How large of premium can your DI prospect afford? It can be a hard thing to judge – and much different than assessing the affordability of consumer goods. For example, car buyers typically don’t shop at a Mercedes dealership when the budget allows for a Chevy. New home buyers tend to look in neighborhoods they believe to be affordable. And, you don’t typically find a Sears shopper at a Saks Fifth Avenue store.
In many situations, the consumer self-selects where to shop, the brands to buy and the most comfortable price points. Unfortunately, there’s not much self-selection when it comes to buying paycheck protection.
Fortunately, there are some ways to gain insight into the client’s budget and spending appetite.
#1: Know the average household income and expenses.
The prime market for disability insurance is clients in mid-career stages, between ages 45 and 54. Using data from the U.S. Bureau of Labor Statistics’ 2015 Consumer Expenditure Survey, Bank of America estimates the average monthly budget for this age group is $5,813, the highest monthly budget of all age categories. Monthly expenses, covering housing, transportation, food, health care, education, and entertainment, average about $4,333, leaving budget flexibility of about $1,500. Granted, these numbers are averages, but they provide a general insight.
Interestingly, higher household incomes may not always mean more discretionary funds. Actually, households with the highest incomes pay the highest amounts of credit card debt interest. Incomes between $112,262 - $157,479 paid $1,882, up to $550 more in credit card interest than those making less. Households earning more than $157,479 paid as much as $2,515.
#2: Use what you might already know.
Disability insurance is most likely not the first line of business you’ve discussed. The client profile developed over time may provide other clues to the financial status. For example, higher deductibles for homeowners or auto insurance suggests a client is confident that if needed, cash can be accessed quickly to meet the deductible. It might also indicate flexibility for an additional expense.
#3: Present the options and follow the prospect’s lead.
Regardless of what you estimate a prospect might be able to afford, you won’t know for sure until you are well into the DI conversation. Be prepared. Have three quotes available, each showing different premium levels. Show the client how variations on the benefit period, the elimination period, and coverage amounts can affect the premium. As a rule of thumb, individual disability insurance will be between three and five percent of client income.
By following the prospect’s lead, and being ready with a range of premium options, you can avoid over-selling or under-selling. Most importantly, you can overcome the most common buying objection – “I can’t afford it.”
Your DIS representative is a great resource for more information about making disability insurance affordable, and will offer suggestions for an affordable case design. You may also want to review 3 Ways to Make Disability Insurance More Affordable. We’re here to help you make the sale. Call for a quote.