Some clients may understand the need for Disability Income insurance, but still resist purchasing because they don’t want to ‘lose’ the premium dollars if they never use the coverage.
For many, the purpose of buying disability insurance is to aid in getting sleep at night – the comfort of knowing if they happen to get sick or hurt some day, everything is going to be okay financially.
But what if nothing serious ever happens to your client that prevents them from working? They’ve paid premiums to a policy for years that never was used. Some peace of mind may have a cost, but there’s a way to mitigate that cost.
Income Protection plans are available with Return of Premium options – where a portion of the premium is paid back to a client, income tax free.
Here’s a sample of how it works:
A 32-year-old Financial Consultant earning $165,000 qualifies for an income protection plan that would pay him $8,500 each month (tax free) if he were to get sick or hurt and couldn’t work. The premium for his coverage is $149.98 monthly. After 10 years, his total premium paid would be $17,997.
If he adds the Return of Premium option to his policy, the additional cost would be $188.98 per month, for a total monthly premium of $398.77. After 10 years with no claims being paid, the Financial Consultant would receive a check for a tax-free amount of $38,281.92 – that is the investment return ‘equivalent’ of 9.34% Guaranteed*, which came from the additional $188.98 monthly premium paid.
This ‘money back DI’ solution can be offered on long term or even short-term policies. One option of the Return of Premium rider provides a lump sum return of a specified percentage of premium paid (80 percent or 50 percent), less any benefit received.
Reach out to your clients who’ve been reluctant to purchase individual DI coverage because they feel they would be throwing money at a policy they’d never use. Though policy premiums would be higher with the Return of Premium option, you can emphasize the ‘value’ of being able to use the returned amount any way your client wishes – perhaps a lump sum payment on the mortgage, or an addition to the retirement fund.
Please contact your DI Specialist to receive a sample proposal or with any questions you may have regarding the Return of Premium option.
*the IRR will vary subject to clients age, occupation and benefit amount