Disability Insurance is too Expensive

Disability Insurance is too Expensive

  • Published: Jan 02, 2020

I hear this refrain quite often from potential disability insurance clients and, I must say, it isn't limited to any particular income bracket.  I have had prospective clients earning in excess of one million dollars annually telling me that the premiums were just too much for them to handle.

I always counter with, I do understand your concern, but let me ask you this can you afford to be disabled?  I know that's a loaded question, but it gives my clients a chance to look at which scenario is the least affordable paying 1% 3% of their gross income in order to have 50% 60% of their gross income (non-taxable in most cases) replaced in the event of a disabling injury or illness or; not paying any premium now and losing everything you worked so hard to accumulate (savings, home, cars, etc.) due to a cessation of income due to a disability?

Using the maximum percentage of income equation above, here's another question I ask my prospective clients (usually after I know their gross income) If you had a choice of the following compensation packages, which would you choose an income of $100,000 without any disability income protection or; an income of $97,000 with a disability insurance policy that would pay you approximately 60% of your gross income (in after-tax dollars)?  Its much easier to evaluate one's need using this equation.

I also go on to explain that the cost of any insurance product is proportional to the amount of risk the insurance company is assuming.  I then go into the risk statistics of disability compared to a lower risk product like term life insurance.  There is a much higher likelihood of becoming disabled during your working years than there is of you dying.  The cost of the policies is indicative of those risks.

I am a firm believer that there is a disability insurance policy for all budgets.  You can purchase the most comprehensive policy with all the riders if you want the best coverage available.  However, you can also purchase a policy with lesser benefits and, therefore, lower cost.  The potential cost of not having any coverage is too much risk for most folks to take on.