How to Sell Disability Income Insurance: Your Guide to Becoming a Top Producer in a Revitalized Market

Cover and layout design: Jason T. Williams

This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. – From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations.

ISBN: 978-1-938130-11-3

1st Edition

Copyright © 2005

The National Underwriter Company

P.O. Box 14367, Cincinnati, Ohio 45250-0367

All rights reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the publisher.

Printed in U. S. A.

Table of Contents

Dedication

Acknowledgements

About the Author

Part One: The Disability Income Need

The Financial Planning Gap

The Checkbook Story

Today’s Hot Prospects

The Middle Income Worker

Women

Home-Based Businesses

Boomers

Small Business Prospects

What About the ADA?

9 – 11 – 01

D.I. in a Down Economy

Uncovering Need For Worksite DI Coverage48

Critical Illness

Identifying the Need: The Tried and True Methods

Waiver of Living Costs

Two Kinds of Lost Income

The Business Card

Footnotes

Part Two: Working With A Client

Preparing for the Sales Interview

Preparing for the Interview

It’s the Income, Stupid

Disability Income Needs Analysis

Part 1: Financial

Part 2: Occupation

Disability Income Fact-Finding Sheet

Completing this Fact-Finding Form

Proposed Insured Information

Desired Coverage

Existing Coverage

Public Disability Coverage

Cash Sickness

Workers’ Compensation

Railroad Retirement Act

Social Security

Public Program Summary

State-Specific Disability Programs

Workers’ Compensation

Railroad Retirement

Social Security

A Programming Example

Making A Sales Presentation

Disability Income Sales Principles

Existing Coverage

To Your Health

Key Benefit Components

The Business Prospect

Completing this proposal form

Proposed Insured Information

Desired Coverage

A Taxing Issue

The Employer-Employee Disconnect

Business Overhead Expense

Disability Buy-Sell

Key Person DI

Closing The Sale

Underwriting

Tools of the Trade

Claims

Placing the Policy

Footnotes

Part Three: Which Product Should I Choose?

DI Unbundled

The Money Provisions

The Major Product Features

Renewability

Definitions of Injury or Sickness

Definitions of Disability

Total Disability

Residual Disability

Other Policy Provisions

Regular Care and Attendance of a Physician

Elimination Period

Presumptive Total Disability

Automatic Indexing

Rehabilitation

Benefit Limitation for Mental/Nervous Disorders

Waiver of Premium

Recurrent Disability

Treatment of Injuries

LTC Conversion

Exclusions

Optional Benefits

Own Occupation/Residual

Guarantee of Insurability

Social Insurance Offset Rider

Cost of Living Rider

Retirement Benefit Protection

Business Overhead Expense

Reimbursable Contract

Maximum Total Benefit

Carryover Account

Summary of Differences

Renewal Provision

Definition of Total Disability

Residual Disability

Covered Expenses

Examples of Covered Expenses

Expenses Not Covered

Conversion Privilege

Death Benefit

Legal/Accounting Fee Benefit

Other Policy Provisions

Optional Benefits

Disability Buy-Sell

Ownership Interest

Elimination Period

Payment of the Policy Proceeds

Minimum Ownership

Valuation

Renewability

Conversion

Definition of Disability

Transfer Privilege

Professional Fee Reimbursement

Waiver of Premium

Exclusions

Optional Benefits

Key Person DI

Who is a Key Person?

Key Person Benefits

Elimination Period

Benefit Period

Renewability

Definition of Disability

Conversion

Waiver of Premium

Optional Benefits

Taxation

Worksite Disability Programs

Voluntary DI Plans

Group Disability Products

Critical Illness

Critical Illness Prospects 37

Footnotes

Part Four: Knowledge is Power

History of the Disability Income World, Part 1

History of the Disability Income World, Part 2

Stop Making Sense

Small Craft Warnings

Die Another Day

DI Market Info Update

Women

Asian-Americans

Home-Based Businesses

The Professional Market

Statistics to Work By

Impairments by Percentage of Claim

Obesity Leading to Increased Disability Among the Young

Disability Sales Surpass Life Insurance

More on the ADA

Taxation

DI Product Info, Part 1

DI Product Info, Part 2

DI Product Info, Part 3

Transferable Skills Analysis

Claims-related Information

Footnotes

Glossary of Terms

Dedication

This book is dedicated to the memory of my father, DI specialist Raymond A. Sadler, who would be surprised to know that I’ve now exceeded the number of years he was in the insurance business; and to all of those agents who opted to persevere during the more difficult recent times in the DI industry by putting their clients first.

Still out here in the wind and rain, I look a little older, but I feel no pain.

– the late Warren Zevon

Acknowledgements

This book was some time in the making and my thanks go to out to my wife Eileen who kept encouraging it to the finish line—mostly by saying, Aren’t you finished with it yet? —and to a number of DI agents around the country who offered numerous suggestions on what was working for them in the 21st Century. Let me also thank my long-time editor and friend Deborah A. Miner, J.D., CLU, ChFC, for always believing in these projects.

About the Author

Jeff Sadler began his career as an underwriter in the disability income brokerage division of the Paul Revere Life Insurance Company following his graduation from the University of Vermont in 1975. Disability income and long-term care insurance have been the primary focus of his career, leading to the founding of Sadler Disability Services, Inc. with his father, Raymond Sadler, in 1989.

Over the last several years, Jeff has authored a number of insurance books, including The Long Term Care Handbook (3 editions—1996, 1998, and 2003), How To Sell Long Term Care Insurance (2001), Disability Income: The Sale, The Product, The Market (2 editions—1991 and 1995), and The Managed Care and Group Health Handbook (1997), all published by the National Underwriter Company. Other books include Business Disability Income (1993) and Understanding LTC Insurance (1992).

Jeff has been very active in the industry throughout his career, currently serving as a member of the National Association of Health Underwriters’ Long-Term Care Working Group. He is a past president of the Central Florida Association of Health Underwriters, the Florida Association of Health Underwriters, and the Central Florida General Agents and Managers Association. He is a past winner of the Stanley Greenspun Health Insurance Person of the Year Award and the NAHU Distinguished Service Award.

Part One: The Disability Income Need

Money cannot buy health, but I’d settle for a diamond-studded wheelchair.

– Dorothy Parker

Key Concepts

1. Consumers are generally unaware of the disability risk.

• There is a greater chance each year of a disability than death.

• One out of 18 mortgages is not being paid because of a disability to the mortgage holder.

2. Disability is money going out, no dollars coming in.

3. Today’s hot DI prospects are middle income earners, women, home-based businesses, boomers, and small businesses.

4. The Americans with Disabilities Act has been narrowed by the U.S. Supreme Court, elevating the importance of private disability insurance protection.

5. Selling DI in a down economy can be simpler because it’s easier for the consumer to see the effect of lost income.

6. Diversify your DI prospects just as you would diversify your financial portfolio.

7. Critical illness insurance is another way to insure the risk of disability.

The Financial Planning Gap

It amazes me that most people spend more time planning next summer’s vacation then they do planning the rest of their lives.

– Patricia Fripp

You spend weeks, months and years trying to build up your income, putting in the extra time, taking the promotions that come along, all focused on some financial goal: a house, a new car, the kids’ college education, a retirement cottage on the beach. The spotlight shines so bright on these financial objectives that it is easy to overlook the one key element that makes it all possible—the ability to work and earn an income.

Have you ever passed a homeless person on the street and wondered where this individual came from? What sort of bad hand they were dealt that placed them in this unenviable position? There are a number a stories out there like the carpenter’s, people who led a normal life until an unforeseen occurrence turned their lives upside down. Disability is just that kind of life-changing event.

In today’s performance-based economy, few Americans feel any sense of security. Bruce Springsteen sang about vanished dreams due to the country’s floundering financial times in his legendary song The River. But disability can be permanent unemployment: when no earned income is projected for the future. Imagine the bills, the loss of a home, of savings, of college funds, of prom gowns, and wedding dresses. No more trips to McDonald’s after little league games. The stress on a marriage and a family is overwhelming.² A lifestyle can be altered overnight

Consumers simply aren’t aware of the disability risk. They receive their medical benefit booklets from work, take them home, may or may not look at them, and assume they have adequate coverage. Individuals are conditioned to think about medical insurance benefits, but not about what happens to income should an injury or illness extend for a protracted period of time.

Despite this relative lack of urgency about the issue, the risk is real. A Conning Research study found that 30-year-old women have a 57% chance of becoming disabled, and only a 16% chance of dying before age 65.⁴ Yet the focus of most people when they discuss employee benefits with their employer is health and life insurance.

Insurance coverage that can supply a significant portion of an individual’s pay during a disability is not a mandated coverage. As such, people don’t think to ask for it. They know they need health insurance (although this isn’t mandated, either.) They understand they have to secure auto insurance to put a car on the road. They accept that they must obtain homeowner’s coverage if they want to be assured of obtaining a mortgage from a lender. But if they do not protect their income, there are no immediate consequences—until a disability happens.

Conditions that used to kill people have evolved into disablers, thanks to the wonders of modern medical technology. This would not necessarily be an issue if everyone had enough cash on hand to cover the disability contingency. But the typical U.S. citizen over the past 13 years has had a decline in personal savings rate and an increase in percent of debt when compared to disposable personal income.⁵

In a two income family, the odds are two in three that one of the earners will be put out of work temporarily or permanently. Working couples with no disability coverage should consider putting money into a disability package before they buy more stocks.

– Peter Lynch, Manager,

Fidelity Investments Magellan Fund,

during the height of the bull market, 1999

Being a two-income family is the best disability income protection you’ll ever need, because if one of you is disabled, the other can work and make up the money lost.

– Charles Givens,

from his best-selling book,

Wealth Without RiskThe Checkbook Story

The Checkbook Story

Who should consider disability income insurance? Everyone that works and earns an income should become acquainted with the concept. We’re all vulnerable. It just isn’t easy for healthy people to think seriously about a possible unhealthy future.

One way to illustrate the potential financial disaster that could lie ahead is to take out a checkbook. I know, I know, these are much harder to find these days. Perhaps you can pick one up at a garage sale or an antique store for illustrative purposes only. Many people do their banking online today. So whether you use a checkbook or pull up a sample Quicken page on the computer, the idea is the same.

Flip through the pages of the checkbook. Whom do you pay the mortgage or rent to? Who is the utility company? Who is the phone carrier? Whom do you pay for the car each month? Chances are the consumer may have some of the same bill payments and creditors as you do. It’s then easy to go down the respective columns: income goes on the credit side of the ledger, and the bills on the debit line.

Ask the person if you started to erase or delete the credit numbers coming in, how long could the bills be paid? How much time before the money in the plus column runs out? Will the bills stop coming just because the paychecks do not? Most people can relate to paying bills and grumping about it. Just think how loud the complaints would be if there was a declining balance to try and make ends meet.

This is the story of disability. Money going out, nothing coming in.

In today’s changeable, volatile economy, employees are often being asked to take pay cuts to avoid layoffs.⁷ They can see the income going down quickly – and this is in a situation where they are healthy. But it is similar to disability in some respects – both the decline in earnings and the lack of control in keeping this from happening. The key difference is that the healthy worker with a pay cut can still work, perhaps even find another job. But the disabled worker has few work prospects and a bleak future without financial help.

This recent stock market instability would seem to underscore the importance to consumers of income earned and invested for retirement. If that person’s ability to earn an income is interrupted by prolonged illness or injury, the regular deferral of income made into the retirement vehicle(s) generally stops. The result could be, in addition to a struggle to pay regular monthly expenses, a shortfall in the retirement income nest egg. Disability insurance coverage can help workers continue to make contributions into a retirement plan during the disability.8 Why should an injury or illness also take out the retirement accounts? Advances in medical science mean that the career-threatening disabilities of the past are replaced with recoveries, complete or partial, with some able to go back to full-time work. If there is a chance of eventually returning to the job, wouldn’t it be beneficial not to have lost ground in one’s savings for the future?

Most people are concerned with their investing today. Should I hang on to my stocks because I just know the market is going to go back up? Or should I move it into bonds and stop the bleeding for now? Or should I take it all out and put it under my mattress?

While the person is mulling over his financial future, you can assist with at least protecting the ability to make future contributions. If you work with anyone on his investments, he should hear about disability income insurance protection.

Today’s Hot Prospects

For years, the disability income industry primarily sought out the high income earners to offer disability income coverage, with substantial benefits and policies rich with lucrative features. That strategy ultimately backfired, and missed a lion’s share of prospects in the process.

The Middle Income Worker

According to the Federal Reserve, half of U.S. families with incomes between $25,000 and $50,000 had less than $2,000 in their checking accounts. That’s not much to fall back on should a disability occur. The financial support is neither wide nor deep, and that’s a problem that needs solving.

Today’s middle income worker rarely has the chance to talk to a financial advisor about what plans are in place should disability strike. Those earning $50-60,000 or less seem to fly in under the insurance agent/stockbroker radar, yet they are arguably the most susceptible when it comes to an extended injury or illness. It’s time to seek these prospects out and talk to them about their plans for the future if paychecks were not forthcoming.

These were not individuals who had a substantial stake in the stock market frenzy of the 1990s. Less than 15% of this group had invested in either stocks or mutual funds. What they did have were certificates of deposit, savings bonds, and some contributory retirement accounts.¹⁰ They deserve the opportunity to protect the assets they do have.

Many of these middle income workers are single parents. The number of single parent households has more than doubled since 1970. How does a family survive financially when the sole breadwinner no longer is earning an income, or has incurred a substantial reduction in the money coming home? In addition, about 60% of today’s U.S. households depend on a dual income. What happens when one income or a portion of one income is lost?¹²

Many middle-income earners are located in mid-to-small businesses and often don’t have much in the way of even group disability coverage. Quite simply, no one is approaching this group of prospects. It’s often easier to see the decision-maker in this business size. Even if a group disability program is in place, does the worker understand it is replacing only 60% of gross income and the benefit, if the employer is paying, will be taxed? How will they make up the balance? If a reasonable portion of the income is in the form of a bonus, this isn’t typically included in the group LTD calculation, meaning a further shortfall in what the individual thought was adequate coverage.¹³

COBRA, the legislation that allows employees to continue their health insurance coverage after leaving a firm, does not apply to disability coverage. Group DI programs will probably stay behind (as portability provisions usually aren’t that attractive) and the individual has to start all over again. Many middle-income earners switch jobs in an effort to get ahead. Some leave and go out on their own. Either way, there will not be the same opportunity to continue disability benefits.

The middle income worker is perhaps in the weakest position to financially combat a disability. The great majority lack coverage. That’s a scenario made in heaven for the financial advisor who wants to truly help these prospects.

Women

There is nothing wrong in this world that a sensible woman can’t set right in the course of an afternoon.

– Giraudoux

For the last several years, women have been starting new businesses at a faster rate than any other segment of the economy. They are also becoming the decision-makers in terms of finances both for their businesses and their families.¹⁴

Women are the wild cards in today’s financial environment. While they are working more and more, taking charge in many cases, financial planning is still an elusive task for these pioneers. Women are more flexible, adapting their working careers to specific family lifestyles. As a result, they are in and out of the workforce, facing varying income levels depending on how much work they can perform, mostly due to caregiving responsibilities for children and/or aging adults. So they’ve increased their presence, but they are still susceptible to an extended injury or illness and they may not have had the opportunity to build up their financial safety net.

Female business owners are multiplying in a hurry. Since 1992, the number of people employed nationwide at female-owned firms grew 107%, while overall small company employment grew by only 12%. Substantial growth for women-owned businesses can be found in nontraditional areas such as manufacturing, construction, and wholesale distribution.¹⁵

In general, the number of women in the workforce is growing at twice the rate of men and, on average, women contribute 30 to 40% of all household incomes. Yet a recent survey by the Health Insurance Association of America indicates that women are much less likely than men to have insurance against the loss of income due to illness or injury.¹⁶

Without question, women have closed the gap on men in the working world. While there is much to be done yet to equalize income opportunities, many financial advisors have not been talking to women about their disability insurance needs. The Women’s Institute for a Secure Retirement reports that many women either have no disability income coverage or are under-insured. Some of the reasons, the report says, that women lack disability coverage are that they leave jobs, get divorced and lose their spouse’s benefits or are unable to afford the insurance. The executive director of the organization says, "A good case can be made that disability insurance ought to be at least as high a priority as life insurance, especially if you are a single mother or you are bringing home a substantial chunk of total household income.¹⁷

According to a LIMRA International study, in marriages where both spouses work, 1 in 5 women earn more than their husbands. This translates to more than 7 million wives who are the primary earners in the family.

Part of the difficulty lies in the types of employment women are in. Today, at least 4 million women are alternative workers, meaning independent contractors, on-call workers, and those who work for temporary agencies, according to this same LIMRA report, The Women’s Market: Myth and Reality. This indicates some job areas where benefits could slip through the cracks. Many of these situations are ones where women are not going to have an opportunity to learn about and purchase disability insurance coverage.

So what do we have here? A market full of prospects, earning money, unprotected with disability insurance, many primary breadwinners, many willing to listen to financial advisors as long as that individual takes them seriously. Translation: plenty of work for the DI salesperson (especially female agents) who will take the time