Designing Disability Insurance Plans for Individuals

Insurance products are everywhere. Drive through any city or small town and you will pass a local agency. These brick-and-mortar retail agencies are generally offering personal, business, and property-casualty insurance products. In many cases, this coverage is required by a lending institution or by law. 

However, there are other insurance policies available that are just as important; but not required by law. Have you ever considered what you would do in the event you lose the ability to earn income? It is a commonly overlooked risk. This form of loss is the largest risk factor for any individual, family unit, or household. Think about it. What would you do if you could not make an income? The good news is that disability insurance products are available for individual purchase and can be the perfect solution should you face this unexpected life challenge.  

Protection from loss of income is vital to provide to your client.  

So, what happens if a policy owner becomes disabled either by critical illness or accident and is no longer able to pay large expenses like coverage premiums, mortgage payments, car notes, and tuition? What about everyday survival expenses like food and gas? None of the basics, nor the luxuries one has earned, are bulletproof. You pay for every single thing in your current lifestyle with your income. You have nothing without an income. You would no longer have money to cover insurance premiums, retirement, or investment contributions. There is no money to pay the mortgage or car payments, nor money for food or gas.  

There is a small safety net afforded to taxpayers by the federal government through the Social Security Department. Middle and high-wage-earning individuals will be extremely disappointed should they find themselves in this situation. The cushion of the federal government is small. It is enough for minimal living expenses, certainly nothing to support a lifestyle or even a mortgage of a higher income earner. Income allows people to live for today, do the things they love, and plan for their future. Income needs to be protected. 

How can we help our clients plan for the sudden loss of income? 

You are in the business of helping your clients, and they place their trust in you! As an insurance professional, the service you provide includes advising clients on the products which help protect their families and businesses. Amongst all the insurance products out there, one could argue that individual disability income (DI) insurance is the most important and supplies the foundation for all other insurance premiums payments.  

So, what does a disability income product do? In a nutshell, this type of policy protects income. The policy protects the ability to work and earn income in case of a debilitating illness or physical condition. Disability income insurance pays a portion of an insured’s income, typically no more than 60% of the insured’s gross income. 

Your client is disabled and has no Disability Insurance. From where does the money come? 

Money sources may include savings, retirement plans, family, friends, business reserves, bank loans, and credit cards. These are all expensive sources of money. Many sources may not be available in an emergency and can turn into a long-term financial disaster. 

Why do our clients need to look at Individual Disability Income policies? 

The Individual Disability Income policy has many benefits when compared to a group Disability Income policy or Social Security Disability Income policy. The individual policy is portable. In other words, it goes with you when you change your employment or occupation. This means you do not have to go any length of time unprotected, and you do not need to re-apply when you make changes.  

What are the long-term disability causes? 

Most Long-Term disabilities are classified as such typically due to illness. Over 30% of all cases consist of arthritis and musculoskeletal problems. Back pain, heart disease, cancer, depression, and diabetes are also prevalent. Accidents are a distant second as a cause making up less than 10% of all cases.  

The basics of Disability Insurance.  

Keep in mind, the main selling points of disability insurance: peace of mind and tax-free replacement income. Policies can be long-term or short-term policies. Multiple factors will change your premium rate including resident state, age, health, income, and job. 

There are several types of Individual Disability Income product variations: 

  • Accident Only Coverage: Think of falling off a roof or a car accident. These are statically less common. This kind of coverage can be less expensive. 
  • Accident and Illness: This is the ideal form of coverage. As discussed, illness is much more common to cause someone to end up out of work. We, ideally, want to protect against this as well. 
  • Guaranteed Renewable: The policy is renewable for the policy term. 
  • Noncancellable: The policy and price are guaranteed for the full policy term. The insurer cannot change the policy or cancel for any reason. 

The most common long-term policy lengths are 2, 5, 10 years or carried to a specific age, like 65, 67, and 70. The price can be changed by the insurance carrier during the policy term (unless it is a noncancellable policy.) Some carriers offer non-guaranteed renewal after the original policy term. 

Disability Income Insurance benefit amount, product class, and underwriting rating are all based on earnings, occupation, medical history, and hazardous lifestyle or job duties. 

Other customizable options include: 

  • Waiting periods: The most common waiting period is 30-days from the date of coverage and may vary by provider and policy. However, there are quite a few other available options: 30, 60, 90, 180, 365-day waiting periods. Usually, you can expect that the longer the waiting period the lower the cost of coverage. 
  • Benefit periods: The length of time in which benefits will be paid during a qualifying disability. The benefit period can vary in length, and the most common options are 2, 5, and 10 years or through ages 65, 67, or 70. The shorter the benefit period the lower the premium. 
  • Riders: Included riders vary by insurance company and products. There are many different types of optional riders to choose from, although not all are available with every carrier. Some of the most popular riders include: 
  • COLA (Cost of Living Adjustment) Rider: Increase disability benefit to offset inflation. Typically plans can be designed to have inflation increase of 3% to 6% with compound or simple multipliers.    
  • Future Benefit Increase: This allows you to increase coverage at future dates. As you grow in your career your income will ideally increase and with this rider, you can increase your disability income amounts without substantial further underwriting.  
  • Own Occupation: This means if any component of your current job cannot be completed, you will receive the full benefit of disability insurance even if you can still do other jobs. For example, a brain surgeon losses mobility in a hand and can no longer perform surgery but can go teach. The disability plan will still pay him his full benefit even if one does go to work another job.  

Who needs an Individual Disability Income policy? 

The short answer is everyone.  

For example, recently, a friend of mine called me and expressed his regret at not listening to my advice on this topic. My friend is 52 years old and overweight. He is a small business owner. His wife just started a new job last year, as a teacher, after being a stay-at-home mom for 17 years. They needed to play catch up on savings after a rough couple of years with the business, a new car payment, and car insurance for their teenager.

So, did they purchase health insurance from her new job? Of course not. Because the bad stuff only happens to other people, right? Both he and his wife ended up in the ER and were both diagnosed with COVID-19. She, luckily, went home with prescriptions and a pneumonia diagnosis. He, unfortunately, stayed at the hospital with double pneumonia and a new diabetes diagnosis. He was in and out of the ICU for a total of 39 days. He went home on oxygen without his former ability to work or even walk as he had before this illness.

As the primary income earner and owner of his business, he has ended up in a less than ideal situation financially. He had previously considered buying a business overhead disability insurance policy (a policy that would have covered his business expenses and employee salaries.)  

It is a typical story. He never got around to it. Fortunately, it is inexpensive, and it can be lifesaving financially, however, most people do not consider it let alone purchase it. An individual disability insurance policy could have helped with his medical bills and kept his family financially secure, but that did not exist either.  

Policy premiums generally range between 1.5% and 3% of gross income. Read some occupation-specific testimonials from a dentist, an educator, an NFL player, and more on the Principal website.  

Steps to selling an Individual Disability Income policy.  

You will need to know your potential client, so gather information for you to provide them with the best-personalized options. You need the standard intake information such as name, date of birth, tobacco use, marijuana use, height, weight, medications, and health history. Additional information may be required such as occupation, income over the last few years, number of years employed in this industry, duties of their job, and various hobbies such as racing, diving (sky and underwater).  

Where do we find the right disability product for our clients? 

If you need help finding the right product for your clients, contact EMG Brokerage to help you find a quality Disability Income policy. EMG will assess multiple carriers that provide disability products. We find the insurance carriers who best match your clients’ preferences for benefits, riders, and cost. 

Why should an advisor contact EMG Insurance Brokerage for information on Individual Disability Income? 

There is good news! EMG Insurance Brokerage is a full-service insurance brokerage based in Houston, Texas. Since 1987, we have been independent insurance professionals in all 50 states. We know Disability Insurance. I hope that the information provided brings awareness to the solutions available. Utilize your new knowledge and begin to incorporate disability income inquiries into your process. Please reach out to EMG Insurance Brokerage for guidance today. We are here for you. 


Paul Davis
EMG Insurance Brokerage

Direct 512.900.4591