Michael Cohen

It’s fascinating to look at the Social Security statistics of filed claims for disability payments. The U.S. Social Security site breaks down the yearly, quarterly, and monthly statistics of actual claims filed (https://www.ssa.gov/oact/STATS/dibStat.html). In fact, in 2021, according to the site, over 1.5 million claims were filed. The statistics are further clarified by the following:

The number of applications is for disabled-worker benefits only and, as such, excludes disabled child’s and disabled widow(er)’s benefits. These applications are those received at Social Security field offices, teleservice centers, and claims filed electronically on the internet. Applications ultimately result in either a denial or award of benefits. These counts include applications that are denied because the individual is not insured for disability benefits.

Because the application data are tabulated on a weekly basis, some months include five weeks of data while others include only four weeks. This weekly method of tabulation accounts for much of the month-to-month variation in the monthly application data. This method also occasionally causes quarterly data to have either 12 or 14 weeks of data instead of 13 weeks, annual data may include an extra week of data.

It’s tough to imagine that more disability claims were filed with Social Security in 2021 than the population of the following states: Wyoming (Population: 581,075); Vermont (Population: 645,570); District of Columbia (Population: 670,050); Alaska (Population: 732,673); North Dakota (Population: 774,948); South Dakota (Population: 895,376); Delaware (Population: 1,003,384); Rhode Island (Population: 1,095,610); Montana (Population: 1,104,271); Maine (Population: 1,372,247); New Hampshire (Population 1,388,992); Hawaii (Population 1,441,552).

Social Security benefits are limited compared to what can be bought in the individual disability insurance marketplace. In addition, the number of individuals who actually qualify for Social Security disability benefits is a fraction of those who have applied for coverage. This is due to the very high burden that is required to qualify for Social Security disability benefits. In fact, if you use your favorite search engine, you’ll find hundreds of attorneys who specialize in trying to assist individuals to qualify for Social Security Disability. Then, even if someone can qualify, the amount of benefit paid out is minimal compared to one’s income. In 2019 the average payment for a claimant was $1,234 per month* or about $14,000 per year.

Facts are helpful to understand the dire need for working clients to have an individual disability income policy (IDI). Can all clients afford to purchase an individual policy? There are plans for all budgets available in the marketplace. If someone has a modest income, they can apply for coverage for a lower amount. What we see though are more applications for higher income earners than lower income earners.

When was the last time you asked your client about their fixed expenses? A client’s fixed expenses may vary based on how many children they have and the lifestyle they have chosen. If you wrote down the fixed expenses with one of your working clients, you may be surprised by the final number. For example, say that a client who is married and has a couple of children has the following modest fixed expenses: Mortgage: $2,600; Utilities: $500; Food: $1,000; Car and car insurance: $1,000; Gas and home maintenance: $500; Homeowners Insurance: $400; Health insurance premiums and co-payments: $1,000… So we are at $7,000 per month in our example. We are sure based on geography and the quality of these expenses they could easily be lower or higher. Of course there are expenses not even listed that many of your clients have to pay every month in addition to our example. How much would you assume your clients have in fixed monthly expenses? $6,000, $7,000…$8,000 per month?

What if your client is part of the 2022 or 2023 disability statistics? When was the last time you reviewed your client’s actual disability policy to confirm that your client knows what they may or may not have in force? Not only will you be surprised that most of your clients don’t own an individual disability policy, but you’ll be even more surprised that, when they do have a policy, many clients don’t know what they own.

What’s the longest vacation your client has taken? The usual answer we find is about a couple of weeks. When you ask why only two weeks… the answer we hear most is they had to get back to work. Next question, “How would your finances be affected if you had to spend years trying to recover from an accident or battling a debilitating disease?” If you have a client that becomes one of the hundreds of thousands that need to file a disability claim, how much coverage do they have? Reach out to your MGA about making disability insurance part of your daily routine.

References:
*Applicants for Social Security Disability Benefits: https://www.ssa.gov/oact/STATS/dibStat.html.
** Population data is from the USDA: https://data.ers.usda.gov/reports.aspx?ID=17827#P875cfc7d0531441cb3a060627facd603_2_153iT3.
***Average payment for Social Security Disability: https://www.ssa.gov/disabilityfacts/facts.html#:~:text=At%20the%20beginning%20of%202019,%241%2C234%20to%20all%20disabled%20workers.

May was Disability Insurance Awareness Month. Just because it’s June doesn’t mean that you’ve missed the opportunity to spread the word about disability insurance to your clients. For us, every month is a great opportunity to let your clients know about the need for disability insurance and why this product is so important in financial planning.

To bring awareness of disability insurance, we developed a series of four training calls. Our goal was to educate producers on how to write their first disability insurance case or to become reacquainted with disability insurance. We’ll give you an overview of each one.

The Need: It all starts with the need for the coverage. This is where many producers assume that a client understands the need for coverage. It’s really pretty basic. If an injury or sickness prevents us from being able to work, our income from working usually stops as well. This basic concept seems so obvious that you should have clients asking you about this type of coverage every day. But how many times have you been asked? If you’ve been asked more than once, that’s probably more than most. This is why you always need to walk clients through what would be their actual game plan if they were unable to work and their income just stopped. This will allow you to judge for yourself your client’s understanding of the issue and allow you to better understand any possible objections to “the need” of the product. The need motivates action!

The Products: Not only are there individual disability insurance products, but there are also products designed for business. There’s business overhead expense (BOE) insurance for those smaller businesses that rely on one or a couple of key individuals to produce most of the income for the firm. For example, take a veterinarian, dentist, accountant, or attorney who produces most of the income for their firm. If that individual can’t work due to a disability, the expenses to keep the business operating will still occur. With BOE coverage, qualified expenses may be reimbursed after a qualifying disability satisfies the elimination period. With key person disability insurance a business can also indemnify themselves from some or all the financial effects a disability of a key person could have on a business. Then there’s Disability Buy Out insurance, which can provide funds needed for a qualifying disability and buyout provision of a buy-sell agreement. In addition, there are surplus lines of disability products for many situations which the traditional markets can’t cover. Not to mention the guaranteed standard issue (GSI) marketplace that can be used to supplement group coverage.

The Underwriting and Pre Screening Process: It’s important to always prescreen the health of your clients. Many clients may not realize that when underwriting for disability insurance, the underwriter has the ability to exclude different conditions from being covered. This is fairly unique to disability insurance and it’s important to try to identify these factors up front. In addition, understanding the occupational duties is important so that the individual is being quoted the correct rate class. Also, the income is important to know so that you can quote the proper monthly benefit. If someone’s income is too low, they may not qualify for the coverage they are seeking. In addition, if they have significant unearned income, some companies may not allow the coverage amount that the client was applying for or any coverage at all. After a DI application has been submitted, it’s also very important to let your clients know to complete any required phone interviews as soon as possible, as many times nothing occurs at the home office until the interview is completed. Also, if a client is applying for certain monthly benefit amounts, or is in a certain occupation, the company and/or its reinsurance partner may require seeing the prior tax returns as well.

The Placement: It’s important to place a disability insurance policy as soon as you are able to receive it. While money pays the premiums, a client’s good health is what allows a policy to be issued. Clients can have a change of health during underwriting or before the case is placed. If there’s a change of health or a change to any question in the application before the policy is placed, then the producer must report it to the insurance company. The insurance company would then decide if more records or other underwriting would be needed and if the policy could be reissued with modifications (due to the client’s change in health) or if the policy could still be placed as originally issued. This is why it’s important to place the policy as soon as it’s issued and you can see the client. The last thing you want is to get the phone call, text, or email that the proposed insured is no longer in the same health they were when the underwriting was completed and then you can’t deliver the policy.

Every month can be Disability Insurance Awareness Month if you choose to ask the right questions to your clients. Do you have disability insurance? What would you do if your paycheck stopped due to a disability? What’s the longest vacation you’ve taken? Most clients will usually say less than two to three weeks. Why did you need to come back from vacation? The most common answer we hear is that they need to get back to work. What if you weren’t able to go back to work for a year, two years…or even never? Remember, Need motivates Action!

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 the ninth part of our ongoing series with Eugene Cohen, founder of the Eugene Cohen Insurance Agency, Inc. From time to time, we will feature an interview with Eugene, who has dedicated over 58 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: Eugene, I have heard you say there are four different types of DI prospects.

Eugene: That’s right. There is DI Prospect Type 1: The client who has no DI coverage, which is a very common occurrence in the marketplace. This is the client who we are going to focus on in this conversation. The other clients include DI Prospect Type 2: The client with only employer provided group long-term disability. There is also DI Prospect Type 3: The client who only has individual disability insurance. And finally, there is DI Prospect Type 4: The client who has both group LTD and their own individual disability insurance policy.

Remember, in a previous conversation we talked about the four objections an advisor may face when talking about DI with a client?

Victor: Yes. No money. No hurry. No confidence. No need.

Eugene: The “no need objection” is the most important objection to overcome when talking with the client who does not have DI. No one will get anything they think they don’t need. So, we have to support the client’s ability to uncover the need.

Victor: How do you do that?

Eugene: By asking questions.

Victor: What kind of questions?

Eugene: You can ask the client, “What is the longest vacation you have ever taken?” The client usually will say one or two weeks. Then you can ask the client, “Why don’t you ever take a three or four month vacation?” They’ll probably say, “I have a job or I have to work.”

Ask the client to imagine if they had an accident or sickness that took them out of work for two, three or four years. Ask the client, “Would you have an income problem, being off work that long?” The client will usually say yes.

You can also ask the client, “If you had a money printing machine producing thousands of dollars every year, would you insure it?” Your client’s ability to earn an income is that money printing machine. Current and future income is usually your client’s most valuable asset.

Victor: So, let’s say the client sees the need for DI. Where do you go next in the conversation?

Eugene: Best for you and the client to do a quick accounting of the client’s non-cancellable and/or fixed monthly obligations. The monthly mortgage payment. Let’s assume that’s $3,000 per month. Taxes on the property…$500 per month. Food for the family. We’ll use a low figure of $500 monthly. Utilities, $200 per month. Car payments, some other recurring monthly expenses…let’s assume the client’s non-cancellable monthly obligations total about $5,000 per month.

Remember, the client wants to pay their DI policy premium with after tax dollars so the benefits will be tax free.

Also, the company may limit the monthly benefit amount the client may purchase, based on the client’s income—per the company’s issue and participation limits. If someone is earning $100,000 per year, the maximum monthly benefit they may get is often around $5,100. Many of the companies have very similar issue and participation limits.

Victor: So, what is the next step in the conversation?

Eugene: Now the producer would go over the different benefits available in a DI policy. Let’s assume the client wants a benefit period to cover sickness and accidents to age 65 and they also want a 90-day elimination period.

The client wants a liberal definition for total disability for their occupational class and they also want a partial/residual disability rider, a cost-of-living rider, and a type of future purchase option (FPO). The FPO would give the client the opportunity to increase coverage at a later date without medical underwriting, subject to the contract definitions and financial underwriting. Each company has their own rules and guidelines.

Once the producer has gone over the benefits, then the producer needs to manage the client’s expectations regarding underwriting. Remember, not everyone who applies for a DI policy can get one. In some cases, a company can offer a policy with modifications.

Most individual disability applications require medical underwriting. The producer should ask questions about the client’s health history. Let’s say the client says they take medications for anxiety or mild depression. Perhaps the client also shares that they see a chiropractor six times per year to treat pain in their lower back.

While a producer isn’t the underwriter, we can let this client know that our experience has shown us that due to the client’s mental health and lower back history, they may get an exclusion for mental health coverage and/or an exclusion on the lower back. In addition, the underwriter can modify the benefit period offered and/or the elimination period being offered.

In this example there are no surprises. Maybe a few weeks or more after submitting the application, the DI policy is issued with a benefit period to age 65—as applied for. But the client did get an exclusion rider on the lumbar spine and they are given an exclusion for mental coverage.

Now when the producer delivers the policy, the producer should review all the great benefits the client is getting with the policy in addition to reviewing the exclusions. The producer should remind the client that there is still an amazingly long list of potential illnesses and injuries that the policy covers.

Victor: This has been another great conversation. Thank you so much. Anything else you’d like to add?

Eugene: We must remember, we are helping the client and the client’s family. If that individual has a disability, the producer has done a fantastic job uncovering the need and softening some of the financial problems that a long term disability can present.

Your clients are both 30 years old, just had their first child, and now need some life insurance. You show the couple $1 million of 20, 25 and 30-year term. You discuss the value of permanent insurance and you show some very compelling facts and figures. At the end of the day, your client chooses a 25-year term for about $560 per year and you start the application and underwriting process. Awesome! Your client was approved without a medical via an accelerated underwriting process and you e-deliver the policy a couple of weeks later, make your client system notes, add some follow up dates for future reviews and move on to the next client.

A few months later, the same client runs into an old school buddy and within a few weeks they find themselves playing golf and catching up on old times. The old friend happens to be in the financial service business as well and the conversation turns to planning and protecting the family. Your client tells his friend how easy it was to buy some life insurance and what a great job you did with the process. The old friend starts to ask about how much disability
insurance was recommended, and your client says, “Disability insurance, how does that work?” Within a month, your attorney client has a $5,000 per month DI policy with comprehensive riders for about $1,500 in annual premium.

Fortunately for your client, in this hypothetical scenario, the other producer was able to secure a critical part of basic planning for young professionals and business owners. Unfortunately for you, the only product you sold was the low-cost term insurance and you missed the larger sale of the disability insurance. In addition, traditionally, a disability insurance sale will pay renewals for the next 10+ years, while, with the majority of companies, term insurance will just pay a first-year commission and no renewals. While the income generated is a fantastic reward, more importantly the disability insurance is based on morbidity rates versus mortality rates—which means that most of your younger clients have a statistically greater chance of being disabled than passing on during most of their working years. The disability insurance is a triple win product! It’s a win for the consumer, a win for the consumer’s family, and a win for the producer.

Everyone who works needs disability insurance while they are building their nest egg. While the need for this important product is great, not everyone can add it to their portfolio based on their combination of income and expenses. As a client’s income increases over their fixed expenses, then that client has more flexibility to spend, save, and invest. So, depending on a client’s fixed expenses, the crossover point will vary. The greater the fixed expenses, the higher the amount. For example, a client with three children and a large house will have more fixed expenses than a client who has one child and needs a much smaller house.

In general, we have found from personal experience that professionals, such as doctors, dentists, certain other healthcare workers, attorneys, engineers, accountants, and salespeople and business owners, making about $80,000 or more, are more likely to proceed with purchasing robust individual disability insurance policies.

For those with lower incomes or more manual duties there are less robust individual disability policies still available to provide protection—but perhaps without as long a benefit period. Also, the definitions may not be as comprehensive or the monthly benefits as high.

So, when presenting the life insurance, combo the presentation with disability insurance. If the timing isn’t right for the dual presentation then take a look at the life application after the life insurance is placed. As part of any life insurance policy, the application is part of the policy. This gives you the ability to review the life application to see if you feel the client is a possible candidate for individual disability insurance.

In addition, the medical part of the life underwriting can assist in some of the field underwriting needed for disability insurance. This includes, but is not limited to, providing information about medicine being taken and historical medical care that may have been needed.

So, the next time you are working with your clients, be sure to order the combo meal! 

Share The Love This Valentine’s Day For Disability Insurance

It’s the month of February which means another Valentine’s Day. A month to show your love for the important things in your life. Of course, this means showing your love to your family, your clients and yourself! Making sure you and your clients have the right products is another way to show your love. Your clients who are working and yourself most likely need disability insurance.

Why disability insurance? We all have fixed expenses that need to be paid if we can’t work due to an extended sickness or recovery from an accident. At the very minimum, there are certain expenses that are a must for anyone to have covered. These would include the rent or mortgage, utilities, car payments and insurance, and the cost of food.

There are of course other important fixed expenses that can be covered as well. What are your fixed expenses? Take a few minutes to jot down the expenses you have and ask yourself how many months could you pay the expenses with your current assets? A few months perhaps or maybe you can last a few years? Now think about this for your clients as well. For most people, having a disability policy that provides a monthly income would be much preferable to the stress of seeing one’s savings be depleted.

So now you need a quote for you or your client. There are three parts of underwriting when seeking your first individual DI illustration. Part one, the Occupational Class. For an individual quote, a rate class will need to be chosen. With most companies, the higher the number the better the rate class and the lower the premium. For example, with one company, a 6A may be the best rate class with the lowest cost per unit, while a 1A may be the most expensive rate class. If the occupational class is not quoted correctly then you may be showing the client rates that are too low or too high. Also, certain riders or policy limitations may be tied into the rate class as well. So making sure, as much as possible, that the correct occupational class is being shown is important.

You need to know the occupation and job duties. For some occupations it’s pretty obvious, but for others it may not be so clear. Understanding someone’s job duties, such as the percentage of administrative, supervisory, sales, and manual duties would be important to someone assisting with the illustration.

Part two of the quote process is to understand the income and how much maximum coverage can be quoted. Companies that focus on individual disability insurance will have an issue and participation limit. The issue limit is based on a percentage of earned income that is made during the year. It’s important to use the net income, which would be the income after business expenses but before taxes.

If someone actively works as a business owner of a pass-through entity, such as an LLC or S-corp, then most companies allow the amount of income (or loss) being passed through to be added to the W-2 income as well.

We mentioned issue limits, but what about participation limits? Companies will limit the total amount of monthly benefit that a client can buy of disability insurance with all companies. This is to prevent someone from having more income on claim than if they were working. Therefore, it’s important to know how much individual and group disability coverage someone has in force so that the monthly benefit amount of the new quote can be adjusted accordingly.

Lastly, if your client has unearned income, say from a trust, pension, or investment income from having a very high net worth, some of that income may be reviewed by the underwriter as well.

Part three of the quote request is to know the health history of your client. There are some conditions that may not be insurable with traditional individual DI companies and a specialty company may be recommended, assuming the client can obtain coverage at all.

Asking the traditional pre-screening questions, such as if someone’s been diagnosed with any diseases or conditions that have ever required treatment, including any psychotherapy, would be important.

Also, an individual disability insurance underwriter has the ability to exclude singular or multiple pre-existing conditions, such as a portion of the back or a knee. Therefore, it’s important to ask your client about any muscular or skeletal issues someone currently has or has had in the past. In addition, knowing their medications can be helpful to determine if a client has a condition that may be an issue in underwriting.

You are almost there! Once you get the illustration, be sure to review the disability policy before you discuss the insurance with the client. It’s always helpful to review the illustration and how the policy works with the resource that provided you the quote.

Also, never just forward an illustration to a client via email and expect your client to call you to review. Always make an appointment to review the illustration together. It’s important to review the need for disability insurance and why this product is so important to the planning process.

Share the love of disability insurance this February with the ones you love.

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 57 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. With the help of Victor Cohen, this is the eighth part of our ongoing series with Eugene Cohen, CEO and founder of the Eugene Cohen Insurance Agency, Inc.

Victor: I have often heard you say that one of the important responsibilities an advisor has is helping clients see the need for disability insurance.

Eugene: Yes, that’s right. And I have noticed that physicians, attorneys, and many professional people often immediately understand the need for disability insurance.

That’s not always the case with clients who may be salespeople, managers, executives, small business owners, electricians, carpenters, plumbers…the list is endless.

When the advisor brings up disability insurance to these clients, the clients often think, “Do I really need this?” Many times they will think about getting disability insurance but wait until it’s too late to buy.

Victor: So, what do you do to help clients see the need?

Eugene: To uncover the need, the advisor has to ask questions. I suggest asking the client, “Who depends on your income?” The answer will almost always be their spouse, their children, other family members, and themselves.

Another question to ask the client is, “What is your most valuable asset? Is it your car? Is it your home?”

When you buy a home and you obtain a mortgage, the lender is going to require you to have homeowner’s insurance, right? Let’s say that home is worth $300,000 or $400,000. The bank wants a guarantee that if the home is destroyed, the mortgage will be paid off. The bank considers that home a very valuable asset.

So, let’s look at a client’s income as an asset. Let’s say the client is 35 years old, earning $100,000 per year. Over the next 30 years, without salary increases, that future income is worth, at a minimum, $3,000,000. I would say that is the client’s most valuable asset—their ability to earn an income.

The client is like a money printing machine. If you had a money printing machine printing $100,000 per year, you would make sure that money machine was insured, right?

Victor: Absolutely. Just because someone is disabled and can’t work doesn’t mean their financial obligations go away.

Eugene: There are certain responsibilities that continue. In life, we have needs and we have wants. If income stops, needs continue.

Some of those needs include money to make mortgage payments, rent, utilities, health insurance, groceries…income takes care of these important non-cancellable obligations.

So how do we uncover the need for disability protection? By asking the client, “If you suffered a long-term disability, how would those needs be handled?”

I want to repeat, asking questions uncovers the need. Here’s another question to ask a client: “If you were disabled, how long would your savings last before it was depleted? How long would it take for your retirement dollars that you have put away to disappear?”

Your income is so valuable. It’s more valuable than the home you live in that the bank wants to make sure is insured for any catastrophe.

People have always said, “Good credit is extremely important.” Some people say it’s one of their most important assets. Can you imagine bills coming in and having no income to pay them? How would your credit be affected? Your credit rating could be destroyed.

Victor: There are also special disability products created just for small business owners.

Eugene: One of those products is disability Business Overhead Expense (BOE) insurance. When talking to a client who is a small business owner, with maybe ten to twelve employees, the advisor can ask, “If you were to have a disability that lasted one or two years, and you planned to come back to your business, how would your business expenses get paid while you were out-of-work disabled?”

The BOE policy would cover many qualifying business expenses during that time the small business owner was disabled.

Some examples of typical covered business expenses could include rent, utilities, phone bills, association dues, office supplies, equipment leases, some employees’ salaries (that qualify under the policy), etc. The purpose of this policy is to keep the business open if the owner desires to return.

Victor: Before we wrap up our conversation, can you talk a little about Disability Buy-Out insurance?

Eugene: Many advisors will fund a buy/sell agreement with life insurance. But what if one of the business owners is disabled and cannot work? A disability buy/sell agreement needs to be in place.

Disability Buy-Out (DBO) insurance helps provide the funds needed to buy a totally disabled business owner’s interest under a buy/sell agreement. With a DBO insurance policy in place, the remaining owner(s) may be able to continue the business without selling shares of the business for capital, without getting loans, without using business revenue.

Just a reminder, business owner eligibility for this type of product differs from company to company.

Victor: Thank you as always for sharing your depth of knowledge and passion protecting clients with disability insurance. Is there anything you’d like to add before we wrap up our conversation for now?

Eugene: It is the advisor’s job to bring up disability income protection when doing their reviews covering clients’ needs. Protecting assets is an extremely important part of the review. Income protection is asset protection. May everyone reading this have a happy and healthy New Year and an incredible 2022!

Do you have any clients who are Doctors?
Make 2022 a time for a DI check up!

It doesn’t matter the type of insurance or financial services that may be your primary focus, if you have clients who are doctors, you most likely have prospects for disability insurance.

Why do so many doctors buy disability insurance? We can only surmise from brokers and their clients, but the answers are very obvious. Doctors learn about sickness and accidents in medical school. Doctors treat patients every day with medical conditions. Doctors see, firsthand, people trying to get better, and people who are suffering not only physically but emotionally. Doctors see the financial devastation that many of their patients experience. Doctors see every day how many chronically ill patients need to watch expenses and sometimes even forgo medications or treatment due to a patient’s financials.

At the end of a doctor’s workday he comes home to relax, be with family, and decompress from a full day of seeing and talking to patients. Just like all of us, doctors need to manage their business life and their personal life. Many resident programs will have brief programs or guest speakers that discuss the business of being a physician. Many times, during these sessions, the topic of required and recommended insurance products are discussed. We’ve been asked to speak and/or sponsor lunch-and-learns for groups of resident physicians to discuss individual disability insurance.

Physicians are among the most popular occupations to purchase individual disability insurance. If you have a client who’s a physician, don’t assume they have already bought disability insurance. We see illustration requests every day from brokers with physician clients, from all ages, who need disability insurance.

Don’t make the mistake of assuming that your client doesn’t need coverage or need more coverage. This is where brokers miss too many sales and opportunities to help their clients. Take for example a physician who bought disability insurance as soon as they started their practice or even as a resident. His policy may be for $5,000 or even $10,000 of monthly coverage. As he grows his practice, income tends to increase, and as income increases his monthly expenses increase. Some of the largest cases we see are add-on cases from doctors who already have coverage and their broker or planner recognized that the doctor was underinsured. Take that same client ten or twenty years later, his income may have doubled, tripled or even more! Many of these clients need more coverage and will increase their coverage when approached with a sound recommendation.

BOE: Another missed opportunity brokers overlook is that physicians (and dentists) who run their own practice need business overhead expense disability insurance as well. Take a physician who has an office, an intake nurse, a receptionist, and a few employees to take care of the accounting and insurance claims. That physician could have expenses of $20,000 per month or more…just for a small office.

Now if that physician can’t practice for a year due to, say, cancer treatments, or a car accident that requires many operations and physical therapy…then how will the expenses be paid for the office? At this point the doctor has two choices—keep the practice open in some format or shut it down. The answer usually depends on the disability and if the physician believes that a full recovery is possible. If the client has a business overhead expense policy that can help to cover some or all of the eligible expenses, then it’s a lot easier to keep the practice open while the physician tries to recover.

DBO: Another missed opportunity for brokers to assist their clients is with disability buyout coverage. Most physician practices with multiple physicians (and dentists’ offices) will usually have a practice or operational agreement among the physician owner-operators. In the operating agreement there’s usually a buyout agreement that would be triggered in the event of a death or a disability.

Many brokers will recognize the opportunity to fund the life buyout part with life insurance. Where many brokers fail their clients is not recognizing or emphasizing the need to fund the disability buyout portion of the agreement. The reason this is important is the same reason that a life buyout needs to be funded, it can be very costly to buy out a disabled partner.

The major difference though is that the disabled partner is still alive, which means there may be more decisions and issues that occur. A disabled partner may not always be totally disabled, so there can be more complexities.

When a partner gets disabled in any business the firm could have significant disruptions in revenue and talent. Replacing a disabled physician can be tricky because, in some cases, it may not be known if the disabled partner will actually come back to work. Then once it’s determined that the partner needs to be replaced, it can take time to find the right person.

In addition, if the practice is in a more remote area, in theory it can take even longer to find that right person. Most provisions don’t trigger a buyout until the partner is disabled for a significant amount of time, usually a year or longer. The non-disabled partner now has to shoulder more work and find that perfect new partner. All of this and then the non-disabled partner eventually has to come up with funds to pay out the disabled partner a year or longer after the disability started.

Having a disability buyout contract can create the funds that, at this point, may be desperately needed to ensure a smooth transition. It’s in all of the doctors’ best interest to have a disability buyout contract.

Do you have clients who are physicians? Make it a priority to reach out to your physician clients for a disability check up.

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 Cohen, who has dedicated over 57 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. With the help of Victor Cohen, we will chronicle many of Eugene’s life lessons, advice, strategies, and what drives him every day to mentor those who wish to help their clients protect their incomes. Disability insurance 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.

This is the seventh part of our ongoing series with Eugene Cohen, CEO and founder of the Eugene Cohen Insurance Agency, Inc. The agency started as a disability insurance brokerage MGA and has grown to over 35 team members who are all focused on the wholesale service needs of financial professionals for disability, life, long term care, and annuities.

Victor: So, we’re talking about Business Overhead Expense (BOE) insurance… Who do you think needs this coverage the most?

Eugene: The small business owners and professionals (doctors/dentists/attorneys) are great prospects for business overhead expense insurance, as the need is tremendous. And as I always say, “Need motivates action.” This product is one of the best kept secrets.

Victor: If a small business owner already has an individual disability insurance (IDI) policy, why would they also need a BOE policy?

Eugene: An individual disability insurance policy protects a client’s income. The monthly benefit from the IDI policy helps to cover a client’s fixed obligations such as rent or mortgage payments, food, clothes, insurance premiums and other necessities. That’s what an IDI policy is designed to do.

If you’re a small business owner who gets disabled, you’re likely going to want to keep your business open. Even though the owner can’t work, the expenses of the business are still the owner’s responsibility. And that’s why having a BOE policy is so important.

Victor: What type of small business owners tend to need BOE protection?

Eugene: Owners of small engineering firms, architectural firms, accounting firms, law practices, doctors of dentistry, owners of small doctor practices, owners of small consulting firms and IT firms. Usually there are less than a dozen employees in these businesses, though sometimes more employees can be justified.

Here’s an example of the need for BOE. A producer presents an individual disability insurance policy to a dentist, who owns their practice. They have about ten employees. The dentist gets an IDI policy that will pay a monthly benefit up to $10,000 to age 67 for a qualifying disability.

The dentist seems satisfied with the policy and feels well protected. The producer seems satisfied.

A year later the dentist gets in a bad accident while riding a bicycle and breaks multiple bones and can’t practice dentistry for at least six to seven months.

While the dentist has an individual disability insurance policy to pay some of their personal expenses, what about the business expenses? The dentist still must pay the salary of the employees. Then there are payroll taxes, and utility bills, malpractice insurance premiums, legal and accounting business fees, phone bills, the list goes on. The dentist has approximately $20,000 per month in expenses.

Now the dentist is not happy, as these expenses have to be paid in order to keep the office open. And why did this dentist not have BOE coverage? Because the advisor never presented it.

Victor: As a small business owner, have you personally ever owned a BOE policy?

Eugene: Oh, yeah. Throughout my career I can remember how important it was to me. I had to sign my first lease for my office. It was $3,000 per month. In today’s dollars, with inflation, that would be about $9,028 per month. That’s a lot of money for a business just starting out and me, being personally responsible for making sure it was paid…every month…regardless of the revenue received.

I purchased a BOE policy to protect my business to provide peace of mind. I looked at the great support staff and said, “Eugene, if anything happened, would you really want to be forced to part ways with these incredible team members?”

If I had a qualifying claim, after the elimination and claims process, that policy would help offset my rent, salary, utilities, and other fixed expenses I had, every month, for the benefit period of two years. In fact, with many policies, if the expenses are less than the monthly benefit, the benefit period can be extended by the amount that was not yet paid out.

Victor: When an advisor is talking with a client who is a small business owner, how do you suggest the advisor help that client uncover the need?

Eugene: The same way an advisor can help any client see the need for any DI product. Ask questions.

You ask the small business owner, “If you’re disabled, who’s going to reimburse you for the cost of your assistant, the rent, and all these covered expenses listed on the policy?”

I’d say, “You already have an individual disability insurance policy to protect your income. Now we have to protect your business. If your revenue decreases due to a qualifying disability, your expenses aren’t going to decrease. You want to make sure your office is open and that your staff is still there when you come back.”

Victor: Exactly how does the policy work?

Eugene: These are expense reimbursement policies. Usually the benefit period can be around one or two years. There may be a waiting period of 30, 60, or 90 days—depending again on the company offering the policy.

Many of the policies have a “Carry-Forward Feature.” So, let’s presume you don’t use all the benefits in the policy over two years—or whatever the policy’s benefit period is. You could possibly have a longer payout period (subject to policy limits).

There is also a “Residual Disability Benefit” on many BOE policies. If you are not totally disabled but, because of your qualifying injury or sickness, you have at least a certain percent loss of business income, you could possibly get a portion of eligible business expenses reimbursed. Each company may vary on this provision.

Depending on the client’s occupation class, some companies have a “Salary Replacement Rider.” This rider may allow some flexibility in allowing a business owner to hire someone, other than a family member, to perform the business owner’s duties and, depending on the rider, have the business owner’s salary included in covered expenses.

In addition, most policies have a waiver of premium provision as well.

Victor: Can a business owner deduct their BOE premiums as a business expense?

Eugene: Naturally, the business owner should check with their accountant. But business overhead expense premium is usually tax deductible. The benefits coming in are based on reimbursements of qualifying business expenses, which ends up making the benefits a non-taxable event. Any tax questions should be referred to a client’s tax advisor.

Victor: Unfortunately, we have to wrap up our conversation for now. Thank you so much. This has been great. Before we go, any final words on BOE coverage?

Eugene: Thanks, Victor. BOE is a product that small business owners are very interested in…as long as advisors present it. The need is there.