W. Harold Petersen, RHU, DFP

The living of life forces people to be consumers. Very few people could survive on the earth without the necessities and the facilities that can only be had by paying for them. Money to spend has become the staff of life, for bread alone will no longer suffice.

The human body, a magnificent machine, cannot survive without food for energy, growth, reproduction, healing of wounds, and counteracting disease.

The elements in our environment often act in a contrary way. The shelter is required or life is snuffed out.

Clothing has become an art form, but basically, it is a form of bodily protection that protects from the burning sun, the freezing rain and wind, and defense against exposure and disease.

A fourth necessity has entered life’s picture in these modern times, and that necessity is money for healthcare. The living of life in today’s world takes place in areas crowded by fast-moving things that substantially increase the odds of accidental bodily injury. Our living close to others increases the transmittal of disease. Physicians, hospitals, medicines, lawyers, and technicians have become a built-in part of our living standards. Like the constantly moving second hand on a clock, life is being consumed; but from an economic point of view, each tick of the hand on the clock represents an expenditure of money. There is no break; there is no stopping the spending. Even the slightest bodily injury caused by another could us to contact an attorney. There is a difference between bodily injury vs personal injury which must be taken into consideration while making claims and filing a lawsuit.

A person can jump in bed, cover up the head, grit the teeth, and vow not to spend any more money. It won’t work, for the belly empties, and unless replenished, the person will die. The choice is to spend money or to die.

It is estimated by professional surveys that any form of disability income insurance protects fewer than 27 percent of American income earners. It is further estimated that fewer than 50 percent of all business owners have ever had the subject of disability insurance discussed with them. Life insurance agents tend to concentrate on life insurance. Health insurance agents tend to concentrate on health insurance. Casualty agents tend to concentrate on property and casualty insurance.

Who will do the important job of delivering disability insurance to serve the American people? The answer is that it will be a conglomeration of insurance agents and brokers from all of these fields of specialization. Once alerted to their client’s true needs, and educated as to how to provide a solution for the client’s needs, insurance purveyors will respond to the challenge and solve their client’s problem. Clients will not be victimized by having only a cash flow outgo, but will be provided with a cash flow income sufficient to match the outgo when their turn comes and disability strikes.

The first lesson in our Personal Economics 101 course is that the only antidote to having to spend money is to have a sufficient amount of money to cover such costs-for most people this means earning the money, for few have been gifted a sufficient amount of money to buy a lifetime of needs.

In the course of life, one encounters a number of income interrupters: job loss, business failure, mental or physical disability and death. We have examined each of these in the light of experience of many, and what we found was that the most devilish and potentially disastrous of all the income interrupters is disablement of the human body to the extent that it cannot work and produce income.

This economic problem of becoming disabled which is created by the very living of life itself has been recognized for well over a century. This recognition has given way to the invention of certain forms of insurance that provide an income cash flow to a disabled person. The underwriting and issuing of such coverage is a matter of contending with many complex factors having to do with physiology, anatomy, law, psychology, finance and integrity.

Unfortunately, for consumers the complexity of underwriting the risk has discouraged both insuring carrier and the field underwriting insurance agent or broker from concentrating on this form of critical and badly needed insurance. Among the many U.S. – domiciled insurance companies, there has been little interest in the underwriting of disability insurance. With few exceptions, many carriers lost money in their experiment with the underwriting of disability insurance. This can be attributed to a lack of knowledge and a lack of enthusiasm on the part of underwriting. A company that offers but does not arduously promote the coverage for fear of getting too much business fears suffering great claims losses. But by not promoting it, the company suffers from an anti-selection process; their unmotivated and non-encouraged sales force does not effectively sell the product to all clients, but only to those who ask for it. Experience teaches us that the consumer who asks for the coverage has knowledge or suspicions that they are about to become disabled. This loads the company with poor risks without having a spread of good risks.

Personal economics is a plan designed to balance the costs of a selected lifestyle with the funds that will be available for that purpose.

Criticism has been slanted toward the American consumer because of the failure to save a significant portion of earned income. Some estimates indicate that, on average, American income earners save approximately four percent of what they earn. This is deemed to be dangerously low and inadequate to handle money needs and emergency matters that may happen during the working carrier of individuals, and certainly inadequate to build a dependable retirement income account.

These surveys however tend to measure only those amounts that are easily traceable into some form of an investment program, whether that is a financial institution such as a bank or savings and loan or into a specifically designed insurance program with cash-value build-up or retirement income benefits being the paramount objective of the plan.

In fairness to the American consumer, who is constantly touted and badgered by advertisements to buy those things that add to the dynamics of life and the pleasures of living, it should be pointed out that the expenditure of money on a mortgage loan to buy a home is a process of converting cash flow income into an equity build-up. According to Jacob Realty, “buying a home with cash is both advantageous and disastrous” as it could mean no mortgage payment but at the same time very little or no investment opportunity. Paying the premium on a cash-value life insurance policy may be measured as an expenditure, but in reality, part of the premium paid is a transfer of cash into an equity build-up called cash value. This is a form of savings. A time-purchase plan used to buy a new automobile means that a little of that payment is transferred into the ownership of the vehicle, and that upon payoff of the obligation, there exists something of value. Not all the payments have been spent, lost, and gone forever.

It is important that American consumers have an awareness of how they spend their money. They must plan on there being economic problems and conditions during the course of the living of their lives that will challenge their ability to cope and to survive.

Savings without the element of time will provide no solution to most financial problems. Saving is anticipated to be a long-term process that, if uninterrupted, will achieve a substantial end result. Of greatest concern is the interruption of the saving process. A shortening of the time and thereby not achieving the intended objective is the result. This is the great value of an insurance planned into the intended saving process.

Prudent personal economics dictates that a person be concerned about the interruption of the all-essential income cash flow required to balance outgo cash flow-“A plan designed to balance the costs of a selected lifestyle with the funds that will be available for that purpose.”

I’m in a corner office.  It is usually equipped with ample daylight to accommodate reading and writing articles to be published. Suddenly the sky turned very black and the sound of heavy rain on the windows surprised us to the extent many of us turned to face those unusual sounds and the dim light created by the heavy overhanging clouds. 

In Omaha, this would not be an attention getting activity, but this is Valencia, in Southern California, where we have not had even light rain for four long years. The contrast is startling and welcomed. It is called, “El Niño”.  A condition that comes up every few years. It is the result of equatorial ocean waters that have become exceptionally warm resulting in rain of great dimensions. 

El Niño is welcome after four years of drought, but we do not want it to act like someone pouring big buckets of ice water over our heads like the ALS fundraising efforts of last year. Can the earth, in its exceptionally dry and hardened condition, absorb the newfound rain? Or will it result in mudslides creating more devastation? It is grit time. We have no choice but to hang on and hope for the best. 

Our reactions in this office were similar to what was described in my December 2014 article in Broker World labeled   as we shared the shock and dismay when Jacquie, my wife, fell on a yacht in the San Diego Harbor breaking her thighbone and absolutely crushing her right shoulder. 

It is now 26 challenging months later during which many hospitals stays and three orthopedic surgeries put her body back together. She is still healing, but has returned to 89 percent of normal. 

That experience reminded us that we, as people, are constantly exposed to numerous accidental bodily injuries and over 13,000 identified illnesses according to our medical journals. 

As humans we are tough and we are fragile at the same time. To be prepared for a disability at all times is a rational thing to do, but our preparation is limited by things over which we have no control. Our best preparation is to have our disability and medical insurances paid up-to-date and in adequate amounts to meet the demands of our disablement. 

What disablement will we be prepared for?  Short term (less than a year) or long term? Both are possibilities. We have many cases to refer to about length of disablement. A long time friend, Bob Slyer, a terrific tennis player, a survivor of the Battle of Guadalcanal and 27 years as a financial advisor was hit by a car while crossing a street walking to his church. He remained barely alive for 12 years before succumbing to his horrendous injuries. We thought he was indestructible. So did Bob. 

Another case involved a friend who was a technological expert who developed brain cancer. Fourteen years and fourteen surgeries passed before he was taken by the disease. Accident or sickness matters not. We are obligated to make our friends and clients aware of the fact that we face financial ruin every minute of every day. Thank goodness we possess the financial solution to these problems created by the very living of life. Based on this expose of what can happen to others—to me and to you—we realized there is a high risk of losing one’s earning ability for short or for long periods of time. 

The one remaining question then is: Can we afford the solution?  Let’s consider some sample costs.  For example, a 43-year-old executive who needs $20,000 per month to maintain his lifestyle can buy a basic disability policy which will provide benefits of $20,000 per month to age 67 after a 90 day elimination period. This plan will cost approximately $700 per month. 

Superb options may be added at a reasonable cost:

• Residual/Partial Disability Benefit Rider 

• Cost of Living Adjustment Rider

• Non-Cancelable Rider

With the ability we have as producers to tailor benefit amounts to a client’s needs, we can well appreciate what is happening. The dark clouds of worry and despair are looking less grim. The sun is once again shining, for we have the capability of finding a price the client can afford that will deliver tax-free cash to provide solutions for the problems that may be created by disablement. 

With the cash provided by an intelligently planned disability estate, we can relax and enjoy watching the dark clouds of worry disappear as the sun returns to touch the earth with goodwill and remind us to sing that wonderful song, “Happy Days Are Here Again.” 

Executive On Leave Since Injury

The Los Angeles Times newspaper carried an article with the above headline. The article was of local and national importance because it involved the CEO of a large national company that provides many jobs in several major cities.

The firm is a stable, older firm that has been pressured by Wall Street to get its profits up. Investors were not happy because the stock price has been stagnant for several years. 

In response to the investors’ call for action, a new, highly-regarded CEO was brought in to run the company. The new CEO’s actions were calming to Wall Street. Things at the company became very promising and the great stress that pervaded the firm was easing. Management was beginning to relax now that the stock price stabilized and was heading up.

Significantly, the story pointed out that the 55-year-old CEO injured his spine in a skiing accident in Aspen. It reported his condition as “stable”, a word chosen to minimize apprehension, but the article also laid out the fact that the CEO is on leave and his duties are being attended to by a top-ranking vice president of the firm. The details were suppressed for privacy reasons. No information as to the expected duration of the leave was expressed. 

We have experienced enough similar stories from other intense and hard-hitting companies that the pattern of what lies ahead for the CEO and the company is very predictable.

Companies have little patience for disabled top executives to recuperate. Business must be tended to daily and with vigor. The disabled executive hopes to begin tenderly and work up to, once again, being a hard-driving executive. We hope to be wrong, but our feeling is this man will almost immediately be permanently replaced. This is a sad happening in the career of a professional manager. If he recovers and becomes a viable candidate for a new management position, he will have a new start, but disappointment will continue to depress him. A new position, at his age, will likely be with a smaller, lesser known company. Compensation will suffer and his ego will smart for some time.

But he may be permanently paralyzed to the degree he will not be eligible for a new job. If he recovers, or if he remains disabled, his personal financial concerns are great. The story and our assumptions based on experience with executive disability insurance helps all of us in being alert to the income cash flow needs of executives when their turn comes to be disabled.

The Assumptions in this case are shown in chart 1.

CEO’s Compensation

Disability Income Cash Flow Available From The Employers

Sick Leave  

• Full Salary for 3 months – $27,083 per month
• Half Salary next 3 months  – $13,541 per month
• Bonus—Not applicable if disabled.
• Group LTD $15,000 Payable from 7th month up to age 65.
  60 percent of Salary only—no bonus—capped at $15,000
  Net after taxes $9,000

Optional Disability Income Insurance Available on a Personal Basis

1. Individual Non-Cancelable plan
   91st day to age 65
   $10,000 per month
2. Individual High Limit Disability plan
   91st day for 120 months
   *$35,166 per month

*The U.S. Department of Labor Statistics studies consumers’ spending habits an a monthly basis.  They suggest a person must have an income cash flow of 65 to 75 percent of normal in order to stay even.

A high limit disability plan would provide between $35,166 and $45,166 per month depending on if he owns an individual non-can plan for $10,000 per month.

Who got the $35,166 HLD sale?  The Employee Benefits Broker?  The Casualty Broker?  The Financial Broker?

Probably none of the above.  The subject of supplemental disability income insurance was probably brushed aside by the CEO and his advisors because of the assumption that company benefits would be adequate.

The unfortunate CEO we have discussed should have had HLD to sustain his lifestyle. He may never work again or he may slowly recover. His health, his stamina and his ability to produce on a 24/7 basis will forever be questioned. An adequate disability program for temporary or permanent need is the salvation of his life and lifestyle. Every executive needs advice, for reliance on company plans will result in high disappointment. 

Producers must co-mingle business plans and personal plans to keep their clients financially whole during periods of disability. 

It was more than 400 years ago when Shakespeare with his keen sense of observation and his special spewed words, created within his famous play, As You Like It the even more famous soliliquy called The Seven Ages of Man. It is with great respect that we call on these words to help us understand the challenges we humans face in our living of life. 

Separately, we have discovered the costs involved in living of life and we have written about this concern in our book, “Life Is Just a Cash Flow.” We felt we wanted to share these thoughts with our readers for it creates an important understanding of the important product we call disability income insurance. 

The living of life forces people to be consumers. Very few people could survive on earth without the necessities and the facilities that can only be had by paying for them. Money to spend has become the staff of life, for bread alone will no longer suffice. 

The human body, a magnificent machine, cannot survive without food or energy, for growth, for reproduction, for healing of wounds, and for counteracting disease. The elements in our environment often act in a contrary way. Shelter is required or life is snuffed out. Clothing has become an art form, but basically it is a form of bodily protection from the burning sun, the freezing rain and wind, and a defense against exposure and disease.

 A fourth necessity has entered life’s pictures in these modern times, and that necessity is money for health care.  The living of life in today’s world takes place in areas crowded by fast-moving things that substantially increase the odds of accidental bodily injury. Our living close to others increases the transmittal of disease.  Physicians, hospitals, medicines and technicians have become a built-in part of our living standards.  Like the constantly moving second hand on a clock, life is being consumed.  But from an economic point of view, each tick of the hand on the clock represents an expenditure of money. There is no break; there is no stopping the spending. A person can jump in bed, cover up the head, grit the teeth and vow not to spend any more money. It won’t work, for the belly empties and unless replenished, the person will die. The choice is to spend money, or die.  And we observe that from the first breath of life until the last breath of life, living costs money… Which you or someone else has to pay!

In the Seven Ages of Man, Shakespeare recognized the infant, then the whining schoolboy and then the lover. We might observe that the living costs in these ages will be paid by someone else. Then the solider and the justice where in the person pays his own way before entering “the last scene of all, that ends this strange eventful history. In second childishness and mere oblivion, sans teeth, sans eyes, sans taste, sans everything.”

The Millionaires Club did not exist in Shakespeare’s time, but if it had, he may well have suggested that because the living of life costs so much a person would be wise to join the club. Members would have been and are still limited to people who have accumulated at least one million dollars in wealth. There are many values and advantages in life to being a member of the Millionaires Club. The term “millionaire” came into use a century ago, according to Fortune magazine. It was used to refer to people who achieved a mass of wealth that exceeded one million dollars. A million dollars in the early twentieth century would equate to about $20 million today. If one does not make the $20 million grade and only makes it to $10 million (which is not uncommon) it makes a person a member of minor royalty in most towns in the United States. 

Income earners (at most levels) are millionaires in the making. Earners own their future, so the future earned income is a substantial assets.

Comparison: a person buys a house. This house is listed on his financial statement as an asset worth the price paid. The house carriers a mortgage but the equity value is listed on the net worth statement and is respectably admitted to the person’s wealth estimate. 

The House:

• Purchase price ~ $500,000
• Down payment ~ $80,000
• Balance ~ $420,000
• 30 year mortgage 
• 6% interest
• Monthly payment of $2,969.32 x 360 payments (ultimate cost) = $1,068,955.20

Why does the person consider this house as a valuable asset? It costs more and more due to mortgage costs, taxes, property insurance, upkeep and repair. Does the person feel this is a good asset? The chances are he does and proudly lists it on the net worth statement. The value of the asset assumes the inflation factor will outperform depreciation, upkeep, taxes and repairs. It is a customary measure of wealth. 

But what is the rationale for not insuring future earned income that has the potential of yielding much, much more? Earned income of $150,000 per year times 30 years (comparing it to the mortgage run) equals $4.5 million. 

If one feels compelled to insure a $500,000 house, why does this person refrain from insuring a $4.5 million asset? The chance of a home being destroyed by fire is substantially less than getting sick or hurt and unable to work—about one in 1,200 versus one in 30! 

Purveyors should portray the disability plan as a financial product that yields cash benefits to the insured that will provide a level of income that approximates the normal income flow enjoyed by the insured. Tax advantages notwithstanding, the amount of cash benefits needed by the insured is possible due to modern issue and underwriting limits. Such benefits (logically arranged) provide the solution of a continuing income cash flow when the insured becomes sick or hurt and unable to perform his job. 

As purveyors of economic freedom, we should remember that we are duty bound to inform those people who are wise enough to listen. It is usually necessary to help lift their thinking about the dread they believe they will have over paying an additional premium for coverage they hope to never use (disability income). Life does not work in an absolute, programmed manner. It is filled with shock and surprise, which is why insurance becomes a desirable financial tool that can sustain an adequate level of income and a desirable peace of mind, along with the hoped-for lifestyle; not just once, but multiple times during a working career. 

Getting sick or hurt is the most probable bad thing that will happen to a person. A person should always remember that the body is a machine and is prone to break down and need repairs on occasion. Of all the hazards to our assets, disability is the worst thing that can interfere with the performance and the value of those assets.

We can help the insured by making him understand that some things can be self-insured. Other risks are believed to be covered by bank loans—a risk for the banker, not necessarily available on the day needed, and with no guarantee that a loan will be made. A risk remains a risk unless it is covered by a guaranteed facility. The coupling of a bank loan guaranteed by an insurance product makes the continuation of adequate income something to truly depend on. 

With the advent of new and enterprising approaches to the selection and underwriting of disability risks, a person need not be caught short by not having disability coverage for any and all situations. In the course of a working career, disability insurance can be called on to perform time after time. The cost of this peace of mind is of little consequence to “millionaires.”

Do Millionaires Need Disability Insurance?
The only difference between a millionaire and an aspiring millionaire, in terms of disability coverage, is that one needs insurance and the other wants insurance. An aspiring millionaire certainly has an absolute need for a well-designed disability financial plan, whereas the successful millionaire may not, but he absolutely wants to secure the wealth he has accumulated.

There are economic times when the concept of “return of premium” disability insurance presents compelling reasons to heed the suggestions. Lessons learned teach us that an impetuous response often brings disappointing results. Patience pays its own rewards. 

Old timers will remember A. L. Williams but he is now gone. He powered a “buy term and invest the difference” life company. The “BTITD” concept crashed again. Before him it was Split Life and before that Equity Funding. All concepts had flashes of brilliance. All crashed as performance assumptions changed and the emotion of greed overpowered the instincts of reality. 

Whole life has always looked good in times of low interest rates and sickly in times of high interest rates. Universal life and adjustable whole life were created to be plans that would excel in all interest rate scenarios. In most cases, these products performed as intended. All cash value plans are built on the same chassis; decreasing term life with a cash accumulation fund intended to offset the declining death benefit of the term insurance. 

Except for the few flourishes of BTITD over the past century, life carriers and insurance purveyors have loudly touted cash value life Insurance as a consumer product that is superior to term life.  A college has been created to espouse the technical virtues of cash value plans.  Books have been written, articles, speeches, seminars, television and radio have been used to preach the gospel of cash value insurance. 

The early-day consumer advocate, Elizur Wright, the first insurance commissioner of Massachusetts and the champion of the first non-forfeiture law, is looked upon as the father of cash value life insurance. There is, in his honor, an annual award for an original, outstanding contribution to insurance journalism. It is of course called the Elizur Wright Award which a former associate of mine, Robert W. Osler, now deceased, won in 1959 for his book Modern Life Insurance, then the world’s most widely used textbook on the subject of life insurance. 

Osler set out to modernize the 1915 book by Solomon S. Huebner, founder of the American College of Life Underwriters, called simply Life Insurance. 

Huebner was a theoretician and an educator. He served as professor of economics and insurance at the revered Wharton School of Finance at the University of Pennsylvania. Some people have labeled Dr. Hueber as the “first saint of the life insurance business” for it is his concept of the Human Life Value that elevates the life insurance industry from a conceptual level of burial insurance to one of replacement of the capitalized value of a person’s lifetime earning potential.

Osler pointed out in his book that Huebner had stated “disability insurance clearly falls within the life group of coverages” and that the human life value concept establishes the fact that for every life insurance need there is a corollary disability insurance need. Osler’s book endorsed the human life value, speeded the exit of casualty companies from the field and hastened the entry of life companies into the disability market.

Bob Osler was a powerful influence on DI concepts and marketing. He endorsed the idea of creating cash values in disability insurance. He reasoned that if Hueber called for disability insurance to be accepted as a member of the life insurance group of coverages, then it should follow that disability insurance should be available on a term and/or a cash value basis. 

The idea was unsuccessful in getting life companies to indulge in disability insurance experimentation in the post World War II era, for business was brisk and experimentation was deemed unnecessary. Companies shunned the plea to underwrite cash value disability insurance. 

An arduous task was completed in setting up a company that would bring to the market cash value disability insurance. I was involved in the matter and after 14 months, a Certificate of Authority was granted. Our cash value disability policy had been redrafted in anticipation of the start date. Proudly we presented it to the Insurance Department for approval. After an agonizing wait, we received a reply. The letter said, “DISAPPROVAL.”

Two years later, we tried a new approach. We remodeled the cash value concept to a 10 year, 80 percent refund of premium at the end of 10 years, less any claims paid. It was finally approved. The dream began to materialize. 

In 1967, a version of return of premium (ROP) disability insurance was introduced to the American public. Even though a dozen or so carriers then offered some form of ROP DI, there has not yet been a stampede to sell such a product. Hardly a week passes that this product is not challenged by people who primarily sell cash value life insurance saying that they feel better selling their clients term DI. There are some letters attacking ROP DI. 

Personally, I can attest to having enjoyed thirty years of owning ROP DI. ROP enabled me to enjoy the finest in disability protection at an unbelievably low net cost. The cost is less than what would have been paid for cancellable, integrated group insurance. No association group plan could match the net cost. The important thing to note is that my case is the rule, not the exception. Our experience taught us that only three out of 100 insured persons will have a disability that lasts long enough that the aggregate claims benefits would equal or exceed the ROP benefit. I’m in the 97 out of 100 who joyously won and won big with ROP. 

The place for the debate to center is on a total of all clients, not on a single client basis. Does it make sense to deprive 97 people of ROP DI because of a concern that 3 may have claims equaling the ROP benefit?

Books have been published on the subject of ROP DI. The research book, The Untold Truths About Disability Insurance uses accepted industry statistics to prove that there is no scenario where the consumer would be disadvantaged by owning ROP DI rather than term. In the book Life is Just a Cash Flow, it is recognized that we, the insurance purveyors, have the task of teaching personal economics to the American people. And in the publication Cashing in on Cash Value Disability Insurance, it is made clear that the consumer is best served with ROP DI. 

Where are the defenders of the disability business? Now it is time to start over, and the need for a new power to bring out the value to consumers of the return of premium feature is before us. 

Lloyd’s is an insurance marketplace – the oldest in the world.  The firms who do business at Lloyd’s are called syndicates, not companies.  As such, the syndicates provide insuring functions and security to back the risks.  The syndicates are duly regulated and supervised.

The organization came about because of the growing need to insure the ships and cargo of the bustling Atlantic.  This was done by individuals agreeing to insure these kinds of risk and to spread the risk to provide continued strength of adequate coverage.  Individuals joined syndicates which were permitted to create combined financial strength to enable the insurers to participate on risks too large to be insured by individuals.  These syndicates in turn combined their strength to endeavor to cover even larger risks.

Time out!
We have a newly coined phrased becoming popular in financial communications.  It is called “Crowd Funding.”  We note the similarity of purpose with the age old term called “syndicates” or syndication.  In simple terms, it is a way to gather financial strength when a matter is too large for a person’s personal financial ability to cover the risk alone.

Back to script!
Ms. Betty Grable was the favorite pin-up girl of World War II.  She is pictured here in a swimsuit which was considered skimpy at the time, but by today’s standards looks quite modest.  She fascinated our Dough Boys and most of America.  Her talent manager approached the underwriters at Lloyd’s about insuring her legs for a million U.S. dollars—an astounding figure at the time.  The talent manager and Ms. Grable feared a big financial loss if her legs were ever to become deformed or injured.  The underwriters enjoyed the pictures, but initially declined the risk by reminding the world that their business was insuring ships and cargo, not body parts of the rich and famous.

In 1583, William Gybbons became the first insured human being in recorded history.  The policy was financially backed by several English merchants, and Mr. Gybbons died four days before the twelve-month period of insurance expired.  Perplexed and embarrassed, the fledgling London insurance industry swore to never again insure a human being.  However, after almost 400 years of not insuring people, the underwriters at Lloyd’s were eventually enticed to change their minds when approached again for that policy to cover Ms. Grable’s legs.  It was felt that England was somewhat indebted to the U.S. for the war effort.  The insurance on Ms. Grable’s legs was bound.

This dramatic break with tradition encouraged the underwriters to respond to more requests for accident and health coverages.  Since then, Lloyd’s and other specialty markets have added great breadth and dimension to the world of disability insurance, developing excess coverage programs for high-income earners and business owners who are in need of larger amounts of financial protection for buy/sell agreements, key person coverage, loans and overhead expenses.

The non-traditional DI markets have also become a solution for individuals whose occupations and adverse health histories usually preclude them from attaining coverage through the traditional market.  Impaired risk disability platforms assist thousands of Americans in getting insurance for which they would not have previously qualified.

WWII ended 70 years ago.  The fame of insuring Betty Grable’s legs lives on, even in the minds of people who were born long after this event.  Lloyd’s has grown to become one of the largest accident and health insurers in the world.  Because of relationships with markets like Lloyd’s of London, today we have the magnificent tools to round out an adequate disability estate for people no matter the size of their needs or the hazards of their jobs. 

Consider the commonly used forms of insurance.

House. A person buys a house on a mortgage loan basis. The mortgage holder will insist on the house being insured against loss by fire. Even without the mortgagor’s insistence, the buyer would typically seek out such insurance by checking out various home insurance brisbane policies, this is just an example as it changes from country to country, state to state, etc. If the price of the house is $1 million, the perception of the buyer is that he is facing a potential $1 million loss. Willingly, the premium charge is paid, even though the risk can be handled in other ways. Kiplinger’s Changing Times Magazine has stated, “Even the individual of limited means can pay off big bills and big debts if only he retains his health and continues to earn an income.”

The house buyer wouldn’t like it, but if he or she should be unfortunate and become the victim of the statistic that in a given year, one house in every 1,200 will be destroyed by fire, the loss then is really not $1 million as contemplated by the buyer, and the loss could be managed without insurance in other ways.

The house purchase price:         $1,000,000

Subtract the down payment:         – 200,000

The mortgage loan to be paid:        800,000

Subtract the value of the lot:         – 400,000

The real net loss:                        $  400,000

The real net loss can ultimately be paid off the same way the mortgage was to be paid off, and that is with an affordable monthly installment plan.

Automobiles. Most families own several cars. The considerable premium will be substantially affected by the ownership of sports cars or having teenage drivers in the family. Statistics indicate that one out of every 250 people will have a claim on his auto insurance in a given year. Some states make auto insurance mandatory, but even without the mandating, people would seek out auto insurance. How essential is it? A $75,000 automobile is stolen and never recovered. The auto owner would not like to sustain such a loss, but if the person lives, keeps his health and continues to work and produce income, he can overcome a $75,000 loss.

If it’s a $4,000 dented fender, the cost can be put on his credit card and paid off over a number of months. Insurance is nice, but it is not necessary to overcome a $4,000 loss.

The greatest motivation to buy auto insurance is the liability protection provided by the policy. The fear of being sued and having to pay injury compensation to another person of $500,000, $1 million or more conjures up visions of loss of home and all worldly possessions. The consumer digs deep into his pocket to pay premiums on a plan that benefits others, the injured party whom the insured has knocked down in a crosswalk and broken all to pieces.

As an educational service to the consumer, it should be pointed out that the consumer could well be the person knocked down and broken to bits in the crosswalk. Upon complaint, it is discovered that the driver of the car is an uninsured motorist. The driver did not reciprocate by sending his hard-earned money to an insurance company to benefit the consumer who is now the injured party. If a consumer is sick of paying insurance premiums, then this examination of the practical cost-saving aspects of canceling the fire and auto insurance will be of great interest.

Life insurance has many uses, but from the standpoint of death benefits, there is one chance in 150 of death occurring in a given year.

With the divorce rate up to 6 out of 10, perhaps the person named as beneficiary should also be making the premium payments, in the event that love stops and reality takes over. This is said partially in jest and partially to focus the consumer’s attention on the logic of disability insurance.

Disability insurance is the last insurance that people buy, yet it is the keystone of all personal security. Disability insurance continues an income cash flow that pays for the home, the home insurance, the autos, the auto insurance and the life insurance. There is one chance in 30 that the consumer will suffer a long term disability beginning this year. And note that disability insurance is the only insurance that benefits the consumer directly!

Homeowners insurance pays the mortgage company in case of the destruction of the house, the roofer who replaces the roof or the injured party in case of liability.

Auto insurance pays the bank or lease company in the event of theft of the auto, the body shop for repairing dented fenders, and insured strangers who are damaged by the automobile in the event of a liability situation.

More Than 13,000 Diseases

A consumer would not expect to be able to buy fire insurance after his house has caught on fire. The consumer would instinctively know that it is too late for an insurance company to accept such a risk.

There is a parallel in the case of disability insurance wherein the insured person has sustained an illness or injury that makes the person a candidate for a recurrence of that prior condition. This is similar to the house being on fire. It is too late to insure against the hazard of disablement resulting from the pre-existing condition. Companies will endeavor to develop an underwriting balance that will make for an equitable offer to the insured and take into account the pre-existing condition.

There are more than 13,000 known diseases that can affect the human body. The numbers of accidents that can happen are absolutely limitless. Therefore, a standard disability policy that waivers out liability for the recurrence of a prior condition is not a bad policy. It is simply one that now addresses the liability of the 12,999 other diseases or illnesses and untold numbers of accidents.

Customarily, the underwriter will attempt to develop an increased rate in order to be able to cover the pre-existing condition, but if that is deemed to be inequitable, then the elimination waiver system will be used.

All of Your Insurance Is Important!

Consumers are not eager to buy insurance. The product has no chrome strips, no moving parts; one cannot eat it, sit on it or ride on it, and one surely would not hang it on the wall to show friends. It lies in a dusty drawer, unseen and out of mind except when the premium due notice arrives or in the event of a claim.

If there have been no claim benefits received, appreciation of the product is difficult for the consumer to manifest. Peace of mind is a dividend from an unused policy, but it is difficult to estimate such value on a dollar basis.

“I’m insurance poor” is a standard cliché offered by consumers to express their dislike of spending so much money on a lackluster product. In many cases, the consumer should be saying, “I’m poorly insured,” for most people first insure things they own, rather than themselves. Things can be replaced; the human body cannot be replaced.

All of your insurance is important, but make sure you insure the income that keeps it all in force!

Solomon S. Huebner, PhD, CLU, wrote the book Life Insurance nearly a century ago. It has become the bible of the American life insurance industry. Dr. Huebner has proven to have been an exceptional visionary. It was his concept of the Human Life Value that changed the perception of the life insurance product from being a burial fund to one that provides an indemnification of loss of earnings of a family or business head.

Today our giant industry smolders in the mediocrity of flat and in some cases diminishing sales results. Companies searching for a fix to their problem have reached out to add non-risk bearing products to their portfolios. In so doing, they are methodically entering the arena of life insurance’s old nemesis by a side door. Mutual funds, stocks, bonds and variable products are inherently wrapped in risk. And risk is often a reason given for defecting from the underwriting of disability insurance.

This man’s ingenious appraisal of the future did not counsel the industry to not accept risk, for he, as professor of insurance and finance at the revered Wharton School of Finance, certainly understood that the mission of insurance companies is to provide the tools of risk management for people.

Indeed his book clearly set forth his recognition that from a risk management perspective, the living of life carries the risk of not only “dead death” but also the more frightening encounter with the “living death”—which means getting sick or hurt and becoming disabled. A disabled person is financially dead, but it is illegal to bury the victim.

This magnificent visionary pronounced the living death to be a greater financial hazard than dead death, because “the victim is still here, a total consumer without being a producer, and in addition to living costs, he faces the added expenses of hospital and doctor costs.”

(NOTE: The book “Life Insurance” was first published in 1913. Hospital insurance was not created until 1935—22 years later.)

The life insurance industry has not heeded the teachings of this visionary. We have ignored and cast aside his admonition to protect people from the ruinous effects of disability. One thousand, one hundred life insurance companies have not come to grips with the risk management service their markets anticipated. At the zenith in 1975, 545 life companies offered disability insurance for sale. By 2007 only 26 insurers remained active in the DI business, and the current total remains at that level.

To do something about this sad and concerning condition, the International DI Society was created. Its mission was: 1) to salvage the industry and stop the exodus of companies from disability insurance while encouraging the companies to help provide income protection for the American income earner, and 2) to generate interest and awareness of the need of people and the opportunity for sales of disability insurance.

The International DI Society is working with the leaders in financial services education (The American College and Americas Health Insurance Plans) and have developed credentialed courses in disability insurance.

We set up regional training seminars on the subject of disability insurance on the campuses of colleges that offer insurance matriculation. In times past, Florida State, Michigan State, Notre Dame, USC, the Purdue Life Insurance Marketing Institute, Tulane and others have conducted advanced disability seminars.

Can disability insurance be profitable to the underwriting company? It has been in the past and is once again, but many of the values to a company are out of sight or unmeasured, such as the many tangential sales of other products, the commissions to entice and maintain loyal producers, and the good will coming from the delivery of claim checks to people who are still alive and boastful of the company that has served them well.

Committed and dedicated believers in the necessity for America to have a strong disability insurance industry are joining the International DI Society. The Society cannot achieve its dynamic growth alone. It needs and deserves the support of the companies in the industry—financial and involvement support. Progress to date has been financed by modest membership fees and our modest conference fees. Our tenth annual conference was held in Nashville last October. Industry personalities came to celebrate the induction of the IDIS as the newest star in the galaxy of professional insurance organizations:

 • National Association of Independent Life Brokerage Agencies

 • National Association of Insurance and Financial Advisors

 • National Association of Health Underwriters

 • The American College

 • Society of Financial Service Professionals

 • Million Dollar Round Table

 • America’s Health Insurance Plans

 • Association of Health Insurance Advisors

 • International DI Society.

We seek members from insurers, regulators, producers and educators. The caliber of our speakers and the significance of their subject matter is top drawer.

The International DI Society sets attendance records for the percentage of members who attend each conference. Its new member count increases each year. It is an impressive record, validating the need for this association. 

Disability Income Insurance is complex and complicated because it must contend with many factors having to do with physiology, anatomy, law, psychology, finance and integrity.

It has been available to the American insurance consumer for more than a century, but even so, there is little understanding as to its workings and its design. Insurance companies have had the opportunity of studying the program and experiencing the results of the product. As a consequence, the insurance company, with its many experts, has an advantage over the insured.

In the book Life Is Just a Cash Flow, the authors present an overview of the state of disability income insurance in America in the decade of the 1900s. It is pointed out that insurance companies are not enthusiastic about the underwriting of this form of insurance, for it presents a high element of risk. There is the opportunity for profits, but there is also the opportunity for great losses. Most companies, not knowledgeable about the business and insincere as to making it available, have experienced negative results. These companies have either left the business or have placed in the hands of the sales force a product that is uncompetitive and is not promoted. The product is not given its due emphasis in respect to consumer values because the carriers are not anxious to have a large amount of disability insurance in force.

The consequence of this is that the companies have chosen not to educate their sales force about disability insurance. The consumer suffers the consequences. There is no consumer education. The product shown is a pre-packaged plan that is designed to produce favorable results for the insurance company.

An example of the disadvantages suffered by the consumer is the elimination period. The elimination period is a number of days, beginning on the date of disability, during which no benefits are applicable. It is a form of a deductible. Companies have encouraged buyers to select long elimination periods on the theory that it is less costly to them than a short elimination period. The fact is, the relationship of cost to potential benefit value to the insured is usually better with a short elimination period rather than a long one.

The authors of this book felt that it was only fair that the insurance consumer be armed with the same knowledge and the same statistical results as the insurance companies themselves. With this knowledge, the insurance consumer will be able to more intelligently select the best and the most practical plan design for their disability income plans.

These introductory remarks should not be misinterpreted by the reader. The authors do not wish to imply that the withholding of the information that is revealed in this book has been an overt conspiracy on the part of the insurance companies. It is not a custom of insurance companies to provide in-house knowledge to the prospective consumer with any form of insurance.

The Untold Truths About Disability Insur­ance is a research project that was done by people independent of any insurance company or any other organization or group of people. It was done for the purpose of sharing with insurance purveyors and their clients information that will be useful in creating a better plan design and a disability plan that will be most productive of the desired results for the consumer.

Disability and Life Insurance Are Income Replacement Coverages

Solomon S. Huebner, CLU, founder of The American College of Life Underwriters and former professor of insurance and economics at the Wharton School of Finance, observed in his book (published in 1915 by McGraw-Hill) called Life Insurance that “Disability Income Insurance clearly falls within the Life Group of coverages.”

Dr. Huebner’s philosophical approach to this conclusion was based upon his own realization, called the “human life value,” that the human body is worth very little insofar as the cost of its chemical contents, but the human body at work, month after month and year after year, is capable of producing an astounding amount of wealth during the course of a working career.

He advanced the theory that the purchase of life insurance to cover the cost of a funeral was hardly worthwhile. The purpose and function of life insurance should be the replacement of income that would have been earned and used by the beneficiaries of the deceased person if the person had not died. That same philosophy transfers to disability income insurance. During the period of disablement, the insured person is just as dead economically as the person who is actually dead. For this reason, Dr. Huebner concluded that disability insurance properly falls within the life group of coverages.

Prior to Dr. Huebner’s position on this matter, disability income insurance was thought of as being a form of casualty insurance.

It is important for modern consumers of disability insurance to realize that, like life insurance itself, disability insurance is now available on a term basis, meaning protection only, or on a cash value basis, which means the protection of loss of income plus the development of cash values.

The example used throughout this study is a person:

 • Age 45

 • Non-smoker

 • Professional or executive class

 • Monthly benefit $5,000

 • Unisex rates

The Disabled Lives Table

In a book called Evaluating the Health Insurance Risk, published by the National Underwriter Company in 1965, the author, J.M. Wickman, at the time a vice president of the Mutual of New York Life Insurance Company, published the results of a survey of 100,000 actual lives from a number of life insurance companies. This study gave to us a reliable morbidity table because it took into account people from all walks of life—from varied occupations, varied ages, male and female, and a starting basis of knowing that the 100,000 lives were at the time insurable lives.

On the chart, we find that out of 100,000 lives in a given year’s time, there would result 12,621 disabilities that would last longer than seven days. It was felt that disabilities of fewer than seven days were not of serious economic consequence to the insured person and that the common cold and hangover should not be considered in a study of this type.

The table then analyzed the recovery rate of those disabled, and it found that at the end of one month 5,029 people (39.8 percent) were still disabled, meaning that 7,592 had recovered or died (60.2 percent). Moving to the next month, or 60 days of elapsed time, 1,961 (15.5 percent) were still disabled, meaning that of the total, 10,660 people had recovered or died (a total of 84.5 percent). Moving on to month three, or 90 days, we find that of the total, 981 would still be disabled (7.8 percent) and 11,640 (92.2 percent) had recovered or died.

The table goes on, month by month, but the next significant figure is to recognize that at the end of 24 months, 87 people would still be disabled (0.7 percent of the total) and 12,534 would have recovered or died (99.3 percent of the total). The study continues on through a period of 15 years, or 180 months, and at that time, of the total, 29 would still be disabled (0.2 percent) and 12,592 would have recovered or died (99.8 percent).

It was felt at that time that it was unnecessary to go on with the study, so we are not equipped, with this particular study, to know what the recovery ratio might be beyond 15 years of disablement. Identifying the best plan for the consumer using the best benefit-to-price ratios on the consumer’s behalf, we recognize the value of the Disabled Lives Reserve Table.

The consumer desires a responsive plan, a high-performance plan, one that would cover both short and long term disabilities, and one that would be appropriately priced to satisfy all of those desires.

The only difference between a key person’s body and an industrial machine is that the human body has a soul. But the body at work, like a machine at work, is very productive.

When a machine breaks down, it is important to get it repaired quickly and back into production. Mechanics charge $150 per hour to fix a machine. The human body is very complex. Pre-produced replacement parts are not always available. Therefore we must hire the most expensive mechanics on earth to get the body productive again.

These mechanics are called doctors.

As a society, we have learned to fear the cost of human body repair. More than 85 percent of the American people have sought out insurance to help pay for the costs of such repair.

This is called medical insurance.

The people who own productive machines do not insure repair costs, but instead insure the loss of production.

This is called business interruption insurance.

Somewhere our society got confused. Although medical costs can be horrendous and insurance against such costs is desirable, the loss created by medical costs pales into insignificance when measured against the income lost because of a disabled or broken down body.

This kind of income interruption insurance is called disability insurance.

The human body at work will, in the course of a career, produce an income—month after month and year after year—the sum total of which will amount to a fortune.

One hundred thousand dollars per year increasing 5 percent per year for 30 years (age 35-65) will amount to $4,488,000. Certainly this asset is a very important one. If it makes sense to insure a $40,000 diamond, a $60,000 automobile and a $850,000 house, it has to make financial sense to insure the one thing that makes all else possible—earned income.

But as logical as income interruption insurance seems, it is not pursued with vigor by either buyers or sellers. As a result, only 27 percent of the American people have any disability insurance in force, and the vast majority of these plans have a wholly inadequate amount of coverage.