Could Ignoring Disability Insurance Sales Lead to Lawsuits?
Ignoring disability insurance sales could leave Advisors open to potential lawsuits by not offering a comprehensive financial plan. Many financial advisors and insurance sales representatives pride themselves on creating comprehensive financial plans for their clients. They ensure life insurance is in place, retirement accounts are funded and estate plans are structured properly. However, one crucial piece of financial protection is often overlooked: disability insurance (DI).
Not offering or discussing disability insurance with clients can lead to serious financial consequences—not just for the client but also for the sales rep. In some cases, it may even expose the advisor or insurance agent to potential legal liability.
Why Disability Insurance Matters in a Financial Plan
A financial plan is only as strong as the income that funds it. If a client suddenly becomes unable to work due to an injury or illness, their ability to contribute to savings, pay debts, and maintain their lifestyle is immediately at risk.
Consider these facts:
- One in four workers will experience a disability before retirement.1
- Most disabilities are caused by illnesses, not accidents.
- Employer-provided disability insurance often covers only a fraction of the client’s income.
The Sales Rep’s Legal and Ethical Responsibility
Many financial professionals operate under fiduciary duty or at least an implied duty of care to act in their clients’ best interests. By not discussing or offering disability insurance, sales reps leave their clients vulnerable.
Here’s how this oversight could lead to liability issues:
- Negligence or Malpractice Claims – If a client becomes disabled and realizes their financial advisor never discussed DI as part of their planning, they may claim negligence. They could argue that a reasonable financial professional should have addressed the risk and provided appropriate solutions.
- Breach of Duty – Even if an advisor isn’t legally bound by a fiduciary duty, there is often an expectation of comprehensive advice. If a rep does not include DI in the financial discussion, they could be accused of not upholding their professional duty.
- Errors and Omissions (E&O) Insurance Claims – Some insurance professionals carry E&O insurance to protect against lawsuits. However, if disability insurance was never offered or discussed, an E&O claim may not cover the oversight. This could leave the rep personally liable for damages.
Protecting Yourself—and Your Clients
To avoid potential legal and financial fallouts, sales reps should make disability insurance a standard part of every financial discussion. Here’s how:
- Educate clients on the risks of lost income due to disability.
- Offer a DI solution or document that the client declined coverage.
- Review existing coverage to ensure it’s adequate for their needs.
- Document all discussions in writing to protect yourself against future claims.
By making disability insurance a priority, sales reps not only protect their clients’ financial well-being but also shield themselves from legal and reputational risks.
- Life Insurance Marketing and Research Association (LIMRA), Disability Insurance Awareness Month: Protecting Your Paycheck and Your Future
