Disability insurance making a comeback, brokers told

(November 5, 2004) Young working Canadians are starting to express a renewed interest in disability insurance, a product whose popularity has been on the decline in recent years.

Keith Malkin, living benefits consultant at Canada Life, says fewer advisors sell disability insurance than 10 years ago, partly due to the enthusiasm over critical illness products. But the pendulum may be swinging back in favour of disability, he said earlier this week at the IFB summit in Toronto.

Malkin noted that working Canadians, particularly those in their mid-20s to late-30s (sometimes referred to as “Generation X”), are starting to become successful at their jobs. “They’re starting to make some money. They’re buying new homes,” he explained to Advisor.ca after his presentation.

Those life changes increase their concerns about income protection. “A lot of Generation Xers are dual income-earners. If they lose an income, they’re in serious trouble.”

Selling to these clients means encountering Internet-savvy individuals who use the web for serious research on insurance, he said. But they prefer to make the actual insurance purchase with knowledgeable advisors and want detailed explanations about the various plans available.

For example, advisors must fully explain concepts such as income replacement ratio, which defines proportion of total income replaced by disability insurance, and top-up strategy, which defines amount of coverage through an individual policy over and above that provided in a company plan. “What you’re really doing is making a business case,” he explained.

Advisors must also contextualize disability insurance policy within personal business plans and personal risk management strategies, an important consideration given the general belief that one in four clients will not fulfill their financial plans. They will also want clear and detailed explanations of return of premium conditions and catch-up riders. “They want to know exactly how the contracts work,” he said.

Expect to face objections such as “the government will look after me,” Malkin said, evoking light-hearted laughter from advisors at the IFB session. “Most objections are because people don’t understand something,” he said. “You have to go deeper and find out why they are really saying that.”

The prospective client may also refer to pre-existing disability coverage provided through an employer-sponsored plan. The advisor’s response can include examples of employers who have downgraded group plans, or the advisor could suggest the client check the group plan guide for terms such as caps on benefits, coverage of bonus income or a pre-existing clause dealing with situations in which a medical trauma apparently started before the policyholder joined a new employer.

One advisor has a punch line he uses during client presentations, Malkin said. If a fire truck or an ambulance happens to go by the office, the advisor quips: “Those sirens you hear out there … they’re not practising.”

Art Melo is a Toronto-based financial writer

(11/05/04)