Eugene Cohen

We all know the need for disability insurance. If a client cannot work, how will that client pay for their fixed living expenses? The need is obvious to some clients and to all of us who recommend disability insurance. But every now and then there’s a client who will negotiate with us about the need for disability insurance. Sometimes it’s a business owner who feels that, for whatever reason, they are invincible to a disability and that, as long as the client can operate a phone, they can still operate the business. Regardless of how difficult it would be to run a business from a bed for months, there are other provisions of the policy that would resonate with this type of client.

It may be surprising to many of you that fewer younger clients know the story of Christopher Reeve and his role as Superman. I’m guessing many of you reading this article know the story, but for those who do not, Christopher Reeve starred in many renditions of the Superman movies in the late 70’s and throughout the 80s. His name became synonymous with the character he played on the big screen. This is an actor who had just about everything going for him; he was handsome, had a great career, and a beautiful family and a passion for horses. In May of 1995 he was in an equestrian competition and, for no apparent reason, his horse stopped in its tracks at jump number three. The force of the horse stopping so suddenly sent him flying off the horse, landing head-first, shattering his vertebrae just in the spot to make him a quadriplegic. This is such a horrific story, so awful, and ends tragically with his passing in 2004 at the age of 52.

The story is too horrific to discuss with a client but it is a very telling example of why disability insurance is so important and needs to be part of a client’s portfolio. For almost nine years Reeve was not only disabled, but required care and arrangements for him to be able to live at home. The story of Christopher Reeve also is a good example of why financial professionals should consider a policy with a catastrophic disability rider. These riders may have slightly different names, but most have similar structure. Of course, review the definitions of the policy you consider. This rider can be essential for those disabilities that many clients think about when envisioning a disability.

The catastrophic disability rider will usually pay an additional benefit that, in some policies, can be even more than the individual base policy payment. The triggers to pay benefits may vary slightly depending on the company, but a common theme is that one way to receive the extra benefit is to have a loss of two out of six Activities of Daily Living. Of course, the insured would still need to have a qualifying disability based on the policy and satisfy any required elimination period. In the example of Christopher Reeve, he became a quadriplegic and would qualify for the extra payments the catastrophic rider would pay out.

When someone has a catastrophic disability not only can the ability to work disappear overnight, but the subsequent costs can be staggering. A person who is so severely disabled may need extra care at home as well. Most likely they will need home modifications, a new van for transportation, ramps to the home, and that’s just a few examples. The extra monthly payments can be crucial for the family to help with all the extra expenses. According to the Christopher and Dana Reeve foundation, the cost of yearly care from a 2014 study can be as high as $184,891. Of course, with inflation, that cost can be even higher.¹

We discussed earlier in the article about the rare occurrence of a client who indicates they can still work through most disabilities. Yet, there are certain injuries or illnesses that would make it difficult for anyone to work. Christopher Reeve is a classic example. A disability policy can be designed to emphasize additional catastrophic benefits, but also provide coverage for a regular disability as well. As most people know, it is hard to work when you have a bad flu, or have your back go out, let alone a severe catastrophic disability.
The next time you get a quote for a client for disability insurance, be sure to ask for the catastrophic disability rider to be part of the illustration.

Reference:
https://www.christopherreeve.org/living-with-paralysis/costs-and-insurance/costs-of-living-with-spinal-cord-injury.

Make Sure The Primary Income Earner Is Insured!

We like to feel that we serve a higher purpose than just “selling” a “product” to a client. Individual disability insurance can be multifunctional, in that not only does a qualifying claim provide a replacement of some of one’s income but it can also have extraneous benefits besides a monthly check.

In a traditional family unit there tends to be a primary income earner and usually a non-primary income earner. From our experience, it’s more unusual to have a dual income family with both spouses having similar income. If the primary income earner has a disability, it can affect the whole family in so many ways depending on the actual disability and needs required.

Disabilities tend to come in two different styles, one being a sudden disabling event, such as an accident, stroke, heart attack, etc., that may either permanently disable someone or allow for a recovery in part or full. The other style we tend to see are the more slow types of disabilities that start out with a diagnosis while the person is still able to work but then gets progressively worse over time with a qualifying disability eventually becoming a partial claim and perhaps a total disability. Examples of the more slow, progressive disability would be neurological, such as MS, ALS, Parkinson’s, some cancer and heart disease claims, and some musculoskeletal claims. While the industry may be able to predict morbidity rates, disabilities in themselves are unpredictable in style, duration, and care needed.

Every family has its own routine and the dynamics can be unique to each family. From driving children, to coaching sports, to religious and community activities and work obligations, the family unit can be very busy and fully scheduled. Now put in the mix a disability of any family member. Regardless if it is a physical or mental disability, the family unit now has a different dynamic. Plans get cancelled, the routine gets disrupted, the new normal is anything but normal. If the family member who is disabled is the primary income earner as well, the dynamic may change even more. Not only does the family routine most likely change, there can be financial stress as well. Not only is the primary income earner no longer receiving a paycheck but the secondary income earner, if any, may be affected as well. If there is a secondary income earner spouse, the severity of the disability of the primary income earner may be a catalyst for the secondary income earner’s income to also decrease due to the need to curtail work due to the disruption.

Let’s also look at a single parent family and the responsibilities a single parent has to his or her children. Every single parent needs a plan in place to take care of any children who would need a guardian in case of a disability. If the single parent family is due to a divorce then the plan may be obvious in most situations but can also give rise to another factor often overlooked in separation agreements. As you may already know divorces can be complicated legal procedures, requiring specialists like jennifer croker to help separate finances, insurances, and draw up alimony or child support payments. These payments can be the primary source of income for some single parent households. If the separation agreement doesn’t require disability insurance on the primary income earner spouse, then that single parent family could be in financial risk every day and not realize there may be an issue.

When the primary income earner has an individual disability policy, a qualifying disability will create cash flow coming into the household. This may provide the secondary spouse the flexibility needed to make sure the income being generated between work and a disability policy will provide for the family and still allow a continuum of much of the daily routine to which the family has become accustomed. When the household income drops precipitously, then bills may not be able to be paid and the family’s lifestyle may need a drastic change. For the single parent and/or divorced parent, the income may cease all together, causing even more changes for the family.

No two disabilities or scenarios tend to play out exactly the same. Making sure the primary income earner has individual disability insurance is not only important to the individual that does not yet have a family, but it may be even more crucial for those who support a family.

An individual disability insurance (IDI) policy has various elements and provisions as part of the base policy. There’s the monthly benefit that would be paid out for a qualifying disability. There’s a waiting period (called an elimination period) that the qualifying disability has to last in order for the insured to qualify for benefits. The longer the elimination period, the lower the cost of the policy. A base IDI policy will usually consist of a triggering disability for benefits to be paid, such as total disability, some type of partial and/or residual disability, and presumptive disability are among the most common. Some policies also have provisions built into the base policy that will allow for a slight increase in the monthly benefit. This is usually called an automatic increase benefit provision but is typically limited in duration and the condition that the insured is not on claim. There are many different provisions that can enhance a policy, but these are usually the common elements we see in most IDI policies. Of course, you should always read the illustration and/or specimen policy to confirm what provisions are built into the policy.
Similar to other insurance products, the policy can be further enhanced by buying additional options that would be added to the base policy. One of these popular options (commonly called riders) would be a Cost of Living Option or COLA. The COLA option is different from other riders or automatic increase benefits, as it has unique properties that can increase the monthly payout from the disability company.
The COLA rider will add cost to the premium, as it allows for the monthly benefit to increase during the course of a qualifying disability claim. The first increase would typically take place after the first year of the claim. Typically, on each anniversary of the claim, the amount of benefit will continue to be increased. The amount of increase will vary based on how the rider is built by the insurance company and selected by the consumer.
The amount of increase can be a fixed percentage or an amount that is based on a consumer inflation index. Regardless of the index that is used to determine the amount of increase, there is usually a cap to the monthly benefit increase. For example, there’s a company that offers an indexed cost of living rider in which the consumer can choose the cap of either three percent or six percent. If the consumer chooses the three percent cap, and then a qualifying claim, the policy’s monthly benefit will be increased on each claim anniversary by the defined consumer price index up to a cap of three percent. The lower cap has become more popular because it is less expensive than the six percent option, and in the past 20 years it’s rare for the index to have been greater than three percent. As with any industry, you may find variations to the index used, the caps used, and whether or not the company will use compounding or simple interest. The general theme though is that there is a method to allow the monthly benefit to increase while on claim via the COLA riders.
Why should an adviser recommend the COLA rider? There is no right answer, as each client is different and may have different budgets, goals, net worth, and other factors that may affect the recommendation. In general, if a client is young and becomes disabled, the claim may last 20 years, 30 years, or even longer. During that time period inflation will have a natural attrition on the real intrinsic value of the monthly benefit. For example, let’s take a dentist who develops the same Parkinson’s condition that Michael J. Fox was diagnosed with at the age of 29 and eventually became more and more disabled. If our example dentist became totally disabled at the age of 34 and has a benefit period to age 65, that can become a 31 year claim. If the dentist bought a $5,000 monthly benefit policy without a COLA rider, then, over time, the intrinsic value of the $5,000 would buy less and less goods and services. If the policy had a COLA rider, then, in theory, the $5,000 would be able to keep up with the defined CPI in the policy, assuming the inflation rate was still minimal during the duration of the claim.
In designing an individual disability policy, it’s important to keep in mind the cost of the policy as well. As advisers, we’d prefer to see the maximum benefit period, shortest elimination period, and all the available riders be put on the policy. Yet, there needs to be a balance between benefits selected, rider design, and the cost of the policy. Given that an inflation rider can dramatically increase the liability for the insurance company, there is a proportional cost for the rider. Therefore, in designing a disability policy, one of the many questions the adviser needs to ask is to COLA or Un-COLA the policy. 

Individual disability insurance is one of the coolest products in the insurance world. There are features that you really don’t see in other life and health insurance products. We want to focus on some of the increase options that you will most likely see in many of the products. Of course, each insurance company is different and designs their products differently, so please read the specimen contract to ensure that any of the features mentioned are available for your client.

Automatic Benefit Increase Riders
There may be variations to the actual name of this rider, but in general, if issued with the policy, it will allow your client’s benefit to slowly increase each year for a certain duration. Depending on the company, this rider may not be available at the time of issue due to occupational class and/or age limits. The rider allows the monthly benefit to increase by a certain percentage on the policy anniversary.

For example: A client bought a $5,000 per month benefit with a policy date of June 1, 2020. The next year, the rider would increase the monthly benefit by a certain percentage. If the rider allows for a four percent increase each year, then the $5,000 per month would be increased to $5,200 at the anniversary. The percentage of increase will vary based on the company, but typically we’ve seen this be in the four to five percent range. Typically, this automatic increase will continue for about five years. Again, it can vary based on the company. At the end of the initial automatic period, assuming the client is not on claim and is under a certain age, the client usually is given the option to allow the increases to continue for another set period based on the company’s underwriting requirements. Usually just financial justification is required to renew the rider for another five years. What an awesome feature to a policy! This allows for a client’s monthly benefit amount to increase to thwart possible erosion of the benefit by inflation and helps to keep the benefit up with slight increases of income. Note, the rider usually will not increase benefits when a claim is in progress.

Future Purchase Options
These are options to increase the monthly benefit by larger amounts, but again without having to prove medical insurability. These types of riders are typically available at the time of issue as long as the client fits certain parameters, such as issue age, occupational rate class and applying for a certain percentage of eligible benefit. These riders allow for a much larger amount of monthly benefit to be purchased on certain policy anniversaries. In addition, some companies may allow the client to increase the policy off-anniversary if certain events occur, such as, but not necessarily limited to, a loss of group benefits.

This rider has really evolved into two subsets: The purchased rider and the no cost rider. The purchased rider usually will give the client a set amount that can be applied for at a later policy anniversary. In general there is no medical underwriting, but usually financial underwriting and not being on claim at the time the increase is being requested are required.

For example: An attorney client, age 35, buys a $5,000 per month disability policy with a $5,000 future purchase option. At age 40 the attorney has seen a doubling of income and needs more coverage, but at age 38 he was diagnosed with MS that is hardly noticeable and hasn’t slowed down the attorney’s solo practice. Even though the attorney is most likely uninsurable for disability insurance with traditional insurance companies, the client can still increase his disability benefit via the future purchase option assuming the current income would justify the increase. Depending on the company, the increase can raise the monthly benefit on the current policy, or the company may issue a new policy for the increased amount using the most current disability policy series. The rates would usually be based on the current age at the time the option is being activated. The unused amount of future purchase options will expire at a certain age and be taken off the policy. Companies may or may not issue this rider on their current policy offerings, but as a planner it’s very important to know about this rider when reviewing previous disability policies purchased by your client.

The other increase rider that we see being developed by companies is a rider that typically doesn’t add extra cost to the premium at the time the policy is initially issued. This no cost rider may go by various names, such as benefit update or increase option rider, but they have some similarities. In general, this rider allows the actively at work client to increase the monthly benefit every few years with only financial underwriting. The key is that this is systematic, in that typically the client needs to submit a financial questionnaire and/or more detailed financials whenever the option becomes available. The company will then let the client know how much the policy can be increased if at all. A usual requirement of this type of rider is that certain conditions need to be followed in order to keep the rider active with the policy. If the client doesn’t submit the requested financial information or if the client doesn’t accept a certain percentage of what the company offered, then conditions of the rider may not have been satisfied and the rider would be removed.

For example: The same attorney client. At the third policy anniversary, the company notified the client to submit financials to be evaluated for a possible benefit increase. The client submits their financial information and, due to a large increase in income, is offered to increase the policy by $8,000 per month for a total of $13,000 per month of benefit. If the client accepts a certain amount of the offered increase, the option to increase rider will stay on the policy—assuming the client is still age eligible. If the client decides to not submit the financials or doesn’t accept a certain percentage of the offer, then typically the rider will be removed from the policy as the client didn’t fulfill the contractual requirements to keep it. Similarly, some companies may allow the client to increase the policy off-anniversary if certain events occur such as, but not necessarily limited to, a loss of group benefits.

These riders are essential to the planning and design of individual disability policies. These also give an opportunity for the adviser to have a valid business reason to systematically review and update disability insurance needs with their clients. These riders and benefit options are not only essential for the client but are also some of the additional benefits for the adviser in building a block of disability policies. 

Hopefully, we will never experience again what we all have had to endure the last few months. Our government was forced to shut down segments of our economy for the safety of all of us. The power of a paycheck has never been more important than what we have seen in these unprecedented times. An unpredictable market, segments of businesses diminished to a fraction of what they were in the past, and a light at the end of a tunnel that hopefully will be here sooner than later.

So where does individual disability insurance play a role in today’s atmosphere and tomorrow’s planning? We are still seeing a lot of activity in the disability marketplace. While there are businesses that are struggling to survive, there are many businesses that are still thriving. Many of the owners of these businesses and many professionals who are working every day, have seen that their ability to work as essential. The unpredictability of the equity markets has also made many realize that the ability to work is one of the most important assets someone possesses.

As we all know, the planning process is a never-ending process that requires flexibility and open dialogue. If a client became disabled due to an accident or sickness, what is their ability to maintain their standard of living? Ensuring your clients are up to date on their insurance products is always important, especially during times like these, of course, for clients in which it would be appropriate to have such dialogue.

In the individual disability insurance processing world, we have seen many companies with electronic applications and electronic delivery processes. It’s never been easier to write and submit applications and deliver disability insurance policies in an all-electronic fashion.
In addition, the non-fluid, non-exam issue limits have been increased with many companies, so you don’t have to worry about a paramedical exam being needed for most cases. Of course, please check with an individual company for the requirements needed for the amount being applied.

If you have any clients with disability coverage in force, don’t forget about the future purchase option or automatic increase option with upcoming renewals that may be on their policies. These types of policy riders may give your clients the ability to increase their monthly benefit without medical underwriting. Depending on the company, there may only be financial underwriting required. Many companies have changed the way they notify brokers about important deadlines connected to these riders—turning to electronic communication or to just posting on the company’s website. As an advisor, we would recommend that you also have a system to remind yourself of the future purchase option and any automatic increase option renewal date(s) so you can proactively reach out to your client.

Our clients need us more than ever to support their financial goals and protect themselves and their families from the financial effects that life can deal to any of us. May you, your families, and colleagues stay safe and healthy during these unprecedented times.

We recently had a call from a producer who wanted to discuss a marketing program for the rest of the year. This is a fairly experienced producer who has a nice book of business. His primary goal was to develop a system in which he sends out emails and then waits for email responses or for random people to call him once the email is received. We discussed many different marketing methods and asked him to keep in mind: The easiest, most convenient marketing methods can be some of the least effective marketing campaigns. Typically, the most effective marketing plans require a four-pronged approach using: Research, a simple message, persistency, and, most importantly, the human touch.

Any producer or advisor who has been in the financial service business for more than five years usually has a large enough block of business to use this four-pronged approach to marketing (in addition to obtaining new clients via a variety of methods). We are in a very dynamic industry that has continuous changes in products, underwriting, technology, and processing. These changes bring constant opportunities to meet with existing clients to review their current portfolio and to educate clients, making sure they have the most current products.

There is always a reason to meet with your clients every few years—to make sure their goals and plans are proceeding as projected. While we are in a constantly changing business, what hasn’t changed is that most clients who are working still need a monthly income if they can’t work due to a sickness or recovery from an injury.

Many times the best marketing plans are in your filing cabinet or computer. Do you have a systematic plan that calls for you to personally meet with every one of your clients at least once every few years? If not, you are missing the march to marketing. In today’s world, with consumers being bombarded with impersonal TV and radio ads for insurance, keeping in touch with and in front of your clients is more important than ever.

Understandably, many advisors like to have a “valid business reason” to reach out to a client. Fortunately, you already have “valid business reasons” to reach out to your clients for a quick meeting or lunch. Every financial advisor or insurance producer, regardless of specialty, has dozens of reasons to reach out to an existing client: Discussing financial market changes, new changes on the renewal of a car or homeowners policy, changes in interest rates, worker comp audits, health insurance renewals, and the list goes on. As advisors we can sometimes assume clients understand the products and constant changes that take place in our industry.

When you are with your client, it’s a perfect time to either review their disability insurance or to ensure they even have coverage. What you will most likely find is that a majority of your clients don’t have any disability insurance. When you make time to support your client by sitting down with them to discuss the ever-changing financial and insurance products available, you will build a better, more personal relationship with your client. And you will discover more of their needs, such as disability insurance.

What is your systematic client review process? There are various systems available and any will do as long as you are able to make eye to eye contact with your clients every couple of years. You should have a client management system to keep track of your customers—if not, you can look up dozens of them to implement. Contact spreadsheets are a start, automated emails, even the tried and true one card system can work well versus waiting for the phone to ring. For some of you this is obvious. For many of you this is something that ought to be done, you know it should be done, but it hasn’t. Don’t negotiate with yourself. Instead, start your process today! It’s amazing how many advisors either don’t have a formal process set up or feel that, since they haven’t in the past, then it’s too difficult in the future.

Clients are more likely to do business with firms and advisors who they have worked with in the past. We belong to AAA and enjoy their discounts and service. It’s remarkable how many offers, deals, and opportunities they give us—to engage with them even more. The AARP also does a great job soliciting for opportunities of engagement.

How many times have you offered engagement to your past clients? Have you offered your services to your clients’ children as well? The key to helping more clients protect their income is to ask questions and to make sure your clients have coverage. How many times in the last month have you asked your clients about disability insurance? If the answer is less than a few times, then we are guessing that you, as an advisor, are not comfortable with either the product and/or the process. If you are not comfortable, reach out to an MGA or company that specializes in individual disability insurance and start to get comfortable. Your clients may be depending on it!

The best time of the year is upon us as we approach the end of the year. While we finish up 2019 and head into 2020, many of us can look back at the year and think about how many clients have followed our recommendation to protect themselves and their families with disability insurance.

We have received great responses to our Broker World disability insurance articles and it’s fantastic that so many of you have the support your clients needed to plan for the possibility of a catastrophic injury or sickness that can cause a prolonged disability.

While the holiday season is a time of joy and happiness for most of us, it can be a time of hardship, both physically and financially, for those individuals and their families who are affected by a disability or unfortunately become disabled.

The holiday season is synonymous with traveling for those who are visiting family and friends, either short distances or long distances, either by car, plane or train. According to the National Safety Council, in December 2018 there were an estimated 48,100 car crashes that were serious enough to be considered a medically consulted injury.* We don’t know how many of those estimated 48,000+ had injuries severe enough to become partially or totally disabled, but we do know the statistic and it’s not an anomaly, and indeed many look to get a car accident lawyer during these times. Anyone involved in an accident like this will know how scary an ordeal it can be as it can often leave people with life-changing injuries – those who find themselves the victims of a car crash may want to consider getting in touch with a car accident attorney Houston for legal assistance.

Year after year a time that is supposed to be so full of happiness can turn tragic in a flash. Usually when there is a car accident, the owner of the car will call their car insurance company or agent and report the damage to the car. Who is your client or the client’s family going to call if your client passes away or becomes disabled due to that accident? Will your client be among the estimated 48,000 that has a serious accident and possibly becomes disabled this holiday season? What will your response be to the question, “So how much disability insurance do we have and how do we file a claim?” Will it be that you will contact a Springfield car accident lawyer to file? Or a similar lawyer?

For some of us the holiday season is a time to catch up with our clients at the end of a busy year and to get ready for the next year. Take some time during your holiday season to examine your book of business and confirm how many of your clients may need disability insurance. How many professionals and business owners do you have as clients-in any capacity?

Regardless of whether you specialize in property and casualty insurance, annuities, life insurance, or overall financial planning, many of your clients depend on you as the person they trust and turn to for all of their insurance advice and needs. Therefore it’s good to have an updated client insurance inventory in your file of the insurance products your clients own.

If you don’t have the inventory, you should talk to your clients about keeping a comprehensive record of their insurance inventory. If you are considered the insurance resource, the go-to person, and your client’s family calls you to find out the coverages, you can either be the resource or have to refer them elsewhere in their time of need.

Not only does the inventory make you more valuable when a client passes away or is unable to give direction due to a severe disability, but it gives you the opportunity to review the current products and identify any gaps in coverage. Regardless, if you have an inventory or not, most clients do not own disability insurance and are exposed to the possible hardship that often occurs without coverage, or enough coverage, to meet fixed expenses.

For those who are already disabled, this holiday season can financially look much different from those who aren’t. Of course much of this will depend on the severity of the disability and the standard of living to which the client is accustomed.

Let’s take a 45 year old radiologist that loses the ability to see clearly due to an eye injury, such as a tennis ball or car accident, or perhaps a disease that affects the eye(s), such as optic neuritis, intracranial eye strokes, retinopathy due to diabetes, or some other condition. Usually, this is a story with two scenarios…one with individual disability insurance and one without.

Every year, doctors and nurses from all over the world attend to thousands of eye injuries. A significant number of these are caused by dangerous work environments and accidents occurring due to negligence in the workplace. Causes of eye injuries can range from excessive straining of the eyes while performing assigned tasks, to flying debris, and even exposure to harmful chemicals or fumes.

With this in mind, if you work in an environment where dangerous goods are stored, it is vital that you have access to an emergency eyewash station and a chemical shower to deal with any incidents that may occur. Put simply, emergency showers and eyewash stations allow you to quickly wash away dangerous chemicals that can come into contact with your face or body while handling hazardous chemicals. You can learn more about the importance of installing these types of safety measures in the workplace by taking a look at this Storemasta Eyewash station guide.

So, will the holiday season be spent in a smaller home or apartment, or in the current home paid for with the monthly individual disability insurance check? Will the holiday feel like holidays of the past, before the disability, or will it feel like a holiday for a family that is struggling to keep their financial independence?

The holiday season can be an expensive time of year; from the presents, to the hosted meals, to traveling, to all of the extra unexpected expenses that always seem to come up. Will the holiday season be one of joy or one of worry and concern for their collective financial future? We hope none of your clients experience the latter scenario and have nothing but joy and happiness this and every holiday season. ?

Reference:
*Medically consulted injury is an injury serious enough that a medical professional was consulted. Based on the current medically consulted injury to death ratio of 114:1 and rounded to the nearest hundred, the estimate of nonfatal medically consulted injuries that will result from crashes during the holiday period is 48,100, with a 90% confidence interval of 42,400 to 54,500.

2018 National Safety Council. All rights reserved https://injuryfacts.nsc.org/motor-vehicle/holidays/christmas-day/