A Panel Of DI Experts Looks At The Disability Income Market And What Can Be Done To Increase Agent Involvement In DI Protection Solutions
Q.What is your view of the state of the disability income protection market today?
Misunderstood and underserved by the sales force! The somewhat earned reputation of the income replacement market is that it is a hard product to sell and a hard product to get through the vigorous medical and financial underwriting. So why bother? If the producer has to spend a significant amount of time “selling” the client on the purchase of the product, then spend even more time trying to convince the carrier to take the client, and then have to go back to the client to explain the changes wanted by the carrier, why bother? Why not just go sell a bunch of drop-ticket, no work, easy-issue term insurance? Of course, from the DI marketer’s point of view, the standard answer is, “Because the client needs it and as a responsible advisor you should be looking out for your client’s best interest.” To which some advisors step up and sell the product but many just say, “I can’t be all things to all people and this is one market I choose not to work in.” However, in doing so these producers walk away from some very easy and profitable sales. Did you know that in many situations guaranteed issue coverage is available? Did you know that there are plans for small businesses that can be set up with no underwriting? Certainly both of these programs require the right set of circumstances, but those circumstances are more common than you might think. Yet many producers throw the baby out with the bathwater and choose to avoid this product line all together. Unfortunately, this leaves their clients exposed to a risk that most likely will be financially devastating should it happen. By working with your local DI wholesale marketer, the producer does not have to be an expert in all aspects of the sale. The producer needs to initiate the questions that discover the need and interest. The expertise can be provided by the DI wholesaler until the producer learns the many different programs and niche markets available (if they want to).
Great products with liberal definitions of eligibility are still available! Business owners and medical professionals are the target markets. Underwriting is an issue due to lack of candor and lack of experienced sales force. Life insurance agents know underwriting the best, and there aren’t as many of them as there used to be. Health insurance agents, having not had to medically underwrite a case in years, are out of practice. Not many financial advisors like asking icky health and lifestyle questions. Flat sales are due to a flat salesforce.
The state of the industry continues to be “more of the same” at a steady pace. The carriers continue to refine products, underwriting procedures and administrative systems. There has not been, however, any meaningful product, underwriting or system enhancements to grow new disability income protection markets. From a distribution standpoint, the industry is not doing a good job of cultivating new or future producers. It is also not easy for a new producer to market a product when the industry does not have continuity of terms. There is, however, an incredible opportunity to develop additional sales through product, underwriting, and systems creativity. The industry needs to reach more prospects with products that are easy for the producer to market, easy for the prospect to buy, easy for both the producer and prospect to understand, and easy to afford.
I have said this each year for the past few years, but it remains true–It is the best of DI times! We have seen the return of an old strong DI player who went out of DI for a number of years! While there haven’t been more new players, those who are in the markets continue to expand product types, increase limits, and work with previously “undesirable” occupations by adding them or assigning them to better occupation classifications. This all points to an overall strong market in general.
GSI programs continue to expand. Of course GSI plans require multiple people to participate, but it seems this continues to grow.
In our operations, excess GSI continues to explode. Law firms, doctor groups and pilots lead the way with the larger GSI cases. At the same time individual excess disability, in both the personal and business disability markets, remains strong.
Q.What factors should influence producers to enter or step up their efforts in the DI market?
The number one factor should be to take care of the client and protect them from this major catastrophe that would upend every other plan they have made—the loss of a paycheck due to accident or illness. The secondary factor should be potential income to the producer from DI sales. Unlike the no work, easy-issue, drop-ticket term insurance sales, income replacement sales pay significant renewals for years. By selling income replacement, the producer is adding a product that will provide a base income in both up and down years. There are so many different opportunities in this market, producers can identify one or two that naturally work for them and have a significant financial impact for themselves while providing significant financial protection for their clients. One easy example is that one company has just introduced into the market a policy for stay at home spouses. The financial impact on a family if the stay at home spouse gets sick or hurt is significant. Even if the working spouse has full coverage at work, less than one percent of families have coverage on the stay at home spouse. Yet, to understand the potential impact, let that stay at home spouse get the flu and be down for two weeks to get a feel for what the impact would be from an extended incapacity. What an easy add-on product to every family sale with the additional advantage of showing a value in the family of the work done by the stay at home spouse. I know that my spouse would have appreciated this acknowledgement in our relationship.
Guarantee standard issue is available to more and smaller groups. The advisor can direct the client to an online application and thereby avoid asking the questions. General agents specializing in DI are readily available to help with every aspect of the process from prospecting to placing. IDI compensation is up to fifty times greater than health insurance compensation.
Producers need to be educated about the importance of income protection and then they should identify their own need first. The producer cannot enter the DI marketplace if they do not believe in the product and own it. They need to learn about simplified issue systems to “get their feet wet” with this system. Carriers are expanding the limits for the simplified issue programs to make it easier for the producer and prospect. If coverage is declined, there are options in the sub-standard DI marketplace to place the case at affordable rates. The producer will learn the long term value of adding income protection products to their practice due to the high persistency of these policies. Almost every single person with a job working 10 or more hours per week, and even a stay at home spouse, is a potential client—so the market is wide open.
a. The producer thinks talking about disability insurance will interfere with the higher commission life insurance sale or the group medical program.
b. The producer thinks someone else is protecting the income! In a recent discussion with one of our reps a producer who specializes in employee benefits said he does not do “executive benefits” (they were discussing excess disability benefits). The producer went on to say that they leave that for the client’s financial planner! They think someone else is taking care of the risk. However, we know that many financial planners think their client has enough disability insurance because they have employee benefits! In either case, there is an open door for someone, anyone, to talk the needs of income protection.
Q.What suggestions do you have to help agents find success in the business market?
Often we find the biggest detriment to entry is the perception that income replacement sales must be huge sales on top executives, doctors, and lawyers. If producers had the same perspective on life insurance sales we would have very few life insurance producers. For sure there are huge sales to be made in both the life insurance business and the income replacement business, but that should not be the only or even the majority of the sales made. The real business market is the small business owner. As mentioned previously there are special programs designed to help the small business owner obtain coverage with less or even no underwriting. Learning about these programs and then applying them where they fit is the key. While I know some producers who are DI specialists and are out prospecting for DI-first sales, most of the producers I know sell DI second. Whatever product they sell first establishes them as the trusted advisor and then the DI sale comes as trusted advice to help round out a plan of protection. The original sale helps the producer discover the needs and situations of the client that would make them a candidate for some of the programs available to them. In addition to the guaranteed issue programs and stay at home spouse programs mentioned above, there are zero-income business owner programs that would allow a business owner that is showing $0 taxable income the ability to purchase a significant income replacement policy! The starting point is accessing your current relationships with people in the business market and discussing the need for income replacement coverage. There are many ways to open that conversation that any disability sales manager could share and help a producer develop. Many times we find that business owners want coverage but they think it is not available to them. By knowing of these special programs a producer can open the door to meaningful sales.
Think like a business owner. Protect your income. Have a succession plan. Have a buy/sell agreement. Be insured first. How do you expect to sell income protection products without owning them? Content marketing, social media marketing, and networking activities are essential. Set goals and get to work making calls and seeing people as well.
All they need to do is talk to their client about disability business coverages. This could include business overhead expense, business loan, key person, buy/sell or other business needs. Keep the conversation simple–ask questions and listen to the answers. The chances are that no one else has ever mentioned how income protection and business policies can save their business in case of a disability moment. When the case is placed, ask for a referral–indicate that you want to work with like-minded folks like them.
The business markets for disability insurance is even more wide open. Every insurer that writes disability insurance promotes the personal use of disability insurance and frequently avoids, or at least under-promotes, the business coverages. Also, there are only a few disability carriers that even offer business coverages which makes the opportunities even greater!
All businesses with partners have a need for a buy/sell agreement. Within the buy/sell there is a provision in the event of a disability. Do they need to insure this risk? No, but in the absence of a disability buy/sell, the company (or other partners) are self-funding the entire risk! Disability insurance plans are pennies on the dollar!
Often businesses who do purchase a disability buy/sell have a need to discuss a key person contract. All businesses have a key person. Sometimes it might not be obvious.
Lastly, business overhead is so frequently overlooked. We hear clients say, “I can use my disability benefits if needed!” Really? The disability benefits are for the personal budget not the business. By using the personal benefits for the business budget the client loses the financial protection they needed to start!
So what are our suggestions? Open your existing client list and talk to them about business coverages. It’s that easy!
Q. What tips do you have for agents to increase success in the individual and high income markets?
The most successful producers in the high income market I know are people that grew up (financially speaking) with their clients. These producers started out with their clients when they were not such high income individuals, took care of their needs, and continued to take care of the clients as their incomes grew. Once established as a trusted advisor with a few high income clients, it is then important to work referrals and get introduced to other high income clients that are not getting the same quality services that your clients receive. The second most successful producers selling income replacement products in the high income market are those that had a natural entrance into the market. This could have been due to other product sales or relationships and income replacement products were added to the mix of services. The high income market is the most established market in income replacement sales, and so is also the hardest one to break into. For most producers, trying to go from not selling in the high income market to selling in that market is a long term proposition. The real opportunity for most producers is to increase income replacement sales in their natural market segment. If a producer markets to people under age 60 then there are income replacement products that should be presented to their clients and prospects.
Educate. Be a teacher. Teach your clients about the differences between group LTD, Social Security DI, and individual DI insurance. Individual DI is portable, guaranteed renewable, and may have guaranteed rates. Eligibility for benefits may require only a loss of income due to disability with no total disability requirement.
High earners are discriminated against by their LTD plan. Sixty percent taxable LTD benefit, up to a limit that might be half or less of the high earner’s salary, is inadequate coverage. They need to know this. You need to expand awareness. Write a book. Do a podcast. Your DI BGA can help.
Teach clients about other business products that may be more attractive to entrepreneurs and small businesses like key person, business overhead expense (BOE), buy/sell (DBS), or loan indemnity coverages. BOE can keep office rent and employees paid. DBS can eliminate the need to find a new partner or having to work with the family of the disabled partner (remember Tommy Boy, the movie?).
Individuals with high incomes have high expenses. They have expensive lifestyles. They have large obligations. They have loved ones. What is their plan for disability—that low frequency, high impact event that can lead to financial ruin? The number one reason people don’t buy DI is because they were never asked.
There is an incredible opportunity in high income industries for disability income protection. Issue and participation limits have increased allowing additional coverage. Group LTD plans are a great foundation, but there is a need to add additional coverage when the monthly maximum does not cover all or full income which is normally the situation. Employer paid guarantee standard issue (GSI) plans now start as low as three lives and enrollment systems are now available. Claims experience for employer paid GSI programs has remained outstanding, so multiple carriers are interested in writing this business. The key to success is working with experts to assist in the planning and implementation of GSI plans.
Petersen International Underwriters does not write “traditional” types of coverages. Our programs only exist when the standard markets can’t (or won’t) write something. This usually translates into excess coverage where the traditional markets supply the maximum benefits, but based upon the income (or business valuation for bank loan, buy-sell, or business overhead), we layer coverages on top of these plans.
Start with your existing block of customers. Regardless of the area of focus—life insurance, medical insurance, etc.—your existing block of customers all have a need for disability insurance. Remember, financial planning begins with income protection! So reach out to those who know and trust you already. Also remember that financial experts (not just insurance experts) agree that most people need two-thirds of their current income just to stay level. This is regardless of one’s income level.
If your customer is an individual, are they protected for two-thirds with disability insurance? If no, start building up the coverage. The traditional carriers do a great job for the vast majority of situations and occupations, but there are many times a customer needs more. Our firm works with producers and the top brokerage outlets around the country offering excess coverages. A person making $600,000 per year of income has a need for $32,500 per month in disability benefits. This will take two or three carriers. The traditional carriers will secure up to about $20,000-$25,000 per month. The excess is secured as a secondary plan with an additional $7,500/month.
If your customer is involved in a business (ownership or partnership), then there should also be a discussion on the need for a disability buy/sell plan. They most likely already have life insurance to fund a buy/sell, but what if they don’t die? A permanent disability still triggers a buy/sell, and in the absence of a disability buy/sell, they are self-funding! The traditional disability carriers will usually offer up to a maximum of $3 million. A partner whose valuation is higher than this amount (know any companies worth more than $3 million?) can obtain excess disability buy/sell for this purpose.
At Petersen International Underwriters we always work hand-in-hand with the traditional carriers making sure they secure the base coverages before we provide the excess layers. We also work through the top brokerage outlets around the country who are the best resources for producers to find the “right fit” for each case.