Eugene Cohen

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

2015 Honoree of NAILBA’s
Douglas Mooers Award for Excellence.

From time to time we will feature an interview with Eugene Cohen, who has dedicated over 57 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. With the help of Victor Cohen, we will chronicle many of Eugene’s life lessons, advice, strategies, and what drives him every day to mentor those who wish to help their clients protect their incomes. 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.

This is the fifth part of our ongoing series with Eugene Cohen, CEO and founder of the Eugene Cohen Insurance Agency, Inc. The agency started as a disability insurance brokerage MGA and has grown to over 35 team members who are all focused on the wholesale service needs of financial professionals for disability, life, long term care, and annuities.

Victor: From your years of experience in the disability insurance world, what would you say is the best age for a client to purchase disability insurance?

Eugene: Illness and accidents can obviously happen to anyone at any age. No one has a crystal ball to determine exactly when someone is going to become sick or get hurt. The medical dictionary is loaded with disabilities that can affect young and old people.
The ideal time to first get a disability policy is in your 20s or 30s. The sooner the better. Of course, if someone is in their 40s or 50s and does not have an income protection insurance policy I would encourage them to try and get coverage.

Victor: What would you say are the top three reasons why it’s important to get a first DI policy in your 20s or 30s?

Eugene: It’s hard to limit it to just three reasons. Okay, here’s reason number one—lower premiums.

Disability insurance premiums are partially based on age. Naturally, the younger you are when you get a policy, usually the lower the premium on the specific monthly benefit you get at that time.

If the policy includes a non-cancellable, guaranteed renewable, provision, then the premium on that benefit amount of the policy would be fixed until such time as the policy becomes conditionally renewable, usually between ages 65 to 70 depending on the company. In addition, the client would be able to make changes to the policy at any time. The allowable specific changes depend on each company’s rules and regulations.

Victor: So, with the non-cancellable rider, if a 30-year-old gets a DI policy today they will be paying the exact same premium on that benefit amount when they are 40 years old, 50 years old, for as long as the non-cancellable provision applies?

Eugene: As long as they pay their premiums on time and meet other conditions of the policy.

Victor: That’s definitely an excellent reason to get DI coverage young. What is a second reason why you feel it’s best to buy a DI policy in your 20s or 30s?

Eugene: Well, you need more than money to buy a disability policy. If the policy is medically underwritten, you need good health. So ideally you want to buy a DI policy when you’re healthy.

The longer you wait to apply for a DI policy, the greater your chances of developing health issues from a disease or accident that could make you uninsurable. Not everyone who applies for a disability insurance policy is offered one.

Also, you want to get a DI policy when you’re healthy so that if health issues arise later in life, after you have the policy, those conditions will be covered. If you develop health issues like a back problem, depression, and other conditions before getting a DI policy those problems would likely be excluded and not covered on a new policy. Unlike most coverages in the health and life space, the disability underwriter has the right to exclude certain conditions so that the policy can still be offered. We call this a modified offer. This is why it’s important to recommend a client obtain a policy as soon as possible.

Victor: And what would you say is the third reason it is best to get a DI policy when young?

Eugene: You want to protect your medical insurability. There are disability policies today with riders that will allow you to get additional benefit in the future—even if your health later changes after the policy has been in force. The company will only require financial underwriting to approve those benefit increases—no medical underwriting. Each company has its own rules and regulations pertaining to this valuable rider. For example, most companies require that a client not be on claim when applying to increase the policy.

Victor: Can you explain how that rider works?

Eugene: So, your client is a young resident. During her residency she purchases a disability policy with a small monthly benefit. The policy has a rider that will give her the option to increase her coverage later in her career, without any medical underwriting, assuming she’s not on claim.

A few years after getting her DI policy the resident is about to finish her residency when she notices a spot on her arm. She visits the dermatologist who tells her the spot is the early stages of a melanoma. The cancer is removed and she’s fine.

The resident later finishes her residency and receives a lucrative offer at a well-established medical practice in which each physician obtains their own disability insurance. Now she wants to increase her monthly benefit on her DI policy to keep up with her large, new salary. Thanks to this valuable rider on her policy she is able to get additional coverage without any medical underwriting. These riders may have timing provisions that must be satisfied, so it’s important to make note of when an increase can be requested.

In addition, most policies have an automatic increase option as well. This allows the policy to increase by a small percentage, say four or five percent each year for usually five or even six years. At the end of the period most companies then allow the client to apply for another period of increases. Typically only financial underwriting is needed at the time the request is made for another period of automatic increases.

Victor: Thank you so much for all of your insights here. Unfortunately, we need to wrap up this conversation for now. But next time may we continue our talk on this theme around disability insurance for young clients?

Eugene: Yes, sounds good!

How much coverage to recommend in a low interest rate environment

When it comes to designing a disability policy for a client, it’s easy to advise the maximum amount that client can qualify for based on the insurance company’s issue and participation limits. There are clients and planners who would like to understand more about the amount of coverage available and some of the planning considerations, especially in a seemingly perpetual low interest rate environment.

Issue and participation tables in the individual disability insurance marketplace: Disability insurance companies will usually give the field guidance as to how much coverage the company is willing to issue a client. These are the issue limits and may be the same or less than the participation limits. The participation limits give the indication of how much total coverage the company will participate in at the time of the application. Let’s take a closer look at the differences.

For issue limits, the amount of coverage a company will issue will be based on a few factors that include, but are not limited to, income, occupation, and other disability coverage.

For income, the company will usually look at earned income, which is the earned income before income taxes are paid. For occupations in which the income can fluctuate, such as commission-based sales, the company may take an average of the past two or three years. In addition, if your client has passive income, then depending on the company and the amount of passive income, a formula may be applied that could limit or even eliminate the amount of coverage that can be offered.

For occupation, the client’s occupational rate class will usually have a direct correlation with issue limits, with the more risky rate classes having lower limits. In addition, companies may have “select occupations,” in that they will issue a greater amount of coverage than the issue limits would normally allow. For example, an attorney or physician in their first year of practice may be allowed to buy a higher amount than they would have been able to qualify for solely based on their income. This may also apply for students of certain professional occupations or certain medical residents.

Other disability coverage: If a client already has disability coverage, then depending on the coverage type, various formulas may be used to determine the maximum amount of additional coverage that a company may be able to offer. The formulas usually require the producer to know if the client pays all or a portion of the cost of the additional coverage. In addition, the company would need to know if the coverage is group disability insurance or an individual disability policy. Also, if someone is a community, state, or federal employee, the companies may have a separate formula that is used to calculate the maximum amount that can be issued due to the benefit packages that come with most of these occupations.

Participation limits may have similar rules and calculations to the issue limits that were described above. The key with participation limits is to know that, with some companies, these limits may be higher than the issue limits. This would allow a planner to use multiple companies until the participation limits are fulfilled.

For example, take a physician who has no coverage and has an income that would allow him to obtain $30,000 per month of individual disability coverage. Due to the occupational rate class, let’s say there are two desired companies that have an issue limit of $20,000 per month of coverage, but will participate up to $30,000 of coverage. The planner could then take two applications, one application for the $20,000 per month with the first company and a second application for $10,000 per month of coverage with the other. This would allow the physician to obtain the $30,000 per month of coverage desired even though both companies have an issue limit of $20,000 per month of coverage.

Note, there are surplus lines carriers that may allow for higher issue and participation limits, but the coverage tends to have benefit period limitations as well as other limitations.

How much coverage to recommend? There’s a saying among producers who specialize in disability insurance: “I’ve never had a client on claim who thought they bought too much disability insurance!” Usually the opposite is true, where a client on claim wishes they bought more coverage, not less. As discussed in previous articles, during a disability claim expenses actually tend to increase while income decreases. Yet, there are clients who may qualify to buy more coverage but decide to take less coverage in order to save on premium. While this may be valid for clients who have high expenses and limited income, for others it may be purely a way to save premium dollars. This is where clients need to understand some trends that we have seen in the marketplace.

Interest rates have been very low for the past few years and no one knows when or if they will increase to any substantial level. The key is the substantial level, as clients who have enough investable assets may feel that the assets can be shifted into fixed income type of investments that can produce income while they are disabled. Given that the duration of the disability may be unknown, planners may recommend conservative investments to preserve the principal. In doing so, the low interest rate environment comes into play as the amount of passive income generated from conservative investments tends to have a direct correlation. In general, the more conservative the investments, the lower the interest rates. For example, at one percent interest, it would take $500,000 to earn a taxable $5,000 per year of income while a client could buy an extra $1,000 per month of disability coverage, which would be $12,000 per year, for usually a minimal amount of additional premium. To us, the answer is obvious in how much coverage should usually be considered.

It’s no April Fool’s joke when a client doesn’t have disability insurance.

Fluke accidents, COVID-19 or other infections that can create residual effects, or chronic illnesses that become a lifelong challenge can be among the many sources of disabilities. Many clients without disability insurance will find themselves in financial turmoil, watching their assets slowly drip away like a snow pile exposed to a sunny day.

As a disability wanes, the question about Social Security’s provision for disability (SSDI) payments may come up. Sometimes a client may confidently remark that they don’t even need an individual disability insurance policy because if they were to get disabled they would go on SSDI.

A great resource for information about SSDI is www.ssa.gov/disabilityfacts/facts.html which offers a nice summary of this often misunderstood section of Social Security benefits. We will highlight some of the facts that are important to a client. You can also refer your clients to the link as well.

• “Social Security disability insurance is coverage that workers Earn!” In order to qualify for SSDI, a worker needs to earn enough credits of working years. There is a formula that is used that can be found in the fact sheet. https://www.ssa.gov/pubs/EN-05-10029.pdf.
• “The Social Security Act defines disability very strictly.” The summary very clearly states that the eligibility rules differ from private plans.
• To receive disability benefits, a person must meet the definition of disability under the SSDI act. The disability must be from a severe medical condition that has lasted or is expected to last at least one year or result in death. The medical condition must be so severe that it prevents the person from doing work that they did in the past and the condition must prevent them from adjusting to other work. This is a very strict definition, because if someone can work in a different capacity at a different job, they will most likely not qualify for benefits. The site continues to state, “SSDI beneficiaries are more than three times as likely to die in a year as other people the same age.” In addition, it states that SSDI doesn’t provide temporary or partial disability benefits. This is key, as many disabilities can be limiting, but not completely totally disabling. We also know that the majority of first-time applicants for SSDI are denied due to a variety of reasons. The difficulty of qualifying for SSDI has led to certain attorneys who specialize in trying to help those who truly need the benefits try to navigate through the system.
• “Social Security disability payments are modest.” At the beginning of 2019, the average monthly SSDI payout was about $1,234 to all disabled workers. So even if someone could meet the strict definition of disability, the amount that they would receive would be around the poverty level, https://aspe.hhs.gov/2020-poverty-guidelines. Imagine having to prove out that a disability is so severe that someone can’t do any type of work and then, when the person does get a check, it’s barely enough to pay a majority of their monthly expenses.

What we find very interesting is that most companies that focus on the high-income professional market, for the most part, will not count SSDI in how much coverage a client can buy. Of course this will vary by company, but let us look at an attorney making $200,000. In reviewing the income and participation tables, we can see that the tables do not reduce the amount of available coverage by the amount that can possibly be qualified with SSDI. If you contrast this with a client who already had a $5,000 per month individual DI policy, the amount of additional coverage that can be applied for would be reduced by the amount of in force coverage. We can only assume that either the low frequency of approved claims, strict definitions, or low monthly benefit amounts allow these companies to ignore the benefit.

We should mention that there are some companies that offer a SSDI offset benefit. This provision would allow the individual disability policy monthly benefit to be divided between a base benefit that the insurance company would pay like a regular claim and a smaller portion that would be offset by any SSDI that is received. In fact, some companies require that the benefit be structured in this fashion if a client wants to obtain the maximum amount of benefit available based on their income. This is similar to a provision that many group LTD policies build into their policy that requires the monthly benefit to be offset by other income a worker may receive. Some of the other income mentioned in many group insurance offset provisions would include worker’s compensation, Social Security DI, and union benefits among the litany of offsets. As always, it is important for the client to understand the limits of group LTD.

From what we have seen, most planners are focused on making sure clients have the most comprehensive individual disability insurance coverage possible and do not focus on SSDI due to the restrictiveness of the benefits. Individual disability insurance is an extremely important product that should be a fixture in almost every working client’s insurance portfolio.

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

2015 Honoree of NAILBA’s Douglas Mooers Award for Excellence.

From time to time we will feature an interview with Eugene Cohen, who has dedicated more than 57 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. With the help of Victor Cohen, we will chronicle many of Eugene’s life lessons, advice, strategies, and what drives him every day to mentor those who wish to help their clients protect their incomes. 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.

This is the third part of our ongoing series with Eugene Cohen, CEO and founder of the Eugene Cohen Insurance Agency, Inc. The agency started as a disability insurance brokerage MGA and has grown to over 35 team members who are all focused on the wholesale service needs of financial professionals for disability, life, long term care, and annuities.

Victor: In our previous conversations (published in Broker World November 2020 and January, 2021 issues) you discussed the four basic objections an adviser may confront when discussing disability insurance with a client. Those objections are no need, no money, no hurry, and no confidence.

Eugene: It’s most important to immediately uncover the need. When you uncover the need, the other objections will disappear.

Victor: How do you establish the need when talking with a highly compensated client who already has group long term disability (LTD) insurance? Where is the need for more disability insurance?

Eugene: The need is tremendous. Let’s take a close look at highly compensated individuals who often have group LTD. These clients are often your business owners, physicians, attorneys working for mid to large firms. In addition, you have your partner firms of accountants, financial advisers and other professionals. Also the executives and successful salespeople, whose commonality are that their incomes are greater than $250,000+.

Group LTD coverage is a nice foundation for a disability program for firms with multiple types of employees. The implementation of group insurance is relatively simple but, as we know, the insurance company that issues group insurance needs to have protections in those group policies. The limitations inherent in group LTD can cause tremendous problems for the highly compensated executive or professional that only has the group policy.

We don’t suggest a client drop their group coverage. We often suggest layering an individual disability policy on top of the group LTD.

To help the client see the need for adding individual disability insurance (IDI) to their group LTD, we suggest asking questions. “Would your group long term disability insurance policy pay you enough if you were disabled?” The client will likely not know. So, then I suggest offering to review the client’s group LTD policy with them so they will know exactly what they are getting and we can determine if it would be enough for them if they were disabled.

Victor: You will literally ask the client to get a copy of their group LTD plan and then you’ll review it with them?

Eugene: I will ask them to send me the policy—or at least a summary. The client can reach out to their HR department if they do not have a copy. It’s better for the client to know the details of their group LTD policy now, rather than themselves or a loved one studying the group insurance policy at the time of a disability.

So, let’s say I am talking with an executive earning $300,000 per year. That’s an average income of $25,000 per month. Now we are looking at the group LTD and, in this example, the group LTD policy says it will pay 60 percent of the salary up to a cap of $10,000 per month. So that means the most the executive can collect per month is $10,000.

Let’s say, in this example, the group policy is being paid solely by the employer. The premium is being paid with pre-tax dollars, which means the benefits may be taxable. So, that $10,000 monthly benefit would be a much lower net benefit once the executive’s tax rate is applied. Suddenly the perceived amount of $10,000 per month could end up being a net amount of only $7,000, and most likely less when state taxes need to be paid too! That lower benefit may not be enough for the client. (Note: Your client should seek out personal tax advice from their financial advisor.)

Victor: Are there group LTD policies that can reduce the policyholder’s monthly benefit if the policyholder is receiving social security or workers compensation? What about the definitions in group LTD?

Eugene: Yes, most group LTD policies do have provisions in which the monthly group benefit can be offset and it can be a problem if the client is unaware of the provision(s). Also, let’s look at policy definitions. Many times you’ll find that the definition of a “disability” may be more restrictive in a group LTD policy than it is in an individual disability insurance policy. If you’re a physician, let’s say an orthopedic surgeon, does the group LTD insure that individual as a physician or as an orthopedic surgeon? The difference may determine if someone qualifies for a claim or doesn’t!

Another question that needs to be answered: Can the group LTD policy be canceled? Usually there are provisions that allow the plan to be canceled by the employer. The employer can say, “I no longer want to have this plan.” In addition, the insurance company that issued the group LTD usually has the right to terminate the plan for any reason—such as high claims or a change in the business the carrier is insuring. Regardless of the reason for the plan termination, the end result is that the client may be left with no coverage.

Here are some other important questions: What if your client wants to change jobs down the road? While individual disability insurance policies are portable and can travel from job to job with the policyholder, group LTD policies typically are not portable. Let’s say your client is 35 years old and at 45 the client decides to work for another organization that doesn’t offer group LTD. In order for your client to obtain an individual policy, there’s medical underwriting—which could cause an issue in obtaining new coverage. It’s possible your client may not be able to qualify for any coverage, which would be very unfortunate.

Victor: How much additional monthly benefit can someone get per month on top of their group LTD?

Eugene: If a client is earning $300,000 per year and his group LTD pays 60 percent of his income up to $10,000 per month, the client may be eligible to obtain an additional $9,000 per month of monthly benefits depending on the insurance company’s issue and participation limits. Again, this is if his group coverage premiums are being paid by his employer with pre-tax dollars.

If the group LTD premiums are being paid by the client (employee paid), with after-tax dollars, the client could get about $6,000 in additional monthly benefits on top of the group LTD with traditional companies. This also depends on the company’s issue and participation limits.

Here is another reason to get an individual disability insurance policy on top of the group LTD. Many of the IDI policies have a provision that says if the policy holder loses their group LTD, they are able to increase their IDI benefits based on issue and participation limits—without the medical portion of the underwriting (but there would still be financial underwriting). The companies often let the policyholder do this up to a certain age—depending on the company. This is a very valuable provision in that policy. It can protect the client’s medical insurability.

The client may have an option of obtaining a non-cancelable guaranteed renewable IDI policy. This unique provision not only guarantees the renewability of the policy to a certain age, it also will lock in the premium until that age as well.

As you can see, the higher income earning individual with only group LTD is at a disadvantage over others. The higher income earner may have a much smaller portion of his income covered than lower earning employees with the same group LTD policy. That’s why these higher income earners should supplement their program with an individual disability insurance policy.

Victor: Thank you so much for another great conversation. I look forward to us doing this again soon.

While vaccines are on the top of everyone’s mind, it is a good analogy for disability insurance and your client’s income. If you look at the science and facts available, every planner and insurance life, health, group, and property/casualty producer should have this conversation with their working clients.

Statistics:
More than one in four of today’s 20 -year-olds can expect to be out of work due to a disability for at least a year before one reaches normal retirement age.¹ While this is a fact you may have heard in the past, let’s take a deeper look at some other ages:

Chances of having a disability from work prior to age 65, that would last three months or longer:²

Age 35: 22 percent or approximately one in four and a half people.

Age 40: 21 percent or approximately one in five people.

Age 45: 20 percent or approximately one in five people.

Age 50: 18 percent or approximately one in five and a half people.

We just don’t know how long these clients will stay disabled. Does the length of disability really matter though? If we were able to plan based on hindsight, then yes, but we plan using known assumptions and projections and then adjust our planning as facts become more known. If a client were to become disabled, would we plan for the disability to last a year, three years, five years, or indefinitely?

Financial Devastation and harm:

• A 2014 study of consumer bankruptcy filings identified the following as primary reasons: Medical bills (26 percent), lost job (20 percent), illness or injury on part of self or family member (15 percent).
• Two-thirds of working Americans (63 percent) couldn’t make it six month before financial difficulties would set in—and 14 percent said they would have problems immediately, according to the 2020 Insurance Barometer Study by Life Happens and LIMRA.
• Per the survey of those that have experienced a serious illness, 42 percent of those between ages 18 to 64 used up most of their savings. Twenty-nine percent of those surveyed were having problems paying for basic necessities like food, heat, or housing.⁴

Cost for a disability policy versus not having a disability policy is subjective, as there are real costs and intrinsic costs. When someone doesn’t have disability insurance and an extended disability occurs, the real costs are devastating and, in some cases, it can cause financial ruin. The intrinsic costs of not having a plan in case a disability occurs are multiple, from financial strain on the family, to possibly needing to move to lower cost housing, to the psychological effects on those who find their net worth quickly dwindling. In addition, when a disability occurs not only does one’s income become affected, but usually additional expenses occur as well. This inverse ratio of income and expenses that many experience can cause more pressure on an already fragile dichotomy. The premium for a disability insurance policy will vary based on how much coverage is purchased. We find that most case designs resonate best with consumers when the cost of the policy is about two percent, give or take, of one’s annual income.

Obviously, with COVID-19, we’ve seen some of our fellow citizens and neighbors become seriously ill and unfortunately there have been hundreds of thousands of deaths as well. The toll has been staggering, but most are confident that the vaccines should help to curtail and eventually end this horrible pandemic. With COVID-19, we’ve also seen reports of the staggering physical disabilities occurring as well, which has compounded the adverse effects on many individuals’ financial wellbeing.

Like any type of proactive action, having a client obtain disability insurance can be an essential part of providing protection for a client and his family. At the end of the day, the cost of not having a disability income policy can be devastating and for those who ended up needing the protection the cost was trivial.

References:

1. Social Security Administration, Disability and Death Probability Tables for Insured Workers Born in 1997, Table A.
2. https://www.calcxml.com/calculators/ins05?skn=#results Source: 1985 Commissioners’ Individual Disability Table A, based on data from policies issued in occupation class 1 (select white-collar professional). These are unisex probabilities.
3. https://disabilitycanhappen.org/disability-statistic/.
4. https://cdn1.sph.harvard.edu/wp-content/uploads/sites/94/2018/10/CMWF-NYT-HSPH-Seriously-Ill-Poll-Report.pdf.

2009 Honoree International DI Society’s W. Harold Petersen Lifetime Achievement Award. 2015 Honoree of NAILBA’s Mooers Award for Excellence.

From time to time we will feature an interview with Eugene Cohen, who has dedicated over 57 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. With the help of Victor Cohen, we will chronicle many of Eugene’s life lessons, advice, strategies, and what drives him every day to mentor those who wish to help their clients protect their incomes. 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.

This is the first part of our series with Eugene Cohen, CEO and founder of the Eugene Cohen Insurance Agency, Inc. The agency started as a disability insurance brokerage MGA and has grown to over 35 team members who are all focused on the wholesale service needs of financial professionals for disability, life, long term care and annuities.

Victor: Let’s start at the very beginning. How did you get started in the disability insurance business?

Eugene: Well, I had graduated from Ohio State University as a business major. I was newly married, looking for work.

I received an introduction from an employment agency to interview with an insurance company. They happened to specialize in offering disability income protection. At first, I was very concerned about working in this industry. I was 23 years old and I knew some people who used to sell insurance. They didn’t make it. That didn’t sound so uplifting. But after my interview at this insurance agency, I was really excited about the need for disability income protection.

Victor: Were you an immediate success?

Eugene: Like anything, it took time…but not too much time. You have to remember, after three months I was working on straight commission. And I had the greatest motivators in the world chasing me every day.

Victor: What’s that?

Eugene: I call it, “The mad dog of daily expenses.” Expenses! Rent, utilities, car payments, food, clothing…that “mad dog” was chasing me.

Victor: What else do you think led to your early success?

Eugene: Besides having a desire to succeed and natural competitiveness, I read many motivational books. And one thing they all had in common—they were all very positive.

When I started training at that first job–in a career shop—I noticed there were negative agents and there were positive agents. In high school I played football and also was a wrestler and I love sports. You’ll notice that there are spectators and the players on the field. The spectators get to judge, scream, play armchair quarterback and be negative. While the players were making it happen on the field. The players have to be motivated, focused, keep a positive attitude…they have to perform or be taken out of the game.

I knew I always wanted to be like the players on the field. Stay focused, stay motivated, keep a positive attitude—because what I was selling could change people’s lives! The game of life is a serious business and disability insurance can save individuals and families from the financial effects of a tragic disability.

I also found out very quickly that, like every business, the insurance business is a relationship business as well.

I also learned back when I started that the phone was one of the best ways to build relationships. Even in today’s world of email and instant messages, the most effective communication is by phone and now by video conferencing systems like Zoom.

Victor: Where did you get your leads?

Eugene: Back then I was using the yellow pages…can you imagine that? Now it’s easy. You have so many focused resources, such as Google, LinkedIn, lead services, etc.

Victor: Who did you focus on calling? Were there certain occupations you felt could use your services more than others?

Eugene: Everyone needs disability insurance, but the product seems to resonate more with certain occupations and income levels. I decided to work with professional people and business owners.

Victor: Why them?

Eugene: Doctors, dentists, attorneys, and all types of business owners…the need for disability income protection is so strong. That need is the same today as it was 57 years ago.

Victor: Did you have a prepared script you’d use when you’d cold call these prospects from the phone book?

Eugene: “Hello Mr. Jones, this is Eugene Cohen speaking. I’m a specialist in disability income protection, which is a policy to provide you with an income if you got sick or hurt and couldn’t work. Do you have anything like that?” That’s all I would say.

Most would say, “No, I don’t have anything like that,” in which case I would say, “I’d like to stop by and talk to you and explain the concept of disability income protection.” I was amazed because I was getting appointments!

In the rare situation when someone would say they already had a policy like that, then I would say, “When is the last time you have had the policy reviewed in comparison with your income? I’d like to stop over and introduce myself to you.” And I’d work on setting up an appointment.

People were willing to talk to me. I was on the phone every single minute.

Victor: What role do you think disability income protection plays in a person’s life?

Eugene: The way I look at disability income protection in my own mind is…this wonderful policy is like a silent partner that’s guarding a portion of my income. Could you imagine not having virus protection on a computer? It’s that silent partner, guarding the computer. Could you imagine driving without car insurance or having a home without homeowner’s insurance?

It really is very simple. If I couldn’t work due to a long and extended accident or sickness, I would need help paying my bills or risk wiping out my savings or at least taking a good chunk out of it.

Victor: So, even while becoming a top producer, there had to be times when a prospect didn’t end up buying the insurance. How did you handle that? The disappointment.

Eugene: As a new agent, when I didn’t make the sale, I would try to understand why and try to learn why someone wouldn’t buy. It’s all in the perspective you take and I learned that every time someone said “no,” it became a positive learning experience in that regard. And that’s when I discovered and started fully understanding the four objections that anyone who sells a product will hear at one time or another and how to overcome them. Those four objections are the same today as they were back then.

Victor: What are they?

Eugene: If someone does not proceed with purchasing a product or service, it’s usually due to one or more of four basic objections, regardless of whether the objection is real or just a delay. No Need. No Money. No Hurry. No Confidence. I believe these are universally true, regardless of the product or service you are presenting. It could be an insurance policy, a house, a business, even a TV or washer and dryer. It’s important for the person making the presentation to know how to address each objection in order to get to the root of the true issue and be able to adjust in order to move forward.

Victor: We’ll continue this conversation in our next interview. Thank you so much for sharing your experience, knowledge and love of this business.

When structuring and choosing an individual disability insurance policy and the available riders, understanding the importance of partial disability is essential. While on the surface it would seem self- explanatory, the intricacies can make the difference in your explanation of the plan to a client.

As you know, our industry tends to use language that is somewhat unique to the insurance world and individual disability insurance is not any different. When we think of someone working part time, many of us would think that the rider to describe this would be called a partial disability, which could be a separate rider or built into the policy. Like many industries there is an evolution of product design and riders—which helps to explain the reason for the naming of the partial and its successor, the residual disability rider, which, again, can be a separate rider or built into the policy.

In the evolution of today’s individual disability policies we’ve seen product ingenuity which has either resonated within the industry or has gone by the wayside. Originally when individual disability policies were developed they were designed to cover total disabilities, and if you could work you were expected to go back to work and be off claim.

Eventually companies added a partial disability provision that would allow for someone to go back to work on a part time basis and still receive a benefit from a qualifying disability claim. This provision was appropriately named “partial disability.” This provision may or may not be found in today’s modern policies. The classic version of partial disability, in general, would only pay for partial disability for six months, or for some other limited time period, and it would pay 50 percent of the total disability benefit. Of course there were maybe some slight variations, but this is what we saw as most common. This was much easier for companies to administer in the low technology days when it was more common to use calculators and not computers.

The insurance industry is very dynamic and companies needed to differentiate themselves. Thus, an improved partial disability started to evolve in the marketplace. They had to change the name so there was a distinction between the old and new definitions. The new, modern definition of partial disability became known as a residual disability, which is essentially a partial disability on steroids. Instead of just paying 50 percent of the base benefit for six months, or some limited time, a formula was now able to be administered and used to pay claims.

The formula is really quite inventive and the industry should thank the mystery innovator(s) who most likely spent months or years with the actuary, claims, underwriting, and marketing departments. You could just imagine the reactions when this new type of partial rider was being presented by the innovator(s).

The formula takes an average yearly income for a disabled client and comes up with an average historical monthly base income. Once we have that historical monthly base income, we can see how much income the client makes when they go back to partially working and come up with a percentage of income loss. For example, if a client made $240,000 per year for the past few years, the average monthly income would be $20,000 per month. If the disabled client went back to work part time and made $5,000 per month, then $5,000/$20,000 would be 25 percent of the previous monthly income, which is a 75 percent loss of income, which would allow for 75 percent of the monthly total disability benefit to be paid. As the client goes back to work for longer amounts of time, their income can grow, and the residual rider would adjust accordingly. So, if now the client’s income is $15,000 per month, $15,000/$20,000 would be 75 percent of the previous monthly income or a 25 percent loss of income, in which case 25 percent of the monthly benefit would then be paid out for a qualifying claim.

There was a time in our country’s economic history in which inflation was more prevalent and had a real impact on the planning process. While inflation could still be a major factor in our daily lives, the rates have been very low for the last couple of decades. If we do have a period where inflation becomes a major factor, then the indexing part of the residual rider will be a provision that claimants may come to appreciate during a long duration disability claim with stable or decreasing partial income.

The theory in the indexing provision of the residual rider is that if someone has a very prolonged partial disability then inflation would erode the residual formula. Think about our example above, where a client was making an average of $20,000 per month and then became disabled. Let’s say the disability will never allow this person to work full time, but they can work on a part time basis making about $10,000 per month for the foreseeable future. Using the regular formula, $10,000/$20,000 would be a 50 percent income loss and then 50 percent of benefit would be paid.

The $20,000 base monthly benefit is in today’s dollars, but let’s say that the disability will last for the next 20 years! Eventually the base monthly average income of $20,000 will be in old, uninflated dollars, which would make the payment always 50 percent of the total disability benefit. You would have 2020 dollars used in the base of the residual formula and, in 10 years, you would have 2030 dollars used as the divisible dollars.

For the formula to be equitable for both the client and the company, the same dollars should be used in the formula. Therefore, most residual riders will have a provision that will index the base monthly average by using an inflation formula so that the dollars are inflation adjusted. This is the reason you’ll see an inflation indexing provision in the residual definitions of modern individual disability policies.

In our example, eventually the payment would be greater than 50 percent as the monthly average income increases based on the inflation factor being used. For example, in 10 years the base $20,000 could inflate to $24,000, in which case the $10,000/$24,000, would be 41.6 percent of the inflation adjusted base monthly income, which would result in a 58.4 percent income loss and a payout of 58.4 percent of the total monthly disability benefit.

The residual disability provision of individual policies has evolved even more in the past few decades. Some examples of this evolution include, but are not limited to, changes in the percentage of income loss needed to be on claim or stay on claim, minimum payout floors, allowing or extending residual payments even if there is not a loss of time from work or duties from work.

Companies are consistently tweaking and modifying the provisions of this rider as new policy versions are developed. As always, please read the specimen contract of any disability policy you are reviewing or presenting for details about how that individual policy is designed to payout for partial and/or residual disabilities.