Michael Cohen

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!

Of course we are biased, as we are a disability centric MGA/wholesaler, so we feel everyone should be presenting individual disability insurance every day. But why would we be so emphatic about disability insurance and why should you be too?

We all sell income replacement: Life insurance is an income replacement product. Of course there are many uses for life insurance in business and estate planning, but the majority of applications many of us see are very simply term insurance. Life insurance is a wonderful concept, someone works and provides an income to their family. That person ends up passing on way too early, and the spouse or family that relied on that income can be left in a lurch. When we hear about someone passing on with dependent children, we always say to ourselves, “Boy, I hope they had life insurance.”

When completing an application for life insurance, the company needs to know the person’s income… Why is this? If the insurance is for income replacement, the underwriter will use a multiple of income to determine how much coverage can be issued to replace the income.

Life insurance is different, as it’s easier to sell
We occasionally will hear this from some producers, “Life insurance is easier because everyone knows they are going to die.” In actuality, everyone also gets disabled before passing on. We just don’t know how long that disability will last. It could be a few minutes, could be a few hours, a few days, a few months, a few years or decades. Disability planning and the underlying insurance should be just as easy of a conversation.

Disability is a must conversation
Regardless of your main product, the conversation about a client’s game plan if they can’t work is a must. Many clients will spend more time planning a vacation or wedding than they do planning for a possible personal tragedy. The conversation is essentially, “Tell me what are your plans if you could no longer work due to an accident or chronic illness?” From there, listen and take notes. Regardless of where the conversation leads, every sale starts with a conversation. Everyone actually has a plan, whether they know it or not. If they bought insurance to cover their risk, good for them. If they hadn’t even thought about it or chose to roll the dice and go without insurance, they are essentially self-insuring the risk. Regardless of the outcome, having this conversation is healthy for your clients and even more healthy for you and your practice.

Disability insurance is an everyday product
It’s important for you to make this disability planning an everyday conversation and everyday product you quote. Income planning is the cornerstone of any financial plan, whether formally or informally planned out. You can have some fun with the planning as well. While the conversation is definitely serious in nature and a must to have, it can also be approached in many different ways. One of our favorites goes like this: “If you couldn’t work due to an accident or illness, and had to be at home to recover, you’re going to need a few things: You’ll need a roof over your head, so let’s cover the mortgage or rent. You’ll need your electricity, gas, water, so let’s cover the utilities. You’ll want to watch TV, so let’s cover your cable and/or internet. You’ll want to eat and order in some pizza, so we’ll need some money for food. So, at a minimum, we’ll need to cover “x” amount so that you can at least hang out at home, watch football, order pizza and be able to wash your hands and brush your teeth.” If you do that exercise with most people, you’ll notice that the amount of coverage needed is typically about $3,000 to $6,000 per month at a minimum. Of course, most clients have more fixed expenses, such as the cost of cars, insurance, clothes, and childcare costs are just among the few additional fixed expenses that clients need to cover. In addition, many producers just ask us to run the maximum someone can obtain based on their income.

While producers may have varying opinions regarding how to work with clients to determine the amount of coverage needed, we would probably all agree that having the conversation needs to be a daily occurrence.

How will you make disability insurance a daily conversation in your practice?

October is here which means World Chicken Day is here on the second Thursday of October, October 12 this year. This reminds us of the KFC or Kentucky Fried Chicken story. You can look it up, but in general, the KFC marketing name evolved out of the Kentucky Fried Chicken marketing department. This leads us to the name that many of us refer to when describing the product of disability insurance.

When you mention the word “disability” what springs into your mind? For many, it’s a wheelchair, as that has become the sign for handicapped or disabled parking. In almost every parking lot in America, there are parking spots reserved for those who are considered disabled. Most likely, you know of or have seen someone who needs to utilize handicapped spaces. In addition, you may have a preconceived notion and visual image of what it means for someone to be disabled enough to have a placard.

To many insurance producers, the name Disability Insurance is a misnomer, as the insurance isn’t designed to be medical insurance but to help replace a portion of someone’s income if they become disabled. This is why it’s important, at the very least, to add the “income” part to Disability Income Insurance. Understanding the psychology of words is essential for people’s interpretation and understanding of the planning concepts and insurance products you are recommending.

Some in our industry recommend describing disability income insurance differently all together, as they feel that name conjures up thoughts of wheelchairs, crutches or individuals who have some type of malady that can be visibly seen or heard. While these images may reflect someone who may perhaps qualify for a disability insurance claim, the insurance is designed to replace a portion of income due to these types of conditions. Income replacement is the focus. Perhaps a name such as “insurance to replace your income if you can’t work due to an accident or extended illness” would be a better description, but that name is obviously too long.

Disability income insurance is the industry product name, so we need to give better descriptors to our clients. Some producers will just use the industry name of the product when describing the insurance, with the assumption that the consumer will understand the concept. Others will ask questions to assist the client’s understanding of the product. For example, “What is the longest vacation you’ve ever taken?” Most people will say about two weeks, with the producer’s next question being, “Why only two weeks?” The typical answer is, “We had to get back to work.” For most people, they need to get back to work in order to make sure an income is still coming into their household.

One of the biggest fears that people have in retirement is outliving their savings and not having enough income available to them in order to maintain their standard of living. These are typically individuals who are on a fixed income.

If someone can’t work due to being injured in an accident or having to try to recover from a sickness, they have suddenly become your fixed income clients in that they need to live off their assets. An insurance policy that pays a monthly income to a client who can’t work allows the client to have outside cashflow and can allow the preservation of capital and other assets.

Remember, there are essentially two different timelines of injuries or sickness that cause a loss of work. There are the sudden injuries or illnesses that cause one not to be able to work, such as a major car accident or severe stroke. Hopefully that person can get better and eventually get back to work in some capacity.

The other timeline usually involves a longer ramp up before someone is unable to work at all due to their illness. A good example of this would be someone who develops MS, ALS, cancer and many other diseases that have deteriorating properties that eventually can prevent one from having the physical and/or mental ability to work. You noticed that in these descriptions, the word “disabled’ was never used. It was actually challenging not to use the word disabled, as it’s become so much part of our insurance lexicon. In actuality, it’s the lack of ability from an injury or sickness that prevents one from being able to work which causes the financial hardship that planners wish to prevent.

So, remember, regardless of what you call October 9, how you describe disability income insurance to your clients is of daily importance.

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

From time to time we will feature an interview with Eugene, who has dedicated almost 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: Eugene, I know that producers often ask you for suggestions on how they can increase their disability insurance (DI) business through prospecting. So, that’s what we’re going to focus on in our discussion today.

Eugene: One of my favorite topics.

Victor: Let’s first start with the producer who has been in the industry a long time but hasn’t really focused on DI. What do you recommend?

Eugene: I say, look at your book of business. You have so many clients who don’t know they should insure their income which, in most cases, is their greatest asset. It’s not unusual to find that no one has talked to them. Income planning, whether post-retirement planning or while working, will peak a client’s interest.

Victor: Are there certain types of clients that the long-time producer should perhaps first reach out to in their book of business?

Eugene: Higher income earning professionals often make great DI clients because they have so much to protect. Physicians, attorneys, small business owners, real estate professionals, CPAs, engineers, consultants, the list is endless.

Victor: What about clients with more blue-collar jobs, like plumbers, electricians, mechanics?

Eugene: They can also be excellent DI clients—especially if they own their own business. Business owners in general make great DI clients because they understand how hard it was to build the business and how easily it can come undone due to an extended disability
In addition, if the advisor has funded a buy-sell agreement with life insurance, there is often the need for the client to have a disability buyout policy. There’s also a DI policy to cover business expenses.

Victor: Let’s now look at the new producer. When you started your career, you focused on DI. I’m curious, what made you want to specialize in disability insurance when others in the business chose other areas of focus?

Eugene: I chose to focus on individual disability income protection rather than other products because everyone has an income they need to protect. Once you meet someone who became disabled and needs to use a policy, then it sticks in one’s head. Then the more we talked about it, the more we realized that very few individuals are ever approached about DI. It’s really surprising!

You know what’s amazing? I don’t think the need for our product has changed since I started offering it decades ago. Our job is still to make sure that the client is aware of all these wonderful disability insurance products that have been designed to protect the individual and their family from financial ruin.

Victor: What do you suggest new producers do first? They don’t, of course, have the luxury of looking for DI clients through their book of business—because they don’t have a book of business.

Eugene: I suggest new producers and any producer new to DI—first learn the DI products. There are agencies like ours and others that offer training.

Then choose an occupation to target. For example, any of the occupations I already mentioned are fantastic. But you could also focus on car dealership managers, even florist shop owners, or restaurant owners. There are so many individuals who need DI.

Victor: Where do new producers find clients to meet with?

Eugene: When I started in this business I had no choice but to use the phone—make cold calls. My manager told me to first talk to my friends and family about DI. But they were not very good prospects. So, I had to use the phone.

Fortunately, I learned from an early age in this business that talking to people is the secret. If a producer calls and talks to enough people they will pick up appointments. Things will happen.

Victor: Do you remember what you would say on the phone when making cold calls?

Eugene: It’s burned into my brain like it was just yesterday. I’d get the business owner on the phone and say, “Hi, my name is Eugene Cohen and I specialize in offering disability income protection, which is a policy designed to provide an income if you were to ever get sick or hurt and your earning stopped. Let me ask you a question, do you have something like that?” They’re going to answer either yes or no.

If they answer no, I merely would say, “I would like to stop by and introduce you to this concept of insuring your income from sickness or accident. Is Wednesday at 3:00pm or Thursday at 4:00pm good for you?”

I may have to talk to five or six or seven people before someone says, “Fine, come on out.” The more people I would talk to, the more appointments I would pick up.

Victor: What if the person on the phone says they think they have something like you are describing?

Eugene: Then I would say, “Is it group disability insurance or individual?” If they answered, “Group,” I would congratulate them on having disability income protection and I would ask if I could review their group policy because they may need additional coverage.

Victor: What if they say they have individual disability insurance?

Eugene: Then I would ask them when they last had it reviewed. Because, over time, as a DI policyholder’s income increases, often the client doesn’t increase their monthly benefit—eventually making them under insured.

Victor: What if they say they have a DI policy that was recently reviewed?

Eugene: Then I would thank them for their time and call the next person on my list.

Victor: And where did you get the numbers to call?

Eugene: When I first started I would go to the Cleveland Public Library and go through business directories with business phone numbers, focusing on professional people and business owners. I’d write down the names and numbers of individuals to call in surrounding small towns I was planning to soon visit.

But producers have it so much easier now. All you have to do is Google an occupation you want to focus on calling, type in the city where you’ll be working, and there’s your list of numbers to call.

Victor: Why do you think some producers have a hard time making cold calls?

Eugene: Two reasons. They don’t like rejection and they think it’s too hard. I feel rejection is just part of it. You’re not going to have everyone say yes. But you are definitely not going to have anyone say yes if you don’t call.

If every producer says they don’t make cold calls, that’s great…for the producer who is making them.

Victor: What do you think about sending out email blasts as a way of connecting with prospective clients?

Eugene: I never read emails from people I don’t know. Do you? You have to talk to people. There is no way around it. You have to help them see the need. Need motivates action. And how do you help individuals see the need? You ask questions.

Victor: What are some of the questions you suggest asking?

Eugene: I would ask, “How important is your income to you?” While the answer may seem obvious, the question often helps the client see how much of their life depends upon income. It’s hard to do anything without income.

You can also ask, “What’s the longest vacation you’ve ever taken?” The client will often answer, “One, two or three weeks.” Then, ask them, “Why not longer?” Naturally, they will almost always answer, “I have to work.” Then you can say, “Well, what would you do if you had a disability and you couldn’t work for five years, ten years, maybe until age 65? What would you do? There are policies that will pay a portion of your income for a period of time.”

Another question to ask: “How long has it taken for you to accumulate the assets you have?” They may say, “Ten or fifteen years.” Then ask, “If you were disabled and your income stopped, how long would it take for your assets to disappear?” A disability income protection policy can help protect a portion of your assets if you’re ever disabled due to an illness or accident.

Victor: Unfortunately, we are going to have to wrap things up here. Any final thoughts before we talk again?

Eugene: Referrals can also be very helpful, of course. And a great way for any producer to learn about DI is to ensure that their own income is protected with a DI policy.

Victor: Eugene, as always, thank you for this opportunity to once again talk DI with you. You have so many invaluable insights from all your years of success in the business, I could literally go on talking with you forever. Thank you, again.

Eugene: Thank you, Victor. Always great talking with you.

It’s not often that we have such an iconic symbol who so overtly shows the need for our insurance products than the story of Christopher Reeve. For those who don’t know this story, Christopher Reeve starred as the main character in the Superman movies that came out in 1978, 1980, 1983, and 1987. Standing at 6’4”, his frame fit the part perfectly. Many don’t realize that he went on an intense upper body, power workout program to make his physique even more like Superman. He was 26 when the 1978 movie, Superman, ended up being nominated for three Academy Awards. The movie, and this 26-year-old heart throb, were the talk of Hollywood and the country at the time.

As his stardom grew so did his love of horses and competitive riding, which led to that fateful afternoon in Virginia when, on May 27, 1995, Christopher suffered a tragic equestrian accident leaving him paralyzed from the neck down. He went on to become a great advocate for the disabled until his death in October 2004. The contrasting story of his life, from stardom to disabled advocate, reminds us every day of the importance of what we all do for our clients. From disability insurance, life insurance, and long term care insurance, important lessons can be learned from this man of steel.

We hear stories all the time of those who have become totally disabled due to accidents, illnesses, viruses, etc., that in many cases were no fault of the individual—they just happened. We’ve all had incidents happen to us that make us go back in time and self-analyze what we could have done differently to have prevented the situation.

If we could just go back and do it over again, what would we have done differently? We are sure that Christopher Reeve played back that fateful day over and over again in his mind of what he could have done differently. On March 27, 1995, he walked on stage of the 67th Academy Awards with Susan Sarandon to present the best supporting actress award. This was exactly two months before his life would change forever. If only an audition came up two months later, or a speaking engagement, or charity event that would have stopped him from competing in that fateful competition, he could have been with us today.

This brings us back to our clients and what we do every day. If you knew that your client was going to become totally disabled in two months, what would you do differently as a planner? Our clients are the superheroes of their families and communities. They are revered as mothers, fathers, spouses, and leaders in their community. Many of them carry the weight of the world on their shoulders by being the main source of income for their families and/or businesses. Many of these businesses contribute to the community by not only being of service, but also by being an employer as well. How have we planned for their families and businesses that are so reliant on our own superheroes being able to work every day and create the incomes that are so important to so many?

We all know someone who has been in an accident or who has had an illness that may have affected them for a few days, maybe a few weeks, and maybe even worse. We just don’t know what tomorrow is going to bring. We can’t go back in time and apply for disability insurance. Your clients need your assistance, they need your wisdom, they need your skills in planning and your knowledge of why disability insurance is needed.

You don’t even need to sell the product yourself, as there are plenty of MGAs like ours that know producers who specialize in disability insurance. You need to recognize that the planning conversation needs to occur. Of course, if you hold the proper state license, we encourage you to work with the client yourself and understand the sale process. An MGA like ours may have someone that only works on disability insurance every day and can be of assistance in guiding you through the process.

Let’s not have any regrets in how we assist our clients every day. It’s important to bring awareness and make sure you’ve talked to your clients about individual disability insurance. For your business owners, it’s also important to discuss business overhead expense (BOE) and disability buyout coverage (DBO). Let’s not have the “I should have talked to my client two months earlier” type of guilt. Our industry provides some of the greatest support mechanisms available in the country, as long as they are properly used. Review your client list today to make sure that your clients have been made aware of disability insurance.

Free Stock photos by Vecteezy

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 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: I know you are very passionate about owners of small and medium-sized businesses needing disability business products. It’s an area of disability insurance that often goes overlooked. Can you tell us more?

Eugene: Yes, business owners definitely have unique DI needs that non-business owners do not have. But like most clients, a business owner needs an individual disability income protection policy.

Let’s suppose a small business owner has an individual disability insurance policy with a $10,000 monthly benefit and a 90-day elimination period. If disabled, they will receive a monthly benefit payment at the end of the fourth month—let’s say until age 65.

But let’s say our client is a disabled small business owner. They have a lease and other business expenses like salaries for their three employees, utilities, phone bills, and other business expenses.

If this small business owner has a qualifying disability, let’s say they will receive a benefit from their individual disability insurance policy to cover their non-cancelable living expenses…but what about those noncancelable business expenses? Remember, disabled or not, the bills to keep the office running are still coming in. Where is the money for that? A small business owner’s business expenses could be $20,000 per month.

This business owner needs a disability business overhead expense (BOE) policy. It helps protect their business by paying many of those qualified business expenses. While the business owner may not be working, the BOE policy will be.

Imagine a business owner who is totally disabled and their doctor says, “You should be able to go back to work in one year.” Without a business overhead expense policy there may not be anything to go back to. The business could be gone.

Victor: How do you suggest the producer help their client who is a small business owner see the need for business overhead expense insurance?

Eugene: Just like with all DI products, the best way for a producer to help a client uncover the need is by asking questions.

Ask the business owner client, “If you were disabled for more than one month and your disability lasted at least a year, would you have a problem keeping your business open and running? Because there is a policy available that will cover many of your qualified business expenses. The benefit period could be 12 monthly payments, 24 monthly payments or 30 monthly payments.” Each company may have their own qualifications and limitations when considering eligible BOE candidates.

Victor: It feels like this is a must-have DI policy for owners of small and medium-sized businesses.

Eugene: The need is there. All the producer needs to do is ask questions. For example, let’s say the producer asks their client if they have a business partner and it turns out they do. Each client owns 50 percent of the business with each sharing 50 percent of the business expenses.

Now the producer can suggest talking to the other partner about picking up a BOE policy too. With each owner responsible for perhaps $10,000 per month in business expenses, if one of the owners is disabled, it does not have to be a tremendous financial burden on the partner still working. The disabled partner’s share of qualified expenses would be paid by the BOE policy.

I believe that need motivates action. When the client understands the need for a particular product, they want to act. In the examples just mentioned, the clients would certainly understand that it would be to their advantage to protect their individual DI policies and not be financially burdened by business expenses if they were disabled for a short time.

The most important thing is that your client is aware of this type of insurance so they can make an intelligent decision if this is something they need.

Victor: How does the BOE policy pay and what is the target market?

Eugene: These types of policies will reimburse the policyowner for the business expenses that qualify per the policy. The premiums are deductible as a necessary business expense. Generally speaking, the target market is clients who are 35 to 55 years old who own small to medium-sized businesses.

Victor: BOE protection really seems to be just the tip of the iceberg when it comes to DI products available to the business owner.

Eugene: Business owners are an exciting market. They have so many needs. For example: The advisor has a meeting with their client, looks over their buy and sell agreement and says to the client, “If one of you were to die, we have to make sure there are dollars to buy out the other partner.” The partners are in agreement. They need that. And they purchase a policy to fund the buy and sell agreement that would pay upon the death of one of the owners.

Now, what happens if instead of passing away, one of the owners has a serious disability? What if they have a serious illness or get in a serious accident that disables them for more than a year?

This is why it is important for the owners to each have a disability buyout (DBO) policy. It provides the funds needed to purchase a totally disabled business owner’s interest in their business.

Victor: Can you give an example of how a DBO policy may pay?

Eugene: The policy helps to provide the funds needed to execute the buyout agreement in case there’s a serious disability. Let’s say you have two owners who are each 50 percent owners of a business worth $2,000,000. If one of the partners had a qualifying disability, per the agreement and the policy, then, after the elimination period, the insurance company would pay the policyowner the funds. This could allow the policyowner to have the funds needed to fulfill the agreement. That’s a simple example of how the policy works. Each company has its own qualifications, minimums and maximum benefit amounts.

How do you uncover the need for DBO? You ask questions. “How are you going to fund your buy and sell agreement for disability if one of you is totally disabled and can’t work in the business anymore? Are you going to use business revenue? Is the remaining partner going to take out a loan? If it’s a corporation, are you going to sell shares of the business for capital?”

Victor: Can you please also talk a little about disability loan protection for the business owner client?

Eugene: If your business owner client has an existing or upcoming business-related loan or loans they are planning to take out, business loan protection can possibly help a business owner continue to pay their business-related loan(s) if they become totally disabled and can’t work.

To uncover the need, ask the owner of a small or medium-size business if they have any outstanding loans related to the business. And if they do, then explore with DI companies if the client has an insurable qualified loan.

Finally, the small or medium-sized business owner may have a key person who is extremely important to the operation. If that key employee were to become disabled, naturally it could cause hardship to a business.

So, the corporation or business may want to own a policy on that key employee. The policy could pay a lump sum or a combination of monthly payments and a lump sum payment if that employee were disabled. The elimination and waiting periods and issue limits may vary.

A key person disability policy can be a very important policy to help a business get through a challenging time when losing a key employee due to a total disability.

Victor: Thank you, Eugene, for talking about disability insurance business products. I know there is so much more you could share. Looking forward to us doing this again soon. Can’t thank you enough.

Eugene: Thank you, Victor. It’s always great talking DI with you!