Income Replacement Coverage a Necessity Americans May Not Grasp

When it comes to insurance planning, it may be time for producers to have their clients start thinking like business owners.

Successful companies know that losing a key individual can lead to numerous problems, many of them financial. If an essential employee retires, unexpectedly dies or is forced to leave for any other reason, the revenue they helped generate can leave with them. This is why many organizations invest in key person protection insurance, which allows owners to value the loss their business may face if a key person is no longer on staff.

Only by analyzing a client's basic needs can financial professionals help them meet their obligations.Meanwhile, many businesses also invest in business interruption insurance. This type of coverage allows businesses that have been forced to close due to a disaster to access funds needed to replace the loss of profit from closing.

Both strategies are intended to help keep businesses afloat if the worst should occur, but owners are far from the only individuals who can benefit from this type of insurance strategy.

Income replacement insurance gives your clients the chance to recover from their own business interruption while protecting their key individual: themselves.

Meeting a need

If one of your clients were to become temporarily or permanently unable to work due to a physical or mental disability, the blow to their finances could be catastrophic. Yet this is one area of protection where many individuals fail to take action.

A recent study from the Life Insurance Market Research Association found that the majority of middle-market consumers said they were not prepared for the death of a family member. Fifty-one percent said they would need to make drastic or significant financial changes if such a thing occurred. However, death is not the only instance that could lead to a loss of income.

In fact, physical or mental disability can be even more of a financial burden, as not only will households be forced to live with less money, they may also need to seek out treatment for the disabled individual. Between a loss of income and an increase in medical bills, the need for disability insurance is clear.

While many Americans understand the need for life insurance, as well as how such a product can keep their loved ones financially secure upon their passing, they may not give disability coverage the same careful thought. It’s up to insurance producers to help their clients discern why disability coverage is such a valuable service, as well as how it can be used if the ability to work ever becomes an issue.

Obtaining sufficient protection

Another hurdle insurance producers will need to clear involves making sure their clients obtain enough coverage. Getting a client to recognize the value of disability insurance is only half the battle – making sure they receive enough coverage remains an issue.

This is a problem across various types of insurance policies. For instance, The Commonwealth Fund discovered that as of 2012, 31.7 million insured people under the age of 65 were underinsured. While these figures concern health coverage, they paint a clear picture when it comes to average outlooks on insurance coverage.

This is an especially risky dilemma where it concerns high-net-worth individuals, as these clients have an even more pronounced need for proper coverage. A person who counts on a high level of income and has the increased financial obligations that often come with it, such as a large mortgage, requires even more of a guarantee that if they were to suddenly lose their ability to generate revenue, they have a plan in place to ensure they and the people they care about can continue to live a financially secure lifestyle.

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