Michael Cohen

With the help of Victor Cohen, this is part of our ongoing series with Eugene Cohen, founder of the Eugene Cohen Insurance Agency, Inc., 2009 Honoree International DI Society W. Harold Petersen Lifetime Achievement Award, 2015 Honoree of NAILBA’s Douglas Mooers Award for Excellence.

From time to time, we will feature an interview with Eugene, who has dedicated over 60 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their incomes from the tragic effects of a disability.

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

Victor: I’ve heard you say that every client falls under one of four categories when it comes to individual disability insurance.

Eugene: That’s right, Victor. And by identifying which category your DI client falls under, the producer can tailor make the way they discuss DI with that client.

Victor: So, let’s talk about category number one.

Eugene: This is the client who doesn’t have any disability income protection insurance at all. No individual DI. No Group LTD.

With this first type of client, I ask myself, why don’t they have DI? This client could be a 45-year-old owner of an accounting firm…or maybe the client is a 28-year-old W-2 engineer.

Could it be that no producer has ever approached this type of client about DI? Or could it be that this client was approached in the past but did not see the need for DI?

Victor: How does the producer discuss DI with this type of client?

Eugene: We have to get the client to understand the need for disability income protection. How do we do that? We ask questions.

Victor: What are some of the questions you’ve personally found to be the most effective?

Eugene: I’d ask the client, “How important is your earned income?” The client will usually say their income is extremely important to them. Then I’d ask, “If you were sick or hurt for a long period of time, what are you doing to protect that earned income?” The producer can then remind the client that this type of insurance will protect a portion of the client’s income.

Another question to ask is, “If you had a money machine producing X amount of dollars every month, would you insure it?” The client quickly responds, yes, as if the answer is obvious. The producer can then point out that the client is that money machine and there is a DI policy to protect it.

One more question to ask is, “What is your greatest asset? Is it your home? Your car? Or your future income?” In most cases it’s the individual’s future income—it’s their ability to earn an income. We need to protect that.

Victor: I know that you’ve had disability income protection insurance throughout your entire career. And I love how you talk about a DI policy.

Eugene: I have considered that DI policy to be my “silent business partner.” If I were disabled due to a sickness or an accident, that policy would pay a portion of my income if I had a qualified claim.

Victor: That’s such a great way to look at an individual disability insurance policy.

Eugene: Having your client think of a DI policy as their personal silent business partner often resonates with the client. It helps them see the need for this very important product.

Victor: Let’s talk about the second type of DI client you have identified.

Eugene: This is the individual who says, “I am well taken care of, I have Group coverage through my employer. I don’t also need an individual DI policy.”

Victor: How do you respond to that?

Eugene: Ask questions. If the individual is a high-income earner, they may also need an individual disability insurance policy.

Victor: How common would you say that is—a client having a Group LTD policy through their employer and also having an individual disability insurance policy?

Eugene: Extremely common. But it almost always takes a producer to point out the need for the individual disability insurance policy.

While having Group LTD is certainly a nice start, for most clients it’s often just not enough. For example, let’s say your client is an attorney earning $400,000 per year and they have Group LTD through their employer.

The first question I would ask the client is what percentage of their income is covered by that Group LTD policy. Let’s presume they say 60 percent.

Then I would ask what the monthly benefit cap is that the Group LTD policy pays. In this example, let’s say the monthly benefit cap is $15,000 per month.

So, with the client earning $400,000 annually, and their Group LTD policy premium being employer paid, and the benefit paying 60 percent of income, with a max monthly benefit cap of $15,000, the client may be eligible to also have an individual DI policy with a monthly benefit of $11,000 to perhaps $11,500 or so—depending on the individual DI company’s issue and participation limits.

Remember, being that the Group LTD premium in our example is employer-paid, the Group LTD benefit may likely be taxable—shrinking that Group LTD monthly benefit to an actual lower after-tax monthly benefit.

Depending on an individual’s income and the details of their Group LTD, sometimes, by layering a DI policy on top of that Group LTD policy, we may be able to add an additional monthly benefit of $5,000, $10,000, $20,000 or more. And if the client pays their individual DI policy premium with after tax dollars the IDI policy benefit may be tax free.

Victor: In addition to perhaps being under-insured by having only a Group LTD policy, there are often other limitations with many group policies.

Eugene: That’s right. For example, a Group LTD policy is often not portable. Let’s say your client is working at a company where the client gets Group LTD and eventually the client changes jobs, moving to a company where Group LTD is not offered. If the client didn’t have an existing individual DI policy, they’d probably want to apply for one.

But what if the client is uninsurable and unable to medically qualify for a new DI policy? Or, what if the client has health issues that will be excluded on a new DI policy, that would not have been excluded had the policy been purchased years ago when the client did not have those health issues?

The client, of course, would have been in a much better situation had they purchased an IDI policy when they were healthy—long before they lost their Group LTD.

Also, with many individual DI policies, the policyholder may be able to obtain additional future coverage with no medical underwriting, depending on the client’s age and other policy provisions when the policy was issued.

Victor: Let’s talk about that third category of DI clients.

Eugene: These are the clients who say, “I am well taken care of. I have an individual disability insurance policy. I’m all good.”

Always ask to review the client’s policy. You want to see how long ago they purchased it. You may be surprised!

I ran into an individual who said that at age 32 he bought his first DI policy with a monthly benefit of $5,000—insuring himself in his own occupation as a doctor of dentistry. He was paying his premium with after-tax dollars so the benefit would be tax free.

Then, 19 years later, the dentist purchased a second DI policy with an additional $5,000 monthly benefit. Naturally, the individual’s income dramatically increased from age 32 to 51.

Look how many years had passed before another agent reviewed this client’s DI policy.

So, guess what happened to this individual at age 53? He had a stroke in his right eye and could no longer work in his regular occupation as a dentist. He was considered totally disabled.

Producers need to periodically review their client’s individual disability insurance policy. As income increases, the need for additional DI also often increases.

Victor: And with this type of client, you typically don’t suggest replacing an existing DI policy with a new one.

Eugene: That’s right. For many reasons, layering a new DI policy on top of an existing DI policy is typically in the client’s best interest instead of replacing that original policy.

Victor: Tell me about the fourth and final type of DI client, please.

Eugene: This is the individual who says, “I have Group LTD coverage through my employer and I have an individual disability insurance policy, so I have both policies. I am in great shape.”

If you’ve determined the client is adequately insured after reviewing the client’s Group LTD and individual DI policy (or policies), then plan on doing another DI review with the client next year. A client’s income and DI needs can quickly change over the course of just one year.

Victor: Before we wrap up our conversation for today, thank you as always for sharing your insights and experience. Is there anything else you would like to add?

Eugene: Thank you, Victor. Always a pleasure. There is another unique DI client we have not discussed who I think is important to identify. This client could fall under any of the four categories we just discussed. This is the DI client who is a business owner.

There are very specific, important business DI products that business owners often unknowingly need.

For example, if disabled with a qualified claim, there is a disability business owner expense (BOE) product that would cover many of the business owner’s qualified small business expenses like rent, utilities, and support staff. This is a reimbursement policy.

There is also a disability business loan policy designed to cover a business owner’s loan payments if the owner were disabled with a qualified claim.

What if the business owner client has a key employee critical to the owner’s business? The business owner may want a key person DI policy that would pay the owner’s business a benefit if the key person were disabled with a qualified claim.

Finally, let’s say your business-owner client has a business partner and each partner owns 50 percent of the business. Do they have a buy and sell agreement? They may have funded it with a life insurance policy, paying if one of the partners were to die.

What if one of the partners does not pass away but is instead disabled for a long period of time? Let’s say more than a year. The other partner is going to likely want to buy them out.

Where is that money coming from? Is the remaining owner going to borrow money from a bank to buy out the disabled partner? Is the remaining owner going to sell part of the business to raise money? Is the remaining owner going to buy out the disabled partner with future company profit? Typically, the best way to handle this situation, if possible, would be to fund the buyout with a disability buyout policy.

As you can see, there are many opportunities to protect business owners.

This past August was my (Michael’s) 34th anniversary of working with producers who offer disability insurance. Eugene Cohen has over 60 years of experience, so there’s always been a lot of talk about insurance over the decades in the Cohen household. Especially about the need for disability insurance.

Which brings us to a somewhat recent family event where my daughter and I got into an adult conversation. My oldest daughter is 24 years old and on a career path full of exciting new adventures. The conversation was so engaging that I just had to write about it.

“Dad, I’m being offered something called disability insurance at my new job and wanted to get your opinion,” my daughter said to me, as I was trying to choose which type of Chicago style pizza to have for dinner. Oh the joy of having a child ask me something that I can spend all day talking about. After filling my plate with some local goodness, we found a place in the house where we could eat and chat about the reasons that one buys disability insurance.

It’s funny to think about all the things you want to teach your children and certain insurance you should buy is definitely on the list. We’ve been told that it’s a blessing to teach your children good manners, to respect others, excel in school, how to eat well and take care of yourself. We teach them how to drive, make sure they know how to swim and what to do in emergency situations. At what point do we sit down and teach them about insurance products they really need to buy to protect themselves and their loved ones?

Financial education in life is a topic that appears to be sporadically taught throughout the country. Our local high school has a class that students have a choice to take while they are seniors in high school. The class talks about how to set up a budget, how to pay bills, how to be a financial adult when you are 18+ and out of high school. Unfortunately, insurance planning isn’t in the scope of the class education as it’s hardly discussed. This means that most young people will likely get their initial information from a Google search engine, TikTok, Instagram, YouTube. or from some other online platform. As professionals, we need to make sure our children are well taught about insurance.

There are over a million licensed insurance producers, with most probably having children and grandchildren. Of these million licensed insurance producers, they have millions of clients that they’ve helped plan for retirement and other life’s goals. Of those millions of clients, they have millions of children that also need financial education. We hear that there is concern among financial planners of what happens to their AUM when their client passes? Will the next generation continue with the same financial advisor? There are many factors that go into that decision-making process, but much of it has to do with the producer’s relationships with the next generation.

When was the last time you talked to your children about what you do and why you do it? Have you told your children about the largest claim that ran though your business? What about the claim that made you feel the best when it got paid? You know, that claim that you knew changed someone’s life financially or saved their business? Doesn’t matter the product or product line, we all have them in our memory banks. Feel proud of what we do every day and share it with your children and the children of your clients.

Then we need to lead by example. We need to share the planning that we did to protect our cars, our homes, and our incomes and retirement. Being able to teach our children these products is essential for their protection. Eventually they will be the leaders of our communities, businesses, and hosting the family events.

So yes, my daughter was engaged for the first 30 minutes of “why disability insurance is so important.” Why I had bought disability insurance around her age. How I was concerned that if something happened to me, I didn’t want to move back into my parents’ home. As much as I love my parents and had just a wonderful childhood, at 24 I didn’t want to move back to the suburbs of Chicago if I couldn’t work due to an accident or sickness. How, even at a young age, I had bills and expenses that I’ve obligated myself to pay and if I couldn’t work those bills still needed to be paid. I was on a roll with the insurance talk and then we got interrupted with the calls to help sing Happy Birthday…

With the help of Victor Cohen, this is part of our ongoing series with Eugene Cohen, founder of the Eugene Cohen Insurance Agency, Inc., 2009 Honoree International DI Society W. Harold Petersen Lifetime Achievement Award, 2015 Honoree of NAILBA’s Douglas Mooers Award for Excellence.

From time to time, we will feature an interview with Eugene, who has dedicated over 60 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their incomes from the tragic effects of a disability.

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

Victor: I have often heard you say that you believe one of the most important responsibilities a producer has is to help their client see the need for disability income protection insurance (DI).

Eugene: Yes, that’s right. While some DI clients, like physicians, may often immediately see the need for disability insurance, there are many clients who do not. If the client does not recognize the need for DI, of course, they either will not apply for coverage or the producer may have a difficult time placing the policy.

Victor: In our previous conversations, you have shared that there are typically four objections a producer may face when discussing DI, or really any product, with a client. “No Hurry,” “No Money,” “No Confidence” and “No Need.”

Eugene: Correct. And the “No Need Objection” is the most important objection the producer must overcome because once the client sees the need for DI, other objections that may exist almost always melt away. When a client understands and accepts they need the product, then the need turns into “want” of the product being discussed.

Victor: Over the decades of working with thousands of producers and clients, have you found any specific ways for clients to discover the need for DI?

Eugene: Yes…it’s by asking questions. Asking questions always helps the client to uncover the need. It’s great to see the light bulb turn on.

Victor: What are some questions you suggest producers ask?

Eugene: A great first question to ask the client is, “How important to you is your earned income?” Naturally, most clients will say, “Extremely important.”

Then the producer will follow-up and ask, “What have you done to protect your income if you were to have a serious accident or illness that disabled you for many years?”

If the client says they have saved money, I will ask them, “How much have you saved? What if you could never work again?”

Many hopes and dreams are based on future earned income. Earned income is the foundation of any financial plan.

Another great question to ask a client is, “What is your most valuable asset?” It’s interesting to hear the responses. As we know, in most cases, the client’s most valuable asset is future income.

A client may say, “I’m well taken care of, I have short-term disability through my employer.” Short-term coverage can be important but it’s like insuring the first five minutes of a fire. Many disabilities may disable an individual for years. Parkinson’s, Multiple Sclerosis…the medical dictionary is filled with examples of long, potentially career-ending disabilities.

By asking, “What’s going to happen after being disabled six months,” the client can often better see the important need for long-term disability coverage.

If an individual is disabled for a long period of time without disability insurance, three things will typically happen. First, their cash savings will start to disappear. Then, second, they’ll have to start going into their retirement funds to make ends meet. At a certain point they may not be able to meet their mortgage payments, medical bills, credit card payments and the other obligations we all have to pay to maintain our standard of living.

Victor: So, without adequate DI coverage, the client is not only dealing with the physical and emotional challenges of having a career-ending disability but they are also dealing with the devastating consequences of possible financial ruin.

Eugene: Correct. And for many clients that is perhaps avoidable. That’s why having individual long-term disability insurance is so important. The policy is designed to pay a portion of the client’s income to cover many of those fixed financial obligations that many of us have, such as a monthly mortgage or rent payment, utilities, car payments, groceries, etc.

Victor: So, what if a client says, “I’m well taken care of, Eugene. I have group long-term disability (LTD) insurance from my employer. I don’t need an individual DI policy.”

Eugene: It’s time for the producer to ask more questions. Let’s say a client with group long-term disability is an employee with an annual income of $300,000.

I would ask them, “Does your Group LTD pay a percentage of your monthly income up to a monthly benefit cap?”

After examining the client’s group LTD policy, let’s say it pays a monthly benefit of 60 percent of income up to a monthly benefit cap of $10,000.

My next question will be, “Is your employer paying the premium or are you paying the premium?” In most cases, we see the employer is paying the premium. Then I let the client know that their policy benefits may be taxable.

This means the after-tax monthly benefit may only be approximately 60 percent, 70 percent or 80 percent of what the client thought they would be getting per month. Naturally, if the group LTD premium is being paid by the client with after-tax dollars, that benefit may end up not being taxable.

Some other questions I will ask are, “How long will your group LTD coverage pay you and are you familiar with the conditions that may be considered limited duration claims?” I will also ask, “Is the policy portable–meaning if you leave your employment, can you take that policy with you?” Typically, most group policies are not portable.

These are important questions because many times the client is not aware of the answers. As clients learn from the answers to these questions, they start to realize that group LTD is a nice benefit to have, but it often has shortcomings.

I will then ask the client, “Do you feel it would be a good idea to own your own disability coverage?” The client will most likely see the need and want to apply for an individual DI policy right away.

I will then check with the individual disability insurance companies to see how much additional monthly benefit I can layer on top of the client’s group policy.

Remember. The client is applying for an individual disability insurance policy not because I told them to apply. They are applying for DI because, by answering a series of important questions, they have organically uncovered their need for DI.

Victor: Asking questions can help a client see the need not for just individual disability insurance but also for other important disability insurance products, right?

Eugene: Asking questions is the key to helping clients see the need for all of the different, fantastic disability insurance products that are available to clients.

Let’s say a producer is doing a financial review with two partners who own a business. During the financial review, the producer asks about the partnership agreement and sees the partners have a buy/sell agreement. The producer suggests life insurance to fund that buy/sell agreement or make sure if they have a policy, to have it reviewed. The producer recognizes that there may be an unfunded liability and exposure the partners have created.

The producer then asks, “If one of you has a long-term disability that lasts more than one year, how will you buy your partner out? Will you use business revenues? Or will you obtain a loan? Or will you sell shares of the business to raise capital?”

These are very important questions the business owners may never have considered until now.

You can then say, “There is a disability product that can fund that buy/sell agreement for disability. That product is called disability buyout insurance. I will get an illustration to show you.”

Victor: Business owners tend to have many unique disability insurance needs.

Eugene: Yes, and by asking very specific, laser-focused questions, the producer can help business owners see those disability insurance needs.

When talking with a client who owns a business, I will first ask questions to learn all about the client’s business. And from the client’s answers, I will ask questions that guide the business owner to discover the need for certain disability business products the client may not have been aware existed. Helping a business owner limit their financial risk if a qualifying disability would occur is incredibly satisfying.

For example, I might learn that the client has a valuable high-level manager who has been with the client’s company for many years. I may ask, “That manager is important to your operation, wouldn’t you agree? Would you say that they are a key employee? If this individual were disabled and could not work in your operation, how would that affect your organization?”

After the client shares the many hurdles their company would perhaps face if that key person were to leave the company due to a serious disability, I will say, “Others have the same concerns and that’s why there is something called a Key Person Replacement policy specifically for a disability. It is designed to protect your business if a key employee were seriously disabled for a long period of time.” I will then put together illustrations to review with the client in a follow-up meeting.

Victor: This has been another excellent conversation, Eugene. I could talk with you all afternoon. Unfortunately, we have to wrap things up in a minute. But before we go, what questions do you suggest a producer ask a business owner client to help them see the need for business owner expense disability insurance?

Eugene: Let’s say you have a client who owns a small advertising agency with five team members that support a well-known business owner…and the client already has an individual disability insurance policy protecting their personal income with a benefit period to age 67.
Because this client is specifically a business owner, I will ask, “What are your business expenses such as rent, utilities, phone bills, employee salaries?” After the client responds, I will ask, “If you were to have a disability, these expenses will still have to be paid, correct? How are you going to cover these business expenses if disabled?”

After the business owner sees they would be facing additional financial pressure from the business, in addition to managing a health issue, and in addition to their own personal expenses, we’ll introduce the BOE policy concept. There could be a problem trying to keep their business afloat if they were to be seriously disabled and not working. I will say: “There is something called a Business Overhead Expense disability insurance policy specifically for small business owners. After a 30-day or 90-day waiting period–whatever you apply for, you can get a monthly benefit to reimburse your qualified monthly business expenses for perhaps one year or two years, depending on the benefit period you choose for your policy.

“The policy premium that you pay may perhaps be tax deductible. If you deduct the premium, then the benefit coming in would then perhaps be taxable. But when you pay the expenses going out, those expenses may be tax deductible. I think this policy would help protect your business because you may want to go back to your business after being disabled a year or two. You want to make sure that business is still open.”

Victor, my whole career I have been talking about uncovering the need by asking questions. These are only just a few of questions a producer can ask. I look forward to us talking again soon. Thank you.

Victor: Thank you, Eugene.

A Different Lens On Disability Insurance Needs

Aging sales producers and advisers are like fine wine. The years of experience increase the knowledge and character of the producer that transcends into providing amazing, cogent advice. The longtime producer has the ability to distill personal events and experiences they’ve seen and can share them in the form of stories. Some stories are really obvious and others may be these close calls where any of our products were almost needed.

As you progress through your career accumulating professional and life experiences, you start to see more and more of those close calls. What do we mean by a close call? It’s the “what if” that many of us may play in our heads. For example, a friend of yours, in her 50’s, is still trying to recover from long-covid. Her family has been supportive, but there are a lot of “what ifs” that are being privately discussed. Then there’s the, “Did you hear about so and so’s spouse? Cancer.” Of course, we lend a sympathetic ear, say prayers, and personally help the person and/or family as much as possible.

This phenomenon seems to be more common as we get older. Probably starting in the 30’s you may hear the rare story here and there…then a little more in your 40’s and then it seems to really start hitting in your 50’s and even more in your 60’s. It’s knowing people that are getting sick, going to doctor appointments, taking medications, talking about their ailments…or hearing about a friend of a friend or acquaintance’s recent bad news and possibly their future fight for survival. It’s heart wrenching when we think about it and can keep us up at night. They are the type of thing that can take your mood from great to miserable in a few minutes.

Many of these are not so much about specific Disability Insurance claims, but the almost-claims or could-have-been-a-claim scenarios. What if they don’t get better? What if they need to retire from work so they can have more energy to fight the fight cancer can require? What if that MS diagnosis starts to get more aggressive? What if that back issue gets worse and worse and surgery is going to be needed? You’ve probably heard the stories and thought about these issues as well.

This is why we have disability insurance—so that we can protect our backsides. We can protect ourselves from the “what if” scenarios. DI can help provide some comfort in an otherwise very emotional and most likely, financially tough, months, years, or even decades.

What type of coverage do your clients have? Many of our clients are not only business relationships, but personal relationships as well. What stories have you heard recently of a friend, a family member, or a co-worker being diagnosed with a condition that makes you send prayer emojis?

As you inherently know, what allows someone the privilege of buying an individual disability policy is their good health. Once someone is diagnosed with a serious medical condition, they may not be able to get an individual policy or get one that is as comprehensive, and without exclusions, as when applying with that condition.

It’s sort of ironic, that when you really want something like a disability policy, it may be unattainable due to your health. When your client is healthy, they may be on the fence. But if they don’t get a DI policy today, they may never be able to get a policy again. If not today, when… when they are sick or hurt from an accident…doesn’t work that way.

So beginning today, if you don’t do this already, perhaps add a disability insurance policy review to all of your client appointments. A few things will happen. Client Reaction #1 could be—“I don’t know what that is, please tell me more.” Or Client Reaction #2 could be—“I think I have something at work,” in which case, you need to know if that is short term DI, long term DI, and/or something that actually isn’t disability insurance or something that is minimal? Or you may get Client Reaction #3—“I have a policy that I think is sufficient, but willing to have you take a look at it.”

But if you don’t ask, you will have no idea…unless you possibly get a call about a “what if” scenario. But this time, it could be your client asking the question, “What type of coverage do I have if I can’t work? I was just diagnosed with “X.”

With the help of Victor Cohen, this is part of our ongoing series with Eugene Cohen, founder of the Eugene Cohen Insurance Agency, Inc., 2009 Honoree International DI Society W. Harold Petersen Lifetime Achievement Award, 2015 Honoree of NAILBA’s Douglas Mooers Award for Excellence.

From time to time we will feature an interview with Eugene, who has dedicated over 60 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their incomes from the tragic effects of a disability.

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

Victor: May is a very important month.

Eugene: That’s right. It’s Disability Insurance Awareness Month, which is a great time for advisors to review their clients’ disability insurance needs.

Disability income protection insurance is the best kept secret. Most clients know that life insurance is very important. Car insurance is mandated in almost all the states and is extremely important. In order to get a mortgage, most lenders require that the house is insured. Even without a mortgage, insuring the home is also a must.

I have been involved in the offering of disability insurance for many years. I’ve served clients as a producer, a general agent and regional manager for a company and eventually as an MGA/wholesaler. I’ve never felt more strongly about the importance of a product and have made it my life’s work.

When a client makes the decision to buy an individual disability insurance policy, it’s like hiring a silent business partner. When a client’s income is shattered due to an extended sickness or attempt to recover from an accident and they qualify for a claim, it’s amazing to see how these policies work.

As a producer, I felt so strongly about the product that I carried a lot of disability income protection insurance myself. The reason was that in my own mind, having a DI policy was like having a parachute. I always felt that it was better to have it and not need it…than to need it and not have it.

Victor: I really appreciate how you see disability insurance protection as a vital component of asset protection.

Eugene: It’s so true…imagine one’s future earnings as the most valuable asset your client owns. Let’s say you have an executive who is 45 years old. They have a major accident or are diagnosed with a slowly disabling disease like MS or ALS. They may not be able to work for the next 20 years. If their disability lasts for 20 plus years and this individual was earning $250,000 per year with no raises, then that individual’s disability could cost the client and family potentially over $4,000,000.

The producer needs to recognize this and show the client how to insure a portion of that income. Depending on this individual’s occupation class, they may be able to obtain an individual DI policy with a monthly benefit of approximately $11,000. If that policy premium is paid with after tax dollars, the benefits may be tax free.

Some producers recognize that inflation can really play havoc for those on a fixed income or on a long term disability claim. The planner may recommend that the individual’s DI policy have a special rider called a “Cost of Living Adjustment Rider” (COLA). After this person’s first year of being disabled, their policy’s COLA rider should allow their monthly benefit for the second year to increase. Usually, these riders will use the previous year’s consumer price index and have a cap, but policies may vary. Let’s say the rider continues to allow for increases in future years, also based on the consumer price index. If we experience more inflation, like we have in the past few years, then the total benefit over those twenty years could be significantly higher.

Victor: So, let’s talk about the best way a producer may help their client see the need for disability insurance.

Eugene: When reviewing your client’s insurance needs, ask your client probing questions. They need to start thinking about how they would plan for themselves and their family that’s relying on their income.

Ask, “If you had a money machine that was producing $100,000 per year or $200,000, $300,000 per year, you would want to insure that money machine, right?”

Victor: Definitely.

Eugene: Here’s another question to ask your client to help them discover the need for DI. “How long did it take you to accumulate the assets you have put away? How long has it taken to accumulate your savings?”

After the client answers, then ask, “Walk me through how your finances would work if you had a disability that prevented you from working? Everyone takes sick days here and there. If your sick days never stopped, and if you were disabled for a long period of time, say five, ten years, or even permanently, all the way to 65, how long would it take for your assets to slowly dissipate?” Disability income protection can help protect your assets.

Have you ever looked at a medical dictionary? It’s filled with descriptions of sicknesses that can potentially disable an individual. Multiple Sclerosis, Parkinsons, heart problems, muscular skeletal issues, and of course there are those unexpected accidents…we don’t’ plan on getting seriously ill or having an accident. But we can certainly plan on how we would take care of ourselves financially if something were to happen.

Victor: I know that it’s very important for producers to help clients become aware of the need for individual disability insurance—even if they have Group DI from work.

Eugene: Group Long Term Disability (LTD) insurance is often a great start, but the way that most LTD policies are built, they have limitations that clients may not even know existed. Your clients with higher incomes can usually afford to supplement with an individual policy that they own and is portable.

As an advisor, let’s say you’re reviewing your client’s DI. You see the client has Group LTD and the client says, “The Group LTD is all I need. I’m taken care of. I’m good.” That may not be true.

Take a client of yours that earns $300,000 per year or $25,000 per month. In this example, the client’s Group LTD policy states that 60 percent of the client’s monthly income is covered up to a $10,000 per month cap. If the employer is paying the premium and doesn’t include the cost of coverage in the employee’s income, the benefits may be taxable. After taxes, the client may actually be receiving a true net after taxes monthly benefit of $7,000 or perhaps $8,000. In addition, group contracts are usually built with language in order to protect the insurance company but can create limitations in the policy that most clients don’t know exist.

Taking into account the client’s income and their Group LTD benefits, this client may be financially eligible to add a new individual disability insurance policy on top of their existing Group LTD policy.

That new policy may perhaps pay an additional $9,000 per month disability benefit in addition to their group benefit, assuming the disability qualified for both policies. In some cases, the individual policy may pay a claim or pay a claim for a longer period of time than the Group LTD. The amount of additional coverage will depend on the individual disability insurance company’s issue and participation limits for that client’s occupational class. Also, don’t forget, the client’s individual disability policy should be paid with after tax dollars, so that benefit may perhaps even be tax free.

Victor: You had recommended that a producer watch Real Life Stories from Life Happens. I was really moved watching those videos of real people talking about real claims. Such a valuable tool for a producer.

Eugene: Those videos are so incredibly impactful and another reason why I think lifehappens.org is a fantastic website. This is a consumer website that points out the need for many insurance products—disability income protection insurance, life insurance, long term care insurance, annuities.

The videos on the site allow stories to be heard and felt. You can see and feel the value of disability insurance with these videos.
You’ll find Travis Guthman’s story on lifehappens.org. Have you seen Travis’ video?

Victor: Yes, I have. It’s very powerful.

Eugene: Travis and his wife, Wendy, moved their family and their six young kids to a small town where Travis grew up. Travis and Wendy had the opportunity to buy Travis’ grandparents’ farmhouse and made that their home.

Travis opened up a pizzeria in town as he loved making pizza and making people happy. His new business was doing well. His financial advisor recommended to Travis that he should have disability income protection insurance and Travis luckily followed the advice and bought a policy.

One day Travis was driving through town and somebody sent him a text. Though he knew better, he became distracted and Travis took his eyes off the road and the next thing you know, he crashed into the concrete footing of a narrow bridge.

The accident was just horrific. The injuries were so bad that it has taken Travis almost two years and multiple surgeries to regain the ability to walk again, and that’s with the support of a leg brace.

During this time, Travis hasn’t been able to work. Travis says his family would have lost the pizzeria if it hadn’t been for his disability insurance.

That disability insurance has allowed Travis and Wendy to continue paying their ongoing household bills and business expenses.
Travis says, “I didn’t have to pull money out of the restaurant to live on; instead, I could continue paying the employees and keep things running.” Travis shares, “Without disability insurance we would have been in a world of hurt. You think it will never happen to you, until it does. Disability insurance has been a huge blessing for our family.”

Victor: Travis’ story really shows the need for DI.

Eugene: It’s so impactful and, at the end of the day, it all started with the producer. Without that producer making Travis aware of disability insurance and how important it was for him to have, as you can imagine, Travis’ story would have been much different.

Travis’ experience has also given him a new purpose in life, in which he visits high schools and shows students his accident and all of the trauma he went through. Travis also gives students tools to stay off their phone when they drive.

Victor: Before we wrap up our conversation here, let’s talk about Scott Rider’s story, as his video is also on lifehappens.org.

Eugene: Every producer and their clients also need to see Scott’s video. Scott loved running and was extremely good at it. In college he was a three-time Big Ten champion and a two-time All American.

At 47, Scott noticed one day when he was running that his toes started to restrict. He went to the doctor and it didn’t take long for them to diagnose Scott with Parkinson’s Disease.

Before Parkinson’s Disease, Scott worked 30 years as a financial advisor to individuals and small business owners.

The day Scott was diagnosed with Parkinson’s Disease, Scott says in the video, “I knew right there my life was going to change forever.”

Scott says, “I understood early on that my income was my most valuable asset and I wanted to protect it through disability insurance. It’s expensive to live and those bills just keep coming.”

Being a planner himself, Scott had practiced what he preaches. Scott had group disability insurance provided by his employer and Scott knew that his group disability insurance would not be enough. So, he also acquired individual disability insurance. Again, he was aware of what it would financially take to keep his life going if he were to become disabled.

Scott says that thanks to disability insurance, he and his family did not have to financially suffer. He says, “And without disability insurance, I don’t think I could have afforded my daughter’s wedding. I wouldn’t have money saved for retirement.” He goes on to say, “I am so incredibly grateful that my income continues and makes life possible for my family. It would look so different without disability insurance.”

Victor: Eugene, as always, thank you for sharing your insights and decades of experience in the DI world.

Eugene: Thank you, Victor. During Disability Insurance Awareness Month, we encourage producers to make clients aware of these disability insurance products that are designed to protect their income. The small business owner, the executive, blue collar workers…the need is there. The producer just needs to make the client aware.

I ask the producers reading this: If your client were to become disabled, what story would your client be telling? As a producer, you get to help write the story.

You have clients that need individual disability insurance. They are employees, they are professionals, they are self-employed, they are your clients and, most importantly, when sick days become sick months and then sick years they are most likely going to have financial issues. We know this part is true for most of the clients you work with every day, some may be relatives, some will be friends and neighbors as well.

So, you have a client that makes $50,000, another makes $100,000, a third is making $300,000 and another is making $500,000. You tell your client that you can get them 60 percent of their income for individual disability insurance…or so you thought. Let’s use these clients to better understand income replacement ratios with individual disability insurance. Of course, we have a really simple way of knowing how much can be issued by just plugging the numbers into the software program the company provides. Easy enough, right? Even with modern technology, we still need to know some basics in order to even use the software.

“Just get me the quote for 60 percent of their income,” we sometimes hear. Anyone can run illustrations, but when the company will not issue the policy for the benefit amount that what was applied for it will be harder for a producer to place a policy. First, you need to realize that each company has issue limits that may vary based on a client’s income, occupational class, health underwriting rating, and other existing disability insurance coverage. The monthly benefit a company will offer is based on income and there will be maximums the underwriter must calculate and confirm before issue. While it’s possible that the benefit amount will be 60 percent, it’s usually more by coincidence. Okay, for those more experienced, we know there are some ways on the individual side to get 60 percent plus, but let’s put that aside for now and we’ll address this later in the article. Let’s focus on that attorney or veterinarian making $300,000 per year and needs an individual disability policy. Or perhaps it’s a social worker earning $50,000 or $100,000…or maybe the surgeon or periodontist that’s making $500,000….etc.

There’s going to be a few steps to figure out how much a company may offer in coverage. If you want a rule of thumb, we tend to find that with many of the companies, at $100,000 of annual income you’ll see about 60 percent of income being offered. The income replacement charts for incomes less than $100,000 will trend higher than 60 percent. The flip side occurs for incomes over $100,000, as the percentage will trend lower for these higher incomes. In fact, as the income gets higher and higher, the percentage that a company will replace will get lower and lower.

In addition, we need to account for a few other things for the software to figure out the amount that can be offered. We need to know how much individual and group coverage (if any) that the client has as well. When calculating how much a company will allow to be issued, they need to consider how much coverage is already in force. This is because if someone has a qualifying disability, they can end up being overinsured. We call this part of the underwriting the Participation Limits. Essentially, if a client has multiple sources of disability income insurance, regardless of group or individual, we need to know this in order to run the quote properly. The question will be on the application, so better to find out ahead of time. It’s not fun to take an application just to find out it’s been declined due to having too much disability insurance. Yes, your client can be declined based on the financial underwriting.

Every company has “Issue” and “Participation” limits that need to be followed. We talk a lot about income, but income can mean different things to different people. When ordering an initial quote for individual disability insurance, we need to know the earned income before taxes. For a regular W-2 employee, this can be pretty straightforward, as you can just ask your client for their W-2 income and if they have any other coverage in force. The mistake producers will make is not being clear enough to those that have some or full ownership of their business. This is where a client may provide the gross income, which is usually not what their taxes would be based on. Let’s take a closer look at this part, as it’s a very common issue that we see weekly.

To make it easy, it is best to find out the client’s earned income for the last two years to include W-2 and/or K-1, or their Schedule C income from the business that they are actively engaged in. If your client has substantial bonuses, commissions, and/or passthrough income that have some swings, the underwriter may need to use an average income. Note, the underwriter will be looking for income that is defined as non-passive income as opposed to passive income. Passive income or unearned income is income from investments, royalties, trusts, or other types of income that are generated without your client actively at work. Most companies will ignore a certain amount or percentage of passive income, but this will vary company by company. When a company does include passive income, it’s treated similarly as another disability policy is handled and would reduce the amount of coverage a company can offer.

Why does a company spend so much time on the financial underwriting? When someone on claim ends up receiving as much after-tax income as they would have working full time, then, in theory, there may not be a financial incentive for one to want to go back to work. The purpose of the disability policy is not to create a retirement for someone, but to allow someone with a qualifying disability to pay, at a minimum, their fixed monthly expenses.

Okay, real quick. When can someone get 60 percent of their income covered regardless of their income…well…most incomes? There are a few ways that we’ve seen this occur. The first is by adding a catastrophic disability rider to a traditional individual disability quote. Think of a claim where someone needs a special van…this rider will pay in addition to the base coverage and in doing so, can bring the income replacement close to or even exceeding the 60 percent mark. The caveat is that they usually must have a severe enough disability to need assistance with two out of six ADLs or severe cognitive impairment. Each company may vary in their definition of a catastrophic disability, so be sure to check the policy definition.

The other way an individual may perhaps get more than 60 percent of their income would be in the GSI, guaranteed standard issue market that will usually layer on top of the group DI and possibly the surplus lines/Lloyd syndicate type marketplace.

While that may have seemed like a lot, the good news is that there are MGAs/wholesalers like us and many others that can walk you through the process from beginning to end. When working with experts in the field, you’ll get the hang of it in no time at all.

With the help of Victor Cohen, this is part of our ongoing series with Eugene Cohen, founder of the Eugene Cohen Insurance Agency, Inc., 2009 Honoree of the International DI Society W. Harold Petersen Lifetime Achievement Award, 2015 Honoree of NAILBA’s Douglas Mooers Award for Excellence.

From time to time, we will feature an interview with Eugene, who has dedicated over 60 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their incomes from the tragic effects of a disability.

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

Victor: I often hear you talk about how important it is for a producer to manage a client’s expectations when applying for disability income protection insurance and other DI products. Tell me more about that please.

Eugene: As you know, many DI policies are issued exactly as they are applied, but what about the policies that are approved with other than applied? In other words, a modified offer?

After an application is underwritten by the individual disability company, it’s possible that the policy may be issued with modifications. These may include ratings, reductions in benefit period or exclusions for certain medical conditions.

Victor: And when you say, “modified offer,” you’re referring to there being perhaps certain prior pre-existing health conditions that won’t be covered, right?

Eugene: Exactly. So…to manage your client’s expectations you have to ask the client some questions before they apply for DI. This will help give the client an idea how they may be treated in underwriting.

You have to try to take some time to know your client…to know their insurability risk. Speak to your client about the types of medical issues they may have now—or have had in the past—that could impact their insurability.

Victor: What are some examples of the kind of health issues you’re referring to?

Eugene: Your client may feel they’re in perfect health with no particular problems. After questioning them, they may say they use a CPAP machine because of their sleep apnea. Well, that may cause a rating of additional premium on an offer. The producer needs to let the client know this upfront so the client is not surprised if the policy is issued with a rating related to the sleep apnea.

Or, while talking to your client, you may discover they take medication for Type 2 diabetes. The client says they feel fine, they feel perfect, and it’s possible that the diabetes may actually be very well controlled. But the DI underwriter may still be required to add a surcharge or rating to the policy of 25 or 50 percent. In addition, depending on the company and the case, the underwriter may be required to cut the benefit period down to a five-year benefit period rather than issuing the policy with longer coverage. Of course, if the diabetes is not under control, the underwriter may be required to decline the application for insurance.

We are not the underwriters but we have experience knowing on many occasions how the applicant most likely will be treated.

When questioning an applicant, be sure to inquire about any muscular/skeletal issues. Many producers forget to ask about this important part of the pre-screen. When asked, maybe they say, “I’ve had pain in my right hip.” The client thinks nothing of it. Well, that hip could perhaps be an exclusion. The client needs to know this before the application is submitted.

Health issues with the back may lead to some type of spine exclusion. If your client says, “I have a herniated disc in the cervical area of my back,” the client has to know that the company may put an exclusion rider on perhaps that portion of the back or maybe the entire back.

Victor: I see a lot of policies issued with an exclusion on mental disorders.

Eugene: Yes, that would be very common. A client’s mental health history can often lead to a policy being issued with an exclusion for mental disorders. Let’s suppose a client is being treated for depression, anxiety or other types of mental health issues. They’re going to counseling and/or taking medication(s)… The underwriter may be forced to have the policy issued with an exclusion for disabilities caused by mental disorders. The specific language of the exclusion may vary from company to company, so it’s important to read the exclusion.

Depending on the severity of the mental health issues, there could be a rating and/or a shortening of the benefit period and other modifications.

Imagine a producer showing a client a DI illustration, telling them about how the policy offers full coverage for mental disorders to age 67 and then the client’s policy gets issued with mental disorders excluded and a benefit period of 5 years.

Victor: You have a disappointed client.

Eugene: Possibly a disappointed client. Managing the client’s expectations means that it’s important to prescreen the client before submitting an application. It means finding out about the client’s mental health history before the app is written and letting the client know if there is a likelihood they could have an offer with a mental disorder exclusion.

Managing a client’s expectations means knowing a client’s height and weight before submitting a DI application. You may have a client whose height and weight could be rated 25, 50, 75, 100 percent and/or cause a reduction in the benefit period. This is why it’s important when requesting your disability illustrations that you provide the height and weight of the client.

Victor: What does a typical exclusion look like in a DI policy?

Eugene: A typical exclusion rider will state that the benefits are not payable for a disability resulting from whatever the named condition is. For Example, Crohn’s Disease…or the lumbosacral area of the spine…or injury or disease or disorder of any part of the body.

The intent of the rider is to exclude or restrict coverage for a known medical condition or a condition that predisposes you to a potential disability. The specific language of the exclusion may vary from company to company, so it’s important to read the exclusion.

Victor: Now let’s shift gears a little. Let’s say a DI policy has been issued with an exclusion rider or riders. Why should the client take the policy?

Eugene: Lets’ say the client gets an offer with an exclusion rider on the cervical area of their spine. Think of all the other areas of the body that are still covered. Think of all the different diseases a person could face.

Victor: So they may still be covered for, say, cancer, heart disease, Parkinson’s disease, MS, on and on.

Eugene: Right. Again, the specific language of the exclusion may vary from company to company, so it’s important for you and the client to read and understand the exclusion(s).

You are correct in that the medical dictionary is filled with pages of sicknesses that can disable that person. It is extremely important for that client to take care of their financial needs and obligations if they were to become disabled from something else.

You want to point out to your client that even a modified offer is very valuable. If the individual has a DI policy with a monthly benefit of $10,000 with a benefit period of five years…if they were to have a qualified claim that benefit could be worth more than a half a million dollars for that five-year period.

Now if an individual does not take the policy because of one or two exclusion riders or because of a rating, you know one thing. The conditions may stay the same or get worse. And if they get worse, the individual may not be able to buy a disability policy later.

Victor: Let’s take a worst-case scenario. The client is declined. Then what? What DI options, if any, does the client have at that point?

Eugene: If your client is declined because of some kind of medical condition(s), there are DI companies that may still consider that individual for DI coverage—companies that underwrite impaired risk cases.

The company may offer a policy with an exclusion or possibly a rating. Sometimes these policies have limited renewal durations, such as allowing the policy to be active for a few years at a time, in which, at the end of the allowed period, the company may or may not allow the policy to renew.

Some of these impaired risk DI policies are issued with a graded benefit. Depending on the company and policy design, if the qualifying claim for sickness occurs during the first couple of years, the DI company would pay a reduced amount based on a preset schedule. After a certain period of time, the policy would pay the full monthly benefit. Please review the illustrations and contracts for details, as these policies are different from the ones that you may have sold in the past.

Victor: Our time together always flies by so fast. Thank you so much for your invaluable insights and passion. Unfortunately, we have to wrap up our conversation today. Is there anything you would like to add?

Eugene: By managing expectations you’re letting your DI client know in advance what to likely expect. If you are a producer unfamiliar with DI underwriting and the way certain medical conditions are often treated, it’s important to work with an experienced MGA/wholesaler that knows this market.

Individual disability income protection is a very valuable policy. Naturally, it is best to buy a DI policy when you don’t have any medical problems. But if you do have a policy with an exclusion(s), think about all of the other conditions, both medically and via accidents, that can be covered on a qualified claim.

As we head into tax season, we are often reminded about the insurance products that we all sell and some general tax principles. When it comes to taxes, we always need to remind clients that we are not accountants and that any individual tax advice needs to be given by the client’s accountant. With that being said, let’s move on to death, disability, and taxes. Wait, isn’t the phrase, “death and taxes?” Why include disability in that well known saying?

When it comes to Merriam-Webster’s definition of “disability” you’ll see it says: “a physical, mental, cognitive, or developmental condition that impairs, interferes with, or limits a person’s ability to engage in certain tasks or actions or participate in typical daily activities and interactions.” Note, disability insurance policies have very precise definitions of what is considered a qualifying disability for a claim and will be different than the Merriam-Webster’s definition. We all know the famous expression that you can’t escape death and taxes, but given the dictionary definition of a disability, you can’t escape that as well. Before anyone passes, they will experience some sort of disability per the dictionary definition. What we don’t know is how long the disability will last before your client’s passing. It could be a few minutes, a few hours, a few days, a few months, a few years, decades, or for the rest of your client’s time on this great earth. We just don’t know and with major risk and liability on things we can’t predict, we need to plan.

Remember, need motivates action. You need to ask the right questions to expose the need for the client. Each client may be in different stages of planning as well. Take your clients who are just starting off in their career journeys. Those without children or other dependents may not be thinking about life insurance and some of the other products we typically sell. Yet, many of these individuals have built up fixed obligations that would be due regardless of whether they work or not. Let’s say your client’s daughter is 29 years old and is a young veterinarian who is a couple of years into working. She most likely, at a minimum, has rent, car payments and the appropriate insurance, credit card bills and possibly student loans. If this client were suddenly diagnosed with MS or had a car accident, those fixed expenses would still need to be paid. Having a comprehensive individual disability plan would be essential for not only her but probably for her parents too.

Need motivates action! Take another client or child of a client who is married and possibly has a child and/or one on the way. Whenever we hear a longtime producer tell us about how they have a client who is going to be a first-time grandmother or grandfather, it reminds us of the planning that is needed. Let’s take the same client mentioned previously and instead of her being 29, she’s now 35 and married to an attorney and they have a child. With the couple’s joint income probably being perhaps a couple hundred thousand, their expenses will likely have surely increased as well—a new home, a mortgage, two cars, childcare, property and casualty insurance premiums, utility bills, food, and so many other expenses. Most of these younger professionals can be classed under the acronym H.E.N.R.Y., High income Earners, but Not Rich Yet.

A major disability can have a major effect on these types of individuals and couples. They’ve assumed more contractual obligations that are almost fully funded by their current income. That’s the essence if you think about it. How much of your expenses and obligations are purely supported by the income you produce? If you can’t produce the income, how are those obligations going to be paid?

As we fast forward even more, take the same couple who is now in their late 40s/early 50s. Now they have three children, two in high school and their youngest just starting middle school. While this couple has been saving in earnest, the expenses keep on coming in faster than their incomes and savings are growing. Just over the horizon some of their largest expenses are coming up—college costs that the couple is planning to pay for their children. Again, a major disability to either of these individuals can cause a major derailment to their intentions and planning. Need motivates action. This couple needs to make sure that if one of them has a qualifying disability, they have disability insurance.

Changing the scenario a little, say that each one of these professionals also decided to open up their own professional practice along the way. So, our veterinarian now has her own practice and her husband, the attorney, now has his own practice as well. Those practices come with their own expenses and obligations. Each firm needs a location to practice, so rent or a mortgage, utilities, staff to support the main purpose of the practice, and other expenses. This is why a cogent adviser would also recommend these clients each own a business overhead expense policy. This business type of disability policy is designed to help protect these types of clients from many of the business expenses they have most likely personally obligated themselves.

Look in your files and take note when you have these types of clients. Needs based selling is the only selling we recommend, so when you have clients like these, remember to reach out to your disability MGA for quotes, education, and how to process with ease.

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

2015 Honoree of NAILBA’s Douglas Mooers Award for Excellence

With the help of Victor Cohen, this is part of our ongoing series with Eugene Cohen, founder of the Eugene Cohen Insurance Agency, Inc., 2009 Honoree International DI Society W. Harold Petersen Lifetime Achievement Award, 2015 Honoree of NAILBA’s Douglas Mooers Award for Excellence.

From time to time we will feature an interview with Eugene, who has dedicated 60 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their income from the tragic effects of a disability.

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

Victor: We’re going to focus today’s conversation on what I know is one of your very favorite disability insurance topics—the small business owner.

Eugene: There are so many fantastic disability insurance products designed just for the small business owner. It’s exciting.

Victor: When you say, “small business,” how are you defining a small business?

Eugene: We’re talking about a business with usually anywhere from eight to twelve full-time employees. But it could have less. Here are some examples of the kind of small businesses we mean—a small clothing boutique, a small accounting firm, a small dental practice, law practice, architecture firm, an engineering firm, a small restaurant. The list of businesses is endless.

Victor: What makes the small business owner’s DI needs so different than let’s say a non-business owner’s DI needs?

Eugene: Great question. Let’s take a closer look at the small business owner. They have worked hard to build a business. They invested dollars and/or may have taken out a loan. The owner has often put in endless hours—night and day to develop and build their successful business.

That business may be the most valuable asset the owner has. It could be more valuable than their home and automobile. That business needs to be protected.

I want you to close your eyes and imagine what would happen to that business owner—the power that makes the business run—if they became disabled due to becoming hurt or sick? What would happen if they were out of work for six months, a year, maybe two years?

Victor: The business would likely be in trouble.

Eugene: That business could suffer terribly. It could even go away. But…it doesn’t always have to be that way—not if a business owner has perhaps a business overhead expense policy.

Victor: This is in addition to having an individual disability insurance policy, right?

Eugene: Absolutely. An individual DI income protection policy will take care of some of the business owner’s personal bills, what I call “Life’s noncancelable financial obligations.” We all have those expenses, regardless if one is a business owner or non-business owner.

We’re talking expenses, such as monthly rent, or a mortgage payment, utilities, groceries, loan payments, car payments, insurance premiums…those life expenses that keep coming. Every month.

Let’s say your client has an individual disability insurance policy with a monthly benefit of $10,000. With the premium being paid with after-tax dollars, the benefit will be most likely tax free.

I think of an individual disability insurance policy as a client’s silent business partner. It’s working when the owner can’t work because of their disability.

It’s very important to have those life expenses covered with an individual DI policy. But remember, your client is a small business owner. So what other expenses do they have?

Victor: Business expenses that they can be responsible for?

Eugene: Right—what I call, “business noncancelable financial obligations.” The monthly office rent, utilities, employee salaries, property and payroll taxes, perhaps rental equipment, and other qualified expenses.

A business overhead expense policy may even perhaps allow the salary of an employee hired to take on the owner’s duties while the owner is disabled, as a possible eligible expense. Of course, this would depend on the policy provisions.

The business overhead expense policy provides reimbursement of qualified monthly eligible fixed business expenses, like the ones I just mentioned and other expenses.

Visualize this. You have a client who owns a boutique clothing store with six employees and a store manager. The owner is the buyer, the owner is the store’s top salesperson, the owner trains and supervises their employees and the owner has other important responsibilities.

If the owner became sick or hurt, revenue could slow up substantially. It’s possible that the business could have a hard time surviving without the owner.

Soon, those bills would start rolling in. The business overhead expense policy will cover qualified business expenses for a short time—typically paying benefits for twelve months, eighteen months, or twenty-four months—depending on the benefit options offered by the carrier and of course chosen by the policyholder.

When I started my agency, I had to sign an office lease to guarantee the rent. I realized how important it was to have a business overhead expense policy. I already owned a disability income protection policy, but wanted a policy to assist with the office expenses I was assuming.

Victor: Another specialized DI product for business owners is a disability key person policy. Why do you think that is often important for a business owner to have?

Eugene: Many times a business owner will have an extremely important person working at their business—a key person critical to the success of the business. Often, this person has been with the business for a long period of time. If that key person were suddenly not working due to a disability, that could hurt the business tremendously.

Take a small computer company for example with a top salesperson with the connections and relationships that account for a large percentage of the company’s sales. If that key person were seriously disabled due to a sickness or accident, it could create a financial crisis for the business. To help protect a business owner from this type of situation, many business owners purchase a key person DI policy on their key employee.

The business owns the policy, with the business owner paying the premium.

If the key employee were to get sick or hurt with a qualified disability…after the policy’s elimination period, typically, the benefit would be paid to the employer and could be used for various purposes such as to hire and train a new employee to replace the disabled key person.

Victor: Eugene, I can’t believe how fast this conversation has flown by. Unfortunately, we have to wrap things up. Can’t thank you enough for sharing your invaluable insights.

Eugene: Thank you, Victor. Always a pleasure.

Victor: Are there any final thoughts you would like to add before we meet next time?

Eugene: In situations where you have two or more owners of a business, I highly recommend looking into disability buyout insurance policies for the owners. Just like a life buy-sell agreement may be funded by a life insurance policy, there is a disability buyout insurance product. When a business partner has a significant total disability which triggers the buy-sell agreement, the disability buyout policy could provide funds to assist in the buyout.

We encourage producers to talk to their disability specialists and learn about these products because they are often extremely important for small business owners to own.

Individual Disability Insurance And Lost Opportunities To Help Your Clients!

When you hear, “the end of the year,” many of us think about Thanksgiving and the holidays while others think about enrollment season. They both can be fun depending on your point of view. For us, Thanksgiving is a wonderful family get together, the food, the football, and the conversations. For many firms, it happens to be enrollment season as well. Our other most-favorite time of year.

Many corporations have their annual enrollments for their benefits at the end of the year. The choices that one needs to make during this time can cause a lot of indecision as to the right benefits to take for a family. At the end of enrollment, the employees go back to their daily routines and the benefits departments start their mad dash getting ready for benefits to start at the beginning of the year.

For employee benefit producers, the opportunity to help clients is tremendous. We are assuming that most producers would recommend taking long term group disability (LTD) coverage to go along with other company benefits being offered. Employee benefit clients offering LTD may have employees who have additional “DI carve-out” needs as well.

We know when employers pay for the LTD benefit for their employees, the benefits are most likely taxable at claim time unless some other arrangement is made. We also know that LTD is capped at a certain amount, regardless of the employee’s income. This leaves many employees getting a net amount of benefit which can be significantly lower than they anticipated. In addition, depending on the provisions in the group LTD, some business owners who receive passthrough or K-1 income may discover their group LTD benefits could be reduced or not available at all.

Individual disability insurance is the answer for employees who are capped out on their group disability insurance. This is a very large marketplace that we see producers miss year after year. Any high-income earner who has group coverage or owner of a business is a client for individual plans. Higher income earners tend to have higher expenses to support their own and, more importantly, their family’s lifestyle. High-income earners tend to also be in need of other products that many of our firms support. From life to property and casualty, the opportunities can be endless… all from asking the right questions.

“What’s the longest vacation you’ve ever taken?” Most likely two weeks or less will be the answer. One may ask, “Why didn’t you take a longer one? If you had a sickness or accident that kept you from coming back to work, how would that affect you and your family?” A client may say that this is why the company gave group disability coverage at work. It’s important, actually very important, to keep asking questions. This is where many producers stop. You want to ask your clients if they know how much monthly benefit they have with their group LTD. Also, you need to ask them if they know that the monthly benefit could be taxable if there were a claim. Most likely they may not know, which will open up the reason for the conversation and the problem that can be solved with individual disability insurance.

Many high-income earners have a gap in coverage that they may have never even known about without someone asking the right questions. Questions can uncover need, and need, when identified, can prompt action to solve the problem. The need for individual disability insurance in this example is to fill in the gap between one’s estimated monthly living expenses and the estimated “net after taxes” income that would be paid by a group or other type of disability insurance for a qualifying disability.

Any producer who has clients going through the enrollment process has an opportunity to help their clients. Many times a client may even ask their producer about what benefits they should choose. So, during the enrollment season, don’t forget to mark your calendars in January and February to do an enrollment review with your clients. You may be surprised by what you find!
We wish you and your families a happy and healthy new year! Here’s to a great 2024!