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Eugene Cohen

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Eugene began his insurance industry career in Cleveland, OH, with a company that specialized in disability income protection. In 1981 Cohen founded the Eugene Cohen Insurance Agency, Inc., Skokie, IL, which specializes in DI, life, LTCI, fixed annuities, and impaired risk cases. The agency is a member of LifeMark Partners, NAILBA, the IDIS and is a founding member of The Plus Group. Cohen received the W. Harold Petersen Lifetime Achievement Award from the IDIS and NAILBA’s Douglas Mooers Award for Excellence. Eugene can be reached at Eugene Cohen Insurance Agency, Inc. Telephone: 800-333-4340. Website: www.cohenagency.com. Email: eugene@cohenagency.net.

A New Year, A New Resolution: Talk To More Clients About Disability Insurance

Happy New Year! Welcome to 2020 and a clean slate of new resolutions. If you are not talking to your clients every week about disability insurance, this is a great time to make it part of your new year planning. To start, you’ll need to make a list of clients who are good candidates for various types of disability insurance. To make it easier for you, we’ve given you a few scenarios that should be on your radar. Remember, everyone who needs to work usually needs some type of disability insurance. So, our number one request for illustrations is for individual disability insurance clients who work full time. The following list was designed to help you recognize opportunities that are sometimes not recognized and should be part of your 2020 planning.

Client: Business owner
Product: Business Overhead Expense Disability Insurance (BOE)
Think small business, usually a professional, such as a dentist, attorney, engineer, physician, architect, CPA, or any small business in which the firm is supported by an individual owner or two. You most likely have these clients in your database. When someone owns a business, they usually will have fixed expenses that they’ve obligated themselves to pay, regardless of whether they have the ability to work or not. The rent or mortgage still needs to be paid, the support staff still need their incomes, business equipment leases still need to be paid, the utilities, business loans, and other monthly obligations still need to be paid. Every business owner should look into BOE insurance. Be resolved to talk to your business owner clients about BOE coverage.

Client: Firms with multiple partners and a business operating agreement
Product: Disability Buy Out
Think about the firms you insure in which you have put in a life insurance policy to help fund a buy/sell agreement. I’m sure you can think of many cases in which you’ve put in life insurance, but didn’t even discuss the disability insurance aspect. Most operating agreements or buy/sell agreements have some type of disability provision…and if not, then there should be a provision to address what will occur if a partner is disabled.

Client: Business owner or individual client
Product: Loan Protection
If you have been selling life insurance for more than a few years, you most likely have been asked for life insurance to cover a loan or mortgage. This is a great entre to discuss disability insurance. Since most clients are more likely to suffer a disability than pass away before the end of a loan period, a plan should be in place in case of a disability. For a business, without some type of disability loan protection, even if the business owner survives, the business may not survive without disability coverage. For the individual who has a mortgage, having disability insurance is a must as well. For many people, full recovery from a disability may never happen and a permanent disability may become reality. If so, how will the mortgage be paid? In addition, most people have many other expenses that still must be paid regardless of whether they work or not.

Client: Dual income, no kids yet
Product: Personal Disability Insurance
These tend to be your younger clients who may be first time home buyers or clients requesting rental insurance or car insurance. You may have talked to them about some life insurance and perhaps they took your advice and bought a policy. Most people don’t realize that the risk of becoming disabled before age 65 is greater than that of passing. If one member of the couple gets disabled, the couple will have two financial pressures: First, the couple will naturally feel stress due to a decrease or total loss of income. The couple was relying on this income to pay their expenses and maintain their lifestyle. Second, due to the disability, many individuals will experience a sudden increase in unanticipated expenses. These include home and car modifications to accommodate the disabled partner, and extra medical bills for expenses not covered by insurance. An individual disability plan on one or both spouses will sometimes resonate better than some other types of insurance that may have been suggested.

This is not an all-inclusive list, as there are Key-Person DI policies, Retirement Security DI products, Guaranteed Standard Issue products, and Surplus Lines products that can fill many different needs. It’s essential to keep disability insurance on the top of your list of products to present.

If it hasn’t happened yet, there will most likely come a day when a client becomes disabled and wants to know the type of disability coverage they have with you. What will be your answer? Work with your manager, MGA, mentor, or just sit down and create a plan to review your book of business for disability insurance opportunities. It could be the best holiday gift you give your clients and their loved ones.

May you and your family have a happy and healthy New Year and a great 2020!

Tis The Season To Make Sure Your Clients Have Disability Insurance

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/

Game Of Inches

In today’s world of online quotes and direct to consumer marketing, it’s important to be at the top of your game at all times. When it comes to individual disability insurance, it’s no different.

We support many national organizations and their financial advisors at our agency. In doing so, we need to be sure we focus on the three essential parts of underwriting: Medical, occupational, and financial underwriting. Not only do we review these areas, but we search for clues that may help us identify when a case has possible upgrades and possible pitfalls.

While we can obtain the basics needed for a quote, the “make it or break it” part really comes down to the ability to identify the cases that need extra clarification and those that need to be moved to a non-traditional product.

Cases that cause challenges for those that are not experts in disability insurance are the cases that do not hold up to the expectations of the consumer. The expectations of the consumer need to be shaped by the financial advisor who, in turn,should be given some basic knowledge of the three major underwriting areas.

For example, the occupational rate class is essential to the pricing of an individual disability insurance policy. Depending on the company, the occupational class is usually assigned a number and/or letter, such as 5A, 4A, 3A, 2A, A, B, with 5A being the top class and B being the lowest rate class. Each company has their own version of the rate class system but, in general, we tend to see anywhere from five to 10 different occupational classes or variations of classes. Each class may have different pricing and different policy features or definitions that may be associated with the corresponding class. If the wrong occupational class is used in an illustration, most likely the rates will be incorrect and/or certain policy features may not be available. Some advisors have a difficult time at policy delivery when a policy is issued other than applied, so getting the occupational class correct is essential for any disability marketing team. In addition, there can be other aspects of a case that can allow an upgraded occupational rate class when normally a lower rate class would need to be used. For example, some companies may have business owner upgrades where, if the size of the company, length of ownership, income, and other factors are within certain guidelines, a better rate class and/or more coverage may be offered to the client. If the internal wholesaler doesn’t recognize that the better rate class can be used, then the illustration may be priced too high or not have as much benefit as could have been quoted. If there is competition on the case, then it’s possible the client can be shown the exact same company but with lower premiums and/or more benefits. Our DI marketers train on occupational class underwriting and are constantly looking for programs that can allow better occupational classes and/or more benefits.

Financial underwriting can also be crucial in illustrating and quoting disability insurance. Our DI team looks for how much current coverage an advisor’s client may have in force, but it’s important to take it even further at times. For example, if someone is an owner of an S-corporation, and has employer-paid group DI, the financial underwriting may be different depending on the percentage of ownership. If the client owns less than two percent then the financial underwriting will be similar to that of an employee, but if the client owns more than two percent the financial underwriting will be based on the non-passive owner income underwriting rules. The issue and participation rules for individual disability companies will vary based on existing group coverage and if the group coverage may be taxable or not taxable. If the wrong assumptions are used, then the illustration may be incorrect. In addition, knowing and understanding the unearned income rules are important as well, as unearned income may be treated differently depending on the company. Our disability marketing team is constantly monitoring these dynamic and ever changing financial underwriting issues. Of course, a client needs to consult with their tax advisor on any issues involving taxes.

On the surface, health underwriting appears to be intuitive, as how different can it really be from life underwriting? We constantly have advisors telling our team that the client was preferred best for life underwriting, so there should be no need to be concerned about the DI health underwriting. In the individual disability insurance world, insurance companies can line item certain conditions and exclude them from coverage. Exclusions are not typical for traditional life insurance or long term care insurance, but for disability insurance it’s a very common occurrence. It’s important to recognize the conditions that can cause these exclusions to occur, such as mental/nervous conditions, prior health issues that were already resolved, chronic health issues, and muscular skeletal issues.

In summary, when quoting disability insurance, we’d recommend that you use a resource that understands the nuances of disability underwriting. In a game of inches, you need to get the first down in order to score.

DI Forum—September 2019

A Panel Of DI Experts Looks At The Disability Income Market And What Can Be Done To Increase Agent Involvement In DI Protection Solutions

Q.What are your assessments of the individual, group, business, and excess disability markets today?

Cohen
There are very few companies that write disability income protection. And there are very few advisors who offer it.

So, if there are very few advisors who offer it and the product is needed by many people, it’s a great way to grow your book of business. Wouldn’t you agree?

The products in the individual market are so versatile. They cover so many different needs. And as I always say, “Need motivates action.” There are business disability products to fund a buy/sell agreement. There are disability products to fund business loans—if an individual is disabled and can’t pay a particular loan. There are key employee policies to help an individual cover the needs of the business when an employee is disabled.

And the limits of individual coverage that the individual companies are writing today are high. When I started in the business the amount of coverage I could offer a client was much more limited. The limits were low. The underwriting was very strict. And the products were not as creative as they are today. Yes, my assessment of the individual disability market today is that it is exciting.

Group disability coverage (also known as Group LTD) for many individuals is important. It’s great when a company can offer group coverage. Group LTD insurance is good for people who don’t have disability insurance. It’s better than nothing. It’s better to have something than to not have a policy.

But I want you to understand that group LTD coverage can be limited for individuals who are making a high income. We can run into something we call “reverse discrimination.” These higher income earners are discriminated against because a small portion of their income is covered with that group LTD policy.

Let’s take a typical group LTD policy…it insures a percentage of a person’s income, let’s say 60 percent, up to a limit of say $10,000 per month. Let’s take an individual making $300,000 a year. That person can have a particular problem. They earn $25,000 per month. But the individual is only getting $10,000 per month in benefits with their group LTD plan. With the group LTD plan alone, this person is insuring 40 percent of their income. Well, they need more coverage. So, let’s take an individual disability insurance policy and layer it on top of that group LTD coverage.

And let’s have that person self-pay their individual disability policy premiums so their benefits may be tax free. (Just a reminder, when the employer pays a group LTD policyholder’s premium, the benefits may be taxed.)

There are often other limitations with group LTD coverage. Many of the group LTD policies are only covering mental and nervous disorders for a limited amount of time. For example, some of the group LTD policies only cover mental and nervous disorders for two years unless you’re in a hospital.

Also, some group LTD plans may not cover bonuses and excess income an individual may receive. And the definitions of a “disability” in group LTD policies may not be as comprehensive as the definitions in individual policies. Also, many group LTD policies may not be portable if you leave your job.

Both group LTD products and individual disability insurance products are important in protecting income. When a client tells an advisor, “Oh I don’t need individual disability insurance, I have group LTD coverage,” remember that this is not necessarily an objection. If the client has group LTD coverage, this person likely understands the need. And that is often the perfect start to a conversation regarding the need for individual disability insurance as well!

Phillips
Without looking at any statistics from LIMRA, or other authority, and only from my little corner of the world, my view is that the group LTD market is recognized and stable. The individual, business and excess markets are not overly recognized and are underpenetrated.

Group LTD (and short term DI, STD) is a product that is widely sold in the group benefits realm. It’s an offering that many employers recognize as an offering to their employees to enhance their competitive stance via an overall benefit package (I’m not sure that many understand the underlying definitions very often however!). While many employees may not know exactly what it is, they know they have “DI at work.”

Other DI offerings seem ignored by consumers and employers. Sadly, we’ve run into many, many instances where company group reps themselves don’t know about, or don’t seem to care about, their own carrier’s non-group offerings. So much for a synergistic, strategic relationship with a company rep in this arena!

However, that lack of recognition begets tremendous opportunities for planners, advisors and agents to enhance their practices and prospect for new clients. The disability income market is staid, and historic…and yet still offers, effectively, a ground floor opportunity. Especially in the lesser penetrated industries and markets. Doctors, dentists, even attorneys, to a great extent recognize and embrace the consideration of income protection relatively speaking. Think of all the other industries out there!

Schmitz
Underpenetrated due to lack of communication, marketing, and incentive.

Petersen
The specialty and high-limit DI market is strong, but we have seen a relative plateau in IDI business and a greater focus of DI advisors on the burgeoning GSI sector of group DI, especially among physician groups and law firms. Employers get tired of wrestling with medical insurance and see disability plans as great group benefits.

The business disability markets continue to be strong as there is always a business deal taking place.

Bloch
The individual disability income marketplace remains on a steady path. There is a fantastic opportunity, however, for carriers to re-energize the marketplace with exciting and creative solutions. The challenge is to create a product and premium structure that the consumer will understand and want to purchase. The group LTD marketplace is becoming more of a commodity product with a “race to zero” mentality. There is limited interest in provision quality today perhaps due the medical care cost issue that has become so time consuming and expensive. The excess disability markets are exploding with new ideas, coverages, and new premium. Product creativity and underwriting enhancements have provided unique solutions for the business and high-income markets.

Q.What needs to change to get producers who shy away from selling DI to embrace these markets?

Cohen
I believe the saying, “Knowledge is power.” The problem that we have in the industry is that we are often dealing with advisors who haven’t specialized in disability income protection. They don’t know a lot about it, so therefore they shy away from it.

Most folks will shy away from something to sell if they don’t understand it. He or she doesn’t want to present it because they won’t be able to handle the questions the clients would ask.

Many advisors have worked very hard to earn their clients’ confidence. Often advisors don’t want to jeopardize that confidence by offering a product that the advisor knows nothing about.

So, my suggestion is that we have to educate the advisors. First of all they have to understand the need for disability income protection. It’s very simple. Many times advisors just want to insure the golden eggs. We have to insure the goose that lays those golden eggs.

The insured’s greatest asset, many times, is their ability to earn an income. If you take an individual who is 35 years old, who’s earning $100,000 per year through age 65, that future income is worth $3,000,000. That’s if he or she doesn’t have any raises, bonuses, or any additional compensation. So that could be their most valuable asset. All of the insured’s hopes and dreams are based on that asset—future income.

Why doesn’t an advisor talk about business overhead expense for a small business or a small professional person? The advisor may not even know it’s available. So, naturally, they’re not going to bring it up.

How about an individual who funds a buy/sell agreement for life insurance and their advisor never brings up the fact that there is a policy for disability that will help fund that buy/sell agreement if one of the owners has a serious disability and can’t work for a long period of time?

So, this is our job. Our job as a brokerage agency is to educate and to help the advisor. I hear many times an advisor say to me, “This client got a million dollars of life insurance, best class. But they’re putting a rider on my client’s disability policy that’s excluding coverage on his back. And my client says he’s only been going to the chiropractor for preventive adjustments.”

Well there are two points that need to be made regarding this scenario. First of all, with life insurance, a bad back isn’t generally going to affect an individual’s life expectancy. So, the client may get best class.

But a bad back could affect a client’s ability to work and earn an income. The result—the client could be given best class with his life insurance and a back rider on his disability policy.

The second point I’m going to make is going to delve more closely into the back rider itself. In our example the client said he had only been going to the chiropractor for preventive adjustments. Well, that may be the client’s perception. But with disability insurance underwriting, underwriters are almost always going to ask for an Attending Physician’s Statement (APS) regarding an applicant’s back treatment. And in this example, the APS said the client was receiving more than just preventative adjustments.

Here’s another example of a rider that can come up on an individual disability insurance policy. If an individual is going for counseling, or taking anxiety and/or depression medication, there’s a good chance that the individual will have a rider on their policy excluding mental and nervous disorders.

We have to get the advisor to understand the underwriting of disability insurance. It’s completely different many times than life insurance underwriting. We manage the advisor’s expectations, so they can manage their client’s expectations. We always do our best to prepare the advisor. It goes back to giving the advisor the knowledge he or she needs to feel confident providing their clients with disability income protection insurance.

Phillips
One stumbling block is the processing and underwriting of DI business. There’s nothing worse than preaching, prodding, pulling and cajoling a non-DI oriented planner for months and years on end about the power and the glory of income protection planning only to have them submit their first case and be slogged through the mud and dreck that is the processing and underwriting of DI business. Often it creates a one-and-done dynamic.

In this era of ubiquitous preventative medicine, often cumbersome underwriting isn’t something we experience for those who are unhealthy. Tests, procedures and exams are done that perhaps weren’t even here even just a few years ago. Those need to be reviewed and scrutinized by an underwriter, which can make for a lengthy process.

In addition to laborious underwriting itself, the application process has been primitive. Lengthy paper applications. Uncomfortable tax returns. Something that many planners have gotten “un-used” to in their primary practice’s focus.

The good news is that I think the carriers have recognized this—at least the processing aspect—and electronic applications, e-policy delivery, etc., have begun to work their way into the market. That evolution will not stop.

Likewise, seeing the ever-expanding offerings of “accelerated underwriting” on the life insurance side, it’s only a matter of time before such initiatives bleed over to the disability insurance market. I often say to my staff and our constituents, “We are at the beginning of the end of processing and underwriting as we’ve known it.”

Second, I think carriers and agencies like mine (BGAs, MGAs, whatever you want to call us) need to do a better job of spreading the word of this market and the opportunities herein. We need to bludgeon the market with the message.

I’m a humble member of the DI marketing group, The Plus Group, with some of the greatest DI minds and marketing minds in the nation. Each year we collectively rally around the concept of “DI Day,” usually in May to jive with Disability Income Awareness Month (DIAM). Tens of agencies around the country have meetings solely focusing on the abstract and the concrete aspects of income protection, bringing in motivational speakers, company reps, and even consumers who’ve experienced disability income up close and personal.

We’ve had tremendous success in not limiting our efforts to a day, but invoking a “DI Year” concept. Weekly something is sent, posted or otherwise on DI. It is an endlessly evolving educational process. Ours is the notion, “If we build it, they will—eventually—come,” so to speak.

I think with continued educational offerings from those who are in a position to do so, along with the continued technological enhancements to processing and underwriting, we are on the cusp of new players and producers embracing this important insurance. It should be the bulwark of every financial and insurance plan.

Schmitz
Underwriting. Although Guarantee Standard Issue (GSI) and Simplified Issue programs are helping, we could use a more automated process for gathering health information. (Where is that medical ID-card we heard about years ago?) In the meantime, we can make it easier by streamlining the process. With broker training we can get brokers to ask a few important questions:

  • When were you last hospitalized, and why?
  • What prescription drugs are you currently taking?
  • When did you last see a doctor, and why?
  • What does last year’s tax return or W2 show?

Producers who shy away from selling DI should not be able to call themselves financial advisors. If they do not want to sell DI, they should partner with a DI specialist.

Scalability. Easy and accessible e-applications, or outsourcing the application process, like we have done with DINGO.

Petersen
Greater education of the general public, but more important, greater education of life and health insurance agents. General agents and insurance carriers need to take a greater role and responsibility in educating insurance advisors about the importance of DI and how to better market their programs. This is not a new problem or issue. What many carriers and GAs consider education is frequently product education rather than sales education. Yes you need to know your products, but producers are missing many fundamentals of the sales process.

Bloch
Many producers shy away from discussing disability income because they lack the appropriate training and do not understand the risk or the process. Training is the key. I would recommend that the producer partner with a DI expert to gain disability expertise.

Q.What are some tips for agents to overcome objections to buying income replacement protection?

Cohen
When offering individual disability insurance to a client, there are four basic objections an agent may encounter. No need, no hurry, no confidence, and no money. The agent wants to eliminate objections before they become objections.

First you must uncover the need. How do you do that? You ask questions.

The advisor can ask the client, “How important is your earned income?” About nine out of ten times the client will agree that his or her most important asset is their ability to earn an income.

When the client understands and agrees that their ability to earn an income is their most valuable asset, then it becomes very easy. You must get your client to understand they need the policy even before you start your presentation.

To further point out the “need,” I have the client picture a bridge made up of all of his or her financial obligations—the mortgage or rent, car payments, car insurance, kid’s bills, utilities, health insurance, groceries, cell phone bills, etc. And then I ask them to picture the only thing holding up that bridge is their paycheck. I ask the client, “If the paycheck is gone, what particular problems will you have?”

I may also ask, “If you were out of work because of a sickness or accident for three or four years without a paycheck, without an income, without any earned income, would you have an income problem?” And naturally they will say yes. Then I feel I have overcome the no need objection. I won’t go forward with the presentation unless they understand they need the product.

The next objection is, no hurry. I want to eliminate that. But I know one thing. Need motivates action. If someone needs something, they’re going to act very quickly. Years ago, when I was in my early 20s, my friend asked me to stand up at his wedding. Naturally, I said yes. They said everybody was going to be wearing a tuxedo and that I had to go down and get measured for a tux.

Guess where I was within days? Need motivated action. I was in that tux shop getting fitted in that tuxedo.

If your television goes out and there’s an important ball game you want to watch, what happens? You’re getting that TV fixed or you may even buy a new one immediately. It’s amazing, when we need something, how fast we’re going to act.

Need always motivates action. You have to remember that. If the client knows they need to protect their income, they’re going to be in a hurry to get the policy. The no hurry objection won’t come up.

The third objection is, no confidence. I believe you really have to know your product and you have to be prepared. So, before you go out on that appointment, you’re going to go through that illustration. The illustration is going to help you understand the product.

And you’re not going to prepare by going through the illustration just once or twice. You’re going to know that illustration until you could just shut your eyes and see it. I study the illustration. I practice my presentation. I know where I’m going to go in the appointment. If you know and understand the illustration, you’re going to instill confidence in your client.

So, again, you have the need objection overcome, the client is going to act if they need it—which is going to destroy the no hurry objection, and If you know your material you’re not going to have any problem instilling confidence.

The last objection is, no money. It’s interesting. When someone needs something they’re always going to find the money to purchase it. The no money objection will generally come up toward the end of the presentation.

Imagine, you’ve already gone over all the benefits in your presentation with your client, reading right from the illustration. At this point you will summarize the benefits again very quickly, and say to the individual, “If we were to deduct x amount of dollars from your checking account every month for all of these benefits, would that create a financial problem?”

Now you know what the individual is going to say—either yes or no. If they say no, you’ve overcome the objection and then you proceed to fill out the application. If they say yes, my response has always been, “I don’t want you to buy this policy.” I don’t argue with people. I don’t say, “Buy this…sacrifice to buy the policy.”

The client is going to tell me if they can afford the policy. And if premium is an issue, I say, “I didn’t come here to create a financial problem, I came here to solve one. So, if you leave here very uncomfortable, I haven’t really done a good job. So here’s what I want you to do. I want you to think about this. Let’s presume we started off with half the monthly benefit. So, we would be deducting x amount of dollars, which is approximately half the premium for half of the benefits. Would that work for you?” If money is still an objection, reach out to the client next year.

I believe you overcome objections before you get objections. And that’s the way I’ve been handling them. I don’t get a lot of objections when I present a policy.

Phillips
As best as I can tell, there are three major objections to income replacement coverage and they’ve been there forever. I won’t get disabled. I have it at work. I can’t afford it.

I won’t get disabled. Well, let’s hope the client doesn’t. But according to the Council on Disability Awareness website (bookmark that page people!), a 20 year old has a One in four chance of a disability before they retire. Now maybe it’s not a career ending disability, but even a disability of a few months can blow out savings and impact a lifestyle. Are chances better or worse of your house burning down? Anecdotally, there’s never been a house fire in my neighborhood, but I’ve got two neighbors on my block alone who’ve been out of work for months now, one involved in a serious auto accident, the other ravaged by cancer.

I have it at work. Great!! Now what is it? How much? What does it cover? Sadly, if you pose that question to most clients they won’t know and the conscientious planner should ask for the client’s benefit booklet to make sure they aren’t short—and many higher income earners are. Most often group LTD benefits are taxable upon receipt and have a monthly maximum. Even a robust plan might leave a mid- to high-level earner with a small percentage of normal take-home pay if they get disabled. Tough to maintain a high income lifestyle when disabled as it is, let alone with a small percentage of pre-disability income.

We’ve also worked with a number of advisors whose clients have described, “I have it at work,” only to have reviewed their coverages and find out their work plan is a short-term disability plan. One that’s built for coverage of just a few months.

I can’t afford it. Many times the client can afford proper coverage, they just don’t want to afford it. This is where a holistic planner has a tremendous advantage, most often knowing the incomes and assets of the client inherently. And, even if one isn’t, some probing questions can give general insight into how much the burden of the DI premium will really be.

It’s important to point out, too, what it really protects. I think subliminally we send the wrong message as an industry to proposed insureds. A 40-year-old client sees a $3,000 premium, let’s say, and $5,000 monthly benefit. Well, to pay $3,000 to get $5,000 doesn’t sound like that great of a deal! But if we help that client understand that it’s $3,000 per year for $60,000 per year of DI benefits with a potential in this case for well over $1.5 million of total payout in a worst case scenario aspect (early disability)—that might carry more of an impact.

All that said, all the gurus, commentators and articles I’ve read say that the upward percentage of gross income a client will pay for a disability income policy is two percent. When running into a situation where an optimum DI plan exceeds that two percent number, consider tailor-making a plan that hovers around that mark. Longer elimination period. Shorter benefit period. Sacrificing policy riders. All can be effective ways to assure the client some protection. In the income replacement market, something truly is better than nothing and a plan that’s inforce at any level can soften the damage to a client’s lifestyle because of an extended sickness or accident.

Schmitz
Ask questions. What is your backup plan for partially surviving an accident or illness that would’ve killed you 20 years ago, but with modern medical technology, you can now survive with a disability? Listen. Most people that do not have DI were never asked.

Petersen
Disability insurance is the most important financial safeguard an income earner can possess. If you were to become disabled and lose your income, how would you pay bills, kids’ school tuition, all other insurance premiums, mortgage, car loans, groceries, etc.? Even medical bills can be paid, provided there is a source of cash flow! Medical insurance does nothing for your living expenses.

Bloch
At our last three DI Days, speakers have discussed their disability claims experience. All have been different and range from a serious car accident, Achilles tendon rupture and subsequent infections, to a physician with shoulder issues. The discussions are far reaching and include financial, family, personal and other considerations. Our producers hear first-hand experience to better understand the personal and business struggles when a disability moment strikes. This experience also allows them to be more comfortable talking about income protection coverage and the importance of a monthly check to replace lost income. By discussing these claims stories with potential prospects, they can overcome many objections. Not all claims experiences were handled positively by some carriers. As a result, we created a Claims Concierge Service to help our policyholders with the claims process.

Q.Many agents deal with high net worth individuals—what advice can you offer to increase sales in the individual and high-income markets?

Phillips
High net worth clients can be dicey to deal with from an income planning standpoint. Fundamentally, we can provide jumbo DI benefits via specialty markets. No issues or problems there.

However, high net worth clients might end up “outrunning the coverage of disability income protection” due to the nature of their business. Disability income insurance is built to “protect your paycheck” to coin the old DIAM slogan. Many high net worth individuals derive a high percentage of their income in passive income vehicles—rents, dividends, etc. Those passive vehicles will continue to generate income regardless of the clients’ health and involvement. Too high of a percentage of such income will lead to insurability issues.

One could argue that a critical illness policy could be offered to such individuals to address certain morbidity exposures. Disability income’s cousin, critical illness, offers a lump sum payout due to diagnosis of many dread diseases, heart attack, stroke, etc. It doesn’t have an earned/passive income criteria to get underwritten.

Schmitz
High earners are the market in CA. Focus on business owners and those who earn over $80,000. In CA, SDI pays up to $5,425 per month. It can be difficult to motivate lower earners when they have this government benefit. Fortunately, there are plenty of high earners out there. When they are married and have children they are the most motivated to protect their earned income, which provides for their family and maintains their lifestyle.

Petersen
Stress that those with higher incomes have more to lose and covering 40 or 50 or 60 percent of their income is not going to provide enough capital to cover the usual expenses of their affluent lifestyles. Those with higher incomes are not sufficiently covered by one, or even sometimes two, layers of DI. High-limit, excess DI is critical for high-net-worth clientele. The purpose of insurance is to keep what you have, not try and liquidate assets to pay for living expenses following a disability.

Bloch
The high-income market is the perfect market to discuss cash flow and tax liabilities. Many group LTD plans do not cover total income either because the stated monthly maximum is low or the plan covers salary only. To add insult to injury, many plans are employer paid and hence any benefits received are taxable. In the situation of high-income individuals, we provide a Group LTD Insurance Benefit and Tax Analysis identifying the net monthly income loss as well as benefit, tax, and health care premium solutions.

Q.What tips can you offer to ease entry into the business DI market?

Cohen
Tip #1: You should know the business products that are available. Companies have designed many different products for business owners. Below are short highlights of some of the business products out there.

Business Overhead Expense (BOE): You may be working with a business owner who has seven or eight employees and the owner is the main thrust of the business. Without him or her, the business isn’t going to function. In this case, you’d talk about a business overhead expense policy.

An overhead expense insurance policy helps insure the business owner’s business expenses if a disability prevents them from working. It can keep the business afloat. And the list of expenses that are covered is quite extensive.

Disability Buy/Sell (also known as Disability Buy-Out Insurance): You may have sold an owner a life insurance policy to fund their buy/sell agreement. Well, you want to ask them, “How are you going to fund your buy/sell agreement for a disability?” Because disability buy-out insurance helps provide funds needed to purchase a totally disabled business owner’s interest. So, you’re using the insurance company —rather than you acting as the insurance company. That product is extremely important. Why don’t more business owners have it? Simple. Because they just don’t know about it. And why don’t they know about it? Because many advisors aren’t bringing it up.

Key Employee Replacement: There may be a situation where you go into an owner’s business and you uncover that there is a key employee. This key employee could even be the owner if he or she doesn’t own more than 50 percent of the business. (There are additional criteria that defines a key employee that you will need to know as well.)

The purpose of a Key Person Replacement insurance policy is to help protect the business from the total disability of an employee who is extremely important to its success. This coverage helps minimize the disruption to a business if it loses a key person. Benefits are paid to the business and can be used as needed to help with new hiring costs, staffing needs and replacing revenue.

Business Loan Protection: When talking to a business owner, he or she may say, “I have a loan. We purchased more equipment.” Or perhaps the owner reveals they’ve purchased another business. Your response is, “How do you fund that loan if you’re disabled? Because I have a product that will help you pay that loan, per underwriting guidelines.”

Tip #2: It’s important to work with an agency like ours that trains, teaches, and helps you get familiar with the products.

Tip #3: So, how do you bring up business disability products to a business owner? You ask questions. Asking questions uncovers the need.

You can ask a small business owner to tell you the longest vacation they’ve ever taken. They may say two or three weeks. Ask them why they don’t take longer. They’ll tell you. They can’t be gone longer. They have to watch their business. They have to make sure everything is done properly.

Tip #4: Where do you get the names? Where do you get the business people? You get clients through referrals. One business owner can refer you to another business owner. Also, look at your book of business. You know who is a business owner.

Cold calling works. A lot of people aren’t calling business owners about disability income protection. You can buy a list of business owners and call them on the phone. Google the business beforehand to get an idea of how many employees the company has. You may have to make several calls before you get one appointment.

Tip #5: What are the types of businesses to seek out when calling about business disability insurance? These business products are needed by all kinds of different small businesses—law firms, medical practices, architectural firms, accounting firms, engineering firms, small manufacturing companies. We have products for the blue-collar business market and white-collar businesses.

Tip #6: So, what do you say to the business owner? Whether you’re talking to a longtime client or to a business owner on a cold call, you say you’d like to make an appointment to go over disability income protection with them.

During the cold call you tell the business owner that you work in the business market with business owners and you work in the area of disability income protection. You let them know that you have a policy that will provide them with an income if they can’t work due to accident or illness.

Business owners have to protect their investment in that business. If that business goes under, employees can get another job. The owner? Well, he or she has a lot more to lose.

Most owners aren’t working 40 hours per week. It’s more like 60 hours per week. Plus, they never take long periods of time off. Without disability income protection, even a short time away from work due to a disability could be devastating to the life of a business.

So, a business owner’s need for disability income protection is great. Business disability protection is going to protect their standard of living. It’s going to protect their investment.

Tip #7: Remember, the owner may have a group LTD policy for his employees. You want to investigate that group LTD policy because that policy may only cover a small portion of the business owner’s income. So, naturally, we’d have to put another policy on top the group LTD policy to protect the owner.

Phillips
The obvious easy strategy is to bring up the concept to any business owners or group benefit relationships one might have. Have group LTD on an account? Look to see where the max benefits of the group LTD plan leave higher income earners short.

If an advisor works in planning for those who own their own business, simply ask if they have benefits at the workplace.

In addition, one of the adages I adhere to is, “You are what you market yourself as.” So a tip to get into the business market is to market yourself as someone who works in the Business DI Market! This might involve networking with benefits agencies, articles in local publications and websites, or even speaking to business organizations or professional insurance and financial planning associations. If you are seen in your market as an authority—if you bring up the concept to those in your sphere of influence, eventually you will be sought out as someone who can implement a strategy for a sound business DI plan (or even personal DI plan).

Schmitz
If you are already a financial, insurance, or benefits advisor, it is imperative to inform your clients about the existence of products that can help them manage the risk to their portfolios which may include business assets. Contact a DI BGA or DI specialist and have them provide you with training on business products. Start with Business Overhead Expense (BOE) to keep the business running, Disability Buy/Sell to buy out your disabled business partner, Loan Indemnification to pay the bank, and Key Person to pay the business when it loses a key person due to a disability.

Petersen
Use IDI sales as door openers. Once you have earned the trust of your personal DI clients, those that own businesses will hopefully be more open to seeing the importance of also protecting their businesses with buy/sell, key person, BOE and loan indemnification insurance. You have successfully protected their families, now ask them for the chance to equally protect their businesses.

Bloch
Many producers are looking for more daytime activity and the business marketplace is the perfect place to start. The DI marketplace needs more producers to discuss disability insurance and cash flow with business owners. The easy way to gain entry is with guarantee issue coverage. This can be through the implementation of a group LTD plan, which only requires two or more employees. In addition, there are specially designed guarantee issue products to supercharge group LTD plans. Business Overhead Expense coverage is also a very easy topic to discuss as well. From this starting point, it will be a normal progression to implement high quality individual protection.

Know Before You Present DI

Part One: Need Motivates Action

You have the perfect client for disability insurance, but for some reason the client chose not to protect his income. On your way back to the office from the appointment, you review what happened over and over in your head. Here you had a healthy, 40-year-old attorney making about $200,000, with two young children, a spouse who doesn’t work, and no group LTD coverage. You just placed a 20-year term for $2,000,000 and reviewed the disability insurance quote you brought with you to the appointment. You delivered the term insurance and then brought out the DI quote and placed it on the table as you talked about the product. The preferred- plus life insurance premium was about $600 per year and the disability quote was about $3,000 for $7,000 per month of coverage. You explained the coverage like a pro and started to fill out the application when the client suddenly told you he was going to take a pass on the disability insurance. On the way back to the office you think…that didn’t make any sense. What could I have done differently?

There are four basic objections in a buying decision, for really any product—insurance, cars, washing machines, and even your next meal: Need, Price, Confidence, Hurry. Walk through your decision process on buying a pair of pants. Price: Does the price justify the cost of the pants? If you really like them and they are the perfect fit and not too expensive, then sure. Need: You lost weight and none of your pants fit you…you need some new pants. Confidence: You pick up a pair of Levi’s pre-shrunk, probably confident they will hold up better than the no name brand that is on the discount rack. Hurry: You need new pants and you found the ones you like. If you put them back, someone else may buy them. Now, create a scenario where one of these items outweighs the others. For example, you fly off to a business meeting and the airline loses your luggage and you have important meetings the next two days. Now need and hurry may outweigh price and confidence. Another example is if you rented a car and on the way back to the airport you need to fill it up with gas, but there’s so much traffic you don’t want to stop because you may miss your flight. You know the car rental company is going to charge you extra to replace the gas, but you need to make your flight and are willing to pay the higher gas price so that you have peace of mind that you’ll make your flight.

Let’s get back to insurance. Need motivates action. Never start with the illustration of a disability product and never throw a spreadsheet in front of a client. Of course, you’ll get to the case design and premium, but first you need to learn about the client’s needs. Start with asking questions and listening. Ask your client, “What is the longest vacation you’ve taken in the last five years?” Most likely your client will say two weeks or less. Your reaction, “That sounds like a nice vacation, why didn’t you extend it or take another week or two?” More likely your client will say, “Well I had to get back to work.” Which leads you to say, “Walk me through what would happen if you couldn’t get back to work due to an extended sickness or couldn’t work again due to an accident.” Concentrate on the need and plan. Have your client visualize a bridge and on that bridge is all their monthly obligations: Mortgage, food, education, cars, utility bills—essentially the monthly budget. Now visualize what is holding up that bridge…the client’s paycheck.

What is the value of the paycheck? Well that’s obvious, right? $200,000 per year. Nope. For your client age 40 making $200,000 per year…and say he continues to make at least that much the next 25 years…that’s a value of $5,000,000 of earnings over the next 25 years. Would you insure a machine that would produce $5,000,000?

Let’s say that your client indicates that he has a couple million in savings and investments and therefore doesn’t need disability insurance. We are seeing more applications on older clients than we’ve seen in the past. Think about it: Interest rates are so low these days that it’s difficult for a fixed income client to survive on the proceeds of their investments. You may say, “But my client has averaged six percent with my investment strategies.” Then you have to ask yourself, what is the risk profile of a client who may never work again? Usually a working, young “risk-taker” client, that goes on to become disabled, changes to a fixed income “risk-averse” client. Therefore, even clients with a higher net worth need some disability insurance.

We’ll finish by asking you a question. If a client can no longer work, becoming completely disabled, then that client becomes similar to a client who is retiring. How many of your clients have gone from “needing to work” to “working for pleasure?” We are guessing not too many. Most of these “needing to work” clients need disability insurance in some form.

GSI: Guaranteed Standard Issue Individual Disability Insurance—A Guaranteed Great Option!

One of the most intriguing markets within the individual disability insurance landscape is the Guaranteed Standard Issue (GSI) marketplace. This marketplace is vast and has various applications based on the insurance company, occupation, and existing coverage. In addition, there are different ways to approach this market depending on whether the case will be mandatory enrollment or a voluntary enrollment.

While there can be various reasons to recommend GSI disability insurance, one of the most popular is to supplement group disability insurance. To many producers in our industry, group disability is known as long term disability or LTD, while an individual disability policy is known as IDI. When an advisor is quoting group disability insurance (LTD), it’s not unusual to have multiple classes of employees. Take for example an accounting firm of 40 employees comprised of five partners, 15 accountants and 20 support staff. When setting up the LTD plan the advisor may recommend the firm cover 60 percent of the employees’ income up to a maximum payout of $10,000 per month. So, everyone would have a benefit of 60 percent to a cap of $10,000 per month. This means that if any one of the employees or accountants has an income greater than $200,000, then that individual would have a maximum of $10,000 per month of coverage, but their income percentage ratio would be much less than the 60 percent. For example, if each of the non-partner accountants were making $400,000, their percentage of coverage would be as follows: $400,000 of annual income equals $33,333 of monthly income; $10,000/$33,333 = 30 percent income replacement. Let’s expand on our example and look at the partners. If each partner also makes $400,000, and has a $250,000 non-passive dividend income passed through to them at the end of the year, each partner is making $650,000 of total earned income. $650,000 per year equals $54,167 of monthly income. So, the income replacement percentage is even lower at 18.67 percent ($10,000/$54,167= 18.67 percent).

Let’s take even a closer look at this example. The accounting firm is owned by the five partners, who typically would also be the accountants with the most clients. In addition, there are 15 more accountants who work with the firm’s clients and conduct the accounting work that needs to get done. The rest of the firm provides important customer support functions, but typically are not the skilled professionals who drive revenue to the firm. Yet, based on the nature of the group plan maximum monthly benefit limit cap, the percentage of income replacement for the primary revenue generators is about 19 percent to 30 percent. It may be possible to increase the group cap to a higher amount, but there is only so much a group company typically is willing to offer. Therefore, at a certain LTD monthly maximum cap, there will be a number of high-income earners who will not be able to participate to the same income replacement percentage as the other employees.

Individual disability insurance (IDI) may be able to bridge the gap and provide additional coverage on top of the group coverage. Yet, if any one of these primary revenue earners has any underwriting issues, they may not be able to obtain the additional coverage. Some IDI companies will offer coverage on a Guaranteed Standard Issue basis (GSI) if there are enough lives. The greater number of eligible lives, the higher the monthly benefit an IDI company will typically issue. If you look at the accounting firm example, there may be an IDI company that would be willing to issue up to a 75 percent replacement ratio, not to exceed $10,000 of Guaranteed Standard Issue coverage, assuming all 15 accountants participated in the offering. In this example, these important revenue earners would have a plan of $10,000 per month of group coverage and then $10,000 of individual coverage. Therefore, the income replacement ratio has been greatly improved. Depending on the IDI company, and the size and occupation of the group, it may be possible to offer even more coverage on the GSI offering—such as adding additional monthly benefits for catastrophic disabilities and cost of living riders.

There are many factors to consider when contemplating offering a GSI plan in addition to LTD group coverage. Items to discuss with your case designer include, but are not limited to: Mandatory versus voluntary GSI plans, employer-paid versus employee-paid programs, the occupation or mix of occupations contemplating coverage, available riders, bundled discounts and the availability of customized programs. 

Surprise! A Separate DI Product Dedicated For Retirement Planning.

One of the cornerstones of financial planning is creating a plan that makes use of the client contributing money to some type of account that may or may not make use of some type of qualified plan. There are many different types of qualified plans that an advisor can design in the course of planning. While each planner may have a different preference for various types of plans, one thing that they all have in common is that there need to be deposits or contributions made. When a client is working, the approach is fairly obvious regardless of the plan. The challenge for the planner is if the client can’t work due to an injury or sickness.

By now we hope you are reviewing with your clients their game plan if the client can’t work and is disabled due to an extended sickness, extended recovery time from a disabling accident, or complete lack of recovery. When buying regular disability insurance, the client can obtain a policy that can provide a monthly income. In most cases, the disability insurance monthly benefit will help your client pay for some, but rarely all, their expenses. This is especially true with health insurance having large deductibles and copays, not to mention the increase in most clients’ monthly expenses in general. A client who doesn’t have a personal disability insurance policy, or plan to address this issue, can be a liability to themselves and the planner.

I’m sure many of you have had conversations with clients that, in order for them to reach their financial planning goals, they need to save more money! Even for your wealthy, cash flow heavy clients, what would happen to their plan if their income stopped due to an extended sickness or injury? When cash flow stops, almost all clients go into financial lockdown and re-evaluate their budgets.

In financial planning, knowing when and how a client wants to retire is an essential part of the planning process. Does the discussion extend into how a client is going to fund the retirement plan if the person gets disabled and can’t work? There are a few companies that have a product that can help to support the plan you developed.

There are different names for the product, but essentially the goal of this type of DI product is to work above and beyond the regular individual disability insurance. This product’s main function is to not provide current income to the disabled client, but to replace, supplement, or create monthly deposits into a dedicated account that can be used at a certain future retirement age. Since the products may vary based on the company, it’s important to work with the company or MGA on the details of how the product may work.

One popular product in the market will deposit up to $4,500 per month (over $50,00 a year) into a special account that can be invested. When the disabled client turns age 65 or age 67, the funds would be available to the disabled client. If a client is no longer disabled for a certain period of time before the end of the benefit period, or there are certain hardships, there may be the availability to have the funds released earlier. Of course, please read the specimen contract and review the details with the company or MGA. Also of note is that the monthly deposits are typically put into a non-qualified account by the insurance company. The tax treatment of these policies and benefits should be reviewed as well by the planner and the tax advisor.

Another feature of these policies is that there can be more flexibility in the participation limits. In some cases this policy can be obtained without the company taking into account the individual disability insurance limits. This means that if you have a client who has already purchased all the traditional individual disability insurance, they may still be able to obtain this additional policy.

If you work in the retirement planning marketplace, this is a disability product that may be an essential part of planning for your clients. Ask yourself, “If my client can’t work, will the financial plan I developed still be able to be fulfilled?” Most likely the answer will be no, and that’s why these products have been developed. What insurance products have you recommended in the plans you developed for your client?

The Keys To Key Person DI

In planning, one of the most overlooked product needs is key-person disability insurance. The product need is as significant as key-person life insurance, but doesn’t get sold as often. The reason would appear to be a lack of awareness as opposed to a lack of need. The amount of key-person life insurance applications we see are far greater than the key-person DI applications, yet the need is very similar. In addition, the rate of disabilities (morbidity rates) far outweigh the mortality rates for almost all classes and segments that you can stratify of working adults. The majority of smaller type businesses have a few “key” go-to people who support the business and are the drivers of growth. Think about most of your clients who own and operate a business. This can be a professional firm, manufacturing firm, service firm or retail sales firm. They’re all going to have a few key employees.

Using a bell curve appraisal management system to evaluate the types of employees who work in a firm, there tends to be a general pattern that appears. The breakdown tends to fall under three categories: High performers, average or satisfactory performers, and your non-performers. Everyone can have their own criteria of categories, but you should get a general idea. Typically, firms find that the high performers make up about 20 percent or so of the firm, while 70 percent fall into the satisfactory range, and 10 percent tend to be your non-performers. What makes the high performers so good? These tend to be the leaders in the organization. These are the drivers who make that business unique or special. Most business owners can identify those top employees who make their firm so successful.

Ask your business owner clients: Who are the top people in your business who would be the hardest to replace? Who in the firm has special talents? Who in the firm brings in the most business? Who in the firm do you most regret taking an extended vacation? These are all key people to the business. Of course, some may be more key than others, but these 20 percent are usually the core of most small businesses. The more niche the business or industry, the longer it tends to take to find a replacement and the longer it can take to train someone for that unique position.

So now, what would happen if one of these key employees would go on an extended leave due to an injury or sickness, or never come back to work? The whole firm can be affected in morale, income, productivity and net profit to the owners. A key-person DI policy can help provide needed funds to the business that can help offset various types of expenses, some that can be obvious and some not so obvious. Funds to:

  • Help offset costs associated with recruiting a new employee, especially if the industry or business is very niche. The cost of an executive search agency can be exorbitant. In addition, signing bonuses, moving costs, and other recruiting costs may need to be incurred in order to find that “right” person.
  • Help pay for overtime or bonuses that need to be paid to other employees who have to do additional job duties besides their own.
  • Help offset some of the dedicated fixed expenses or infrastructure expenses that the key person required to perform their job, such as secretaries, office space, car leases, and other fixed expenses.
  • Help offset the cost of lost or spoiled inventory that couldn’t be sold due to the key person’s absence.
  • Help offset the lost revenue of clients who were served by the key employee and no longer seek the services of the firm since the loss of the key employee.
  • Help protect the owners from lost net income due to any or all of the above expenses and risks.

Also, with some carriers, it may be possible to insure the owners, assuming that they own 50 percent or less of the company. Therefore, if there are multiple owners of a smaller percentage, such as a law firm or CPA firm, it may be possible to insure the key owners as well. Of course, depending on the company, there can be various underwriting requirements and other criteria needed to obtain a policy. So the next time you are working with clients who own a business, be sure to take a deeper look at key-person disability insurance.

The Name Game Of Own Occupation Definitions: What’s In Your Policy?

It’s imperative to understand the definition of total disability and how it can relate to a client’s current occupation. Disability policies come in all different shapes, sizes, and definitions, so you always need to read your client’s policy or the proposal you may be showing. Even better, read the specimen contract of the policy you are proposing. We would like to give you a brief overview of some of the more common definitions of total disability that we’ve seen throughout the years.

Definition of Occupation: It’s important to recognize that for most companies, when defining occupation in terms of a disability contract, the definition of occupation may be more generic in nature for some companies and contracts. For example, someone who teaches high school math may not be seen as a high school “math teacher,” but just as a teacher. Someone who sells cars or mattresses may not be considered a car salesperson or mattress salesperson, but just a salesperson. These are important distinctions that tie into definitions of total disability in DI and LTD policies.

Definition of disability: With many insurance companies there are different definitions of disability along with the naming of these definitions. Please note that this is intended to be a more generic view of many of these definitions. We’d urge you to obtain clarification on whatever product you may be presenting. We’ll be using some generic names of these definitions to help illustrate these differences, so please consult the company you are presenting to clarify the definition(s). In addition, each company may vary in what definitions are offered based on state, product, and occupational rate class.

In general, we’ve seen five different definitions of total disability, but as stated above, companies can differ in the names and definitions. Most would appear to adhere to something similar to the following: Suitability, Own Occupation—not engaged, Own Occupation, Specialty Own Occupation, and Transitional Own Occupation. Sometimes companies will label the last four as just “Own Occupation” so it’s important to read the definition that is being quoted and presented to your client. Please note some companies also require a loss of income in addition to the inability to be able to work. These definitions and riders may determine if and how a claim gets paid, so it’s important to know and recognize the differences.

The Suitability definition: Many times this is defined as the insured being unable to perform the material and substantial duties of the insured’s occupation and not having the ability to perform another occupation that the insured is suitable for based on their prior education, background, experience, and (sometimes) prior income. At times, this definition can be restrictive because the insuring company has more flexibility to contemplate if an insured has the ability to work and if that work would be suitable for the insured to perform. We’ve often seen this definition in policies designed for higher risk occupations, but we’ve seen some variation on a wide range of policies as well.

Own Occupation—not engaged: In addition to the definition above, we’ve seen this definition used as a base definition for various contracts. It’s usually defined as: Due to an accident or sickness, can the insured perform the material and substantial duties of their occupation and is not engaged in any occupation for wage or profit. This is a typical definition in many contracts designed for higher income earners. This may be added by rider to enhance the base definition on some individual and group contracts. The problem is that some professionals and companies label this definition as their Own Occupation definition as well. Since there is not uniformity in the industry, labels can cause some confusion.

Own Occupation: This is the classic definition that may allow the insured to work in another occupation and still be able to collect from the disability policy. The definition tends to read something similar to: Due to a sickness or injury, the insured is unable to perform the material and substantial duties of his or her own occupation. This is why understanding how the insurance company defines occupation is important. For example, consider a high-end retail shoe salesperson who can no longer sell shoes due to a back and knee injury. So, he gets a new job working in a high-end men’s suit store, selling suits. Can this person go on claim and be paid as being totally disabled? Many, if not most, companies would not consider a retail salesperson going from shoe sales to suit sales as someone who is totally disabled as the person is still in retail sales. A better example of this definition in practice would be a dentist who develops progressive MS and can no longer practice dentistry. Now the dentist becomes a licensed social worker counseling people who have medical issues like MS. While we can’t speculate on any individual claim, in general, this most likely would be a claim in which the person could no longer perform their occupation as defined by the insurance company, but could still perform work in another occupation. This person should be able to collect total disability benefits with out integrating the income from the new occupation.

Specialty Own Occupation: Depending on the company, this definition would typically expand on the definition above, recognizing specific medical and dental specialties as a policyholder’s occupation. Some companies even recognize classes of attorneys, such as trial attorneys. Some of these highly trained professionals may desire a disability product that would have a definition of total disability that would read something similar to: Unable to perform the material and substantial duties of your occupation at the time of claim. If your occupation is a board certified recognized specialty, then the company will recognize that specialty as your occupation. For example, a board certified surgeon can no longer operate due to a severe back injury and retrains to become a psychiatrist. Even though this person is still a practicing physician, the specialty own occupation definition may still allow the insured to qualify for benefits under the total disability specialty own occupation provision. You would want to check with the insurance company regarding the contract and whether the proposal you’re showing your professional client is covered in their specialty.

Transitional Own Occupation: This is a hybrid definition we do not see too often. It usually will combine an own occupation definition with an own occupation—not engaged definition. For example, let’s consider a client who becomes disabled, no longer able to work in her career as a real estate agent. So, she becomes a computer consultant. With the Transitional Own Occupation definition, she may be allowed to keep her computer consulting income from being integrated until her income reaches a certain percentage of her pre-disability income. When the income from the new occupation exceeds the policy’s income threshold then the person is no longer eligible for claim. Again, there may be variations of Transitional Own Occupation.

A word about residual. We’ve been addressing total disability definitions. We would always recommend a residual definition be put on the policy, assuming it’s an available rider. A residual rider may allow for more flexibility when an insured does not qualify for a total disability claim.

While this information may seem daunting at first, most companies only have a few definitions to learn. In addition, an experienced MGA may be able to offer you assistance with training and case design recommendations. So what’s in your policy?

DIAM—Awareness To Action In Three Steps

May is Disability Insurance Awareness Month and by reading this you have now been made aware that DIAM is here. So, what is your action plan? Do you have one? Most likely not, so where does one even start?

Step 1: Get inspired! Read and educate yourself so that you can inspire your clients to take action. The Council for Disability Awareness has some great independent facts, figures, stories and a plethora of material to inspire. Their website is www.disabilitycanhappen.org. America’s Disability Counter is fascinating as much as it is scary—to watch the numbers change before your eyes. Each flip of the numbers represents more disabilities statistically occurring. Did you know that, at the beginning of April, over 1 million working-age Americans will have experienced a disabling injury or illness this year? Visit the site today and see what number the counter has hit. These disabled individuals may have a long road ahead of them. Hopefully they had a financial planner like you who checked all boxes of the plan and made sure their client had the opportunity to buy disability insurance. Also, go to www.lifehappens.org and check out their Real Life Stories videos. Watch as many videos as you can and hear the anguish of the people who have become disabled. Many of them had advisors who helped them secure disability insurance before they had a claim.

Step 2: Take action to insure yourself. If you work for a company that gives you group disability insurance (LTD), have it reviewed by an experienced disability insurance focused MGA. It’s always very generous for an employer to provide group LTD, but these policies have many limitations, including benefits being taxable, and have caps on the benefits. If you are independent and do not have group LTD, then you want to take action and buy your own policy. Those who own can recommend to their clients with conviction the need for coverage. In addition, when you personally go through the application and approval process, you can better share your experience with your client. When a client asks you, “Do you own disability insurance?” what’s going to be your answer?

Step 3: Learn the basics of pre-qualifying a client. While every client who is still in their working years is a candidate for disability insurance, there are some who are better than others. There may be products and case design options for almost every client. The marketplace for disability insurance is vast and spans from traditional product to surplus lines products. With that being said, there tends to be a sweet spot that we see more often.

Income: The higher the income, the more expenses and obligations your clients may have committed themselves to uphold. If they can no longer work, what is their strategy to keep their and/or their family’s lifestyle? Have you talked to these clients about how they would want their portfolio managed if they were incapacitated? If you had to work with your client’s spouse or family due to your client’s disability, what would be your client’s wishes? Has this been discussed? What positions would they want you to sell in order to pay for daily living expenses?

Occupation: Many times, a client’s occupation will give him direct or indirect exposure to individuals who have experienced medical issues and disabilities. These clients have many times seen the devastating effects that a disability can have on people and their families. Occupations such as physicians, dentists, nurses, pharmacists, chiropractors, podiatrists, psychologists, hospital administration, and lawyers just to name a few, experience helping people every day who have been disabled from sickness or accidents. Many times these professionals have seen the devastating effects of disabilities and want to protect themselves.

Health: While money pays the premiums, a person’s good health is what allows them to obtain traditional disability insurance.

Believe in yourself. It’s not about the sale, but about awareness and education. You are here to solve a financial problem your client has developed. Ask yourself: “What is the longest vacation you’ve ever taken?” Most likely it was less than two weeks, as you had to get back to work. This is the same for your clients. So, what is your disability insurance action plan for DIAM?