John O
Employer Sponsored High Limit Life, Disability and Long Term Care Protection
How much is enough?
How do you counsel regarding the tradeoff's for retirement vs insurance. In lifestyle decisions most folks would put insurance and retirement in the same fixed budget. Pulling from one to pay the other. Do you really suggest someone go to the movies less to buy more disability coverage? Thoughts?
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Tom C
Project Manager, Dell - Corp Decision Systems
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John –
I was “classically” trained in insurance (meaning more than 15 years ago). Your question struck me in light of the US mortgage bailout conversation. Essentially – what social support structures are in place to catch those in trouble? Does the government do a better job at supporting retirees or the disabled?
First: Why not make this trade-off from retirement funding?
What is the impact $20 (or $40) of DI premium compared to the future earnings that might be attributed to retirement? I’m sure you have the DI v. Death statistics close at hand.
I have tried a half-dozen online retirement calculators – everything for the quick and dirty, to the sophisticated Monte Carlo based tools, and even completed a full-fledge analysis through a planning company. None (none!) of the responses would have been impacted by a $240 to $480 diversion of funds (compounding is the biggest lever).
Second: If you can’t convince yourself of plan A (a fully funded DI plan at the expense of movies or retirement), consider a Plan B.
My current DI plan works great for 5 years (not …to age 65). This reflects my understanding of the odds to be disabled, the odds to be disabled beyond five years, and the odds that if a disability lasts for more than 2 years it will probably be permanent. My wife understands that we would have five years to transition to a different lifestyle and/or for her to return to work (most likely the latter). DI premium and DI risk are balanced with our retirement investments.
My bottom line: It really isn’t up to me or to you to decide what is right for your client. Give them the odds, the options and the costs. Let them know your recommendation, then let them decide on their position.
Tc
P.S. In the old days this was called consultative selling.
Thane M
Certified Financial Planner™, McCready Financial Group
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John,
I Think your question is, "How much disability coverage do I need?" or since it looks like you sell disability insurance "How much disability insurance should I recommend to my clients?"
As for budgeting and movies, I don't ask my clients to give up specific things, but ask them if they feel they're spending more than they should in any one particular area. Then follow with what they think they should be spending. No one likes to be told what to do with their money.
As for how much disability insurance is the right amount. I ask if something were to happen to them and they couldn't work how much disabilty income would they want. Then work back from there.
My New York Life guy knocked my socks off! His approach was backwards from the way most agents operate. He approached his clients with goals. He started out asking them what was the most important thing to them. Usually he picked the wife (if it was a couple) and when he was done with her, he asked the husband the same thing...what is important to you with retirement and lifestyle.
Then once he determined what they wanted, he also determined what risk they were willing to live with in their future.
From there he developed a strategy that would give his clients what they wanted in a way they could live with.
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Ray M
Energy expert, educator, award winning sculptor
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I think for many people retirement without benefits is not an option.
If you retire without health benefits, you are in trouble. I know several people who after retiring went on to another job with health care so they were covered.
As unpopular as it seems, some sort of transportable or universal health care coverage is really needed, although I am not optimistic.
