For insurance agents, brokers and advisors, disability insurance is an untapped opportunity to add to your product arsenal.
The most recent data from LIMRA estimates that only 14% of Americans own disability insurance. In comparison, 52% own life insurance. More on that later.
On top of being undersold, disability insurance was traditionally too convoluted and cumbersome to even bother selling. But that has changed.
Insurtechs have used technology and predictive analytics to simplify and digitize the quote-to-application process so it now takes just a matter of minutes.
With all that in mind, let’s go through three things you should know about disability insurance if you’re interested in providing an income protection solution to your clients.
According to the Social Security Administration, today’s 20-year-olds have a 25% chance of becoming disabled over the course of their career.
In comparison, the average 25-year-old male has a 17% of dying before the retirement age of 65, while that percentage for a 25-year-old female is 11%.
So despite the fact that the life insurance ownership rate is nearly four times greater than the disability insurance ownership rate, your clients are more likely to claim on the latter compared to the former during their working years.
On top of this set of statistics, disability causes home foreclosures 16 times more often than death does. Specifically, 48% of mortgage foreclosures are due to death compared to the 3% that are due to death. Government Programs Are Not Substitutes For Disability Insurance
A common rebuttal to disability insurance is that it’s not really necessary because if your client does suffer a career-altering injury or illness, some government program will just pick it up.
This is far from the truth.
To begin, just 19% of US employees have defined family and sick leave benefits. It’s more than likely your clients will not have access to paid leave.
Next is the Family and Medical Leave Act (FMLA). FMLA is an unpaid benefit; it protects your job, but not your income. Moreover, 40% of the US workforce doesn’t qualify for FMLA because there are a few requirements to meet like employer size and hours worked at the employer.
OK, how about Social Security Disability Insurance (SSDI)? Once again, not everyone will qualify for SSDI because you need to be paying taxes into this program for a certain amount of years depending on your age. Additionally, to qualify for SSDI your condition must be severe enough that it lasts for 12 months and/or is expected to result in death.
Last but not least, workers’ compensation. Workers’ comp only covers injuries and illnesses that happen as a result of your client’s job. In comparison, disability insurance will cover injuries and illnesses that happen on and off the job as long as they impact your client’s ability to work.
The cost of disability insurance
In terms of the cost of disability insurance, my employer Breeze actually recently published a study that involved the analysis of all our long-term disability insurance quotes from the previous two years.
It’s a comprehensive report on the cost of disability insurance as it includes a wide range of consumers. In 2021, the average annual quoted premium for long-term disability insurance was $1,297, or $108.11 monthly. For long or short-term disability insurance, a stable rule to follow is that the annual premium cost will typically be between 1% and 4% of your client’s annual income.
There are personal, occupational and policy factors that will vary the price of disability insurance.
For example, a 28-year-old client that has no prior medical history will most likely pay less in disability insurance premium compared to a 55-year-old smoker.
Additionally, an oil rigger might end up paying more for disability insurance compared to a teacher because an oil rigger is a far more dangerous occupation than a teacher. Income also plays a role because the larger the income, the larger the benefit will have to be so you’ll usually see higher-income occupations paying more.
Finally, policy details. Choosing a longer benefit period will increase the price of disability insurance and so will choosing a shorter waiting period. On top of this, choosing a larger monthly benefit amount will most likely increase the cost.
Supplied with the right information, the value of disability insurance can be quite easy to explain and the quoting, application and underwriting process has never been more streamlined than it is now.
Mike Brown is the director of communications at Breeze, an insurtech simplifying how disability insurance is bought and sold.
Opinions expressed here are the author’s own.
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