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We designed and quoted the following benefit package, which the firm accepted as presented.
- Personal and Family Maintenance: The base disability plan was group long term disability as part of the group package, and covered 60% of salary with a $5,000 per month cap. For the unprotected portion of their earnings--bonuses and earnings above the portion covered by the group LTD cap--individual non-cancelable policies were secured.
- Retirement Planning: This was addressed with individual retirement security policies that would continue making contributions to a trust to fund retirement income during disability.
- Business Maintenance: Each stockholder employee's allocated portion of the overhead was addressed with individual Business Overhead Expense policies (BOE). Benefits would begin after a 90-day waiting period and be payable for 12 months.
- Disability Buy/Sell Policies: Each stockholder employee's percentage of ownership, was secured with a 12 month waiting period to begin after the BOE benefits were exhausted. Because a $2 million limit was needed for two of the stockholder employees, the payout period was extended over five years.
The proposed disability program was accepted and implemented as designed, with coverage secured for all in the class of employment selected. Two years after implementing the program, the "rainmaker" began to experience severe headaches. Despite multiple tests, his doctors couldn't reach a diagnosis. The headaches continued, and finally a CAT scan revealed an inoperable brain tumor. The pain reached the point where he could no longer function, and 14 months later, he died.
This client received nearly $1.5 million in disability benefits, as follows:
o The individual personal disability policy paid $20,000/month, after a 90-day elimination period, for 11 months, totaling $220,000.
o The BOE for $15,000/month, for 11 months after the 90-day elimination period, totaled $165,000.
o The retirement security coverage of $3,900/month, for eight months after the 180 day elimination period, totaled $31,200.
o Buy/Sell Disability - $1 million was paid after a 365-day elimination period with the balance scheduled to be paid at the rate of $16,666.67/month over a 60-month payout period. In this case the $1 million lump sum plus two months at the rate of $16,666.66 ($33,333) brought the total buy/sell payout to $1,033,333. Note: With some carriers, the payout ceases if the claimant dies during the payout, but with at least one carrier, the balance of the payout continues to the beneficiary.
As a point of interest, it was heartwarming to witness the way the insurance carrier handled the claim, processing and paying it in a timely and courteous manner. Quality insurance companies reach out to claimants and pay legitimate disability claims in a classy manner.
As this actual case demonstrates, the marketing opportunities in the small business market can be significant. In fact, small businesses constitute the largest and fastest growing insurance market in the U.S., one that is growing faster than it is being penetrated by insurance agents. Further, there are more new jobs being created in this sector of our economy than in the large corporate market.
If you have been in the insurance business for 10 minutes, you already know that becoming disabled is a serious risk. While statistics do not sell DI. insurance, it is worth mentioning that long term disabilities are primarily caused by such illnesses as cancer, heart disease and diabetes. According to the Centers for Disease Control and Prevention, these diseases cause major limitations in daily living for more than 25 million Americans. Arthritis and back pain are also causes of disabilities. Personal behavior and lifestyle choices that lead to problems like obesity are rapidly growing factors in causing long term disabilities. About a quarter of all adults in the U.S. are obese, according to the Centers for Disease Control and Prevention.
People get sick and they get hurt. "Two-thirds of American families live paycheck to paycheck," stated Parade magazine in an April 23, 2006 article, "Is the American Dream Still Possible?", Unexpected illness and injuries cause 350,000 personal bankruptcies each year according to the February 2, 2005 issue of Health Affairs. This article also noted that disabilities cause nearly 50% of all mortgage foreclosures.
This expression puts it into perspective: "If you need your income, you need to insure it."
When doing a "needs analysis" for the small business client, you should address the following areas:
Personal and Family Maintenance
When the small business owner cannot work and run the business because he or she is disabled, a substitute income stream is needed. While accounts receivables and savings can be an acceptable revenue source for short term situations, the long-term solution must be personal disability income insurance. Savings and investments are created for specific events, such as the education of your children or funding a comfortable retirement. These programs would be destroyed if the funds are diverted to pay living expenses during disability.
The solution calls for:
oPersonal income replacement insurance to protect lifestyle; and
oRetirement security insurance to continue contributions for retirement income planning, when you can no longer make contributions to your IRA, 401(K), pension plan or other retirement oriented vehicle.
Business Maintenance
Likewise, when the small business owner cannot work and run the business because he or she is disabled, the future of the business can be in peril. There are two separate areas of need:
Business Overhead Expense Plans (generally for small businesses with fewer than 10 employees). The future of the business is especially at risk, particularly if the owner generates most or all of the income to the business. Some examples are: small accounting/CPA firms; medical or dental practices; chiropractors; and law firms. Income from the BOE plan is critical for both short-term and long- term disability situations. If the owner suffers a short-term disability, the business can stay open and operating so that there is a business to come back to when the owner recovers. In the event of a long-term disability, the BOE plan enables the business to stay open and gives the owner a chance to find a buyer while the business is still operating; it's always easier to sell a business that is a "going concern."
Disability Buy/Sell Plans. Every business owner who has a partner or partners needs to establish a formal buy/sell agreement at a time when they can truly arrive at an "arms length agreement." It is important that partners take the time, when all are well and working as a team, to determine how each would like his or her interest in the business to be disposed of in the event of death or disability. When the partners establish a buy/sell agreement,, it creates a liability that needs to be shifted to a third party, who will provide the funds to buy out the deceased or disabled partner when either of these events occurs. A buy/sell agreement without proper funding can be a disaster.
The more successful the small business owner is, the more he or she needs disability income protection. And with the proper training, knowledge, and resources, no one is in a better position to provide this valuable product than you, the professional insurance producer.
Michael J. Eskra, CLU, RHU, is a partner with DI Broker, a national disability brokerage organization formed in 1992. He was a founding partner and the first president of The Plus Group, another well-known disability brokerage firm, and previously had managed the south Florida branch office of Provident Life and Accident Insurance Company, where he started his insurance career in 1961. Mr. Eskra frequently writes for trade publications and is a longtime active member of the south Florida chapters of several insurance professional organizations.
