Thursday, March 28, 2024
Home Authors Posts by Michael Cohen

Michael Cohen

2 POSTS 0 COMMENTS
Michael Cohen, CLU is president of the Eugene Cohen Insurance Agency, helping brokers, general agents, broker/dealers and financial advisors serve their clients. Cohen has served on carrier advisory boards and organization boards of directors. He is a member of the Risk Appraisal Forum. Michael can be reached at Eugene Cohen Insurance Agency, Inc. Telephone: 800-333-4340. Website: www.cohenagency.com. Email: michael@cohenagency.net.

An Interview With Eugene Cohen

2009 Honoree International DI Society’s W. Harold Petersen Lifetime Achievement Award. 2015 Honoree of NAILBA’s 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 first part of our 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: Let’s start at the very beginning. How did you get started in the disability insurance business?

Eugene: Well, I had graduated from Ohio State University as a business major. I was newly married, looking for work.

I received an introduction from an employment agency to interview with an insurance company. They happened to specialize in offering disability income protection. At first, I was very concerned about working in this industry. I was 23 years old and I knew some people who used to sell insurance. They didn’t make it. That didn’t sound so uplifting. But after my interview at this insurance agency, I was really excited about the need for disability income protection.

Victor: Were you an immediate success?

Eugene: Like anything, it took time…but not too much time. You have to remember, after three months I was working on straight commission. And I had the greatest motivators in the world chasing me every day.

Victor: What’s that?

Eugene: I call it, “The mad dog of daily expenses.” Expenses! Rent, utilities, car payments, food, clothing…that “mad dog” was chasing me.

Victor: What else do you think led to your early success?

Eugene: Besides having a desire to succeed and natural competitiveness, I read many motivational books. And one thing they all had in common—they were all very positive.

When I started training at that first job–in a career shop—I noticed there were negative agents and there were positive agents. In high school I played football and also was a wrestler and I love sports. You’ll notice that there are spectators and the players on the field. The spectators get to judge, scream, play armchair quarterback and be negative. While the players were making it happen on the field. The players have to be motivated, focused, keep a positive attitude…they have to perform or be taken out of the game.

I knew I always wanted to be like the players on the field. Stay focused, stay motivated, keep a positive attitude—because what I was selling could change people’s lives! The game of life is a serious business and disability insurance can save individuals and families from the financial effects of a tragic disability.

I also found out very quickly that, like every business, the insurance business is a relationship business as well.

I also learned back when I started that the phone was one of the best ways to build relationships. Even in today’s world of email and instant messages, the most effective communication is by phone and now by video conferencing systems like Zoom.

Victor: Where did you get your leads?

Eugene: Back then I was using the yellow pages…can you imagine that? Now it’s easy. You have so many focused resources, such as Google, LinkedIn, lead services, etc.

Victor: Who did you focus on calling? Were there certain occupations you felt could use your services more than others?

Eugene: Everyone needs disability insurance, but the product seems to resonate more with certain occupations and income levels. I decided to work with professional people and business owners.

Victor: Why them?

Eugene: Doctors, dentists, attorneys, and all types of business owners…the need for disability income protection is so strong. That need is the same today as it was 57 years ago.

Victor: Did you have a prepared script you’d use when you’d cold call these prospects from the phone book?

Eugene: “Hello Mr. Jones, this is Eugene Cohen speaking. I’m a specialist in disability income protection, which is a policy to provide you with an income if you got sick or hurt and couldn’t work. Do you have anything like that?” That’s all I would say.

Most would say, “No, I don’t have anything like that,” in which case I would say, “I’d like to stop by and talk to you and explain the concept of disability income protection.” I was amazed because I was getting appointments!

In the rare situation when someone would say they already had a policy like that, then I would say, “When is the last time you have had the policy reviewed in comparison with your income? I’d like to stop over and introduce myself to you.” And I’d work on setting up an appointment.

People were willing to talk to me. I was on the phone every single minute.

Victor: What role do you think disability income protection plays in a person’s life?

Eugene: The way I look at disability income protection in my own mind is…this wonderful policy is like a silent partner that’s guarding a portion of my income. Could you imagine not having virus protection on a computer? It’s that silent partner, guarding the computer. Could you imagine driving without car insurance or having a home without homeowner’s insurance?

It really is very simple. If I couldn’t work due to a long and extended accident or sickness, I would need help paying my bills or risk wiping out my savings or at least taking a good chunk out of it.

Victor: So, even while becoming a top producer, there had to be times when a prospect didn’t end up buying the insurance. How did you handle that? The disappointment.

Eugene: As a new agent, when I didn’t make the sale, I would try to understand why and try to learn why someone wouldn’t buy. It’s all in the perspective you take and I learned that every time someone said “no,” it became a positive learning experience in that regard. And that’s when I discovered and started fully understanding the four objections that anyone who sells a product will hear at one time or another and how to overcome them. Those four objections are the same today as they were back then.

Victor: What are they?

Eugene: If someone does not proceed with purchasing a product or service, it’s usually due to one or more of four basic objections, regardless of whether the objection is real or just a delay. No Need. No Money. No Hurry. No Confidence. I believe these are universally true, regardless of the product or service you are presenting. It could be an insurance policy, a house, a business, even a TV or washer and dryer. It’s important for the person making the presentation to know how to address each objection in order to get to the root of the true issue and be able to adjust in order to move forward.

Victor: We’ll continue this conversation in our next interview. Thank you so much for sharing your experience, knowledge and love of this business.

Going Deep Into Residual And Partial Disability Provisions

When structuring and choosing an individual disability insurance policy and the available riders, understanding the importance of partial disability is essential. While on the surface it would seem self- explanatory, the intricacies can make the difference in your explanation of the plan to a client.

As you know, our industry tends to use language that is somewhat unique to the insurance world and individual disability insurance is not any different. When we think of someone working part time, many of us would think that the rider to describe this would be called a partial disability, which could be a separate rider or built into the policy. Like many industries there is an evolution of product design and riders—which helps to explain the reason for the naming of the partial and its successor, the residual disability rider, which, again, can be a separate rider or built into the policy.

In the evolution of today’s individual disability policies we’ve seen product ingenuity which has either resonated within the industry or has gone by the wayside. Originally when individual disability policies were developed they were designed to cover total disabilities, and if you could work you were expected to go back to work and be off claim.

Eventually companies added a partial disability provision that would allow for someone to go back to work on a part time basis and still receive a benefit from a qualifying disability claim. This provision was appropriately named “partial disability.” This provision may or may not be found in today’s modern policies. The classic version of partial disability, in general, would only pay for partial disability for six months, or for some other limited time period, and it would pay 50 percent of the total disability benefit. Of course there were maybe some slight variations, but this is what we saw as most common. This was much easier for companies to administer in the low technology days when it was more common to use calculators and not computers.

The insurance industry is very dynamic and companies needed to differentiate themselves. Thus, an improved partial disability started to evolve in the marketplace. They had to change the name so there was a distinction between the old and new definitions. The new, modern definition of partial disability became known as a residual disability, which is essentially a partial disability on steroids. Instead of just paying 50 percent of the base benefit for six months, or some limited time, a formula was now able to be administered and used to pay claims.

The formula is really quite inventive and the industry should thank the mystery innovator(s) who most likely spent months or years with the actuary, claims, underwriting, and marketing departments. You could just imagine the reactions when this new type of partial rider was being presented by the innovator(s).

The formula takes an average yearly income for a disabled client and comes up with an average historical monthly base income. Once we have that historical monthly base income, we can see how much income the client makes when they go back to partially working and come up with a percentage of income loss. For example, if a client made $240,000 per year for the past few years, the average monthly income would be $20,000 per month. If the disabled client went back to work part time and made $5,000 per month, then $5,000/$20,000 would be 25 percent of the previous monthly income, which is a 75 percent loss of income, which would allow for 75 percent of the monthly total disability benefit to be paid. As the client goes back to work for longer amounts of time, their income can grow, and the residual rider would adjust accordingly. So, if now the client’s income is $15,000 per month, $15,000/$20,000 would be 75 percent of the previous monthly income or a 25 percent loss of income, in which case 25 percent of the monthly benefit would then be paid out for a qualifying claim.

There was a time in our country’s economic history in which inflation was more prevalent and had a real impact on the planning process. While inflation could still be a major factor in our daily lives, the rates have been very low for the last couple of decades. If we do have a period where inflation becomes a major factor, then the indexing part of the residual rider will be a provision that claimants may come to appreciate during a long duration disability claim with stable or decreasing partial income.

The theory in the indexing provision of the residual rider is that if someone has a very prolonged partial disability then inflation would erode the residual formula. Think about our example above, where a client was making an average of $20,000 per month and then became disabled. Let’s say the disability will never allow this person to work full time, but they can work on a part time basis making about $10,000 per month for the foreseeable future. Using the regular formula, $10,000/$20,000 would be a 50 percent income loss and then 50 percent of benefit would be paid.

The $20,000 base monthly benefit is in today’s dollars, but let’s say that the disability will last for the next 20 years! Eventually the base monthly average income of $20,000 will be in old, uninflated dollars, which would make the payment always 50 percent of the total disability benefit. You would have 2020 dollars used in the base of the residual formula and, in 10 years, you would have 2030 dollars used as the divisible dollars.

For the formula to be equitable for both the client and the company, the same dollars should be used in the formula. Therefore, most residual riders will have a provision that will index the base monthly average by using an inflation formula so that the dollars are inflation adjusted. This is the reason you’ll see an inflation indexing provision in the residual definitions of modern individual disability policies.

In our example, eventually the payment would be greater than 50 percent as the monthly average income increases based on the inflation factor being used. For example, in 10 years the base $20,000 could inflate to $24,000, in which case the $10,000/$24,000, would be 41.6 percent of the inflation adjusted base monthly income, which would result in a 58.4 percent income loss and a payout of 58.4 percent of the total monthly disability benefit.

The residual disability provision of individual policies has evolved even more in the past few decades. Some examples of this evolution include, but are not limited to, changes in the percentage of income loss needed to be on claim or stay on claim, minimum payout floors, allowing or extending residual payments even if there is not a loss of time from work or duties from work.

Companies are consistently tweaking and modifying the provisions of this rider as new policy versions are developed. As always, please read the specimen contract of any disability policy you are reviewing or presenting for details about how that individual policy is designed to payout for partial and/or residual disabilities.

Catastrophic Disability Riders—Another Reason Why Disability Insurance Resonates With Clients

We all know the need for disability insurance. If a client cannot work, how will that client pay for their fixed living expenses? The need is obvious to some clients and to all of us who recommend disability insurance. But every now and then there’s a client who will negotiate with us about the need for disability insurance. Sometimes it’s a business owner who feels that, for whatever reason, they are invincible to a disability and that, as long as the client can operate a phone, they can still operate the business. Regardless of how difficult it would be to run a business from a bed for months, there are other provisions of the policy that would resonate with this type of client.

It may be surprising to many of you that fewer younger clients know the story of Christopher Reeve and his role as Superman. I’m guessing many of you reading this article know the story, but for those who do not, Christopher Reeve starred in many renditions of the Superman movies in the late 70’s and throughout the 80s. His name became synonymous with the character he played on the big screen. This is an actor who had just about everything going for him; he was handsome, had a great career, and a beautiful family and a passion for horses. In May of 1995 he was in an equestrian competition and, for no apparent reason, his horse stopped in its tracks at jump number three. The force of the horse stopping so suddenly sent him flying off the horse, landing head-first, shattering his vertebrae just in the spot to make him a quadriplegic. This is such a horrific story, so awful, and ends tragically with his passing in 2004 at the age of 52.

The story is too horrific to discuss with a client but it is a very telling example of why disability insurance is so important and needs to be part of a client’s portfolio. For almost nine years Reeve was not only disabled, but required care and arrangements for him to be able to live at home. The story of Christopher Reeve also is a good example of why financial professionals should consider a policy with a catastrophic disability rider. These riders may have slightly different names, but most have similar structure. Of course, review the definitions of the policy you consider. This rider can be essential for those disabilities that many clients think about when envisioning a disability.

The catastrophic disability rider will usually pay an additional benefit that, in some policies, can be even more than the individual base policy payment. The triggers to pay benefits may vary slightly depending on the company, but a common theme is that one way to receive the extra benefit is to have a loss of two out of six Activities of Daily Living. Of course, the insured would still need to have a qualifying disability based on the policy and satisfy any required elimination period. In the example of Christopher Reeve, he became a quadriplegic and would qualify for the extra payments the catastrophic rider would pay out.

When someone has a catastrophic disability not only can the ability to work disappear overnight, but the subsequent costs can be staggering. A person who is so severely disabled may need extra care at home as well. Most likely they will need home modifications, a new van for transportation, ramps to the home, and that’s just a few examples. The extra monthly payments can be crucial for the family to help with all the extra expenses. According to the Christopher and Dana Reeve foundation, the cost of yearly care from a 2014 study can be as high as $184,891. Of course, with inflation, that cost can be even higher.1

We discussed earlier in the article about the rare occurrence of a client who indicates they can still work through most disabilities. Yet, there are certain injuries or illnesses that would make it difficult for anyone to work. Christopher Reeve is a classic example. A disability policy can be designed to emphasize additional catastrophic benefits, but also provide coverage for a regular disability as well. As most people know, it is hard to work when you have a bad flu, or have your back go out, let alone a severe catastrophic disability.
The next time you get a quote for a client for disability insurance, be sure to ask for the catastrophic disability rider to be part of the illustration.

Reference:
https://www.christopherreeve.org/living-with-paralysis/costs-and-insurance/costs-of-living-with-spinal-cord-injury.

Family Dynamics, Disability Insurance, And Divorce

Make Sure The Primary Income Earner Is Insured!

We like to feel that we serve a higher purpose than just “selling” a “product” to a client. Individual disability insurance can be multifunctional, in that not only does a qualifying claim provide a replacement of some of one’s income but it can also have extraneous benefits besides a monthly check.

In a traditional family unit there tends to be a primary income earner and usually a non-primary income earner. From our experience, it’s more unusual to have a dual income family with both spouses having similar income. If the primary income earner has a disability, it can affect the whole family in so many ways depending on the actual disability and needs required.

Disabilities tend to come in two different styles, one being a sudden disabling event, such as an accident, stroke, heart attack, etc., that may either permanently disable someone or allow for a recovery in part or full. The other style we tend to see are the more slow types of disabilities that start out with a diagnosis while the person is still able to work but then gets progressively worse over time with a qualifying disability eventually becoming a partial claim and perhaps a total disability. Examples of the more slow, progressive disability would be neurological, such as MS, ALS, Parkinson’s, some cancer and heart disease claims, and some musculoskeletal claims. While the industry may be able to predict morbidity rates, disabilities in themselves are unpredictable in style, duration, and care needed.

Every family has its own routine and the dynamics can be unique to each family. From driving children, to coaching sports, to religious and community activities and work obligations, the family unit can be very busy and fully scheduled. Now put in the mix a disability of any family member. Regardless if it is a physical or mental disability, the family unit now has a different dynamic. Plans get cancelled, the routine gets disrupted, the new normal is anything but normal. If the family member who is disabled is the primary income earner as well, the dynamic may change even more. Not only does the family routine most likely change, there can be financial stress as well. Not only is the primary income earner no longer receiving a paycheck but the secondary income earner, if any, may be affected as well. If there is a secondary income earner spouse, the severity of the disability of the primary income earner may be a catalyst for the secondary income earner’s income to also decrease due to the need to curtail work due to the disruption.

Let’s also look at a single parent family and the responsibilities a single parent has to his or her children. Every single parent needs a plan in place to take care of any children who would need a guardian in case of a disability. If the single parent family is due to a divorce then the plan may be obvious in most situations but can also give rise to another factor often overlooked in separation agreements. As you may already know divorces can be complicated legal procedures, requiring specialists like jennifer croker to help separate finances, insurances, and draw up alimony or child support payments. These payments can be the primary source of income for some single parent households. If the separation agreement doesn’t require disability insurance on the primary income earner spouse, then that single parent family could be in financial risk every day and not realize there may be an issue.

When the primary income earner has an individual disability policy, a qualifying disability will create cash flow coming into the household. This may provide the secondary spouse the flexibility needed to make sure the income being generated between work and a disability policy will provide for the family and still allow a continuum of much of the daily routine to which the family has become accustomed. When the household income drops precipitously, then bills may not be able to be paid and the family’s lifestyle may need a drastic change. For the single parent and/or divorced parent, the income may cease all together, causing even more changes for the family.

No two disabilities or scenarios tend to play out exactly the same. Making sure the primary income earner has individual disability insurance is not only important to the individual that does not yet have a family, but it may be even more crucial for those who support a family.

To COLA Or Un-COLA Your Disability Insurance Quotes

An individual disability insurance (IDI) policy has various elements and provisions as part of the base policy. There’s the monthly benefit that would be paid out for a qualifying disability. There’s a waiting period (called an elimination period) that the qualifying disability has to last in order for the insured to qualify for benefits. The longer the elimination period, the lower the cost of the policy. A base IDI policy will usually consist of a triggering disability for benefits to be paid, such as total disability, some type of partial and/or residual disability, and presumptive disability are among the most common. Some policies also have provisions built into the base policy that will allow for a slight increase in the monthly benefit. This is usually called an automatic increase benefit provision but is typically limited in duration and the condition that the insured is not on claim. There are many different provisions that can enhance a policy, but these are usually the common elements we see in most IDI policies. Of course, you should always read the illustration and/or specimen policy to confirm what provisions are built into the policy.
Similar to other insurance products, the policy can be further enhanced by buying additional options that would be added to the base policy. One of these popular options (commonly called riders) would be a Cost of Living Option or COLA. The COLA option is different from other riders or automatic increase benefits, as it has unique properties that can increase the monthly payout from the disability company.
The COLA rider will add cost to the premium, as it allows for the monthly benefit to increase during the course of a qualifying disability claim. The first increase would typically take place after the first year of the claim. Typically, on each anniversary of the claim, the amount of benefit will continue to be increased. The amount of increase will vary based on how the rider is built by the insurance company and selected by the consumer.
The amount of increase can be a fixed percentage or an amount that is based on a consumer inflation index. Regardless of the index that is used to determine the amount of increase, there is usually a cap to the monthly benefit increase. For example, there’s a company that offers an indexed cost of living rider in which the consumer can choose the cap of either three percent or six percent. If the consumer chooses the three percent cap, and then a qualifying claim, the policy’s monthly benefit will be increased on each claim anniversary by the defined consumer price index up to a cap of three percent. The lower cap has become more popular because it is less expensive than the six percent option, and in the past 20 years it’s rare for the index to have been greater than three percent. As with any industry, you may find variations to the index used, the caps used, and whether or not the company will use compounding or simple interest. The general theme though is that there is a method to allow the monthly benefit to increase while on claim via the COLA riders.
Why should an adviser recommend the COLA rider? There is no right answer, as each client is different and may have different budgets, goals, net worth, and other factors that may affect the recommendation. In general, if a client is young and becomes disabled, the claim may last 20 years, 30 years, or even longer. During that time period inflation will have a natural attrition on the real intrinsic value of the monthly benefit. For example, let’s take a dentist who develops the same Parkinson’s condition that Michael J. Fox was diagnosed with at the age of 29 and eventually became more and more disabled. If our example dentist became totally disabled at the age of 34 and has a benefit period to age 65, that can become a 31 year claim. If the dentist bought a $5,000 monthly benefit policy without a COLA rider, then, over time, the intrinsic value of the $5,000 would buy less and less goods and services. If the policy had a COLA rider, then, in theory, the $5,000 would be able to keep up with the defined CPI in the policy, assuming the inflation rate was still minimal during the duration of the claim.
In designing an individual disability policy, it’s important to keep in mind the cost of the policy as well. As advisers, we’d prefer to see the maximum benefit period, shortest elimination period, and all the available riders be put on the policy. Yet, there needs to be a balance between benefits selected, rider design, and the cost of the policy. Given that an inflation rider can dramatically increase the liability for the insurance company, there is a proportional cost for the rider. Therefore, in designing a disability policy, one of the many questions the adviser needs to ask is to COLA or Un-COLA the policy. 

Individual Disability Insurance And Various Increase Options

Individual disability insurance is one of the coolest products in the insurance world. There are features that you really don’t see in other life and health insurance products. We want to focus on some of the increase options that you will most likely see in many of the products. Of course, each insurance company is different and designs their products differently, so please read the specimen contract to ensure that any of the features mentioned are available for your client.

Automatic Benefit Increase Riders
There may be variations to the actual name of this rider, but in general, if issued with the policy, it will allow your client’s benefit to slowly increase each year for a certain duration. Depending on the company, this rider may not be available at the time of issue due to occupational class and/or age limits. The rider allows the monthly benefit to increase by a certain percentage on the policy anniversary.

For example: A client bought a $5,000 per month benefit with a policy date of June 1, 2020. The next year, the rider would increase the monthly benefit by a certain percentage. If the rider allows for a four percent increase each year, then the $5,000 per month would be increased to $5,200 at the anniversary. The percentage of increase will vary based on the company, but typically we’ve seen this be in the four to five percent range. Typically, this automatic increase will continue for about five years. Again, it can vary based on the company. At the end of the initial automatic period, assuming the client is not on claim and is under a certain age, the client usually is given the option to allow the increases to continue for another set period based on the company’s underwriting requirements. Usually just financial justification is required to renew the rider for another five years. What an awesome feature to a policy! This allows for a client’s monthly benefit amount to increase to thwart possible erosion of the benefit by inflation and helps to keep the benefit up with slight increases of income. Note, the rider usually will not increase benefits when a claim is in progress.

Future Purchase Options
These are options to increase the monthly benefit by larger amounts, but again without having to prove medical insurability. These types of riders are typically available at the time of issue as long as the client fits certain parameters, such as issue age, occupational rate class and applying for a certain percentage of eligible benefit. These riders allow for a much larger amount of monthly benefit to be purchased on certain policy anniversaries. In addition, some companies may allow the client to increase the policy off-anniversary if certain events occur, such as, but not necessarily limited to, a loss of group benefits.

This rider has really evolved into two subsets: The purchased rider and the no cost rider. The purchased rider usually will give the client a set amount that can be applied for at a later policy anniversary. In general there is no medical underwriting, but usually financial underwriting and not being on claim at the time the increase is being requested are required.

For example: An attorney client, age 35, buys a $5,000 per month disability policy with a $5,000 future purchase option. At age 40 the attorney has seen a doubling of income and needs more coverage, but at age 38 he was diagnosed with MS that is hardly noticeable and hasn’t slowed down the attorney’s solo practice. Even though the attorney is most likely uninsurable for disability insurance with traditional insurance companies, the client can still increase his disability benefit via the future purchase option assuming the current income would justify the increase. Depending on the company, the increase can raise the monthly benefit on the current policy, or the company may issue a new policy for the increased amount using the most current disability policy series. The rates would usually be based on the current age at the time the option is being activated. The unused amount of future purchase options will expire at a certain age and be taken off the policy. Companies may or may not issue this rider on their current policy offerings, but as a planner it’s very important to know about this rider when reviewing previous disability policies purchased by your client.

The other increase rider that we see being developed by companies is a rider that typically doesn’t add extra cost to the premium at the time the policy is initially issued. This no cost rider may go by various names, such as benefit update or increase option rider, but they have some similarities. In general, this rider allows the actively at work client to increase the monthly benefit every few years with only financial underwriting. The key is that this is systematic, in that typically the client needs to submit a financial questionnaire and/or more detailed financials whenever the option becomes available. The company will then let the client know how much the policy can be increased if at all. A usual requirement of this type of rider is that certain conditions need to be followed in order to keep the rider active with the policy. If the client doesn’t submit the requested financial information or if the client doesn’t accept a certain percentage of what the company offered, then conditions of the rider may not have been satisfied and the rider would be removed.

For example: The same attorney client. At the third policy anniversary, the company notified the client to submit financials to be evaluated for a possible benefit increase. The client submits their financial information and, due to a large increase in income, is offered to increase the policy by $8,000 per month for a total of $13,000 per month of benefit. If the client accepts a certain amount of the offered increase, the option to increase rider will stay on the policy—assuming the client is still age eligible. If the client decides to not submit the financials or doesn’t accept a certain percentage of the offer, then typically the rider will be removed from the policy as the client didn’t fulfill the contractual requirements to keep it. Similarly, some companies may allow the client to increase the policy off-anniversary if certain events occur such as, but not necessarily limited to, a loss of group benefits.

These riders are essential to the planning and design of individual disability policies. These also give an opportunity for the adviser to have a valid business reason to systematically review and update disability insurance needs with their clients. These riders and benefit options are not only essential for the client but are also some of the additional benefits for the adviser in building a block of disability policies. 

Disability Insurance And Social Distancing

Hopefully, we will never experience again what we all have had to endure the last few months. Our government was forced to shut down segments of our economy for the safety of all of us. The power of a paycheck has never been more important than what we have seen in these unprecedented times. An unpredictable market, segments of businesses diminished to a fraction of what they were in the past, and a light at the end of a tunnel that hopefully will be here sooner than later.

So where does individual disability insurance play a role in today’s atmosphere and tomorrow’s planning? We are still seeing a lot of activity in the disability marketplace. While there are businesses that are struggling to survive, there are many businesses that are still thriving. Many of the owners of these businesses and many professionals who are working every day, have seen that their ability to work as essential. The unpredictability of the equity markets has also made many realize that the ability to work is one of the most important assets someone possesses.

As we all know, the planning process is a never-ending process that requires flexibility and open dialogue. If a client became disabled due to an accident or sickness, what is their ability to maintain their standard of living? Ensuring your clients are up to date on their insurance products is always important, especially during times like these, of course, for clients in which it would be appropriate to have such dialogue.

In the individual disability insurance processing world, we have seen many companies with electronic applications and electronic delivery processes. It’s never been easier to write and submit applications and deliver disability insurance policies in an all-electronic fashion.
In addition, the non-fluid, non-exam issue limits have been increased with many companies, so you don’t have to worry about a paramedical exam being needed for most cases. Of course, please check with an individual company for the requirements needed for the amount being applied.

If you have any clients with disability coverage in force, don’t forget about the future purchase option or automatic increase option with upcoming renewals that may be on their policies. These types of policy riders may give your clients the ability to increase their monthly benefit without medical underwriting. Depending on the company, there may only be financial underwriting required. Many companies have changed the way they notify brokers about important deadlines connected to these riders—turning to electronic communication or to just posting on the company’s website. As an advisor, we would recommend that you also have a system to remind yourself of the future purchase option and any automatic increase option renewal date(s) so you can proactively reach out to your client.

Our clients need us more than ever to support their financial goals and protect themselves and their families from the financial effects that life can deal to any of us. May you, your families, and colleagues stay safe and healthy during these unprecedented times.

Hope Is Not A Strategy, Contracts And Planning Are Strategies

In the world of planning, we come up against various objections to planning recommendations. We find that, in many instances, the need for the recommendation hasn’t resonated enough with the client to trigger action—the procurement of a plan that usually includes individual disability insurance. This can occur when the client replaces recommended planning and the contracts insurance companies uphold with a hope that the plan will not be needed.

I hope that I will not become disabled. We know the statistics, roughly one out of four working individuals will have a disability that lasts 90 days or longer before they turn 65. “I hope that I’m among the majority” is a strategy that works, assuming you are not one of the unfortunate ones that can’t go back to work.

I hope that if I get disabled, my spouse can go back to work. It’s difficult to predict the future and how a sickness will play out. Most spouses are either already working or, if they are staying home, they are a caregiver or they have been out of the fulltime workplace for a while. It’s unlikely a spouse could take care of their disabled partner and still financially support the family.

I hope that my group disability insurance will take care of me. Most clients do not realize that group disability plans, while better than no disability insurance, many times have very narrow guard rails that are more designed to protect the issuing insurance company. For example, with group disability insurance, the issuing company most likely built in a termination provision that allows the company to cancel the group coverage. In addition, coverage is usually not portable.

Imagine a client with group LTD developing a condition or disease that didn’t cause a disability but would prevent that client from buying individual coverage in the future. For example, a client who recently had a melanoma removed may not be able to buy individual coverage for years. Now imagine if the firm lost their disability coverage or if the client were recruited by another firm and the new firm didn’t have group disability coverage. Hoping that the coverage will stay in place or hoping that every great business opportunity will come with a group disability program is not a strategy. Individually owned disability insurance can’t be taken away during the Guaranteed Renewable period. The client is in control of the existence of the policy, not the insurance company.

In addition, many group LTD plans may have limitations in their definitions or limitations in the benefit periods—in order to protect the issuing company from various types of claims. These definitions may include, but are not limited to, mandatory rehabilitation programs, limited benefits for subjective soft tissue claims, limited benefits for mental/nervous related claims, progressively more restrictive definitions around how a disability is defined as a claim prolongs, integration of various sources of income, reduction of net benefits due to income taxes, and many other limitations. Your client with group LTD needs to review their certificate or policy to confirm which limitations may exist. To hope that a group LTD policy will pay a claim like an individual disability insurance policy is not a strategy. Contracts and planning are strategies. When a client buys a noncancelable guaranteed renewable disability contract, they own that contract and, as long as they pay the premium, they own that policy during that non-cancelable guaranteed renewable period. Individual disability policies typically have broader definitions and less restrictions than group disability contracts.

If your client were in charge of buying parachutes for his or her family, which one would be picked? We would be looking at the most comprehensive, safest options. Price would not be as important as features. Individual disability coverage is that comprehensive parachute. When someone gets disabled, the disability policy becomes that financial parachute that the whole family is now relying on to provide the income that was lost.

It’s interesting to hear why a client who can clearly afford the premiums for disability insurance chooses not to proceed. Usually there is a false sense of confidence that is based on hope. The client hopes they will not be disabled, the client hopes that if they are disabled, they can still produce an income. The client hopes that if they can’t produce an income, their spouse can work. The client hopes that their claim will fall within the possible narrow definitions of a group insurance policy. The client hopes that their savings will get them by before passing away. The client hopes that the house will not be foreclosed or cars repossessed for lack of payments. The list can go on and on as to the reasons a client didn’t follow your recommendation.

The clients who have followed your plan and who have bought sufficient individual disability insurance don’t have to hope, and can be more assured that they have done proper planning in case a disability prevents them from going to work.

March Into DI Sales

We recently had a call from a producer who wanted to discuss a marketing program for the rest of the year. This is a fairly experienced producer who has a nice book of business. His primary goal was to develop a system in which he sends out emails and then waits for email responses or for random people to call him once the email is received. We discussed many different marketing methods and asked him to keep in mind: The easiest, most convenient marketing methods can be some of the least effective marketing campaigns. Typically, the most effective marketing plans require a four-pronged approach using: Research, a simple message, persistency, and, most importantly, the human touch.

Any producer or advisor who has been in the financial service business for more than five years usually has a large enough block of business to use this four-pronged approach to marketing (in addition to obtaining new clients via a variety of methods). We are in a very dynamic industry that has continuous changes in products, underwriting, technology, and processing. These changes bring constant opportunities to meet with existing clients to review their current portfolio and to educate clients, making sure they have the most current products.

There is always a reason to meet with your clients every few years—to make sure their goals and plans are proceeding as projected. While we are in a constantly changing business, what hasn’t changed is that most clients who are working still need a monthly income if they can’t work due to a sickness or recovery from an injury.

Many times the best marketing plans are in your filing cabinet or computer. Do you have a systematic plan that calls for you to personally meet with every one of your clients at least once every few years? If not, you are missing the march to marketing. In today’s world, with consumers being bombarded with impersonal TV and radio ads for insurance, keeping in touch with and in front of your clients is more important than ever.

Understandably, many advisors like to have a “valid business reason” to reach out to a client. Fortunately, you already have “valid business reasons” to reach out to your clients for a quick meeting or lunch. Every financial advisor or insurance producer, regardless of specialty, has dozens of reasons to reach out to an existing client: Discussing financial market changes, new changes on the renewal of a car or homeowners policy, changes in interest rates, worker comp audits, health insurance renewals, and the list goes on. As advisors we can sometimes assume clients understand the products and constant changes that take place in our industry.

When you are with your client, it’s a perfect time to either review their disability insurance or to ensure they even have coverage. What you will most likely find is that a majority of your clients don’t have any disability insurance. When you make time to support your client by sitting down with them to discuss the ever-changing financial and insurance products available, you will build a better, more personal relationship with your client. And you will discover more of their needs, such as disability insurance.

What is your systematic client review process? There are various systems available and any will do as long as you are able to make eye to eye contact with your clients every couple of years. You should have a client management system to keep track of your customers—if not, you can look up dozens of them to implement. Contact spreadsheets are a start, automated emails, even the tried and true one card system can work well versus waiting for the phone to ring. For some of you this is obvious. For many of you this is something that ought to be done, you know it should be done, but it hasn’t. Don’t negotiate with yourself. Instead, start your process today! It’s amazing how many advisors either don’t have a formal process set up or feel that, since they haven’t in the past, then it’s too difficult in the future.

Clients are more likely to do business with firms and advisors who they have worked with in the past. We belong to AAA and enjoy their discounts and service. It’s remarkable how many offers, deals, and opportunities they give us—to engage with them even more. The AARP also does a great job soliciting for opportunities of engagement.

How many times have you offered engagement to your past clients? Have you offered your services to your clients’ children as well? The key to helping more clients protect their income is to ask questions and to make sure your clients have coverage. How many times in the last month have you asked your clients about disability insurance? If the answer is less than a few times, then we are guessing that you, as an advisor, are not comfortable with either the product and/or the process. If you are not comfortable, reach out to an MGA or company that specializes in individual disability insurance and start to get comfortable. Your clients may be depending on it!

Numbers Don’t Lie

The need for individual disability insurance (IDI) is real. IDI is not a luxury item purchase—like an expensive pair of handmade Italian dress shoes or the latest smartphone.
Buying disability insurance is not on most people’s to-do list, but neither are the possible tragic results of not having disability insurance. Some of the horror stories people experienced have been, but not limited to: Going bankrupt; having a home foreclosed due to not being able to pay the mortgage; getting evicted from an office for not being able to afford the lease; or watching a car get repossessed. When someone unexpectedly becomes too sick or too injured to work, and does not have disability insurance, unpleasant consequences can occur.

Let’s look at the numbers. Numbers don’t lie. So, let’s first look at one important number, someone’s income. Typically, this is usually the most important number a lender wants to know when a client applies for a mortgage, a lease, or a loan. If a client is disabled and doesn’t have an income, it would be very challenging to obtain a mortgage, lease or loan.

So, let’s say a client is working and successfully secures a loan, but later becomes sick or injured and can no longer meet the contractual obligations on that loan. Now what? To our knowledge, most loans do not have a provision that would waive the obligation if someone becomes disabled. The mortgage is still due, the car payments are still due, the rent or lease would still be due as well. When a client has disability insurance, the policy can help to provide funds for these obligations that still need to be paid.

We all likely agree that having an emergency plan in case one of our clients, or even ourselves, becomes totally disabled is very important. Yet, it’s perplexing to see so many financial planners or advisors that haven’t addressed the issue, or even worse, have taken a client’s word that there is sufficient protection. Next time a client says that they have a disability plan, go down that path with them. Ask them how much coverage they have in force or to describe the exclusions or the taxability of the benefit, in which case you most likely will see a blank stare as a client tries to come up with an answer or even an understanding of what you are asking. Which adviser are you? One that asks questions and has your client give you the DI policy to review, or one that checks a box and hopes your client really understands the importance of the issues? Could you imagine having a doctor ask you for the diagnosis of a medical condition? Even worse, could you imagine a cancer surgeon who refuses to discuss performing life-saving operations on patients because the surgery is “strenuous” or perhaps not as “interesting” to the surgeon as perhaps another type of surgery. As advisors, it’s important to see the plan and discuss with your client the best way to protect himself in case a disability was to prevent him from working.

As you initiate a conversation about IDI with your client, you may ask questions to help your client see the need. You may ask, “What is the longest number of vacation days you’ve ever taken?” Most clients will say two weeks or possibly slightly longer. When you ask the reason they didn’t continue on vacation, the answer typically is that they had to get back to work.

The statistics are staggering and should give any advisor or client important reasons that disability insurance should be at the forefront of any plan. In addition, the plan and products should be reviewed in detail every few years. Too many clients and unfortunately too many advisors do not take these statistics to heart:

Just over one in four of today’s 20 year-olds will become disabled before they retire. (Disabilitycanhappen.org Council For Disability Awareness)

Approximately 90 percent of disabilities are caused by illnesses, not accidents. (Council for Disability Awareness 2013 Long-Term Disability Claims Review)

The Top five causes of disability claims that last longer than six months (Council for Disability Awareness 2015 Long Term Disability Claims Review):

  • Muscle/bone disorders (28.6 percent)
  • Cancer (15.1 percent)
  • Accidents (10.3 percent)
  • Cardiovascular (8.7 percent)
  • Mental Disorders (8.3 percent)

A 2014 study of consumer bankruptcy filings identified the following as primary reasons (Disabilitycanhappen.org Council For Disability Awareness):

  • Medical bills (26 percent)
  • Lost Job (20 percent)
  • Illness or injury on part of self or family member (15 percent)

The average Social Security Disability Income (SSDI) benefit as of January 2018 was $1,197 per month. (Disabilitycanhappen.org Council For Disability Awareness: Social Security Administration, Monthly Statistical Snapshot, February 2018)

That $1,197 above equates to $14,364 annually – barely above the poverty guideline of $12,140 for a one-person household, and below the guideline of $16,640 for a two-person household. (Disabilitycanhappen.org Council For Disability Awareness: ASPE, Poverty Guidelines 2018)

Only 48 percent of American adults indicate they have enough savings to cover three months of living expenses in the event they’re not earning income. (Disabilitycanhappen.org Council For Disability Awareness: Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2016 (PDF), page 26.)

Numbers don’t lie. The more you talk about disability planning, the more clients will want to have a plan. Most plans involve disability insurance, but even if your client was unable to obtain the insurance due to various medical or financial reasons, at least the planning process took place and you have the opportunity to create alternative plans. How many clients have you discussed IDI with over the years? The training and opportunity is there, you just need to reach out to an IMO agency like ours or a few of the companies that specialize in offering training for disability insurance.