2009 Honoree International DI Society’s W. Harold Petersen Lifetime Achievement Award.
2015 Honoree of NAILBA’s Douglas Mooers Award for Excellence.
From time to time we will feature an interview with Eugene Cohen, who has dedicated more than 57 years of his life to learning, teaching, and supporting brokers in the agency’s quest to help consumers protect their incomes from the tragic effects of a disability. With the help of Victor Cohen, we will chronicle many of Eugene’s life lessons, advice, strategies, and what drives him every day to mentor those who wish to help their clients protect their incomes. Disability insurance is one of those products that can change the trajectory of an individual and a family’s life and is crucial for every financial planner and insurance professional to learn about and offer to clients.
This is the third part of our ongoing series with Eugene Cohen, CEO and founder of the Eugene Cohen Insurance Agency, Inc. The agency started as a disability insurance brokerage MGA and has grown to over 35 team members who are all focused on the wholesale service needs of financial professionals for disability, life, long term care, and annuities.
Victor: In our previous conversations (published in Broker World November 2020 and January, 2021 issues) you discussed the four basic objections an adviser may confront when discussing disability insurance with a client. Those objections are no need, no money, no hurry, and no confidence.
Eugene: It’s most important to immediately uncover the need. When you uncover the need, the other objections will disappear.
Victor: How do you establish the need when talking with a highly compensated client who already has group long term disability (LTD) insurance? Where is the need for more disability insurance?
Eugene: The need is tremendous. Let’s take a close look at highly compensated individuals who often have group LTD. These clients are often your business owners, physicians, attorneys working for mid to large firms. In addition, you have your partner firms of accountants, financial advisers and other professionals. Also the executives and successful salespeople, whose commonality are that their incomes are greater than $250,000+.
Group LTD coverage is a nice foundation for a disability program for firms with multiple types of employees. The implementation of group insurance is relatively simple but, as we know, the insurance company that issues group insurance needs to have protections in those group policies. The limitations inherent in group LTD can cause tremendous problems for the highly compensated executive or professional that only has the group policy.
We don’t suggest a client drop their group coverage. We often suggest layering an individual disability policy on top of the group LTD.
To help the client see the need for adding individual disability insurance (IDI) to their group LTD, we suggest asking questions. “Would your group long term disability insurance policy pay you enough if you were disabled?” The client will likely not know. So, then I suggest offering to review the client’s group LTD policy with them so they will know exactly what they are getting and we can determine if it would be enough for them if they were disabled.
Victor: You will literally ask the client to get a copy of their group LTD plan and then you’ll review it with them?
Eugene: I will ask them to send me the policy—or at least a summary. The client can reach out to their HR department if they do not have a copy. It’s better for the client to know the details of their group LTD policy now, rather than themselves or a loved one studying the group insurance policy at the time of a disability.
So, let’s say I am talking with an executive earning $300,000 per year. That’s an average income of $25,000 per month. Now we are looking at the group LTD and, in this example, the group LTD policy says it will pay 60 percent of the salary up to a cap of $10,000 per month. So that means the most the executive can collect per month is $10,000.
Let’s say, in this example, the group policy is being paid solely by the employer. The premium is being paid with pre-tax dollars, which means the benefits may be taxable. So, that $10,000 monthly benefit would be a much lower net benefit once the executive’s tax rate is applied. Suddenly the perceived amount of $10,000 per month could end up being a net amount of only $7,000, and most likely less when state taxes need to be paid too! That lower benefit may not be enough for the client. (Note: Your client should seek out personal tax advice from their financial advisor.)
Victor: Are there group LTD policies that can reduce the policyholder’s monthly benefit if the policyholder is receiving social security or workers compensation? What about the definitions in group LTD?
Eugene: Yes, most group LTD policies do have provisions in which the monthly group benefit can be offset and it can be a problem if the client is unaware of the provision(s). Also, let’s look at policy definitions. Many times you’ll find that the definition of a “disability” may be more restrictive in a group LTD policy than it is in an individual disability insurance policy. If you’re a physician, let’s say an orthopedic surgeon, does the group LTD insure that individual as a physician or as an orthopedic surgeon? The difference may determine if someone qualifies for a claim or doesn’t!
Another question that needs to be answered: Can the group LTD policy be canceled? Usually there are provisions that allow the plan to be canceled by the employer. The employer can say, “I no longer want to have this plan.” In addition, the insurance company that issued the group LTD usually has the right to terminate the plan for any reason—such as high claims or a change in the business the carrier is insuring. Regardless of the reason for the plan termination, the end result is that the client may be left with no coverage.
Here are some other important questions: What if your client wants to change jobs down the road? While individual disability insurance policies are portable and can travel from job to job with the policyholder, group LTD policies typically are not portable. Let’s say your client is 35 years old and at 45 the client decides to work for another organization that doesn’t offer group LTD. In order for your client to obtain an individual policy, there’s medical underwriting—which could cause an issue in obtaining new coverage. It’s possible your client may not be able to qualify for any coverage, which would be very unfortunate.
Victor: How much additional monthly benefit can someone get per month on top of their group LTD?
Eugene: If a client is earning $300,000 per year and his group LTD pays 60 percent of his income up to $10,000 per month, the client may be eligible to obtain an additional $9,000 per month of monthly benefits depending on the insurance company’s issue and participation limits. Again, this is if his group coverage premiums are being paid by his employer with pre-tax dollars.
If the group LTD premiums are being paid by the client (employee paid), with after-tax dollars, the client could get about $6,000 in additional monthly benefits on top of the group LTD with traditional companies. This also depends on the company’s issue and participation limits.
Here is another reason to get an individual disability insurance policy on top of the group LTD. Many of the IDI policies have a provision that says if the policy holder loses their group LTD, they are able to increase their IDI benefits based on issue and participation limits—without the medical portion of the underwriting (but there would still be financial underwriting). The companies often let the policyholder do this up to a certain age—depending on the company. This is a very valuable provision in that policy. It can protect the client’s medical insurability.
The client may have an option of obtaining a non-cancelable guaranteed renewable IDI policy. This unique provision not only guarantees the renewability of the policy to a certain age, it also will lock in the premium until that age as well.
As you can see, the higher income earning individual with only group LTD is at a disadvantage over others. The higher income earner may have a much smaller portion of his income covered than lower earning employees with the same group LTD policy. That’s why these higher income earners should supplement their program with an individual disability insurance policy.
Victor: Thank you so much for another great conversation. I look forward to us doing this again soon.
The Antidote To Selfishness And Wastefulness
There is a tension in our teenage years between the urge to rebel and the desire to fit in. I wanted to be like my friends in high school and therefore chose to listen to the music they preferred. I also found that this same music met with disapproval from my parents. Take the band Jethro Tull, for instance. Their album Aqualung had troubling lyrics, harsh sounds, and a caustic feel. These factors made the music perfect for the drive to conform to one’s own generation while rejecting the tastes of the former generations.
I outgrew the rebellious phase. My taste in music changed. I gave away all my Rock albums from the 1970s, including Aqualung. I have long since ceased to listen to this particular musical group. And yet, one melody and lyric from Aqualung recurs in my mind. I find myself singing it from time-to-time. It is the song entitled Wond’ring Aloud. (You can find it on YouTube.) The final line in the song, the Outro, grabbed my heart way back then, and it continues to move me.
“And it’s only the giving that makes you what you are”
Living a life of generosity, giving of oneself–this is an admirable quality. To be known as a generous person may just be the height of desired reputations.
Question: Is it natural or even wise for an independent financial advisor to encourage clients to be generous?
The Economics of Generosity
Many of us are familiar with the tug-of-war regarding the beneficial or deleterious effects of thrift on economic growth. Some economists believe that thrift is a long-term stabilizer, and perhaps even a growth factor in macroeconomics. Others, like British economist John Maynard Keynes, subscribed to the theory known as “The Paradox of Thrift,” an economic theory that considers personal savings as a net drag on the economy during a recession.
Many advocates of The Paradox of Thrift point to the experience of the Great Recession (2008-2010) as proof of this theory. In those tumultuous, belt-tightening months, many 25- to 29-year-olds moved back in with their parents in order to save money on rent and other expenses. The 35 percent increase in young adults living at home is believed to have caused estimated damages of as much as $25 billion per year to the economy.1
Point: While savings (thrift) behavior may negatively impact economic recovery during a recession, there is not a single independent financial professional anywhere who discourages clients from this valuable habit.
Question: Is generosity good for the economy, for individual financial success?
The University of Notre Dame hosts something called the Science of Generosity Project.
This project defines generosity this way: “Giving good things to others freely and abundantly.”2
Generosity is considered by social scientists to be prosocial. This essentially means that an individual’s selfless behavior can have a beneficial effect on the social order. It may even have a positive impact on the person acting beneficently. “A host of studies have uncovered evidence that humans are biologically wired for generosity. Acting generously activates the same reward pathway that is activated by sex and food, a correlation that may help to explain why giving and helping feel good.”3
Acts of generosity may make our lives richer experientially. Being generous may also extend our lives. “A study that analyzed data from a nationally representative sample of 1,211 Americans over the age of 65 found that volunteering was associated with delayed death.”4
Paradoxes appear frequently in economics. “Paradox in economics is the situation where the variables fail to follow the generally laid principles and assumptions of the theory and behave in an opposite fashion.”5
There is an economic theory known as “The Paradox of Generosity.” Many people are stuck in a “scarcity mindset” such that they believe there are finite resources. Within that framework, giving some of their resources (time, money, property) away to others means there will be less for them.
In reality, the opposite is true. There are several reasons for believing that generosity leads to greater prosperity:
Generosity is the antidote to the fear of scarcity, it puts money and time in perspective, is the antithesis of selfishness, a curb to wastefulness, and a path to gratitude and forgiveness.
Question: As an independent financial professional, why wouldn’t you encourage and assist clients in increasing their generosity?
Three Historical Examples
Is there actually any evidence that generosity leads to prosperity?
Consider William Colgate, founder of Colgate Palmolive. He had a long and successful business career. He gave not merely one-tenth of the earnings of Colgate’s soap products, but he gave two-tenths, then three-tenths, and finally five-tenths of all his income to the work of God in the world. “When he was sixteen years old, he left home to find employment in New York City. He had previously worked in a soap manufacturing shop. When he told the captain of the canal boat upon which he was traveling that he planned to make soap in New York City the man gave him this advice: ‘Someone will soon be the leading soap maker in New York. You can be that person. But you must never lose sight of the fact that the soap you make has been given to you by God. Honor Him by sharing what you earn.’”6 As of May 12, 2020, Colgate-Palmolive Co. had 34,300 employees and $15.7 billion in sales.7
Example #2: Henry Parsons Crowell, founder of Quaker Oats. Crowell exemplified leadership, innovation, commitment, and generosity in business and through philanthropy. Crowell donated over 70 percent of his wealth to the Crowell Trust. Not only did he live generously, he guided the eating habits of Americans and also introduced new approaches to marketing and merchandising. “The Quaker Oats Company has 10,000 total employees across all of its locations and generates $3.71 billion in sales (USD). There are 3,134 companies in the The Quaker Oats Company corporate family.”8
Example #3: A Canadian American entrepreneur and inventor named James Lewis Kraft founded Kraft Foods. As a young man he was stranded in Chicago in 1903 with only $65 to his name. He put his knowledge of merchandising to good use and obtained a horse (called Paddy) and a wagon. Every day he bought cheeses in the wholesale warehouse district of the city and resold them to small stores, saving the local merchants the task of making the trip. He wrote this in an autobiographical essay: “As head of the Kraft Cheese Corporation, I had given approximately 25 percent of my income to Christian causes for many years. The only investment I ever made which has paid consistently increasing dividends, is the money I have given to the Lord.”9 In 2020, Kraft Foods had $18.2 billion in revenue, $22.9 billion in assets, and $1 billion in profits.10
Summary:
I began with lyrics from a Jethro Tull song and now end with three iconic businesses founded by generous people. The moral of this article is simple: As an independent financial professional you are committed to helping your clients achieve successful outcomes from their use of money and assets. If you do not do so already, consider introducing your clients to the paradox of generosity.
Perhaps it won’t be the giving that makes them what they are. But it is certain to have an impact on who they are. (With your help.)
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