The great patriot Benjamin Franklin reminded the world that the only things certain in life are death and taxes. The world listened, and life insurers produced not only death insurance, but planning to help arrange the greatest financial efficiency of benefits and tax consequences in favor of the insured. Today these programs are labeled “estate plans.”
Overlooked in Franklin’s observation were the absolute and never-ending expenses to live. In 1915 a new voice expressed the “other” facts of life. That voice belonged to Solomon Huebner, PhD, CLU, who described in his book Life Insurance that from a financial perspective there are two kinds of death: dead death and living death.
According to Dr. Huebner, living death is financially the worst of the two kinds of death because the victim is still here but is unable to produce new income. Unfortunately, estate planners and financial planners often deprive their clients of complete financial plans because they neglect to offer solutions to the living death peril—disability income replacement.
A dead death financial plan lacks balance if the living death portion is left unattended. Statistically, the chance of a living death occurring during a client’s working career is much greater than death occurring during that time. According to the Council for Disability Awareness:
• During a working career, a person will not show up for work 17 times because of being sick or hurt.
• One out of three people will suffer a disability lasting 90 days or longer.
• Of these disabilities lasting 90 days or more, the average length of the disability is two and one-half years.
These are grim statistics, and they highlight the probability that a disability could happen to anyone—anywhere at any time: New York City, September 11, 2001 and Haiti, January 12, 2010 are but two examples.
Disability: Short Term and Long Term
Experience teaches us that when people become disabled money concerns are heightened because fewer than 20 percent of the population has an adequate disability financial plan that will pay enough cash benefits to be a true substitute for their paychecks. Simple math illustrates that with a spending need of $10,000 per month and a disability that lasts for two and one-half years, $300,000 will be consumed just for personal cash flow. Such an amount of money would put a big dent in anyone’s personal savings. Additionally, there are the other concerns:
• What if the disability lasts longer than 30 months? What if it lasts 10 years (costing $1.2 million) or 15 years or longer (costing $1.8 million)?
• What if another period of disablement follows the first disability? There may not be a sufficient period of time to replenish the used accumulations.
Do living death situations really last 10 or 15 years or longer? Yes. A close friend of mine who was an executive in the field of technology was stricken with brain cancer 17 years ago. While he has forestalled death, he has been disabled and unable to work all that time. He is a nice person who has been helpless, financially, to deliver the security and comfort for his family that he intended to provide.
Some in the industry might recognize the name of Robert Sluyter, CLU, RHU. He was a primary mover of the American College’s Registered Health Underwriter (RHU) designation. Sluyter was hit by an automobile while jogging and he barely lived. This World War II Marine hero and champion tennis player spent his last 12 years of life as an invalid. He had planned a sophisticated and pleasurable retirement for himself and his family.
Saving: A Glorious Thought but an Inadequate Solution
In the beginning of the adventure to save and accumulate, it is easy to gloss over the perils that one might face along the way. In working toward the realization of the goals in a plan to create wealth and to fund a lifestyle free of labor and worry, formulas are established on the assumption that cash flow will always be there to provide the funds for saving and investing.
Such assumptions are easy to understand, yet it is difficult to comprehend what will happen when cash flow is suddenly reduced or ceases altogether. What alternatives are available to continue, should a reduction in cash flow interfere with the plan?
Americans’ savings customs have changed! The beginning hard line thrift and savings in early America was referred to as “Yankee thrift”—when no one ever spent their capital—never! As our society moved through the agrarian period into the Industrial Revolution, two factors changed our savings attitude: a regular cash flow (paycheck) and temptations to spend on the newly created products and services that became available. Further down the road, access to higher education and consumer psychology made us easy prey for Madison Avenue advertising. The next challenge was easy credit and government programs of tax advantages in saving and retirement plans.
Time out! Today the question is: Who will furnish the cash flow to continue building the accumulation fund and/or the retirement account in the event of living death?
If the cash flow failure is due to the client becoming disabled due to an accident or a sickness, the waiver of premium on the life insurance is of small value because the client did not die and the premium on the life insurance is all that is waived.
In a complete financial plan there must also be a “waiver” of shelter, food, clothing, and all the living costs and obligations. The need for adequate amounts of disability income replacement designed to perform its various tasks is a paramount planning challenge. A dead death estate or financial plan without a supporting living death estate or financial plan is a snare and a delusion.
New plans of disability insurance are available to make such planning possible. Higher limits, easy underwriting and comprehensive coverage and obligations beyond living costs such as loans, contract obligations and business expenses can be easily and adequately handled at an affordable premium cost!
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.