Eugene Cohen

It’s that time of year again, March Madness! Oh yeah, let’s get those brackets out and see how we did this year. Which team will be the Cinderella story? What will be the biggest surprise that no one could have ever imagined? For sports fans, you see college basketball at its finest, while for a disability MGA, we see so many analogies that illustrate the need for disability insurance.

Making sure that a client has disability insurance is one of the cornerstones of planning for advisors supporting clients who are working every day. The need is obvious, right? If a client couldn’t work due to an injury or sickness, how would they maintain their standard of living? What asset group will be drained during the length of the accident or sickness and will it ever be replaced? Yet, we all know there are clients who still haven’t protected a stream of income if a qualifying disability were to occur. We know the statistics say that there’s a greater chance of becoming disabled than passing away during a person’s average working years.

Let’s get back to basketball and March Madness! There are 64 teams in the tournament. We know there’s only going to be one winner. There’s a one in 64 chance of winning the NCAA classic tournament. That’s about a 1.5 percent chance of winning the big dance. Think about that. If you had to write down 64 names of clients and knew one of them would have such a significant disability, that it would last much longer than 90 days, perhaps indefinitely, how would you plan for that client? So if you knew that one of those names may end up becoming part of the disability statistics, how would you absorb that information into your planning sessions?

One of the best weekends in college basketball is when the final four is played, concluding with the dramatic championship showdown game. If you could pick all four teams that make it to the final four, you’d be a bracket legend in your office pool and could make a fortune at the sportsbook. The odds of a team making it out of their region to enter the final four is one out of 16. So that’s a 6.4 percent chance of making it to the final four. Let’s go back to our analogy of 64 names of clients in your brackets. Now you have to plan for any four of your clients having a disability that would last more than 90 days and perhaps years, if not indefinitely. How does that change the seriousness of this planning issue for you?

The Elite Eight is always a fascinating group of teams. Usually there’s a Cinderella story that becomes the nation’s darling. The small school underdog that no one would fathom to advance so far in the tournament. Only a few lucky ones had the insight to include the team(s) in their brackets. We know that two out of the 16 teams in the region will make the Elite Eight, so that’s a one in eight chance. If you could only pick all 8 teams that would make this elite group, that would be even more impressive. So imagine if you had to plan for any eight of your 64 clients to have a disability that will last 90 days or longer and perhaps years, if not indefinitely. How would this elevate the need for all your clients to have disability insurance or a disability plan in place? Also, let’s think about those Cinderella stories. These are scenarios that would have been very unlikely to occur based on the experts’ analysis, but here they are, proving that the unlikely can still occur. When we talk about someone becoming disabled for the rest of their life and unable to go back to work, we know it happens…so how do we plan for it?

The Sweet Sixteen is just classic college basketball. The double digit seeded underdog taking down a team from one of the major conferences. The buzzer beater shots that leap teams into the next round while all the teammates charge the floor. The slow pressure building of a team having to make last minute free throws just to keep an underdog team at bay. The thrill that any college athlete must feel just to make it to the tournament, let alone the field of 16 must be just amazing. Good for them, as it’s that kind of feeling that will stay with them forever and we are so happy for each and every one of them. So four out of 16 teams in the region will get to this stage. So that’s one out of four that will be locked in the history books as a team that made it to the Sweet Sixteen. Now imagine those 64 clients on your list and you have to plan for 16 of them to have a possible disability that would last longer than 90 days, perhaps even years, if not indefinitely. We are guessing that you’d make sure every single client has a plan in case a disability occurs.

It’s sobering to think that one in four of today’s 20-year-olds can expect to be out of work for at least a year because of a disabling condition before they reach normal retirement age.¹

But you say, “I have over 64 clients and none of them have become disabled, so how do you explain that fact?” The statistics are based on the whole country, not just a finite number of clients. Even though statistics can cover a large swath of people, the importance of planning still rises to the top. Hopefully you never see any client have a major disability, but how many clients having a major disability would be enough to make this planning the top of your list?
So when you are rooting for your favorite team, remember the “client” bracket as well and let March Madness serve as a reminder that you can be the champion of disability insurance to your clients!

Reference:

1. Social Security Administration, Disability and Death Probability Tables for Insured Workers Born in 1999 https://www.ssa.gov/oact/NOTES/ran6/an2020-6.pdf, Table A.

2009 Honoree International DI Society
W. Harold Petersen Lifetime Achievement Award

2015 Honoree of NAILBA’s
Douglas Mooers Award for Excellence

With the help of Victor Cohen, this is part of our ongoing series with Eugene Cohen, founder of the Eugene Cohen Insurance Agency, Inc. From time to time, we will feature an interview with Eugene, who has dedicated almost 60 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their income from the tragic effects of a disability.

Disability insurance (DI) is one of those products that can change the trajectory of an individual and a family’s life and is crucial for every financial planner and insurance professional to learn about and offer to clients.

Victor: Thank you again for the opportunity to talk DI with you, Eugene. Very much appreciated.

Eugene: Thank you, Victor.

Victor: We have had many conversations about disability insurance now and I am always struck by your sincere, heart-felt passion about the importance of DI. Where does that come from? That passion?

Eugene: I started in the business as a life and health agent years ago and quickly decided to specialize in disability income protection because I saw the importance of income.
When you buy or lease a car, they want to know your income. When you buy a home and try to obtain a mortgage, they want to know your income. To obtain a credit card, they want to know your income.

I immediately saw the importance of income and protecting it. Having a sickness or accident can change a person’s financial picture. Protecting existing assets is extremely important, wouldn’t you say?

Victor: Absolutely.

Eugene: When I examined a prospective client’s assets, it became clear to them, and to me, that their future income could be the most valuable asset this individual has—more valuable than their home or automobile.

For example, let’s look at a 35-year-old client earning $100,000 per year. By the time that individual is 65, their potential earnings would be at a minimum, $3,000,000.

Victor: And that’s without any salary increases over the years.

Eugene: That’s right. So, this client is like a money machine producing at least $100,000 per year. We need to protect that income.

Victor: I have heard you describe a picture you once saw in a trade magazine, illustrating the importance of income.

Eugene: Yes, when I started in the business I saw that picture. As you know, they say “a picture is worth a thousand words.” It was a picture of a bridge being held up, supported, by a paycheck.

Across the length of the bridge were written the noncancelable financial obligations that most individuals have in life: Food, clothing, shelter, utilities. And off to the side of the bridge was a sentence that read, “What happens if the paycheck disappears because of a long term disability caused by a sickness or accident?”

And these three things were listed: 1) The client’s emergency fund would disappear; 2) Money saved for retirement would vanish; and, 3) If they were a homeowner and had a mortgage, they may be facing foreclosure.

Without income, the bridge collapses. Disability protection is like a parachute. It is better to have it and not need it than to need it and not have it.

Victor: I have also heard you describe a DI policy as a “silent partner.”

Eugene: When you get a DI policy, it’s like hiring this policy to work for you—when you can’t work for a long period of time due to a qualifying serious accident or illness. So, yes, in many ways this policy is like having a silent partner.

Victor: You have talked with us in the past about how important it is for an advisor to help their client see the need for DI coverage.

Eugene: All through my career I have noticed that need motivates action. When the prospect understands the need for this very important policy, they are interested in applying for it.
And how do you help the client see the need to protect their income?

Victor: By asking questions.

Eugene: That’s right. I have asked many prospective clients throughout my career, “What is the longest vacation you have ever taken?” Their answer is usually one to three weeks.
Then I would ask, “If you had a serious illness or accident that disabled you for three, four, or five years, would you have an income problem? What if you could never work again?” The answer was yes, there would be an income problem.

When I got my first DI policy in my early 20s, I asked myself, could I pay my bills if my income stopped because of a disability? The answer was no. I could only handle it for a short period of time. And I certainly wanted to protect my savings. In my mind I have always felt that disability income protection insurance was designed to be an asset protector.

Victor: So, once the client sees the need for DI coverage and wants to apply for a DI policy, how does the advisor help the client determine the appropriate benefit amount, elimination period, and benefit period to apply for?

Eugene: When it comes to determining a monthly benefit amount to apply for, first, help the client list their most important noncancelable monthly financial obligations. I’ve done that when determining the monthly benefit I have needed on my own DI policies.

Victor: You mean expenses such as mortgage or rent, utilities, car payments…
Eugene: …and monthly expenses for groceries, premiums for homeowners insurance, car insurance, and health insurance, etc.

Victor: And how do you determine the elimination period a client would want on their policy?

Eugene: The elimination period, also sometimes called a “waiting period,” is how long the policyholder would have to wait before receiving a benefit from a qualifying disability.
I chose a 90-day elimination period for my DI coverage, which is the elimination period most clients tend to choose.

Victor: The longer the elimination period, generally, the lower the premium, correct?

Eugene: All things being equal, that’s right.

Victor: Finally, how do you determine the appropriate benefit period for a client?

Eugene: Most clients tend to apply for a benefit period to age 65 or age 67.

Of course, if premium cost is an issue due to the client’s income…or if the DI company will not offer a long benefit period due to a client’s health history and/or occupation, it is completely understandable why a client would apply for a shorter benefit period.

However, for the client who is eligible for a long benefit period…while a two-year, five-year, or ten-year benefit period would likely be helpful if the client had a qualifying disability, what would happen if the client experienced a career ending qualifying disability at an early age? I always say, “Why would you only want to insure the first ten minutes of a fire?”

With my own DI policies, I always wanted to be covered to age 65. I have never had a crystal ball. I couldn’t determine the length of time I would have a disability.

Victor: I’m just curious, do you remember how you felt when you got your very first DI policy?

Eugene: I felt so relieved knowing that some of my important bills would be paid if I were to have a severe disability. I was very fortunate I never collected any benefits on the policy. I bought peace of mind.

Victor: Eugene, this has been another excellent conversation. I can’t thank you enough. Unfortunately, we have to wrap things up. Do you have any final thoughts that you would like to share?

Eugene: I have found, in offering disability income protection for almost 60 years, a client’s need for DI is as strong today as it was the day I started in the business.

Just like I asked myself questions many years ago when considering DI for myself, when advisors ask their clients questions to help their clients uncover the need, the advisors’ DI business will soar.

During my entire career I have always based the DI conversation around need. Need will motivate action.

A new year, a new set of goals for 2023. Let’s start with goals that are reachable for the various types of financial service specialties.

Opportunity Number 1: You! This should be the easiest goal to accomplish and the most important one. A successful producer should own a disability policy on themselves. First, it’s the right thing to do. If you couldn’t work, how long could you really last financially without making some really hard choices? Having the cost of your fixed living expenses covered should at least be considered at the bare minimum. When you jot down your budget and your expenses, what needs to be paid every month in order for you and your family to maintain some semblance of your standard of living? Next, going through the application and underwriting process will give you a better understanding of the experience your client would go through as well. In addition, many companies offer producers discounts on themselves and the commission helps to offset the costs.

Opportunity Bumber 2: Low hanging fruit and current clients. Your clients like you and like doing business with you. While every client who is still working and building their wealth needs a disability policy, there are certain clients who tend to buy disability insurance more than others. Those are your clients who are professionals (physicians, dentists, attorneys, and accountants,etc.) and business owners who are making in excess of $100,000. Many of these clients have the need and the excess income needed to buy an individual DI policy. Think about how many clients you supported with various insurance products and planning over the past year. Did you ask about disability insurance? Did you ask them what their strategy would be if they couldn’t work and had to live off their current savings? How many of your clients can actually live off their current savings?

Opportunity Number 3: Commercial P&C clients. Let’s think of a disability as another peril that you need to protect for your client. How many business interruption or workman’s comp policies did you write or renew in 2022? Did you discuss with that business owner or professional what would happen if they had a major car accident, an accident at home, or had to take off work to focus on their health? There are so many sicknesses that can disable a person. In fact, there are more people on claim for sickness than for accidents. If a disability were a peril that was mandated to be covered, then everyone would need to buy this policy. Unfortunately, disability insurance is optional but one of most important for every client to have in their portfolio. Your professional and small business owner with business interruption should also be looking at business overhead expense coverage as well.

Opportunity Number 4: Life buy-sell or loan clients. Most producers will have clients who needed life insurance coverage to insure the obligations they have assumed in their business operations agreements or a business loan. Many of you have clients who have sought you out for life insurance for these needs. Many business owners don’t realize that the majority of business agreements contain a disability provision that details the process of buying out a disabled owner who can no longer work. Hopefully, the disabled owner has their own disability income policy to provide them income after they are forced to cede their interest in the business to another owner(s). Many advisors miss the opportunity to discuss disability buy-sell insurance with the clients they just assisted on the life insurance. Same goes for those clients who reached out to you for life insurance loan coverage. If these clients couldn’t work due to a career ending disability, does the bank still want to get paid back? Of course they do, as would any creditor. They don’t care if someone is working or not as long as that client meets the obligations of the loan.

Opportunity Number 5: Group LTD and group life clients. If you work in employee benefits, then you know that the primary enrollment season just finished up and you can start to focus on some of the other parts of your business. Don’t miss the excess disability insurance to layer on top of the LTD. While group disability insurance has its benefits, most of the time the benefits are taxable and are capped at a certain maximum per month. We just had a case with 25 executives who were either capped based on their income or would have a coverage gap due to the taxes. For example, a client with 60 percent to a cap of $6,000 per month of LTD may only end up with $3,500 to $4,500 per month, give or take, due to the Federal, State, and possibly some FICA as well. This gap can be made up by layering individual disability insurance on top of the group. In the case we mentioned earlier, since there were 25 lives involved, we were able to obtain a guaranteed issue disability program. In fact, depending on the company, you can go down to as low as five lives and still get a guaranteed issue individual disability program to layer on top of the group LTD.

The opportunities in your current block of business are really endless. It’s a matter of recognizing the need and working with a wholesaler/MGA that specializes in disability income insurance planning. Let’s have an awesome 2023!

With the holiday season in full swing it’s easy to get distracted, but there are more reasons why this is one of our favorite times of the year. Many companies have now aligned their benefit enrollments to be this time of year as well, with benefits typically starting on January 1. Regardless of your insurance industry focus, this is one of the best times of year to reach out to your clients.

Financial planners, insurance producers, personal lines:
This is a great opportunity to reach out to your clients to see if their company is offering benefits and if they have decided to enroll in any of the programs. Offering to review what your client enrolled in will allow you to open up some conversations that may have been overlooked in the past. Clients who have been offered group life insurance may have chosen to obtain additional coverage as well. This gives you the opportunity to ask them how they came up with the amount requested and if that death benefit would be sufficient to replace their income for the time period that their beneficiaries truly need.

For example, someone making $100,000 per year who is the primary or only income provider for a family may get one or two times their income in group life insurance. Some plans allow for the individual to elect for more life coverage that may require underwriting and/or an extra cost.

Why are we talking about life insurance in a DI article? There are a few reasons that we’ll discuss. One is that for many working adults with families, life insurance can be about replacing the earnings of the main income producer(s). Next, if a client is taking more life insurance than what is given by the group, the client has likely recognized that they are underinsured. This gives you the opportunity to assist with some basic income replacement planning. In addition, the cost of many supplemental plans can be more expensive than fully underwritten plans. This gives you the opportunity to improve their current scenario with lower premiums or more coverage for the same price as the supplemental life. Lastly, and possibly more importantly, this gives you the opportunity to discuss income replacement strategies when someone is disabled instead of passing on.

We know that clients who are working and in their wealth building years are more likely to have a disability than to pass early. So, naturally, if a client is concerned about replacing their income when they pass, they should have a keen interest in continuing their income if they were to become disabled.

What if the client also were given or signed up for group disability? (Note: Group disability insurance is often referred to as LTD, versus IDI, which is individually purchased disability insurance.) We’ll continue this discussion.

Employee benefit brokers and financial planners, insurance producers, personal lines:
When presenting group LTD, it’s important to realize the potential taxes that can offset the total payments received in the year. For example, take a client who makes $120,000 salary per year and has group coverage that’s employer paid with the premium not grossed up in the client’s income.

With group LTD that pays a monthly benefit of 60 percent of income up to a maximum monthly cap of $8,000, the client’s group DI benefit in this example would pay a qualifying disability to the client of $6,000 of gross disability benefits per month. Why gross you may say? When there’s employer pay group benefits, the disability payments will actually net out much lower due to the taxes that will need to be paid. There will be federal and state income taxes. In addition, for the first six months, Social Security withdrawals will need to be paid as well.

Now that $6,000 per month of benefit actually doesn’t seem as much as it may have initially. In fact, depending on the client and if they have joint income, the benefit could be reduced by more than 40 percent. Of course, this can vary based on the client’s tax bracket and state of residence. Now imagine this client isn’t making $120,000, but has been making $1,200,000 for the past few years. The group benefits may only cover a small fraction of what the client needs to maintain their standard of living. It’s essential that clients in these scenarios have excess coverage.

Now, what if you were able to add the additional coverage but not need any comprehensive medical underwriting? There are individual disability insurance companies that will allow guaranteed standard issue (GSI) depending on the make-up of the group and the industry. We call this the GSI marketplace that is usually used to supplement the group LTD. For companies that inspire to have benefits that compete with the top companies in the county, suggesting GSI disability insurance for the high earning executive class is important.

In addition, those companies that have an egalitarian philosophy of providing equal benefits to all employees are usually interested in providing additional benefits to those team members whose income percentage replacement is lower than others. Taking the example of a client who makes $500,000 per year with an $8,000 monthly cap on the group LTD, their gross income replacement is less than 20 percent! Compare this to an employee who makes much less and has less responsibility, but has a dramatically higher percentage of replacement at 60 percent due to not being capped out.

Take advantage of the best time of the year for so many reasons, including setting up individual benefit review appointments for the first quarter of the year. May you and your family have a wonderful holiday season and a happy and healthy new year!

Disability Insurance Is A Great Way To Round Out Life Insurance Awareness Month (LIAM)

We hope that you were able to take advantage of Life Insurance Awareness Month in September. Life insurance is an essential tool that is used by most financial planners. When building out a formal or informal back of the napkin type planning, understanding how much income a client needs is essential. There are many different formulas for calculating the amount of death benefit that is most appropriate for clients. Life insurance planning and disability insurance planning share some common elements.

Most likely we can agree that for your clients who work and still haven’t met their retirement savings goals, their earned income is essential. Some could argue that the need for disability insurance can be as great or even greater than the need for life insurance for some of these clients.

Many of your working single clients with no children have a tremendous need for disability insurance. The last thing a single, independently functioning adult wants is to suddenly become reliant on others in order to continue with their current lifestyle. Many of these clients are strong and fiercely independent individuals who, if they experienced an injury or sickness that limited their ability to work, would still need an income to stay independent.

Individuals with children and/or a non-working spouse not only need life insurance planning, but disability insurance planning is crucial as well. Life insurance can provide a much-needed source of income to the beneficiaries when the primary income owner passes away. The death benefit proceeds can be managed to provide an annual income until the money runs out. While some life insurance policies may have a type of chronic illness rider available, many of these provisions require that some type of actuarial discount be applied at the time of claim. In addition, a few life policies may have disability insurance riders also available, but these tend to be for very short benefit periods with most being no greater than two years.

Situations where both spouses make significant income can sometimes be more challenging for clients to envision the need for disability insurance on one or both of the spouses. In these scenarios, it’s important for a client to envision that current household division of duties. Now what would occur if one of the spouses had a significant disability where their ability to work was severely reduced or the disability made them completely incapable to work at all? What type of responsibilities would the working spouse need to take over from the spouse who no longer has the physical or mental capacity to work? If they have children, most likely, the spouse who can still work now has to shoulder some or all of the daily responsibilities that the disabled spouse once had the ability to regularly take on. Also, what happens to the family if the working spouse suffers a disability that prevents them from also working? In addition, if the spouse who can still work needs to take on more non-working responsibilities, in theory, their ability to work as much or as hard as before may become diminished. Disability insurance can provide insureds a monthly income and this cash flow can provide additional options to these couples, allowing them to not only take care of themselves but also their families.

The other factor that most planners and individuals overlook is that it’s not unusual for the disabled individual’s other expenses to increase while disabled. There are myriad unthinkable expenses someone who is disabled may need to plan for that wouldn’t normally be even thought about.

Expenses such as home modifications in order to make the home more accommodating. Also, there may be costs associated with special types of transportation or accessories needed in order to allow the disabled person to engage in daily life. Not to mention medications not covered by insurance and even the deductible for insurance. The examples are very plentiful once you start really taking a hard look at the cost of care for someone who is disabled.

The good news is that for many of your clients who just bought life insurance, it’s possible that some or all the underwriting that was done for the life insurance case may be used for the disability insurance as well. Of course, depending on the company, age of the client, amount of coverage, and many other factors, the underwriting may overlap ever so slightly or completely in full. Don’t let all your efforts for LIAM be limited to just life insurance, as there’s another extremely important product just around the corner that your client very likely needs.

2009 Honoree International DI Society
W. Harold Petersen Lifetime Achievement Award

2015 Honoree of NAILBA’s
Douglas Mooers Award for Excellence

With the help of Victor Cohen, this is part of our ongoing series with Eugene Cohen, founder of the Eugene Cohen Insurance Agency, Inc

From time to time we will feature an interview with Eugene, who has dedicated over 59 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their incomes from the tragic effects of a disability.

Disability insurance is one of those products that can change the trajectory of an individual and a family’s life and is crucial for every financial planner and insurance professional to learn about and offer to clients.

The Eugene Cohen Insurance Agency, Inc., started as a disability insurance brokerage MGA and has grown to over 32 team members who are all focused on the wholesale service needs of financial professionals for disability, life, long term care, and annuities.

Victor: Eugene, from all of your DI experience, what should a producer do when they have a client who needs disability insurance?

Eugene: When the advisor feels they have a terrific DI prospect, a client who sees the need for disability income protection, the producer has to manage the client’s expectations from the very beginning—before the advisor shows the client an illustration, before the advisor submits the application.

Victor: So, how do you do that—manage the client’s expectations?

Eugene: You have to ask questions, getting important information ahead of time that could affect underwriting if the client were to submit a DI application. One key part of DI underwriting looks at an applicant’s work duties.

Find out what percent of the client’s duties are administrative, manual, sales, and supervisory. A client’s duties will largely determine their occupation class. Most individual disability companies have about four to six occupational rate classes give or take. The rate class is a major part of what determines the client’s premium.

Generally speaking, a client with 100 percent administrative duties will likely have a higher occupation class—resulting in lower premium—than a client with mostly manual duties who would get a lower rate class with a higher premium.

Take for example a client who may be president of their own small construction company and performs, on average, about 75 percent manual duties. That client would be issued a different occupation class than a similar client in the same occupation but who sits behind a desk all day doing no manual or supervisory work.

If a producer shows an illustration to their client with the wrong occupation class, then when the case is underwritten the client will end up being given the correct occupational class. The change in occupational class can cause a higher premium than was originally quoted. That’s the kind of surprise a producer can easily avoid by asking questions at the beginning of the DI conversation.

Victor: What else does an advisor need to ask to manage a client’s expectations?

Eugene: The producer must know if the client has existing individual disability insurance, group long term DI (LTD) and group short term DI (STD). Any DI coverage the client currently has will affect the benefit amount they may be eligible to qualify for when applying for an additional new policy.

This is also very important. The producer needs to know if the client is a business owner. Some DI carriers may enhance a business owner’s income by a certain percentage when the company is considering the amount of annual income to base the client’s monthly disability benefit on.

How many employees does the business owner have? A company that offers a discount to business owners may require an owner to have at least one W-2 employee for the owner to qualify for a business owner discount. Also important is knowing how many years the client has owned their business and the percent of the business they own.

Victor: How do you manage a client’s expectations around the amount of monthly benefit they may qualify for?

Eugene: Since we are focusing on helping to protect an individual’s income, naturally we have to know the client’s earned income. For W-2 employees it is pretty straight forward. But if the client is a business owner, underwriters look at “after business expense before tax” income. That’s very important for the client to know from the start. In addition, the actively working owner’s pass-through income should be known as well.

For a client earning $100,0000 per year, their basic monthly disability benefit may typically be somewhere around 60 percent of their income. Maybe around $5,000 per month. But the higher the annual income, typically the percent of covered income is reduced. There is no hard line in the sand that every client gets 60 percent of their income covered regardless of how much they earn. That is a very common misperception.

Victor: Also, the number of hours a client works is important for the producer to know up front, right?

Eugene: Some DI companies require that the applicant work at least 30 hours per week to be eligible for disability insurance—even if the individual earns a high income. Other DI companies may only offer a modified DI policy to applicants working less than 30 hours.

But the area that producers will probably need to spend the most time preparing their DI client’s expectations around is how DI companies and their underwriters treat health history.
It’s not like life insurance. A producer can have a “top class” life insurance client who ends up with a rated DI policy that includes multiple exclusions for various pre-existing health conditions.

Life insurance underwriters are looking at what is going to take someone out of life. Disability insurance underwriters are looking at what is going to take someone out of work.

Victor: What kind of health questions do you suggest a producer ask their client?

Eugene: Does the individual use nicotine products? Nicotine use will most likely result in a premium increase. Knowing the details of type and frequency of use is important. For example, not all DI companies may treat cigar smoking the same.

Nowadays cannabis use has become important to ask about. If a client uses cannabis, how often do they use cannabis per week? Is it recreational or medically prescribed? And, if the cannabis is medically prescribed, what medical condition(s) is the cannabis treating?

Victor: Let’s talk about how the companies treat a client’s build.

Eugene: Similar to other insurance products, a person’s height and weight can cause an underwriter to add a rating and/or reduce the benefit period that may be allowed.

In addition, it’s important for the advisor to ask if their client has had any back, neck, knee, shoulder or any muscular-skeletal issues resulting in medical consultations, medications being needed, physical therapy, or operations.

Also, it is extremely important that the producer knows if the client has had any past significant health treatment, like surgeries, diabetes, sleep apnea, or if they have any mental health history like depression or anxiety. Is the client taking antidepressants now or have they taken them in the past? Does the client have ADD?

The producer should also ask if the client participates in any work related or recreational activities—hobbies that may be considered hazardous.

Victor: What is the producer going to do with all of this health information?

Eugene: Share it with the MGA or underwriters to see how the insurance company may treat the client’s health history in underwriting. Maybe the underwriters advise that the client’s health history would likely not be a problem. Maybe they advise that the health history would likely lead to a decline. In that case, the client would likely apply to impaired risk DI carriers.

Or maybe the underwriters advise that a policy would likely be issued with what is called an “exclusion rider.” This rider generally says that benefits are not payable for a disability resulting from, or related to, a specific medical condition like asthma for example, or from a disorder or disease of an area or part of the body like the cervical spine.

An exclusion rider can also exclude benefits from injury sustained from participating in certain activities or hobbies like rock climbing for example. The client must have expectations in line with how a policy may be issued.

Victor: I always learn so much in our conversations. Thank you again Eugene. We have to wrap it up for now. Any final words until we meet again?

Eugene: We are not the underwriters. The insurance company underwriters make the final decisions, so it’s important to remember that any client who wishes to still submit an application must be permitted to do so regardless of the information shared. If a producer manages a client’s expectations before taking an application, the producer can prepare the client for what may happen, making the entire DI experience more positive and successful.

It’s fascinating to look at the Social Security statistics of filed claims for disability payments. The U.S. Social Security site breaks down the yearly, quarterly, and monthly statistics of actual claims filed (https://www.ssa.gov/oact/STATS/dibStat.html). In fact, in 2021, according to the site, over 1.5 million claims were filed. The statistics are further clarified by the following:

The number of applications is for disabled-worker benefits only and, as such, excludes disabled child’s and disabled widow(er)’s benefits. These applications are those received at Social Security field offices, teleservice centers, and claims filed electronically on the internet. Applications ultimately result in either a denial or award of benefits. These counts include applications that are denied because the individual is not insured for disability benefits.

Because the application data are tabulated on a weekly basis, some months include five weeks of data while others include only four weeks. This weekly method of tabulation accounts for much of the month-to-month variation in the monthly application data. This method also occasionally causes quarterly data to have either 12 or 14 weeks of data instead of 13 weeks, annual data may include an extra week of data.

It’s tough to imagine that more disability claims were filed with Social Security in 2021 than the population of the following states: Wyoming (Population: 581,075); Vermont (Population: 645,570); District of Columbia (Population: 670,050); Alaska (Population: 732,673); North Dakota (Population: 774,948); South Dakota (Population: 895,376); Delaware (Population: 1,003,384); Rhode Island (Population: 1,095,610); Montana (Population: 1,104,271); Maine (Population: 1,372,247); New Hampshire (Population 1,388,992); Hawaii (Population 1,441,552).

Social Security benefits are limited compared to what can be bought in the individual disability insurance marketplace. In addition, the number of individuals who actually qualify for Social Security disability benefits is a fraction of those who have applied for coverage. This is due to the very high burden that is required to qualify for Social Security disability benefits. In fact, if you use your favorite search engine, you’ll find hundreds of attorneys who specialize in trying to assist individuals to qualify for Social Security Disability. Then, even if someone can qualify, the amount of benefit paid out is minimal compared to one’s income. In 2019 the average payment for a claimant was $1,234 per month* or about $14,000 per year.

Facts are helpful to understand the dire need for working clients to have an individual disability income policy (IDI). Can all clients afford to purchase an individual policy? There are plans for all budgets available in the marketplace. If someone has a modest income, they can apply for coverage for a lower amount. What we see though are more applications for higher income earners than lower income earners.

When was the last time you asked your client about their fixed expenses? A client’s fixed expenses may vary based on how many children they have and the lifestyle they have chosen. If you wrote down the fixed expenses with one of your working clients, you may be surprised by the final number. For example, say that a client who is married and has a couple of children has the following modest fixed expenses: Mortgage: $2,600; Utilities: $500; Food: $1,000; Car and car insurance: $1,000; Gas and home maintenance: $500; Homeowners Insurance: $400; Health insurance premiums and co-payments: $1,000… So we are at $7,000 per month in our example. We are sure based on geography and the quality of these expenses they could easily be lower or higher. Of course there are expenses not even listed that many of your clients have to pay every month in addition to our example. How much would you assume your clients have in fixed monthly expenses? $6,000, $7,000…$8,000 per month?

What if your client is part of the 2022 or 2023 disability statistics? When was the last time you reviewed your client’s actual disability policy to confirm that your client knows what they may or may not have in force? Not only will you be surprised that most of your clients don’t own an individual disability policy, but you’ll be even more surprised that, when they do have a policy, many clients don’t know what they own.

What’s the longest vacation your client has taken? The usual answer we find is about a couple of weeks. When you ask why only two weeks… the answer we hear most is they had to get back to work. Next question, “How would your finances be affected if you had to spend years trying to recover from an accident or battling a debilitating disease?” If you have a client that becomes one of the hundreds of thousands that need to file a disability claim, how much coverage do they have? Reach out to your MGA about making disability insurance part of your daily routine.

References:
*Applicants for Social Security Disability Benefits: https://www.ssa.gov/oact/STATS/dibStat.html.
** Population data is from the USDA: https://data.ers.usda.gov/reports.aspx?ID=17827#P875cfc7d0531441cb3a060627facd603_2_153iT3.
***Average payment for Social Security Disability: https://www.ssa.gov/disabilityfacts/facts.html#:~:text=At%20the%20beginning%20of%202019,%241%2C234%20to%20all%20disabled%20workers.

May was Disability Insurance Awareness Month. Just because it’s June doesn’t mean that you’ve missed the opportunity to spread the word about disability insurance to your clients. For us, every month is a great opportunity to let your clients know about the need for disability insurance and why this product is so important in financial planning.

To bring awareness of disability insurance, we developed a series of four training calls. Our goal was to educate producers on how to write their first disability insurance case or to become reacquainted with disability insurance. We’ll give you an overview of each one.

The Need: It all starts with the need for the coverage. This is where many producers assume that a client understands the need for coverage. It’s really pretty basic. If an injury or sickness prevents us from being able to work, our income from working usually stops as well. This basic concept seems so obvious that you should have clients asking you about this type of coverage every day. But how many times have you been asked? If you’ve been asked more than once, that’s probably more than most. This is why you always need to walk clients through what would be their actual game plan if they were unable to work and their income just stopped. This will allow you to judge for yourself your client’s understanding of the issue and allow you to better understand any possible objections to “the need” of the product. The need motivates action!

The Products: Not only are there individual disability insurance products, but there are also products designed for business. There’s business overhead expense (BOE) insurance for those smaller businesses that rely on one or a couple of key individuals to produce most of the income for the firm. For example, take a veterinarian, dentist, accountant, or attorney who produces most of the income for their firm. If that individual can’t work due to a disability, the expenses to keep the business operating will still occur. With BOE coverage, qualified expenses may be reimbursed after a qualifying disability satisfies the elimination period. With key person disability insurance a business can also indemnify themselves from some or all the financial effects a disability of a key person could have on a business. Then there’s Disability Buy Out insurance, which can provide funds needed for a qualifying disability and buyout provision of a buy-sell agreement. In addition, there are surplus lines of disability products for many situations which the traditional markets can’t cover. Not to mention the guaranteed standard issue (GSI) marketplace that can be used to supplement group coverage.

The Underwriting and Pre Screening Process: It’s important to always prescreen the health of your clients. Many clients may not realize that when underwriting for disability insurance, the underwriter has the ability to exclude different conditions from being covered. This is fairly unique to disability insurance and it’s important to try to identify these factors up front. In addition, understanding the occupational duties is important so that the individual is being quoted the correct rate class. Also, the income is important to know so that you can quote the proper monthly benefit. If someone’s income is too low, they may not qualify for the coverage they are seeking. In addition, if they have significant unearned income, some companies may not allow the coverage amount that the client was applying for or any coverage at all. After a DI application has been submitted, it’s also very important to let your clients know to complete any required phone interviews as soon as possible, as many times nothing occurs at the home office until the interview is completed. Also, if a client is applying for certain monthly benefit amounts, or is in a certain occupation, the company and/or its reinsurance partner may require seeing the prior tax returns as well.

The Placement: It’s important to place a disability insurance policy as soon as you are able to receive it. While money pays the premiums, a client’s good health is what allows a policy to be issued. Clients can have a change of health during underwriting or before the case is placed. If there’s a change of health or a change to any question in the application before the policy is placed, then the producer must report it to the insurance company. The insurance company would then decide if more records or other underwriting would be needed and if the policy could be reissued with modifications (due to the client’s change in health) or if the policy could still be placed as originally issued. This is why it’s important to place the policy as soon as it’s issued and you can see the client. The last thing you want is to get the phone call, text, or email that the proposed insured is no longer in the same health they were when the underwriting was completed and then you can’t deliver the policy.

Every month can be Disability Insurance Awareness Month if you choose to ask the right questions to your clients. Do you have disability insurance? What would you do if your paycheck stopped due to a disability? What’s the longest vacation you’ve taken? Most clients will usually say less than two to three weeks. Why did you need to come back from vacation? The most common answer we hear is that they need to get back to work. What if you weren’t able to go back to work for a year, two years…or even never? Remember, Need motivates Action!