Michael Cohen

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.

It’s no April Fool’s joke when a client doesn’t have disability insurance.

Fluke accidents, COVID-19 or other infections that can create residual effects, or chronic illnesses that become a lifelong challenge can be among the many sources of disabilities. Many clients without disability insurance will find themselves in financial turmoil, watching their assets slowly drip away like a snow pile exposed to a sunny day.

As a disability wanes, the question about Social Security’s provision for disability (SSDI) payments may come up. Sometimes a client may confidently remark that they don’t even need an individual disability insurance policy because if they were to get disabled they would go on SSDI.

A great resource for information about SSDI is www.ssa.gov/disabilityfacts/facts.html which offers a nice summary of this often misunderstood section of Social Security benefits. We will highlight some of the facts that are important to a client. You can also refer your clients to the link as well.

• “Social Security disability insurance is coverage that workers Earn!” In order to qualify for SSDI, a worker needs to earn enough credits of working years. There is a formula that is used that can be found in the fact sheet. https://www.ssa.gov/pubs/EN-05-10029.pdf.
• “The Social Security Act defines disability very strictly.” The summary very clearly states that the eligibility rules differ from private plans.
• To receive disability benefits, a person must meet the definition of disability under the SSDI act. The disability must be from a severe medical condition that has lasted or is expected to last at least one year or result in death. The medical condition must be so severe that it prevents the person from doing work that they did in the past and the condition must prevent them from adjusting to other work. This is a very strict definition, because if someone can work in a different capacity at a different job, they will most likely not qualify for benefits. The site continues to state, “SSDI beneficiaries are more than three times as likely to die in a year as other people the same age.” In addition, it states that SSDI doesn’t provide temporary or partial disability benefits. This is key, as many disabilities can be limiting, but not completely totally disabling. We also know that the majority of first-time applicants for SSDI are denied due to a variety of reasons. The difficulty of qualifying for SSDI has led to certain attorneys who specialize in trying to help those who truly need the benefits try to navigate through the system.
• “Social Security disability payments are modest.” At the beginning of 2019, the average monthly SSDI payout was about $1,234 to all disabled workers. So even if someone could meet the strict definition of disability, the amount that they would receive would be around the poverty level, https://aspe.hhs.gov/2020-poverty-guidelines. Imagine having to prove out that a disability is so severe that someone can’t do any type of work and then, when the person does get a check, it’s barely enough to pay a majority of their monthly expenses.

What we find very interesting is that most companies that focus on the high-income professional market, for the most part, will not count SSDI in how much coverage a client can buy. Of course this will vary by company, but let us look at an attorney making $200,000. In reviewing the income and participation tables, we can see that the tables do not reduce the amount of available coverage by the amount that can possibly be qualified with SSDI. If you contrast this with a client who already had a $5,000 per month individual DI policy, the amount of additional coverage that can be applied for would be reduced by the amount of in force coverage. We can only assume that either the low frequency of approved claims, strict definitions, or low monthly benefit amounts allow these companies to ignore the benefit.

We should mention that there are some companies that offer a SSDI offset benefit. This provision would allow the individual disability policy monthly benefit to be divided between a base benefit that the insurance company would pay like a regular claim and a smaller portion that would be offset by any SSDI that is received. In fact, some companies require that the benefit be structured in this fashion if a client wants to obtain the maximum amount of benefit available based on their income. This is similar to a provision that many group LTD policies build into their policy that requires the monthly benefit to be offset by other income a worker may receive. Some of the other income mentioned in many group insurance offset provisions would include worker’s compensation, Social Security DI, and union benefits among the litany of offsets. As always, it is important for the client to understand the limits of group LTD.

From what we have seen, most planners are focused on making sure clients have the most comprehensive individual disability insurance coverage possible and do not focus on SSDI due to the restrictiveness of the benefits. Individual disability insurance is an extremely important product that should be a fixture in almost every working client’s insurance portfolio.

2009 Honoree International DI Society’s 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 more than 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 third 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: In our previous conversations (published in Broker World November 2020 and January, 2021 issues) you discussed the four basic objections an adviser may confront when discussing disability insurance with a client. Those objections are no need, no money, no hurry, and no confidence.

Eugene: It’s most important to immediately uncover the need. When you uncover the need, the other objections will disappear.

Victor: How do you establish the need when talking with a highly compensated client who already has group long term disability (LTD) insurance? Where is the need for more disability insurance?

Eugene: The need is tremendous. Let’s take a close look at highly compensated individuals who often have group LTD. These clients are often your business owners, physicians, attorneys working for mid to large firms. In addition, you have your partner firms of accountants, financial advisers and other professionals. Also the executives and successful salespeople, whose commonality are that their incomes are greater than $250,000+.

Group LTD coverage is a nice foundation for a disability program for firms with multiple types of employees. The implementation of group insurance is relatively simple but, as we know, the insurance company that issues group insurance needs to have protections in those group policies. The limitations inherent in group LTD can cause tremendous problems for the highly compensated executive or professional that only has the group policy.

We don’t suggest a client drop their group coverage. We often suggest layering an individual disability policy on top of the group LTD.

To help the client see the need for adding individual disability insurance (IDI) to their group LTD, we suggest asking questions. “Would your group long term disability insurance policy pay you enough if you were disabled?” The client will likely not know. So, then I suggest offering to review the client’s group LTD policy with them so they will know exactly what they are getting and we can determine if it would be enough for them if they were disabled.

Victor: You will literally ask the client to get a copy of their group LTD plan and then you’ll review it with them?

Eugene: I will ask them to send me the policy—or at least a summary. The client can reach out to their HR department if they do not have a copy. It’s better for the client to know the details of their group LTD policy now, rather than themselves or a loved one studying the group insurance policy at the time of a disability.

So, let’s say I am talking with an executive earning $300,000 per year. That’s an average income of $25,000 per month. Now we are looking at the group LTD and, in this example, the group LTD policy says it will pay 60 percent of the salary up to a cap of $10,000 per month. So that means the most the executive can collect per month is $10,000.

Let’s say, in this example, the group policy is being paid solely by the employer. The premium is being paid with pre-tax dollars, which means the benefits may be taxable. So, that $10,000 monthly benefit would be a much lower net benefit once the executive’s tax rate is applied. Suddenly the perceived amount of $10,000 per month could end up being a net amount of only $7,000, and most likely less when state taxes need to be paid too! That lower benefit may not be enough for the client. (Note: Your client should seek out personal tax advice from their financial advisor.)

Victor: Are there group LTD policies that can reduce the policyholder’s monthly benefit if the policyholder is receiving social security or workers compensation? What about the definitions in group LTD?

Eugene: Yes, most group LTD policies do have provisions in which the monthly group benefit can be offset and it can be a problem if the client is unaware of the provision(s). Also, let’s look at policy definitions. Many times you’ll find that the definition of a “disability” may be more restrictive in a group LTD policy than it is in an individual disability insurance policy. If you’re a physician, let’s say an orthopedic surgeon, does the group LTD insure that individual as a physician or as an orthopedic surgeon? The difference may determine if someone qualifies for a claim or doesn’t!

Another question that needs to be answered: Can the group LTD policy be canceled? Usually there are provisions that allow the plan to be canceled by the employer. The employer can say, “I no longer want to have this plan.” In addition, the insurance company that issued the group LTD usually has the right to terminate the plan for any reason—such as high claims or a change in the business the carrier is insuring. Regardless of the reason for the plan termination, the end result is that the client may be left with no coverage.

Here are some other important questions: What if your client wants to change jobs down the road? While individual disability insurance policies are portable and can travel from job to job with the policyholder, group LTD policies typically are not portable. Let’s say your client is 35 years old and at 45 the client decides to work for another organization that doesn’t offer group LTD. In order for your client to obtain an individual policy, there’s medical underwriting—which could cause an issue in obtaining new coverage. It’s possible your client may not be able to qualify for any coverage, which would be very unfortunate.

Victor: How much additional monthly benefit can someone get per month on top of their group LTD?

Eugene: If a client is earning $300,000 per year and his group LTD pays 60 percent of his income up to $10,000 per month, the client may be eligible to obtain an additional $9,000 per month of monthly benefits depending on the insurance company’s issue and participation limits. Again, this is if his group coverage premiums are being paid by his employer with pre-tax dollars.

If the group LTD premiums are being paid by the client (employee paid), with after-tax dollars, the client could get about $6,000 in additional monthly benefits on top of the group LTD with traditional companies. This also depends on the company’s issue and participation limits.

Here is another reason to get an individual disability insurance policy on top of the group LTD. Many of the IDI policies have a provision that says if the policy holder loses their group LTD, they are able to increase their IDI benefits based on issue and participation limits—without the medical portion of the underwriting (but there would still be financial underwriting). The companies often let the policyholder do this up to a certain age—depending on the company. This is a very valuable provision in that policy. It can protect the client’s medical insurability.

The client may have an option of obtaining a non-cancelable guaranteed renewable IDI policy. This unique provision not only guarantees the renewability of the policy to a certain age, it also will lock in the premium until that age as well.

As you can see, the higher income earning individual with only group LTD is at a disadvantage over others. The higher income earner may have a much smaller portion of his income covered than lower earning employees with the same group LTD policy. That’s why these higher income earners should supplement their program with an individual disability insurance policy.

Victor: Thank you so much for another great conversation. I look forward to us doing this again soon.

While vaccines are on the top of everyone’s mind, it is a good analogy for disability insurance and your client’s income. If you look at the science and facts available, every planner and insurance life, health, group, and property/casualty producer should have this conversation with their working clients.

Statistics:
More than one in four of today’s 20 -year-olds can expect to be out of work due to a disability for at least a year before one reaches normal retirement age.¹ While this is a fact you may have heard in the past, let’s take a deeper look at some other ages:

Chances of having a disability from work prior to age 65, that would last three months or longer:²

Age 35: 22 percent or approximately one in four and a half people.

Age 40: 21 percent or approximately one in five people.

Age 45: 20 percent or approximately one in five people.

Age 50: 18 percent or approximately one in five and a half people.

We just don’t know how long these clients will stay disabled. Does the length of disability really matter though? If we were able to plan based on hindsight, then yes, but we plan using known assumptions and projections and then adjust our planning as facts become more known. If a client were to become disabled, would we plan for the disability to last a year, three years, five years, or indefinitely?

Financial Devastation and harm:

• A 2014 study of consumer bankruptcy filings identified the following as primary reasons: Medical bills (26 percent), lost job (20 percent), illness or injury on part of self or family member (15 percent).
• Two-thirds of working Americans (63 percent) couldn’t make it six month before financial difficulties would set in—and 14 percent said they would have problems immediately, according to the 2020 Insurance Barometer Study by Life Happens and LIMRA.
• Per the survey of those that have experienced a serious illness, 42 percent of those between ages 18 to 64 used up most of their savings. Twenty-nine percent of those surveyed were having problems paying for basic necessities like food, heat, or housing.⁴

Cost for a disability policy versus not having a disability policy is subjective, as there are real costs and intrinsic costs. When someone doesn’t have disability insurance and an extended disability occurs, the real costs are devastating and, in some cases, it can cause financial ruin. The intrinsic costs of not having a plan in case a disability occurs are multiple, from financial strain on the family, to possibly needing to move to lower cost housing, to the psychological effects on those who find their net worth quickly dwindling. In addition, when a disability occurs not only does one’s income become affected, but usually additional expenses occur as well. This inverse ratio of income and expenses that many experience can cause more pressure on an already fragile dichotomy. The premium for a disability insurance policy will vary based on how much coverage is purchased. We find that most case designs resonate best with consumers when the cost of the policy is about two percent, give or take, of one’s annual income.

Obviously, with COVID-19, we’ve seen some of our fellow citizens and neighbors become seriously ill and unfortunately there have been hundreds of thousands of deaths as well. The toll has been staggering, but most are confident that the vaccines should help to curtail and eventually end this horrible pandemic. With COVID-19, we’ve also seen reports of the staggering physical disabilities occurring as well, which has compounded the adverse effects on many individuals’ financial wellbeing.

Like any type of proactive action, having a client obtain disability insurance can be an essential part of providing protection for a client and his family. At the end of the day, the cost of not having a disability income policy can be devastating and for those who ended up needing the protection the cost was trivial.

References:

1. Social Security Administration, Disability and Death Probability Tables for Insured Workers Born in 1997, Table A.
2. https://www.calcxml.com/calculators/ins05?skn=#results Source: 1985 Commissioners’ Individual Disability Table A, based on data from policies issued in occupation class 1 (select white-collar professional). These are unisex probabilities.
3. https://disabilitycanhappen.org/disability-statistic/.
4. https://cdn1.sph.harvard.edu/wp-content/uploads/sites/94/2018/10/CMWF-NYT-HSPH-Seriously-Ill-Poll-Report.pdf.