When Rosemarie Rossetti talks to advisors, insurance agents and business people about why disability insurance is a vital part of financial planning, she doesn't have to resort to canned material to get her message across.
A retelling of June 13, 1998, usually does the job.
That was a day that started out just fine for Rossetti. It was slightly over a year since she had left the agricultural education faculty at Ohio State University and started a successful communications consulting company. On that particular Saturday afternoon, Rossetti, then 44 years old, was bicycling with her husband in a public park on the day of their wedding anniversary. It was a clear day. No wind. No rain. The last thing Rossetti's husband expected was to hear what sounded like a loud gunshot behind him-only to turn around and see an 80-foot tree collapse and fall on his wife.
Knocked unconscious, Rossetti suffered massive internal injuries, including a broken spine and neck. She has been confined to a wheelchair ever since.
But she considers herself lucky for two reasons. First, she was wearing a helmet, which she feels saved her life. Second, she was still covered under her state teachers retirement system disability insurance.
She gets more than $2,000 a month from that insurance, which she says has been crucial in enabling her to piece her life back together and giving her hope that she can work full-time again.
"The story is very powerful in the way it happened," the Columbus, Ohio, resident says. "It was literally out of the Caribbean blue. It was an instant, irreversible and unprecedented change in my life."
Yet it's the type of story Rossetti feels advisors and their clients should consider. Since she hit the public-speaking trail with her story in July, she finds too many people don't appreciate the protection that disability insurance brings.
"Your biggest asset is your ability to earn income," she says, echoing many financial advisors. "What I ask people is, 'Have you protected your biggest asset?'"
Advisors attest to the fact that disability often is a hard sell with clients, and one main reason is the cost. Premiums on disability policies vary widely, as do benefits and restrictions, but advisors say they have clients whose premiums approach $10,000 per year for high-end coverage.
Benefits also havebeen scaled back, and the definitions of disability made stricter. Lifelong benefits, for example, are hard to find, advisors say. And what is available is expensive. The typical disability policy covers workers until the age of 65 to 67.
And after getting pummeled with a surge in claims in the late 1980s and the 1990s, insurance companies have curtailed benefits of "own-occupation" disability policies-coverage for when a disability prevents someone from performing their specific occupation but allows them to work other jobs. Following a surge in claims from laid-off lawyers a decade ago, disability carriers dramatically reduced their exposure to that profession, forcing ambulance chasers to scramble and search high and low for policies.
"True" own-occ policies, which were common as recently as 10 years ago, paid full benefits to a disabled worker even though that worker even if he or she was drawing income from another type of job. Such insurance is now hard to find. Now own-occ insurance typically only pays for the proportionate loss of income, says Richard Magro, vice president for individual products and marketing for UnumProvident Corp. Add tougher eligibility requirements to the mix, and what you end up with is many clients who take a pass on any disability insurance at all, advisors say.
Yet for Jim Barnash, vice president at a Lincoln Financial Advisors office in Chicago, that only means that advisors have to do a better job of explaining why disability insurance is important. "I think a lot of advisors and insurance professionals don't know how to explain it to clients," Barnash says. "The ones who are good at it sell a lot of it. The ones who know it best almost focus on it as a specialty."
Speakers such as Rossetti are one way to get the message across, but another is to spell out exactly what disability insurance is protecting.
If it's a 45-year-old client with an annual salary of $300,000, for example, a policy would essentially be protecting 20 years worth of income, Barnash says. At 60% coverage, that's $3.6 million in benefits.
"This isn't hard to figure out," Barnash says.
This shift in focus is one of the reasons more insurance issuers are getting away from the "disability" label and starting to market the policies as "income protection" insurance. David W. Bennett, owner of Total Financial Concepts in Los Angeles, usually has success spelling out disability insurance in simple terms. Noting that clients readily agree that home, life and health insurance are necessities, he asks clients to imagine having a money-making machine in the attic of their home.
"Then I'll ask them, 'Would you insure the home or the machine?'" he says. Needless to say, the money-making machine is the client.
Then there are the statistics.
About one in five Americans have some type of disabillity, and one in 10 have a severe disability that requires the help of a person or assistive device to perform basic activities, according to 1997 U.S. Census data.
Another way to look at it is that a 35-year-old worker is five times more likely to be disabled for at least three months than to die before retirement, says Winthrop Cashdollar, director of the Center for Disability and Longterm Care Insurance in Washington D.C.
"We often hear that this or that type of coverage is expensive," he says. "What really is expensive is a quick dismissal of an important coverage issue."
Besides being turned off by cost and limited benefits, clients often pass on private disability insurance because they feel protected by employer-sponsored disability insurance, says Christina Povenmire, owner of CMP Financial Planning in Columbus, Ohio.
Many clients, however, aren't aware of the fine print when it comes to employer-sponsored plans, she says. One of the primary drawbacks is that benefits are taxed. And employer-sponsored plans often put a cap on annual benefits, meaning 60% isn't always 60%. "What we may very well do is recommend a supplemental policy to bring up the level of disability coverage," she says.
And unlike straight-up disability coverage, supplemental policies can be surprisingly inexpensive, Magro says. For a 40-year-old white-collar worker earning $100,000 a year, a supplemental policy adding 15% income protection would cost about $23.20 per month, he says. Throw 25% of catastrophic disability coverage on top of that, and the monthly premium comes to $26.25 per month. The premiums reflect polices bought at a work site, at companies with 100 or more eligible employees, Magro adds. Workers at smaller companies would pay 10% to 15% more, while workers who buy such supplemental policies individually would pay 35% to 40% more, he says.
For full policies, Magro says there are ways advisors and their clients can chip away at costs. "From our research, price is certainly the largest impediment," he says. "What tends to happen is the broker or insurance producers show the top-of-the-line product... But there are a wide range of options."
Accepting less than an own-occ definition of disability is one way to drive costs down, Magro says. The most common is a "gainful occupation" policy which covers workers when they are unable to perform any occupation which they are "reasonably" suited for based on their training, experience and education. While this type of policy will be cheaper, advisors also note it does leave the question of disability subject to more interpretation by the insurance company.
Another avenue for cost reduction is in elimination periods-the time gap between the instance of disability and the start of benefits. Magro says that by opting for a 180-day period instead of 90 days, a worker can save up to 15% in premiums.
Buying less than 60% coverage is another option, Magro says. One way to make up the difference is with a cheaper catastrophic-disability insurance policy. These options are particularly applicable to younger clients, who have the option of upgrading policies as their incomes increase, he adds. The way some products are structured, he says, "buying now and upgrading later costs less than waiting until sometime in the future."
One thing clients can't depend on exclusively is Social Security, says Rossetti. In her case, Social Security only would have paid a little more than $700 per month. She did not receive the money, however, because of the benefits she received from her teachers retirement benefits.
As it was, the $2,000 a month she received in disability, plus her husband's salary, allowed her to pay basic bills and pay for a personal-care attendant without having to dig into her retirement savings. She views it as a form of risk management-which is what she preaches to small-business owners who have no disability insurance.
"The whole premise is this is a business investment," she says. "If you're investing in a business, how can you not invest in yourself? Without you, there is no business."