Protecting Your Assets
Insurance isn’t exactly a fun topic. You’re not likely to win new friends by discussing your new auto insurance coverage at that backyard barbeque.
However, insurance is a critical component in managing risk. Like the moat around your financial castle, it is there to provide peace of mind and protection in difficult times.
Besides the traditional insurance, such as auto, home, and health, making sure you own insurance that protects your income in the event of death or disability is one of the most important types of coverage you can purchase.
Life and disability insurance are two products that should go hand in hand.
When purchasing life insurance, especially term insurance, most people expect the death benefit would help replace their income should they unexpectedly pass away.
Disability coverage is paycheck insurance if you can’t work due to sickness or injury.
The way people feel about income protection insurance (life and disability) compared with their actual ownership conflict.
What’s interesting is that, according to the 2017 Life Barometer Study put out by LIMRA and www.lifehappens.org, 59% of Americans have life insurance protection, either through work or individually.
However, in the same study, only 27% of those surveyed felt very or extremely concerned that they could burden dependents with a premature death. The second highest concern was paying for final expenses at 26% This is a major disconnect. 89% of those surveyed felt the primary wage earner in a family needs life insurance. Those numbers combined just don’t make much sense. An overwhelming majority of people feel this coverage is important, yet a small majority have it, and barely a quarter of those surveyed are concerned about replacing their incomes should they pass away prior to retirement.
Disability insurance attitudes and ownership suffer a similar disparity.
65% of respondents stated most people need disability insurance, yet only 48% said they need disability insurance. Even more startling is that only 20% own disability insurance.
Getting More People Covered
As a subset of the financial services industry, insurance companies are constantly positioning themselves as the first line of defense against catastrophic losses. The challenge is that many consumers place no priority on owning these policies. To find a solution, we first must understand the problem.
More people need coverage to protect their incomes from death and disability. The two main issues sited for not purchasing these products are cost and having other financial priorities.
For most people, the cost concern is just a misconception.
Take life insurance, for example. When asked how much a 250k term life policy would be for a healthy 30-year-old, the median estimate was $500-over three times the actual cost.
Before passing judgement on something as being too expensive, do yourself a favor and run a quote. These insurance products are normally priced fairly for the coverage offered and shouldn’t be avoided due to premium costs.
Having other financial priorities is understandable. Anyone who has gone through purchasing a fully-underwritten life insurance or disability insurance policy can relate. It is typically exhaustive, involving medical exams, doctor records, and with disability insurance, financial documentation.
The timeline for purchasing these policies can be from 4 to 8 weeks. Although there isn’t a lot of involvement from the insured once the application and exam are completed, that timeline can be a huge turn off for those looking to “get it over with.”
Technology, longevity, and a greater understanding of health conditions have led to several innovations in an otherwise “old school” industry.
With simplified issue disability and life insurance, purchasing these products has never been easier. The term “simplified issue” is industry jargon sometimes misused. A true simplified issue plan requires no exam, no doctor records, and offers unhealthy people the same rates as those in excellent health.
This is not the type of policy this article discusses. If you’re interested in different types of policies, you can get more information from “Your Complete Guide to Buying Disability Insurance”.
For this article, simplified issue disability and life insurance references policies with a relaxed process and accelerated underwriting. These are often referred to as “non-med” or “accelerated underwriting” policies.
They require no exam; most of the application can be taken via a phone interview or eApp and signed with a voice or electronic signature.
The underwriting process may also be simplified, allowing healthy people to get a policy quickly (think weeks, instead of months).
With simplified issued disability insurance, financials are unnecessary to be issued a policy.
The biggest takeaway: A true non-med/accelerated underwriting policy will have the same rates as if you went through the traditional process. There is no additional premium required to purchase one of these policies. Your price will be the same as a person with similar health, gender, and policy terms, who goes through a fully underwritten procedure.
Pros and Cons
The positives of owning one of these policies outweigh the negatives.
A faster process, aggressive pricing, and securing much-needed coverage without disrupting your life are reasons to consider simplified issue disability and simplified issue life insurance.
The main negative to these policies are the benefit limits. Non-med life insurance can issue up to $1,000,000 in face amounts, although many carriers cap this at around 500k. Should you need more, you must consider traditional underwriting.
For simple issue disability insurance, benefit limits range from 3k to 6k per month. A fully underwritten disability insurance policy with exams and financials can cover over 20k per month in lost income.
Both types of policies have age limitations for these programs.
Purchasing Simplified Issue Disability Insurance
The goal is to protect your income should you be unable to work due to sickness or injury. The average disability claim lasts 31-34 months and just over 1 in 4 of today’s 20 year-olds will become disabled before they retire.
Owning disability insurance is a critical factor in maintaining financial health, and although you should have 60-65% of your income covered (individual disability insurance benefits, like life insurance, is almost always tax-free), having something in place is better than nothing.
What Is The Process?
A simplified issue disability insurance policy will waive several underwriting requirements that a traditional policy would need.
For instance, someone under age 50, making less than 150k annually, can get up to 6k per month in disability income protection without medical exams, doctor records, or financial verification. The application can be done via eApp with a telephone interview that typically takes 15-20 minutes. Approval happens in weeks, not months, and uses the same pricing as someone using the fully underwritten process.
Who Should Consider It?
Disability insurance should be owned by anyone who can’t survive on federal or state benefits, both of which have very low benefit amounts and high standards in making a claim.
Simplified issue disability insurance is ideal for mortgage protection, paying back student loans, and even everyday protection. Individual disability insurance benefits can normally be spent on anything, from bills to vacations.
If you’re one of those people with other priorities or just don’t have time to consider purchasing disability insurance, simplified issue disability insurance is perfect for you.
The ability to purchase a life or disability insurance policy, with the same pricing as a traditional underwriting process, is a huge opportunity in today’s busy world.
People have many reasons for not owning income protection insurance, but if their attitudes toward life and disability coverage are any indicator, more people need to consider utilizing these products.
While these products are purchased through licensed insurance agents, the entire process can be completed online and over the phone.
Use an independent agent with access to all the major insurance carriers. This will ensure you not only get the best price, but you have the full range of simplified issue programs available.
From true simplified issue to non-med/accelerated underwriting products, making sure you get the right coverage in place to protect your income is crucial. We can help.
Raymer Malone, CFP® is an independent insurance broker and the owner of www.highincomeprotection.com. He offers expert, unbiased advice in helping people purchase disability insurance policies for themselves and their businesses.