Stephen E. Crowe

In today’s changing health marketplace, producers will need to diversify their product offerings to ensure maximum results. As we all face tougher challenges with the Affordable Care Act (ACA), disability income (DI) sales can offer a strong supplementary revenue stream.

Small Business Owners Are Excellent DI Prospects

Chances are strong that many of your current medical health insurance clients are small business owners. This group is largely ignored when it comes to disability income products. If you haven’t talked to your small business owner clients about disability income, it’s likely no one has. Yet, who needs to protect their ability to earn an income and the vitality of their businesses more than business owners?

Disability income carriers are targeting small business owners, providing incentives such as occupation upgrades and income enhancers to make individual disability insurance more desirable for this group. More important, carriers offer multiple disability income products specifically designed to protect business owners’ incomes and their businesses, providing multiple DI sales opportunities for producers.

The key to increasing disability income sales is the ability to help your clients understand the risk of an unexpected illness or injury that may cause them to be unable to work for a period of time. Working with a disability income specialist in a brokerage general agency provides access to a variety of carriers’ products, someone who can help you understand the differences between the various contracts, and most important, someone who can help you sell the need for the DI product to your client.

Mapping a Disability Income Strategy

Disability income carriers have developed a variety of products targeted specifically for small business owners, so the opportunity is ripe for multiple sales. Working with a specialist you can structure a disability plan that fits the individual needs of your client and his business. Unlike medical insurance, disability income premiums tend to remain stable throughout the life of the contract and there is rarely a reason to replace coverage.

Mapping a strategy with your business owner clients will not only protect them from a very real financial risk, but it will also help them begin to see you as their trusted advisor—the person who “watches their backs.” Although each client’s situation is different, you can use any combination of the following disability income products to structure a protection plan for business owner clients:

 • Individual disability income protects the business owner’s income and lifestyle.

 • Business overhead expense keeps the doors of the business open.

 • Business loan protection continues business loan payments.

 • Key person disability ensures that the business will be able to remain financially healthy in the event a key revenue-generating employee is disabled.

 • Buy/sell disability funds the business succession plan.

A disability income specialist can not only help you tailor the plan but also can help you understand the key features and coach you on the sale of the products. In addition, most disability products are financially and medically underwritten, so your brokerage disability specialist can assist you with pre-screening your clients before the application is submitted to avoid any underwriting surprises.

Don’t let a disabling illness or injury derail your business owner clients’ businesses that they worked to hard to build. As busy professionals, often wearing many hats, these clients are often too busy to spend the time to research and investigate all the options and possibilities. They rely on you—their trusted advisor—to bring them the information and make them aware of the options and the best strategies.

A Disability Income Expert Can Make All the Difference

By working with a brokerage disability specialist, you stay abreast of the changes in the industry, and your income from DI sales will increase. You’ll find you have created a steady income stream that has a high degree of stability—a refreshing idea in today’s changing health insurance marketplace.

A recent trend in the individual disability marketplace—guaranteed standard issue (GSI) individual disability income—is stirring up big opportunities for advisors to sell multiple disability income (DI) contracts through a single employer—without the cumbersome financial and medical underwriting associated with these contracts.

GSI plans offer tremendous flexibility. They can be designed to be employer-paid or voluntary for as few as five employees.

Opportunities Are Plentiful

In most cases, high income employees who are entirely dependent on their group long term disability (LTD) plan at the workplace do not have sufficient income protection.

A group LTD plan is a good start, but it is not enough. Here’s why: All employer-paid group LTD plans have maximum benefit limits, which are often well below the average executive’s compensation. Furthermore, if the benefit is ­employer-paid, it will be a taxable benefit to the disabled employee on claim. On average, group LTD plans cover 30 to 50 percent of executives’ compensation packages. Most financial advisors suggest that their clients aim to replace 60 to 70 percent of pre-tax income. For these reasons many executives need more income protection than group LTD alone can provide.

On the other hand, group LTD plans have more lenient underwriting than individual plans—especially medical underwriting. In fact, a group LTD plan can be issued on a guaranteed basis in most cases. This is a huge plus for executives and professionals in their forties and fifties, who may have pre-existing medical conditions that prevent them from qualifying for individually underwritten plans or plans that would result in seriously modified offers. In these cases, stand-alone individual plans may not adequately cover the risk either.

The Combo

In recent years, individual carriers have stepped up offers to supplement group LTD plans with GSI individual policies for groups as small as five individuals. Carriers will issue a policy to anyone who meets the conditions for eligibility at standard, discounted unisex rates, with no riders or exclusions.

Consider a common example of an employer-paid group LTD plan (illustrated in Table 1) that covers 60 percent of base income up to a maximum of $6,000 per month—a benefit which is taxable.

When you factor in that the benefit is taxable and that only base income is covered by the group LTD plan, it’s all too common for a company’s executive team to have half or less than half of their take-home pay protected.

Table 2 illustrates the value of supplemental disability coverage with up to an $8,000 maximum monthly individual DI that is employer-paid.

Structuring the Combo

Professional organizations such as lawfirms, accounting firms, architectural firms and health care institutions are excellent candidates for GSI. Many times these organizations have high caps—more than $15,000—on their group LTD plans to cover high-earning individuals in the group. However, carriers place a significant rate increase on group LTD plans with maximum benefit limits of more than $15,000. Furthermore, one significant claim can quadruple a group LTD rate for the entire group.

In the long run, lowering the group LTD cap $10,000 to $15,000 and layering GSI on top for high-earning executives in the organization can be more cost-effective. This strategy places more of the risk on the individual side, where premiums are not affected by claims. In addition, broker compensation is significantly higher on GSI plans.

First-year GSI commissions average between 30 and 50 percent of the premium compared to 10 percent on group LTD plans. Moreover, another broker cannot take over or rip out an established GSI plan, creating more security for the writing agent.

Identifying Prospects

Your current client base is the first place to look for prospects: 401(k) clients, buy/sell clients, deferred compensation clients, small to medium sized business owner clients, group LTD or medical insurance clients.

Not all companies will be good prospects. Here are some parameters to consider:

• Companies with LTD plans that do not include bonus or commission income.

• Companies with LTD plans whose benefit maximums fall short of the highest incomes.

• Companies with rich LTD plans seeking rate relief through a revised plan design.

Selling GSI

When approaching clients about GSI, tell them you would like to take a few minutes to explain a program that would be beneficial to a business like theirs.

In the meeting, explain that highly compensated employees (including the client) may be underinsured if they are relying totally on their current group LTD plan for income protection.

Then tell them that the solution is to carve out an executive group and layer GSI individual disability policies on top of their group LTD plan. Be sure to explain that GSI plans require no medical exams and limited underwriting, and offer highly discounted premiums on unisex rates.

GSI is a big win for employer groups because the plan can provide a significant perk for key employees, plus an employer can choose to pay all, some or none of the premium. If a plan is voluntary, carriers require 25 percent participation, or at lest 10 people. However, if the plan is employer-paid, the group can be as small as five executives.

There is no denying that disability income protection is a critical part of asset protection. However, many brokers shy away from discussing individual disability income insurance with clients because it can be costly and difficult to underwrite.

Don’t let your clients fall victim to inadequate income protection. GSI combined with group LTD will not only further your relationships with clients as a trusted financial professional, but will also build a steady, profitable income stream for you with much less effort.