Are you at risk of a paycheck protection E&O claim?

By Steve Savant

While it’s common for advisors to help clients prepare for death by offering life insurance, many advisors fail to prepare clients for life by protecting their paychecks with disability insurance. And yet, statistics clearly show the chance of suffering a disability is much greater than the chance of dying — as much as six-and-a-half times greater according to the National Association of Insurance Commissioners. Statistics also clearly show that a disability can lead to financial ruin. It's the number one cause of personal bankruptcy and nearly half of all mortgage foreclosures.

Why do advisors fail to offer disability insurance?

Some cling to the notion that it can’t happen to them or their clients. Others fear that clients will feel that premiums are too expensive. Some don’t want to take the time to explain that Social Security and an employer’s long-term disability (LTD) plan are usually terribly insufficient. Even with employer-provided long-term disability coverage, many disabled workers find themselves with income gaps as wide as 72 percent.

These sales barriers are not as formidable as they seem. Your disability distributor can help you create disability insurance quotes for every budget (remember that some coverage is better than none), and they can help you create an effective sales presentation to address common sales objections.

How to protect your professional liability

When a client suffers a disability and finds out he is not covered, he will be angry, scared and looking for someone to blame. The financial advisor or insurance broker is the most obvious target. Be ready for this scenario by taking the following steps with every client.

1. Inform every personal and business client about the need for income protection.

2. If a client declines to receive a disability insurance quote, have him sign a waiver of liability.

3. If a client agrees to receive a disability insurance quote, keep the quote and notes about your follow-up actions on file.

4. If a client ultimately chooses a smaller amount of coverage for budgetary reasons, maintain documentation on that as well.

5. Even after a client declines paycheck protection, continue to remind him or her of the need several times a year — in your customer newsletter, quarterly account reviews and personal conversations.

By consistently offering paycheck protection, you can ensure your own professional liability protection, but only with the right documentation. If you haven’t heard, disability insurance claims are on the rise; older workers are the new norm; and retirement income is scarce. It’s the perfect paycheck protection lawsuit storm, so prepare now before it’s too late.