The first lesson in this personal economics course is: the only solution to the problem of having to spend money to live is to have a sufficient amount of money to cover the costs. For most people, this means earning the money, since few have been gifted a sufficient amount of money to buy a lifetime of needs.
In the course of life, one encounters a number of income interrupters: job loss, business failure, mental or physical disability and death. We have all had the opportunity to observe the experience of many, and what is the most disastrous of all the income interrupters is disablement of the human body to the extent that it cannot work to produce income.
The economic problem of becoming disabled, which is created by the very living of life itself, has been recognized for well over a century and resulted in the invention of insurance that provides an income cash flow to a disabled person. Underwriting and insuring such coverage requires grappling with many complex factors having to do with physiology, anatomy, law, psychology, finance and integrity.
If you examine professional surveys about insurance, you will find statistics that indicate fewer than 27 percent of American income earners are protected by disability income insurance and that fewer than 50 percent of all business owners have ever had the subject of disability insurance discussed with them. Those in the insurance industry know that life insurance agents tend to concentrate on life insurance, health insurance agents tend to concentrate on health insurance, and casualty agents tend to concentrate on property and casualty insurance.
Personal economics is a plan designed to balance the costs of a selected lifestyle with the funds that will be available for that purpose.
Americans are frequently criticized because of their failure to save a significant portion of their earnings. Some estimates indicate that average Americans save less than four percent of their income. An amount deemed dangerously inadequate to handle emergency needs that may occur during their working careers or to build a dependable retirement income account.
In fairness to American consumers, who are constantly badgered by advertisements to buy those things that add to the dynamics of life, it should be pointed out that expenditures on a mortgage loan to buy a home is a process of converting cash flow income that results in an equity build-up, which is a form of savings. Paying the premium on a cash-value life insurance policy, while measured as expenditure, in reality is in part a transfer of cash into an equity build-up called cash value, which is a form of savings. Even a time purchase plan to buy a new automobile means that a little of that payment is transferred into ownership of the vehicle, and there, upon payoff, exists something of value. Not all payments have been spent, lost and gone forever.
Yet it is important that American consumers have an awareness of how they spend their money. They must plan for possible economic problems and conditions during the course of their lives—problems that will challenge their ability to cope and to survive.
Without the element of time, saving money provides no solution to most financial problems. Saving is a long term process which—if uninterrupted—will achieve a substantial end result. What must be of greatest concern is the interruption of the process.
Who will do the important job of delivering disability insurance to serve the American people? The answer is that it will be a conglomeration of insurance agents and brokers from all fields of specialization. However, they must be reminded of their clients’ true needs and educated on how to provide solutions for their clients’ needs! Only then will agents and brokers be able to respond to the challenge and solve their clients’ problems by showing them how to protect their income cash flow sufficient to match the outgo, should disability strike.
Personal economics 101 dictates that a person be prudent in not only providing income required to balance outgo, but also must consider the consequences of dying too soon, living too long, or—the worst situation—becoming disabled.
The good news for producers and consumers is that fresh thinking has resulted in new disability products being made available so that an arrangement of plans can create a true and adequate disability financial plan.
W. Harold Petersen, RHU, DFP
RHU, DFP, is founder and chairperson of Petersen International Underwriters. He is recognized as an expert in underwriting development and policy innovation for such products as high-limit disability insurance, residual disability benefits, cash-value DI, and the expanding field of disability financial planning. The life/disability industry has acknowledged his leadership as an author, educator, motivator and leader, and has bestowed upon him the Harold R. Gordon Memorial Award (NAHU), the Will G. Farrell Award (NAIFA Los Angeles), the Lifetime Achievement Award (IDIS) and the Distinguished Service Award (NAIFA CA). His extensive industry involvement includes NAIFA, LIMRA, NAHU and The American College, all on local, state and national levels as well as IDIS. Petersen can be reached at Petersen International Underwriters, 23929 Valencia Boulevard, Valencia, CA 91355. Telephone: 800-345-8816. Email: firstname.lastname@example.org.