When should a client purchase paycheck protection? While everyone’s situation is different, there are three considerations to use to guide your client to making the purchase decision best for them. It usually comes down to the following three factors:
1. Earning potential
2. Risk factors
3. Impact of lost income
Step 1: Estimating earnings
In February 2024, the average salary of a recent college graduate was $59,000, according to Glassdoor. Using 3% as the estimated average annual increase, a 25-year-old earning $59,000 today would see the following salaries:
| Age | Salary |
| 30 | $68,397 |
| 35 | $79,291 |
| 40 | $91,920 |
| 45 | $106,560 |
| 50 | $123,532 |
Step 2: Assessing risk of disability
Now let’s look at the likelihood of suffering a disability and how long that disability might prevent someone from earning an income. The most common waiting period for individual disability income insurance is 90 days. The likelihood of a disability lasting more than 90 days hovers around 50% for 25-year-olds to 35-year-olds. And although the probability of suffering a 90+ day disability decreases as we age, the number of months disabled increases.
| Age | Salary estimate | Likelihood of disability lasting > 90 days |
# of months |
| 30 | $68,391 | 51% | 55 |
| 35 | $79,291 | 48% | 61 |
| 40 | $91,920 | 44% | 64 |
| 45 | $106,560 | 40% | 68 |
| 50 | $123,532 | 34% | 74 |
Source: NAIC Commissioner’s Disability Table A, currently used to price IDI products
Step 3: Assessing the financial risk
| Age | Salary estimate | Likelihood of disability lasting > 90 days |
# of months disabled |
Lost wages |
| 30 | $68,397 | 51% | 55 | $313,486 |
| 35 | $79,291 | 48% | 61 | $403,062 |
| 40 | $91,920 | 44% | 64 | $490,240 |
| 45 | $106,560 | 40% | 68 | $603,840 |
| 50 | $123,532 | 34% | 74 | $761,780 |
This last assessment, estimating the financial risk of a disability, is the real headline. On average, a 30-something, with a 50/50 chance of becoming disabled for more than 90 days, stands to lose nearly one-third of a million dollars while disabled; a 45-year-old could lose nearly two-thirds of a million dollars. The financial risk is considerable. There are other financial impacts not factored into this equation, like the impact on retirement assets when unable to contribute to retirement savings accounts.
Buying Disability Insurance in Your 20s
Workers in their 20s are just starting their careers. Many of them are healthy and may not believe that disability could happen to them. Unfortunately, that’s a dangerous assumption – disability can happen to anyone. For example, young people can be injured while participating in sports and outdoor activities. Even cancer is possible. Although the risk of cancer increases with age, Yale Medicine says cancer rates have been on the rise in young adults.
When discussing disability insurance with people in their 20s, the following points may drive home the importance of coverage:
- Disability insurance can provide a student loan debt safety net. Many young adults have substantial student loan debt, and paying it off may be impossible if they can’t work. Disability insurance benefits can be used to cover payments, and student loan riders are available from some carriers.
- Young adults can lock in affordable coverage. The Social Security Administration says a 20-year-old has a one-in-four chance of becoming disabled before reaching retirement age. By buying coverage when they’re still healthy, young adults can lock in more affordable rates while receiving income protection.
Buying Disability Insurance in Your 30s
Workers in their 30s still tend to be healthy, but they’re also taking on more responsibilities, and their incomes are growing. In other words, they have more to protect.
When discussing disability insurance with people in their 30s, the following points may be useful:
- Disability insurance can protect your family and home. People in this age group may be starting families and buying homes. If a disability prevents you from working, payment protection may be the only thing that helps your family make ends meet and avoid foreclosure.
- Disability insurance can be just as important as life insurance. Many people in this age bracket recognize the importance of life insurance, but they may not realize that working aged adults have a greater risk of becoming disabled than they do of dying. While the Social Security Administration puts the odds of a 20-year-old experiencing disability before reaching retirement at one in four, the odds of dying are one in eight.
Buying Disability Insurance in Your 40s
Workers in their 40s often belong to the Sandwich Generation, meaning that they have both children and aging parents who depend on them. With so many people depending on their income, disability insurance takes on a new level of importance.
When discussing disability insurance with people in their 40s, consider the following points:
- Waiting to buy coverage can be risky. People in their 40s may still enjoy good health, but they shouldn’t assume this will last forever. If they wait until after they’ve experienced a serious illness or injury, they won’t have the coverage they need, and buying coverage in the future will be more difficult.
- During a period of disability, savings can run out fast. Some people in this age bracket have accumulated savings, but it’s likely earmarked for things like their retirement or their children’s education. Between the loss of income and medical bills, they may deplete their savings fast. Disability insurance can prevent that from happening.
Buying Disability Insurance in Your 50s
Workers in their 50s may be starting to think about retirement, but they’re typically not ready to retire yet. In fact, their retirement plans likely depend on their continued ability to earn an income, something that a disability could make impossible.
When discussing disability insurance with people in their 50s, consider the following:
- Disability insurance can provide retirement protection. Many people in their 50s are trying to catch up on retirement savings. If they can’t work due to a disability, disability insurance can help them stay on track. Some carriers even offer retirement protection riders.
- The odds of disability are increasing. Although premiums may be more expensive for this age bracket, it’s because they have a higher risk of disability. Their salary levels are also peaking, meaning they have more to protect.
Final consideration: the affordability of paycheck protection
The economic impacts are indisputable and the potential for loss can be devastating. This risk is easily mitigated with an individual disability income insurance policy premium that ranges between 1% and 3% of salary. For the 35-year-old in the chart above, the annual premium is likely to be between $792 and $2,378. Although that price tag may seem high to someone who hasn’t done the math, when you realize that the 35-year-old stands to lose $403,062 in lost wages, it begins to look like a good deal.
It’s difficult to argue with these outcomes, especially in light of such an affordable solution. At any age, disability insurance is a wise choice. Younger clients have the added advantage of generally lower premiums but higher likelihoods of disability; older clients have the extra incentive of increased disability periods and larger income losses.
The Right Age to Buy Disability Insurance highlights these figures in a simple handout. It’s the perfect resource to give prospects when you’re trying to show the true value of paycheck protection. Download it today.