Michael Cohen

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.

If you are like us, Halloween is one of your favorite holidays. The decorations, the costumes, school parades, and good old fashioned fun. While we enjoy the fun aspects of the holiday, the old saying of “trick or treat” can remind us of disability insurance. Why could such a fun holiday trigger thoughts of disability insurance? The “trick or treat” aspect of the holiday. The contrast of the saying is similar to those who have disability insurance and those who do not. For a moment, think about what goes through your mind right now when we say that your income will stop tomorrow. For many people, it’s first fear, then acceptance, then planning: What’s my budget? How much cash flow from investments and how much shortfall?

The treat part is knowing that your client has invested in their own income protection. But this treat is not automatic. Most of your clients, if not all of them, hardly wake up in the morning and say to themselves, “I should call my insurance broker and ask about disability insurance.” Yes, it may happen from time to time, but usually there’s a reason for that call, such as a change in health or someone they know got disabled. Most clients need their broker to reach out and discuss income planning. Ask a client, “What is the longest vacation you’ve ever taken?” Most clients say only a couple of weeks, if that. When asking further the reason for that answer, typically they say that they need to get back to work. Even if a client is not ready to invest in their own income protection, you’ve at least planted the seeds. Just like a farmer, seeds need to be nourished and eventually will grow until they bear the fruits of the labor. In our case, educating clients about the need for disability insurance and how these policies work is the nourishing part of working with clients. Having a client walk through the budget as if their income just stopped is helpful regardless of whether they buy disability insurance or not.

The trick part is what clients do when they create objections for not buying disability insurance. We know they are mostly tricking themselves as to why they shouldn’t protect their income. We’ve talked about the four basic objections many times, but let’s briefly review them again and look at them in a slightly different light.

The “No Need” objection: While it’s possible your client could survive on their current net worth, the majority of clients cannot sustain their current lifestyle solely on their current assets. They may also be tricking themselves into thinking that a spouse who isn’t a major contributor to household income can all of a sudden create as much income as themselves.

The “No Hurry” objection: The client may be tricking themselves into believing that they have all the time in the world to make this decision. While money pays for the premium, the client’s good health is part of what is needed to get through underwriting. The client is literally only an accident or sickness away from not being able to qualify for a disability policy. No one plans on being disabled. This is worth repeating: “No one plans on having a disability.”

The “No Money” objection: The client may be tricking themselves into believing that they can’t afford the premium. The premium is a function of product design and those that are designing the illustration. As planners, we are not here to cause a client a financial problem, but to solve a financial problem. We find keeping the premium at about two to three percent of someone’s income tends to resonate with clients. If a client thinks a premium is too high, then the plan can be reduced to make it more affordable. Having at least the cost of the monthly mortgage and utilities would be a good floor to consider.

The “No Confidence” objection: Clients may trick themselves into believing that the contract may not pay in the event of a claim. Usually, this is a trick reply all together, as the real objection is typically one of the first three, but nonetheless let’s assume it’s real. We know that insurance companies are very good at following the provisions of their contracts. It’s very unusual, if not unheard of, for a company not to pay a valid claim. Therefore, it’s encouraged for brokers to recommend individual disability insurance contracts with the broadest or most appropriate definitions a client is able to obtain. It’s also important for the broker to make sure a client understands provisions of the policy, such as, but not limited to, the elimination period, the benefit period, and the definitions of disability. Once a client understands these provisions, the “No Confidence” objection should melt away.

We hope you and your family have a fun and safe Halloween season. Remember about “trick or treats” and if you have any clients who are tricking themselves about disability income protection, please reach out to your individual disability insurance resources.

We often get asked by new advisors and insurance producers how one can grow their practice. If you ask 20 sales managers, you will most likely get 20 different answers and suggestions. You can already tell by the title of this article that we are biased towards individual disability insurance.

The theory really goes back to the concept that it is better to make a prospect a client than to turn away a prospect because they do not fit the profile of the client someone may be seeking. For example, a well-established producer may be seeking clients with a certain amount of assets under management or net worth. While a well-established producer may have that flexibility, what about the producer who is just starting their practice?

Many new producers, especially the younger ones, are in a classic conundrum in building their business, as their center of influences tend to be young and less established as well. Of course insurance products and planning are needed at all ages but, for the young advisor with young clients, there may be those whose product needs may be more limited as well as those that desire to pay for and establish a full financial plan. Luckily, when you have constant contact with a client, a more comprehensive plan can be established at a later date.

Disability insurance tends to resonate with clients of all ages, but especially with clients in certain professions and with those who are self-employed. Take for example a 30-year-old physician resident who will soon graduate and start their profession in earnest. According to BankRate.com, the average debt of a medical student is over $200,000,¹ and the income a resident makes is a fraction of what they will eventually be able to earn while practicing. While many financial and insurance products may be very appropriate, disability insurance seems to resonate with many of these potential clients.

Let’s take a closer look at these younger professionals with similar incomes. These can be physicians, attorneys, dentists, and those who are self-employed, all with a common theme—they are young and just starting to grow their incomes. According to theknot.com, the average age of a married couple in the United States is age 32.² Many times traditional life insurance and financial planning starts after clients get married, which can leave the insurance producer searching for the right product to recommend to those single young professionals. Disability insurance is one of those win, win, win products that should be considered for these clients.

Win number 1: There is tremendous need! The need is obvious, if the young professional has an injury or sickness that doesn’t allow them to practice their profession, they need income to pay their bills, pay the loans, and keep them independent. These products can also have provisions that will allow the client to buy more disability insurance in the future without having to prove medical insurability. We call these provisions future purchase options or some other similar name. We’ll discuss this below.

Win number 2: Establishing a client! The beginning insurance producer or planner has made a prospect a client. Establishing and satisfying a financial need is always the most important aspect of recommending an insurance product. Disability insurance allows a planner to have a product at their disposal that can resonate with young clients versus some other products that may not resonate as much or may be much more expensive. Why recommend only one type of product when the insurance producer can include disability insurance in the recommendation?

Win number 3: Having a valid business reason to stay in contact! It’s magical when the insurance producer can establish a need, recommend a product and create a client relationship all at the same time. Even better is to have a valid business reason to reach out to the client every few years to review essential product provisions that require action. Most disability insurance policies will either include or allow the producer to add a couple types of increase options. The first is a future purchase or adjustment option which allows the insured to increase their disability insurance without medical insurability. These options always have a limited window of time for them to be requested and do require action by the insured to apply. This means that the smart insurance producer will recognize the valid business reason to reach out to the client and walk them through the increase process. This allows the producer to possibly reestablish a relationship that may have waned since the policy was first put in force.

In addition, many individual disability policies have an automatic increase benefit that can increase the base benefit by a small amount, say four to five percent per year for usually about five years. At the end of the five years (or time period for that company), most companies allow the automatic increase to continue as long as the client applies for the benefit to continue for another five years or to a certain age. These options always have a limited window of time for them to be requested and do require action by the insured to apply, which again will give the producer a valid business reason to reach out to the client.

In summary, it’s essential for the sales managers and for those who are establishing their insurance practice to familiarize themselves with the need for individual disability insurance and how to position this product as one of the essential tools that can help take prospects and turn them into clients.

Reference:

1. https://www.bankrate.com/loans/student-loans/average-medical-school-debt.
2. https://www.theknot.com/content/average-age-of-marriage.

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 sixth 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: Thank you for the time last month. I’d like to continue our conversation, as it was so intriguing. I know I asked you to give just three reasons why you think it’s best to get a first DI policy when young. Is there another reason you haven’t mentioned?

Eugene: Yes. And probably the most important reason to get a DI policy. Young clients–like older clients–need it!

Victor: It seems like many young people–especially in their 20s and early 30s–sometimes have a hard time seeing the need for this important protection. The thought is that health issues and accidents are “older people problems.”

Eugene: Actually, anyone training to be in the field of medicine or law knows how important it is to obtain disability income protection insurance as soon as possible. While studying in these fields, they have seen firsthand how important it is to protect one’s income from unexpected accidents and sickness.

Victor: What about younger, non-medical professionals? How do you get them to see the need for DI?

Eugene: I suggest telling real-life stories about young people who purchased DI policies early in their careers and ended up needing the protection. These stories are easy to find. Just go to the website lifehappens.org. The stories are all right there.

You can read about Michael Sizemore. At 27, Michael and his friends were out one night, crossing the street, when suddenly a drunk driver ran a red light. The car hit Michael, leaving him with such severe head trauma and other injuries doctors didn’t know if he would survive. Michael was placed in an induced coma followed by countless surgeries to repair his shattered legs and to treat his head injuries.

Fortunately, Michael survived and is now getting better. After a lot of rehabilitation he can finally walk again but, during the three years it’s taken Michael to recover, he’s been unable to return to work.

Thanks to a long-term disability insurance policy Michael had through work, Michael’s been able to pay his rent, utilities, and even keep his truck. Michael hopes to go back to work soon, and he credits his disability insurance with helping him through this challenging time.

In this article on lifehappens.org, Michael says, “I’m still rebuilding my life and myself… My disability insurance has been key. I wouldn’t be where I am without it.”

Victor: Being young presents its own unique challenges if an illness or accident were to occur. Many young people have little savings. They couldn’t go very long without income.

Eugene: I purchased my first disability insurance policy at 25 years old. Why? Because even at 25 I knew that I needed to protect my income if something were to happen to me. I was newly married. About to have a kid. How would I pay my rent, take care of my family, without income? I needed that policy as much at 25 years old as I did at 55.

The need for DI is there at any age. At lifehappens.org, there’s the story about Dore Bakouris. At 27, she was newly married, had a one-year-old son and had just returned to work. Suddenly, Dore started having severe headaches. They were so painful she was forced to go to the ER. In the hospital Dore had a CT scan. Doctors told her she had a brain tumor.

After going into surgery, doctors discovered the tumor was actually a cavernous angioma, which is a life-threatening malformation of blood vessels. Dore lost her right peripheral vision and suffered cognitive impairments. Doctors later learned Dore had also suffered a stroke.

Because Dore had purchased income protection insurance before her illness, that disability insurance replaced part of her income. And because Dore had critical illness insurance and suffered a stroke, she was paid out a lump sum.

Thanks to Dore’s early planning she and her husband and child were able to move closer to family for extra support.

Dore says in the article at lifehappens.org, “This insurance has been a miracle for us… It’s helped us in ways I didn’t think were possible.”

In the article Dore’s husband Steven, who happens to be an insurance professional, says that people expect something like this to happen when you’re old or to “other” people. He says, “I want to express how important it is to have this kind of planning in place…your ability to generate income is your largest asset…if you can’t work, where does that leave everything else?”

Victor: And with a two-income household like Dore and Steven’s, having that loss of income can be a big loss.

Eugene: I look at two income households like this. Have you ever seen a teeter-totter? It works great when two people are on it. Right? But what happens when one person gets off? What happens to the other person still sitting on it? That’s what happens to two income households when one of the incomes goes away.

Victor: Income protection insurance keeps the teeter-totter moving.

Eugene: Here’s a final true story I want you to hear—also from lifehappens.org. Bill Reid was 32 years old when he got in a car accident on New Year’s Eve. He ended up with a brain injury that put him in a coma for five weeks. Bill spent about seven months in the hospital and rehab center.

Due to the accident, Bill was left with chronic, short-term memory loss, making it impossible for him to ever work again. Fortunately, Bill got his first disability insurance policy when he was just 26, and he later added more coverage as his earnings went up. When Bill changed jobs and took an employer-paid disability insurance benefit, he very wisely kept his individual coverage for the added protection.

Because of Bill’s smart financial planning his income is roughly the same as it was before the accident and will continue until age 65, allowing him to stay in his home and lead an active life.

You can see from these three stories that these individuals’ lives would have been completely different, financially, if they didn’t have disability income protection.

Victor: I like what you say about disability insurance. It’s like a parachute. It’s better to have it and never need it…than to need it and not have it.

Eugene: That’s exactly right. One of the most valuable first services a producer can offer a young client is educating them on the need for income protection insurance.

Victor: Thank you as always for so generously sharing your knowledge, passion, and experience. I look forward to us talking again, soon!

The stories cited in this article (and more like them) may be found at lifehappens.org.

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 fifth 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: From your years of experience in the disability insurance world, what would you say is the best age for a client to purchase disability insurance?

Eugene: Illness and accidents can obviously happen to anyone at any age. No one has a crystal ball to determine exactly when someone is going to become sick or get hurt. The medical dictionary is loaded with disabilities that can affect young and old people.
The ideal time to first get a disability policy is in your 20s or 30s. The sooner the better. Of course, if someone is in their 40s or 50s and does not have an income protection insurance policy I would encourage them to try and get coverage.

Victor: What would you say are the top three reasons why it’s important to get a first DI policy in your 20s or 30s?

Eugene: It’s hard to limit it to just three reasons. Okay, here’s reason number one—lower premiums.

Disability insurance premiums are partially based on age. Naturally, the younger you are when you get a policy, usually the lower the premium on the specific monthly benefit you get at that time.

If the policy includes a non-cancellable, guaranteed renewable, provision, then the premium on that benefit amount of the policy would be fixed until such time as the policy becomes conditionally renewable, usually between ages 65 to 70 depending on the company. In addition, the client would be able to make changes to the policy at any time. The allowable specific changes depend on each company’s rules and regulations.

Victor: So, with the non-cancellable rider, if a 30-year-old gets a DI policy today they will be paying the exact same premium on that benefit amount when they are 40 years old, 50 years old, for as long as the non-cancellable provision applies?

Eugene: As long as they pay their premiums on time and meet other conditions of the policy.

Victor: That’s definitely an excellent reason to get DI coverage young. What is a second reason why you feel it’s best to buy a DI policy in your 20s or 30s?

Eugene: Well, you need more than money to buy a disability policy. If the policy is medically underwritten, you need good health. So ideally you want to buy a DI policy when you’re healthy.

The longer you wait to apply for a DI policy, the greater your chances of developing health issues from a disease or accident that could make you uninsurable. Not everyone who applies for a disability insurance policy is offered one.

Also, you want to get a DI policy when you’re healthy so that if health issues arise later in life, after you have the policy, those conditions will be covered. If you develop health issues like a back problem, depression, and other conditions before getting a DI policy those problems would likely be excluded and not covered on a new policy. Unlike most coverages in the health and life space, the disability underwriter has the right to exclude certain conditions so that the policy can still be offered. We call this a modified offer. This is why it’s important to recommend a client obtain a policy as soon as possible.

Victor: And what would you say is the third reason it is best to get a DI policy when young?

Eugene: You want to protect your medical insurability. There are disability policies today with riders that will allow you to get additional benefit in the future—even if your health later changes after the policy has been in force. The company will only require financial underwriting to approve those benefit increases—no medical underwriting. Each company has its own rules and regulations pertaining to this valuable rider. For example, most companies require that a client not be on claim when applying to increase the policy.

Victor: Can you explain how that rider works?

Eugene: So, your client is a young resident. During her residency she purchases a disability policy with a small monthly benefit. The policy has a rider that will give her the option to increase her coverage later in her career, without any medical underwriting, assuming she’s not on claim.

A few years after getting her DI policy the resident is about to finish her residency when she notices a spot on her arm. She visits the dermatologist who tells her the spot is the early stages of a melanoma. The cancer is removed and she’s fine.

The resident later finishes her residency and receives a lucrative offer at a well-established medical practice in which each physician obtains their own disability insurance. Now she wants to increase her monthly benefit on her DI policy to keep up with her large, new salary. Thanks to this valuable rider on her policy she is able to get additional coverage without any medical underwriting. These riders may have timing provisions that must be satisfied, so it’s important to make note of when an increase can be requested.

In addition, most policies have an automatic increase option as well. This allows the policy to increase by a small percentage, say four or five percent each year for usually five or even six years. At the end of the period most companies then allow the client to apply for another period of increases. Typically only financial underwriting is needed at the time the request is made for another period of automatic increases.

Victor: Thank you so much for all of your insights here. Unfortunately, we need to wrap up this conversation for now. But next time may we continue our talk on this theme around disability insurance for young clients?

Eugene: Yes, sounds good!

How much coverage to recommend in a low interest rate environment

When it comes to designing a disability policy for a client, it’s easy to advise the maximum amount that client can qualify for based on the insurance company’s issue and participation limits. There are clients and planners who would like to understand more about the amount of coverage available and some of the planning considerations, especially in a seemingly perpetual low interest rate environment.

Issue and participation tables in the individual disability insurance marketplace: Disability insurance companies will usually give the field guidance as to how much coverage the company is willing to issue a client. These are the issue limits and may be the same or less than the participation limits. The participation limits give the indication of how much total coverage the company will participate in at the time of the application. Let’s take a closer look at the differences.

For issue limits, the amount of coverage a company will issue will be based on a few factors that include, but are not limited to, income, occupation, and other disability coverage.

For income, the company will usually look at earned income, which is the earned income before income taxes are paid. For occupations in which the income can fluctuate, such as commission-based sales, the company may take an average of the past two or three years. In addition, if your client has passive income, then depending on the company and the amount of passive income, a formula may be applied that could limit or even eliminate the amount of coverage that can be offered.

For occupation, the client’s occupational rate class will usually have a direct correlation with issue limits, with the more risky rate classes having lower limits. In addition, companies may have “select occupations,” in that they will issue a greater amount of coverage than the issue limits would normally allow. For example, an attorney or physician in their first year of practice may be allowed to buy a higher amount than they would have been able to qualify for solely based on their income. This may also apply for students of certain professional occupations or certain medical residents.

Other disability coverage: If a client already has disability coverage, then depending on the coverage type, various formulas may be used to determine the maximum amount of additional coverage that a company may be able to offer. The formulas usually require the producer to know if the client pays all or a portion of the cost of the additional coverage. In addition, the company would need to know if the coverage is group disability insurance or an individual disability policy. Also, if someone is a community, state, or federal employee, the companies may have a separate formula that is used to calculate the maximum amount that can be issued due to the benefit packages that come with most of these occupations.

Participation limits may have similar rules and calculations to the issue limits that were described above. The key with participation limits is to know that, with some companies, these limits may be higher than the issue limits. This would allow a planner to use multiple companies until the participation limits are fulfilled.

For example, take a physician who has no coverage and has an income that would allow him to obtain $30,000 per month of individual disability coverage. Due to the occupational rate class, let’s say there are two desired companies that have an issue limit of $20,000 per month of coverage, but will participate up to $30,000 of coverage. The planner could then take two applications, one application for the $20,000 per month with the first company and a second application for $10,000 per month of coverage with the other. This would allow the physician to obtain the $30,000 per month of coverage desired even though both companies have an issue limit of $20,000 per month of coverage.

Note, there are surplus lines carriers that may allow for higher issue and participation limits, but the coverage tends to have benefit period limitations as well as other limitations.

How much coverage to recommend? There’s a saying among producers who specialize in disability insurance: “I’ve never had a client on claim who thought they bought too much disability insurance!” Usually the opposite is true, where a client on claim wishes they bought more coverage, not less. As discussed in previous articles, during a disability claim expenses actually tend to increase while income decreases. Yet, there are clients who may qualify to buy more coverage but decide to take less coverage in order to save on premium. While this may be valid for clients who have high expenses and limited income, for others it may be purely a way to save premium dollars. This is where clients need to understand some trends that we have seen in the marketplace.

Interest rates have been very low for the past few years and no one knows when or if they will increase to any substantial level. The key is the substantial level, as clients who have enough investable assets may feel that the assets can be shifted into fixed income type of investments that can produce income while they are disabled. Given that the duration of the disability may be unknown, planners may recommend conservative investments to preserve the principal. In doing so, the low interest rate environment comes into play as the amount of passive income generated from conservative investments tends to have a direct correlation. In general, the more conservative the investments, the lower the interest rates. For example, at one percent interest, it would take $500,000 to earn a taxable $5,000 per year of income while a client could buy an extra $1,000 per month of disability coverage, which would be $12,000 per year, for usually a minimal amount of additional premium. To us, the answer is obvious in how much coverage should usually be considered.