Disability Insurance as Part of a Holistic Financial Plan
• Sasha Grabenstetter • April 28, 2022
Holistic financial plans account for all aspects of an individual’s personal and financial circumstances. They are personalized, continuous, and comprehensive in nature.
However, far too often, disability insurance is left out of a holistic plan. It’s a frequently overlooked part of a healthy plan, despite disability being widely prevalent in the U.S.1 Financial planners who consider themselves holistic planners should be evaluating disability insurance as part of their regular planning process.
Disability in America
According to the Centers for Disease Control and Prevention, 61 million adults in the United States live with a disability. In more meaningful terms, that’s 26 percent of adults, or one in four Americans, who have a disability today.1
Among those with disabilities, 25 percent have a mobility or cognitive disability. Other common disability causes are cancer, pregnancy, neck or back problems, depression, anxiety, or other mental health issues.1
Since those living with a disability represent a significant portion of the U.S. population, income protection or replacement remains a top concern. A financial plan that safely accounts for all possible scenarios should include some form of disability insurance to protect a client’s wealth and income.
Financial professionals can offer a lot of value to clients by analyzing disability coverage gaps, assisting them in reevaluating their disability insurance coverage when a job change occurs, and giving some education and advice when looking over the terms of their current policies.
Educating Clients About Disability Insurance
Education is a great place to start the conversation to help clients determine what disability coverage means and if they may need it.
As with most insurance, disability insurance has lots of terms or jargon that many people won’t understand, so you can be of great value to your clients when you guide them in the right direction.
Some common client questions may include: do they need long-term or short-term disability insurance, how long is the elimination or waiting period before they can receive benefits, how much is the benefit worth, and/or is the benefit taxable?
Helping your client walk through the different pieces of their disability insurance plan shows that you care about protecting their wealth and their loved ones, and also helps personalize their plan to their unique circumstances.
Incorporating Disability Insurance into the Holistic Plan
According to the Council for Disability Awareness, the average long-term disability claim lasts 34.6 months, or almost three years!2 That’s a long time for the policy to pay out benefits.
Knowing how much disability insurance your clients have today can be crucial when thinking about how much savings they have in the bank. This is especially true when you consider the report from the Federal Reserve on Overall Financial Well-Being in 2020 that found that more than one-fourth of adults were either unable to pay for their monthly bills or were one $400 financial emergency away from being unable to pay the bills.3
Most waiting periods are between 90-180 days, which means your clients will be going without income for three to six months before the policy starts paying the benefit. Financial professionals can demonstrate to clients the importance of an emergency fund in the event of a disability to help supplement their income until the benefits kick in.
With the right financial planning software, financial professionals can also help evaluate a client’s current disability insurance to see if there are any gaps in coverage. Remember to ask if their employer offers disability insurance and add that into the evaluation. By analyzing the client’s current situation and making recommendations to cover any insurance gaps, you will help to make their plan more holistic in nature.
Hoping for the Best, Preparing for the Worst
Nobody plans to have a disability, but having the right insurance coverage is an important part of a holistic financial plan.
To dive deeper on this topic to further help your clients, register for our upcoming CE webinar on disability planning. Katiya Xiong, DIA, will offer guidance on understanding and preparing for client engagement with disability planning, as well as going over real-world examples of why it’s such an important part of the plan.
- “Disability Impacts All Of Us.” Centers for Disease Control and Prevention, 2020. September 16. https://www.cdc.gov/ncbddd/disabilityandhealth/infographic-disability-impacts-all.html.
- “Disability Statistics.” Council for Disability Awareness, 2013. July 1. https://disabilitycanhappen.org/public_html/wp-content/themes/cdadev/images/disability_stats.pdf.
- “Economic Well-Being of U.S. Households in 2020.” Board of Governors of the Federal Reserve System, 2021. May 1. https://www.federalreserve.gov/publications/files/2020-report-economic-well-being-us-households-202105.pdf.
DISCLAIMER: The eMoney Advisor Blog is meant as an educational and informative resource for financial professionals and individuals alike. It is not meant to be, and should not be taken as financial, legal, tax or other professional advice. Those seeking professional advice may do so by consulting with a professional advisor. eMoney Advisor will not be liable for any actions you may take based on the content of this blog.
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