Eugene Cohen

One of our regional sales VPs for a disability company would always start out his meeting by saying:  “You’ve got to ask to get when it comes to disability insurance.  Many times, discussing disability insurance is obvious.  When developing a financial plan, it’s obvious that a discussion of how your client’s income would continue if they could not work should be part of that planning process.  Many advisors work with clients on insurance planning, but are not considered their financial planner.   It’s during many of those conversations that the disability insurance conversation can and should happen.     

Life Insurance Planners
The need for disability insurance can be similar to and as important as the need for life insurance.  

Income Replacement: Many times the amount of life insurance recommended is based on the income of the primary income earner.  There are various formulas to recommend the face amount of insurance, but a popular one is to simply to use 10 to 20 times income.   We all know that the likelihood of being disabled is greater than that of dying during the primary income earning years.  During the life insurance income replacement conversation comes a great opportunity to discuss disability insurance.  Sometimes a life insurance planner may wait until the life insurance is approved and then discuss disability insurance.   Those planners prefer this method, as they know that their client is insurable and thus feel more comfortable discussing the disability insurance products.   

Business Buy-Sell Life Insurance: Many times the buy-sell agreement will not only contain a provision for death, but also will have a provision for disability.  When this is missed or not addressed, your clients may have an unfunded liability that can cause an issue at a later date.   Disability buyout (DBO) is a wide open market, as many brokers forget to address this part of a buy-sell agreement.   Asking for a copy of the buy-sell agreement can help you to identify when this product is needed.  

Business Loans: When a client needs life insurance for a business loan, many times they are an owner of the business.  In any business there are expenses that need to be paid regardless of whether the owner is working or not.   Business overhead expense (BOE) coverage is an essential product for many small businesses.   

Property and Casualty Brokers
Some of our most successful disability insurance producers are actually brokers that focus primarily in property and casualty and have the proper state licenses to discuss life and health products.  

Personal lines—new home coverage:  When a client seeks out P&C insurance for a new home, asking about the life and disability insurance is a natural follow up question.   Buying a new home or upgrading the home is a life event that triggers the need to discuss disability coverage or a review of current policies to see if current coverage is still adequate.

Personal lines—car insurance for children or luxury cars:   When a client calls in and wants to put his child on his car insurance, this is another life event moment.   When a child is able to obtain a driver’s license, you know that college planning may be the next big financial decision for the family.  A review of the primary income earner’s life insurance and disability insurance is essential.   A client may have bought disability insurance when they first got married or first bought a home.   When a child is old enough to drive is a good indicator that a review of life and disability insurance coverage is due.  For many clients, their incomes over the past 16 plus years has greatly increased, yet, many have not increased their life insurance or disability insurance.  Also, when a client wants to insure a luxury car can be a nice indicator that their income has increased and that their life and disability coverage should be reviewed.   

Commercial lines coverage for a new building or equipment:  When a business client is requesting protection to cover the loss of recently acquired assets, this could be a good time to ask about BOE coverage.  When a small business owner or practitioner can’t work, the expenses of the business still need to be paid.  Asking your client if they own a business overhead expense policy can lead into a discussion about planning for a disability.   BOE coverage can provide reimbursement for certain qualified expenses and can help retain certain employees during a time of the business owner’s  disability.   

Employee Benefit (EB) Brokers
When working with a business on employee benefits, the concentration is often on health insurance and other group insurance products.   EB brokers have a great advantage, as many times their work involves consultation on group disability insurance (LTD) and working with key executives and/or the business owner(s).   The group disability insurance may not cover the high income earner’s full income.   For example, if the group coverage is designed to be 60 percent to a cap of $15,000 per month, those earning more then $300,000 will be capped out.  If an owner/executive has a salary of $450,000, plus an annual bonus of $200,000 or a pass through non-passive income of $200,000, the percentage of income replacement is much less than 60 percent.  An individual disability policy can help to equalize the coverage of the executive(s). These key members that run the firm and provide its leadership should have benefits equal to or greater than the employees they help to support.  If this inequity is not addressed, then the leaders of the firm may not have benefits of equal weight.   In addition, if the amount of key members exceed a certain amount, usually five to 10, it may be possible to get guaranteed issue individual disability insurance (GSI plans).  

Remember, you have to A-S-K to G-E-T.  More important,  you want to make sure your clients have the coverage to protect themselves and their families.  We hear about disabilities occurring to people every week.  Let’s make sure their incomes are protected so that they can concentrate on getting back to good health. 

You may have noticed that words are chosen very carefully in our insurance world.  If you review the language of any insurance policy, you’ll see that companies are quite deliberate with their use of language. 

There have been many articles written and studies conducted that have suggested that consumers, not familiar with our industry, misunderstand the term “disability insurance” (DI) until it’s explained to them by their advisor.   

There are various ways to describe disability insurance and we know that the name, in itself, can’t be changed, so that is why we focus on what disability insurance can do for our clients.  Of course, each policy is different and a client needs to be eligible for claim based on the contract that was bought. In addition, a disability policy may not replace someone’s income in full as there are issue limits and so forth.   But, when a client does qualify for a claim, that policy can be their financial lifeline to help them get through some tough times.  

Concentrating on ways that disability payments can help is another way to explain the importance of this product.   Dis-Ability, or lack of ability to work, also causes a lack of ability to earn money to pay for our monthly expenses.    

Let’s take a look at some “abilities” payments that a disability claim may help a client pay, partially or in full:    

• The ability to continue paying monthly mortgage payments—which gives the client the ability to continue living in their home.
• The ability to pay property taxes, homeowner’s insurance and monthly homeowner’s dues.
• The ability to pay for common regular utilities and other expenses such as a cell phone, internet service, cable TV, home gas, electric service.
•  The ability to pay for their required medical treatment(s), personalized health care (home care, respite care) and personal upkeep (haircuts, nail care, beauty care products, cosmetics).
• The ability to pay insurance premiums (car, home, medical, life, LTCI).   Note: Most individual disability insurance policies have waiver of premium benefit.
• Emergency repairs or unexpected medical expenses that need to be done (car, home, pets, family members, dental expenses). 
• Emergency travel to see a sick relative or a funeral.
• The ability to pay for basic home maintenance such as landscaping, snow plowing, house cleaning and extra costs that may be incurred in order to live in a house designed for someone that’s disabled. 
• The ability to help pay for a child’s education (private schools and/or college). 
• The ability to continue to pay credit cards or other debt that was incurred before the disability occurred such as college loans your client has been paying.   
• The ability to have some relief that money will continue to be received while on claim.  The mental stress caused by financial pressures can be a challenge for even healthy clients.   
• The ability to provide for one’s family, such as:  Music lessons, gymnastics, school supplies, new school clothes, shoes, food, medical care, Boy Scouts, Girl Scouts, Little League, school tutors, test preparation classes, swimming lessons, ballet, religious school, summer camp, etc.
• The ability to have cars:  Car payments, car insurance premiums, gas, car registration, repairs and maintenance.
• The ability to maintain dignity and pride that the provider can still provide in some capacity.  The ability to not feel that they made a mistake by not insuring themselves and becoming a possible financial burden on family and friends.
• The ability to watch their savings be maintained instead of being possibly depleted by not having insurance. 

What would you add to the list?   

Everything starts with you, the advisor.  Educate your clients on the need for disability insurance.  What’s your client’s plan?  Take a few minutes to walk through how that conversation will flow with your client, client’s spouse, or your client’s adult children.

When discussing individual disability insurance (IDI) products with a prospective client, you could share many real-life examples of how IDI policies have protected families from financial ruin. 

For example, from the website www.lifehappens.org, there's the story of Dr. Valerie King, a single mother with three young daughters. After Dr. King had a series of surgeries to treat her ulcerative colitis, she found herself disabled and unable to do the work she loved. Fortunately, years earlier, Dr. King was protected with the IDI coverage she unexpectedly now needed—ensuring a bright financial future for her young family.

What about the IDI policy owners who never had to make a claim?  How have they benefited from their IDI policy?  Has their money been well spent?  As you know, an insurance company has to manage it so that there are more people that never make a claim than those that will. 

So, let's consider an incredibly important benefit every IDI policyholder enjoys—whether they make a claim or not—the benefit of peace of mind. This psychological benefit pays every minute of every day the policy is in force.  From personal experience, this is a benefit that can't be underestimated.

Over the years we seen clients use their policies, but we’ve seen more not use them.   Thankfully, we’ve never needed to make a disability claim on our policies.  For all of us though, we’ve received tremendous benefit in knowing the policy was available and actively protecting our income.   That knowledge has been priceless to us and all of the policyholders that have bought disability income protection.    

Conversely, we dread to think how we would have felt if we had been disabled and we did not have IDI coverage. The psychological toll would certainly have been as devastating as the financial toll—perhaps even more so. 

In life we have all kinds of safety nets in place like DI products. These safety nets may never be used, but they regularly give us that priceless benefit of…peace of mind. 

If someone skydives they usually have a backup parachute, which you’d think would be vitally important.  While rarely used they do have substantial value.  If you have a client that enjoys cruises, could you imagine paying less for a cruise without lifeboats?  Would one even consider taking a cruise if there were no life vests or lifeboats attached?   Would you buy a car without airbags or safety belts?  These are worthwhile investments and wouldn’t even be contemplated by most clients.   

While we have never jumped out of an airplane, we certainly would not skydive without a backup safety parachute. We do take cruises and we drive all over the country. Knowing there are airbags in our cars makes us feel safe—as do the lifeboats on the cruise ship. They allow us to travel with peace of mind. Knowing we are doing our best to protect ourselves puts us at ease. We are more relaxed.  We personally value the feeling of knowing that we have prepared for the unpredictable—the feeling of being able to do as much as we can, ahead of time, to prevent something tragic.    

Taking the cruise and car analogy further, if someone offered you a discount cruise on a ship that had no life vests or lifeboats, would you board that boat to save money? How about if someone offered you a discount on a car without airbags and other safety equipment? Would you take the deal? Better yet, would you put your children or spouse on that cheaper boat or in that less expensive car? 

Disability insurance products give responsible, successful, caring clients the incredible opportunity to protect their incomes from stopping and the devastating effects that can have on their families.   Yes, the financial benefits of IDI protection will be there if needed but, whether a claim is made or not, peace of mind will always be there for the life of the policy. 

Value perceived can influence  the buying decision for many clients. We were always taught the miracle of insurance: That you can pay pennies for the potential dollars received.  When we present life insurance, we talk about the annual premium for the total death benefit received.  Say, for example, we have a 40 year old who is being presented $1 million of 20 year term insurance for about $600 per year.  The value…$600 for $1 million is pretty clear value.   It’s the pennies for dollars classic example.   

Now take the same 40 year old and who is being presented disability insurance.   Say the illustration shows that he can buy $5,000 per month of coverage, payable to age 67, for a premium of $2,000 per year.  This is the way disability insurance is typically presented, and for some consumers this presentation does not emphasize the true value of the policy. These policies are so valuable that it’s important that the presentation doesn’t de-emphasize the true value.   Think about it, we are presenting a monthly benefit and quoting an annual premium.   

So what is the potential monetary value of that disability policy?   If the 40 year old above gets disabled a year and a half after buying the policy, so that the elimination period is satisfied on the 42nd birthday,  the yearly payment could be $5,000 a month, times 12…or $60,000 a year.  If the disability lasted to age 67, then that could be 25 years of payments, or approximately $1,500,000.   So that $2,000 per year in premium would have the potential to be as much as $60,000 per year or, depending on when the claim starts and the elimination period is satisfied, $1.5 million…which brings us to the pennies for dollars.  

Now, the actual total payout would be based on the client’s age at the time of claim, elimination period, and benefit period.   Also, if a policy has an automatic increase, cost of living rider, catastrophic disability or other riders, then the total payout can be even higher.   For example, if that 40 year old also bought a $10,000 a month catastrophic disability rider then a qualifying claim could potentially triple the payout amount.  $5,000 per month base benefit + $10,000 per month of catastrophic disability would be $15,000 per month x 12 months x 25 years—up to $4,500,000 of payout.  Again, the actual payout would be based on the elimination period and age at claim.  

If you look carefully at many of the company provided illustrations, you may be able to find the total potential payout.   We have found that some companies will calculate the potential payout based on the base policy only and some will calculate the total potential payout by taking into account the catastrophic disability rider and/or the cost of living rider (COLA).    

Make sure to emphasize to your client the potential annual benefit and potential total benefit of the contract.   In describing the monthly benefit, it may also help to quote the premium in a monthly amount as well.  Having aligned dollar amounts and units can help clients understand the true value better than misaligned dollar amounts.   

The miracle of insurance is that a client can transfer risk for fractions of the true cost of replacement.   The ratio of premium to potential payout needs to be identified for your client so that the real value can be presented correctly.   The miracle of insurance…paying pennies for dollars.

The month of May is Disability Insurance Awareness Month and it is a great time to reach out to new, old and prospective clients about their disability insurance planning.  It’s also a time to review your personal planning.  What’s your plan?  How are you going to protect your paycheck and your client’s paycheck this month?  

Take Inventory
When was the last time you did a disability insurance inventory for all your clients?   Reaching out and making sure you know the coverage they have is important  Peoples lives are constantly changing and making sure their coverage is up to date is important. What you’ll find is that most of your clients do not own disability insurance. This gives you a great opportunity to discuss their plan if their paycheck stops. What is their paycheck protection program if a sickness or injury keeps them out of work for an extended period of time?   Recently, we were talking to a dentist who was talking about his personal claim.  He said he bought some coverage in his 40s, but it wasn’t until a different agent asked to review his coverage years later that he felt under covered and bought more disability insurance.  

Plant Seeds
Take this month to add a link to your email signature about disability awareness by going to http://disabilitycanhappen.org or https://www.lifehappens.org/awareness-campaigns. Both of these organizations have incredible awareness pieces that can be used in dozens of marketing scenarios.  Get the word out.   

Ask Your Clients Questions
Individual disability insurance questions:  Tell me, what is your plan if you can’t work?   What is the longest vacation you’ve taken and why did you come back to work? If today was your last day of work and you had to survive on your savings, how long would you last?  Walk me through how you and your family would cope.

Business overhead expense questions:    If you were told you couldn’t work for one to two years, will you be able to pay  all of your office expenses?  How would that affect your personal savings?   How many of your employees could you let go and then rehire once you are ready to go back to work?   How much and long is your office lease and what other business loans do you have?

Disability buy-out questions: Does your partnership agreement have a disability clause? When was the last time you reviewed your partnership agreement?   

Set Goals and start in May
How many clients have you helped to protect their paychecks?  How many conversations have you had?   Set a goal to have at least one conversation per day about disability insurance planning. The more conversations you have with your clients, the more awareness you will create with yourself. It starts with you. Have the conversation every day. If you have clients, then it’s a fair question, “What type of planning have you done if you can’t work?”

Whenever you drive by a car accident or hear about someone getting ill, say a prayer for their well-being, think good thoughts for them and their families, and hope that they worked with someone like you to protect their income. People that can’t work due to an extended illness or injuries from an accident  have so much on their plate—and hopefully an income problem is not one of them.  

At the end of the day,  Disability Insurance Awareness Month starts with you.   When you are relaxing during the Memorial Day weekend and you look back at the month of May, will you be satisfied when you reflect on your DIAM efforts?

For many advisors, life insurance recommendations will come before disability insurance is recommended. There are countless reasons to advise clients to buy life insurance, from accumulation to estate planning to income replacement…dozens of reasons.  When discussing life insurance with clients that are either single with no children or married with dual incomes, but still no children, the overt need for life insurance may not resonate with these clients.    As advisors we can recite emphatically the reasons these clients should buy life insurance, but the ultimate decision rests with our clients.  

We find that more times than not, for these clients, disability insurance tends resonate more consistently.  The facts are there… One out of four individuals in the workforce will become disabled for 90 days are longer before turning age 65.    In a meeting we just attended, an advisor stood up and stated:  “I have an easier time discussing disability insurance to my younger clients, that do not have kids, then talking about life insurance.  A disability can affect them personally as opposed to passing away.” 

The Market
We can make the argument that everyone who works needs disability insurance. There’s no doubt about it.   We find though that certain markets have a tendency to buy more frequently than others. The buying plane tends to follow a trajectory with one’s income. This is not to say that the need is any less in the lower income markets, nor to say there are not products that can be designed for the lower income markets.   It’s more of a function of affordability and comfort for a client to buy disability insurance in addition to their other fixed monthly expenses. You want to create a list of your clients/prospects and then rank them by the estimated Income, highest to lowest.  Then list their occupations next to the estimated income.   We tend to see a higher buying response when you have clients that have higher incomes ($75,000+)—they are self-employed or a professional (accountant, attorney, dentist, physician, etc.) and are between ages 30 and 55.   There are clients that are outside of these parameters that make great disability cases.  In addition, many clients outside these parameters have tremendous need for disability insurance as well.     

Understanding the nature of fixed expenses
If you accomplish anything in your discussion about income protection, it’s important to have your client understand and acknowledge that there are fixed expenses that need to be paid every month.   Fixed monthly expenses are an interesting topic as most clients, regardless of income, have some similar fixed expenses.  The utility companies, grocery store, car insurance company, and many other expenses are not a function of income, but of usage.   Therefore, if you had your client run through their monthly fixed budget, it’s very hard to find one less than 2,500 a month. Depending on the geographical area, the average may be much higher—closer to $4,000 a month or more.     You can find a monthly budget calculator on websites like Life Happens (www.lifehappens.org) or the Council for Disability Awareness (www.disabilitycanhappen.org).

The best way to do this exercise is to start with yourself.   What is your monthly fixed budget?   I’m guessing it’s more than $4,000 or  $5,000 a month, and probably much more.  

Once your client understands their fixed expenses and the necessity to have these paid every month, regardless of whether someone works or not, it becomes easier for them to understand why people buy insurance to protect their income.   It’s up to you how you present this product.  The natural method for many advisors is not what we find to be the most successful method.  

Start with need—why other clients buy this product. Discuss why we all work, concentrate on the fixed expenses we need to pay every month, and then move to the products. There are many individual disability insurance products in the marketplace, but a client has to understand the need first and why this product is such an important planning tool.  

Your success in this market starts with you.