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Selling Individual Disability Insurance to Those Who Have Employer Coverage

Posted by The DIS Sales Team on Wed, Jan 9, 2019 @ 08:01 AM

Are you losing sales because people are worried about having too much of a good thing? Disability insurance is a good thing. There should be no doubt about that. Many people will experience an injury or illness during their working years, and without the safety net provided by disability insurance, the financial consequences can be disastrous.

But people with group disability insurance may think they don’t need individual disability insurance. Agents may avoid even pitching the coverage in anticipation of this objection. And that’s a mistake.

When it comes to combining group DI with individual DI, you don’t need to worry about too much of a good thing. Even with an employer-based plan, workers have a lot to gain from getting additional coverage on their own.

Group disability insurance leaves gaps.

Something is better than nothing, and group disability insurance certainly provides something. To be more specific, a typical group disability insurance policy offers payouts of 60 percent of the base pay, with a maximum payout of $5,000 per month. While that’s a lot better than the 0 percent of base pay individuals would otherwise get when they’re unable to work, it leaves a lot of gaps.  

  • 60 percent is the lion’s share, but it still leaves 40 percent of the worker’s income. Imagine having your paycheck cut by 40 percent.
  • The $5,000 limit means that high earners will see even more drastic cuts to their pay. Anyone earning more than $100,000 a year will be impacted.
  • Group policies may not cover bonuses and other perks. For some workers, this is a big chunk of their overall compensation.
  • If the employer is paying the group premium, any payouts will likely be taxable, so the 60% benefit becomes 60% less taxes – even more challenging to live on.

Individual disability insurance can fill in those gaps.

Before you and your clients dismiss the idea of individual disability insurance, do the math to see if the group policy is truly sufficient.

  • Take the base pay. Don’t include any bonuses or other perks.
  • Now multiply that base pay by 60 percent (.60).
  • If the result is higher than the maximum employer benefit (often $5,000 per month), reduce this amount to the maximum.
  • Find the relevant tax bracket and subtract the taxes due.

For example, let’s say a worker earns $150,000 per year plus bonuses. When we take 60 percent, we’re left with $90,000. That’s more than the typical monthly maximum of $5,000, so we have to reduce it again. Now we’re left with $60,000 per year. That’s already significantly less than half, and we still owe thousands of dollars in taxes.

Help your clients see how much they’d be bringing home under a group disability insurance policy. Then ask them if it’s enough. If it’s not, you’ve just made a good case for individual disability insurance.

Our most popular sales script, “The Wealth Preservation Plan” includes an Income Gap Diagram to help you illustrate this point. It also contains many other invaluable tips for overcoming price objections. Download it here!

Topics: individual disability insurance, group disability insurance