Disability Insurance | Insuring Your Most Important Asset - Your Lifetime Earnings Potential
Income Protection Q&A with Michael Murray, AIF® & Kevin Cloutier, V.P.
Insurance Planning
May is Disability Insurance Awareness Month and as we continue to focus on the importance of having a financial plan, I wanted to remind you that this will often include making sure your family is protected in the unfortunate event of an untimely death or disabling injury. Our financial planning team will regularly coordinate our planning efforts with industry experts and other trusted advisors like CPA's and attorneys when developing and maintaining a plan for clients. Insurance is no exception! I caught up with Kevin Cloutier of Disability Resource Group. Kevin has been just that.... A tremendous resource to Peabody Wealth Advisors and most importantly, our clients.
Our team of Financial Planners at Peabody Wealth Advisors routinely take an in depth look at your current coverage as part of our financial planning process when building your comprehensive personalized financial plan. This is to help ensure that you and your family are not unnecessarily exposed to risks that could otherwise be mitigated with proper insurance coverage.
It Won't Happen To Me!
This is a common response we hear from clients and prospective clients; however, the statistics tell a different story. According to the U.S. Social Security Administration, one in four 20-year-olds will experience a disability during their working career. That is a 25% chance. Comparatively speaking, term life insurance (which most people own) is defined in Fundamentals of Risk and Insurance, (10th ed.) as temporary protection for a limited time period. In its purest form, a term policy is purchased for a certain time frame and the death benefit is only payable if the insured dies during this time period. It is important to realize that nothing is paid if the insured survives the term period. It is common for term insurance policies to have renewal and conversion provisions to permanent insurance policies.
Insurance is about protecting finances from disaster. According to LIMRA, Americans are more likely to have life insurance than disability coverage, yet the chances of needing disability insurance are higher. LIMRA says 44% of people have individual life insurance policies, compared with 29% who have disability coverage. However, most people consider this coverage a much higher priority versus protecting their income.
Guaranteed interest rates are based on the claims-paying ability of the underlying insurance company. Surrender penalties may apply. Additional benefits and riders may increase the cost of the premium or reduce the interest rate earned. Applicants are subject to underwriting., which may include medical history and current health.
Let us see what Kevin has to say...
Tell us a little about yourself and your company?
I started working in the disability insurance market right after I graduated from Bowdoin College in 1990. I worked with several disability insurance carriers as both an individual disability and group long term disability specialist marketing their products across the Midwest. In 2002 I joined Disability Resource Group, Inc., a national brokerage firm specializing in the individual marketplace, where I have remained ever since. At Disability Resource Group, I am in the unique position of being able to offer disability products from a wide range of insurance carriers which allows me to position the best product at the best price for any client working through our firm.
What do you like best being a disability insurance professional?
I tend to be an analytical person and I really love getting into the nitty gritty contract details and explaining all the notable features of the product to the agents and clients that I work with. In essence, taking a fairly complicated product and making it easy to understand. However, it has been the thank you phone calls I have received after a claim has been filed and paid that is the best part of being a disability insurance professional. Knowing that you have helped someone secure a policy that has helped them to continuing paying their mortgage and other bills is really what it is all about.
What is the demographic profile of someone who should consider purchasing disability insurance?
The best time to buy is when you are young and healthy and starting a career whether as a salaried W-2 employee or as a business owner. Of course, that is not what usually happens. Usually, a client starts to look for disability insurance once they have started to make a little more money, have children or the little aches and pains start kicking in. That said, we recommend purchasing disability insurance once you have the means to pay the premium. Most insurance pays someone else…car insurance pays the auto-body shop to fix your car, life insurance pays your beneficiary, health insurance pays the doctors and hospital to put you back together…it is only disability insurance that pays you, the consumer, to take care of your responsibilities. The need for disability insurance does not go away until you no longer have the need to work and generate income.
What are the key differences between Group Disability Insurance and Individual Disability Insurance?
I like to think of a group long term disability policy as offering catastrophic coverage while an individual disability policy offers more comprehensive coverage. Group long term disability will probably be there when you need it, but it may not pay as much or for as long as you expect. Group long term disability typically has a limited own occupation period, is typically paid by an employer and as a result creates a taxable benefit and is owned by the insurance company who can cancel or change the policy and/or rates at their discretion. An individual policy has a stronger definition of disability, is typically tax free as it is personally owned and paid for. The most common individual disability policy is a non-cancelable contract which means as long as you pay the premium, your policy can never be changed by the insurance company.
What are the biggest hurdles that keep people from purchasing disability insurance protection?
The biggest hurdle is waiting too long before purchasing coverage. It is not until something happens either financially, occupationally or from a health perspective that someone says, "I better look into getting something", at which point it is often too late. The most common scenario is the individual who goes to the doctor because something is bothering them… only to be diagnosed as a type II diabetic, or they have a herniated disc, or their liver enzymes are elevated, or the stress at work has caused anxiety or depression. Because an applicant must go through medical underwriting to get an individual disability policy, recent medical issues could cause an application for coverage to be declined or modified resulting in a policy that is not as comprehensive as wanted. Again, it goes back to your question about demographics. Buy when you are young and healthy! Do not wait because it could be too late or cost you more than expected if you wait too long.
What can we do as Financial Planners to help educate our clients on the importance of disability insurance?
The first thing is to make a habit of asking the client what they have done to protect themselves in the event they get sick or hurt and cannot work for an extended period of time. Most people haven’t purchased disability insurance because they have never been asked to. Besides that of course, I highly recommend that financial advisors partner with an expert in the disability field. No one person can be an expert on all the various financial products and services out there for a consumer. So, bringing in a specialist - someone who lives and breathes disability insurance everyday can be very beneficial to the financial planner and client. Not only will they be able to provide access to multiple carriers with one phone call, but they can also help explain the coverage, find the best solution for the client, and help negotiate the best offer for the client during the underwriting process.
Can you share a memorable experience where disability insurance was able to change someone’s life for the better?
I have to look no further than the President and founder of Disability Resource Group, my boss, John Nichols. John suffered a terrible water-skiing accident in 1993 that left him partially paralyzed for several weeks. In what he calls a miracle, he was able to recover almost all function of his body. That being said, he was disabled and out of work for almost 6 years and it was his disability insurance policy that got him through the hard times. It provided the resources that kept him out of bankruptcy, kept him in his house and allowed him to take the time to rehab to get better. Without disability insurance John in all likelihood would have lost everything. Shortly after his recovery, John started Disability Resource Group to help promote the benefits, educate consumers and provide disability insurance to those lacking adequate protection. He likes to ask people about their dreams and goals and once they answer he asks, "what could derail those dreams and goals?" Most of the time the answer is health and money. If they lose their health and do not have the ability to work who or what is going to replace that lost income? The answer of course is a disability insurance policy. So, keep those dreams and goals alive!
If you could give one piece of advice to someone considering purchasing a disability insurance policy, what would that be?
Some coverage is better than no coverage! According to the Council For Disability Awareness, the most common disability insurance policies replace between 40% and 70% of someone’s income and pay benefits to age 65 or age 67. They include own occupation protection, partial benefits, cost of living increases and other optional features that increase premium but offer additional benefits. Just as a Mercedes Benz is not in everyone's budget, not everyone can afford "a maxed out and loaded up" policy. I would advise them to work with their financial planner in partnership with a disability insurance specialist to design a policy that fits into their budget. A policy that pays benefits for 5 years is very valuable and offers substantial protection and could be half the price of a policy that pays benefits to age 65 depending on the age when it is purchased. Lastly, I would advise clients not to get caught up in the "Superman Syndrome" - The erroneous belief that a disability could never happen to them, and they are invincible. Even Superman had no defense against kryptonite. A disabling event can happen to anyone at any moment.
I really want to thank Kevin for taking the time to talk to us about this very important subject matter and for always being there for our team and our clients. Remember, having some plan is better than having no plan at all!
Kevin Cloutier is one of two Vice Presidents at Disability Resource Group, Inc.; a unique brokerage firm dedicated to offering individual disability products, administration, and consulting services. He brings with him an extensive disability background. Kevin has participated in and conducted seminars on the need for disability insurance and the differences between various carrier's contracts. Kevin is Past President of NAIFA-Chicago (2009-10) and is a 2007 LILI (Leadership In Life Institute) graduate. He lives in Chicago with his wife Janeen and their 2 children, Adam and Carly. He enjoys golfing, music and is an avid sports fan.
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor, Member FINRA/SIPC. LPL Financial, Disability Resource Group, Inc. and Peabody Wealth Advisors are separate and unrelated companies.
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