“Specialization for the Life and Health Agent = Success!” Technical Training Series

As the saying goes, “if you look like all the other dogs, you are just one of the pack.” A successful insurance producer finds ways to stand out from the “pack” by bringing unique services to the client. In a recent post, we outlined how a successful property and casualty agent can set himself or herself apart by becoming an expert in business interruption and business income insurance.

In this edition, we are going to focus on how a life insurance producer can similarly succeed with a particular product in the life insurance field—disability income insurance.  What are the odds that a person will be disabled? Pretty high…

• A 35-year-old male is 32% more likely to have a disability lasting at least 90 days vs. the probability of death.
• A 35-year-old female is a staggering 135% more likelyto have a disability lasting at least 90 days vs. the probability of death.

Let’s take the mystery out of disability insurance. The concept is simple:

“Disability Insurance is the industry name for a plan that provides for periodic payments of benefits when a disabled insured is unable to work. The insurance product is designed to replace anywhere from 45% to 65% of your gross income on a tax-free basis should illness keep you from earning an income in your occupation.” – National Association of Health Underwriters  

Confusion commonly kicks in because almost every disability policy is different and the definition of disability varies. As a result, clients might misinterpret the policy and might even file a professional liability lawsuit against the agent if expectations are not met.

This blog can serve as a starting point for new producers who want to understand the bigger picture, have tools in explaining the disability income coverage to their client, and obtain further references to stay current with laws and regulations. Key Definitions Related to Total Disability

• Your occupation or own occupation: This is the most liberal definition. If you can’t do your own job, then you are disabled. This is a very generous definition and a very expensive one.

Example - A surgeon is injured and can no longer be a surgeon. He or she would then be considered disabled even though he or she might be a family practice doctor.

• Any occupation: A client is considered disabled if the person cannot do his or her job, or any other job which the client is reasonably suited by education, experience or training.

Example - A surgeon can no longer perform surgery but can be a family practice physician or a teacher in medical school, etc. This definition costs considerably less than the “own occupation” definition. Benefit Periods and Limits

• Benefit periods are divided into 2 groups—

o   Short-term disability pays for a benefit period less than 2 years. o   Long-term disability is a benefit period exceeding 5 years.

• Benefit limits are normally 45% - 60% of the earned income, but can go as high as 80%. You cannot purchase a benefit amount equal to or in excess of what you are now earning. If that were possible, there would be little incentive to return to work.

Deductible or Elimination Period

• The deductible or elimination period in disability income is the “time without benefits” or the “waiting period.” Depending on the client’s age, his or her premium can be reduced up to 40% by having a longer waiting period between the onset of a disability and the receipt of payments.

Example - If the elimination period is 60 days instead of 30 days, the premium is substantially reduced. Remember that with a 60-day elimination period, the client will not get a check until the 91^st day because he or she will only become eligible on the 61^st day—considering that the client’s 30-day loss is on the 90^th day. Multiple Uses of Disability Income

• For individual use:

Should a qualifying event occur, the individual’s income will be provided for ongoing personal and family expenses. The coverage may be part of the group insurance provided by the employer or from a private coverage purchased by the individual.

• For business use:

Business overhead expenses can be covered, especially if the business revolves around a single individual, such as an architect who has several draftsmen and bookkeepers.

Key employee disability income can help close the gap when a vital employee is disabled, thus causing a drop in income.

Disability buy-sell agreements can be funded by a disability income policy. If a partner is disabled, the disability income policy can be used by the surviving partner to purchase the shares of the injured partner.

There are online discussions and guides available for insurance producers who wish to expand their knowledge of disability income insurance. We hope that this article has shown how the disability income policy can be a powerful tool to solve your clients’ needs.