Every working American is covered by Social Security for disability and many feel that is adequate. At least their actions indicate that this is the case, since the majority of workers do not have any coverage beyond what is provided by the government.
This would be analogous to saying that no one needs a supplement to Medicare or that the survivor benefits of Social Security is all that widows and orphans need to get by. Disability benefits under Social Security would replace only a fraction of a person's earnings and it is very difficult to qualify for them. The earliest someone can apply for benefits is six months after the onset of the disability, and that person rarely receives those benefits before a year goes by.
Agents have a responsibility to educate these workers about their disability insurance (DI) needs.
Most producers can quote from memory the statistic that 48% of home foreclosures are due to disability, or that one in three 25-year-olds will suffer a disability prior to age 65. We know the need for disability coverage, so why isn't more disability insurance sold?
Offer the right solution
The most common objection we hear is that the client has long-term disability coverage (LTD) through his employer. Unfortunately for that client, he is still underinsured. Group LTD benefits, while very cost-effective (typical premiums are less than .5% of payroll), still are limited in the benefits they provide. The upside of LTD is guaranteed acceptance, ease of administration and low cost. Yet, LTD plans have limits on benefit amounts, offsets with other forms of income, more exclusions and limitations on definitions.
The biggest drawback for many people may be that the employer is taking a deduction for the premium, which makes the benefit to the disabled employee taxable. A 60% of earnings benefit may be down to 40% after taxes, and then it is not enough to cover the employee's basic living expenses. Money from workers' compensation or Social Security is offset, and therefore provides no additional benefit; it merely reduces how much the insurance company needs to pay.
The solution is a supplemental individual DI policy. LTD and individual DI together can get the client's replacement of income ratio up to 75% to 80% of take-home income. Even extremely high-paid professionals and executives who are penalized -- not only by the reduction of benefit by taxes but also by benefit caps in LTD contracts -- can use the supplemental coverage to receive a high percentage of take-home income. While you cannot get 100% of gross income (why would the client return to work?), you can get your client to a level that maintains his lifestyle and dignity.
Another problem agents may have with disability insurance is their reliance on sales methods to persuade clients to buy either A or B. Spread-sheeting of potential benefits pushes the client to choose only one option, which may not be the best solution. Similar to selling term insurance or permanent life insurance, where the best solution may be both, in disability insurance, the best choice most often is both group and individual. The client receives a higher level of coverage when both types of policies are used and ends up with a premium that is in the middle -- it is not the highest, nor the lowest, but the best value for the premium dollar.
Take responsibility
Other common reasons an agent may have for not selling DI is that it is "too difficult" to sell; the agent doesn't have the time; or the agent's company doesn't offer DI. More or less, these may each have some validity.
Individual DI is more difficult to get underwritten than many other products, but it is an individual health insurance policy. If we have no problems with explaining pre-existing condition limitations on an individual health insurance policy, we shouldn't have so much trouble in explaining a rating or exclusion on a DI policy. In employer/employee situations, individual DI policies can be guarantee-issued down to five lives with some carriers, with some limitations in benefit amount
If we are taking care of our clients by providing the best solution for their needs, we need to start talking to our individual clients and the employees of the groups we offer benefits to about protecting their income. The National Association of Health Underwriters (NAHU) has resources online that will teach agents more about DI. The association also offers educational courses regarding DI, and you can network with other agents who specialize in selling it. The Council for Disability Awareness (CDA) and Life and Health Insurance Foundation for Education (LIFE) have Web resources that every agent should have bookmarked on their computer. Visit NAHU.org, DisabilityCanHappen.org or LifeHappen.org for more information.
May is Disability Insurance Awareness Month. Talk to your clients about being under-insured. The risk of financial catastrophe is too great to ignore, and yet so easy to solve. It is our responsibility to educate our clients about the solutions we can provide. Disability insurance is one of those important solutions.
Andra Grava, CLU, RHU, is General Agent for a disability insurance brokerage firm for Union Central in Dallas. He is the DI Advisory Group Chair for the National Association of Health Underwriters.
Scott Leavitt entered the insurance industry in 1992 as a captive agent with the MONY Group. Two years later, he started his own insurance firm, Scott Leavitt Insurance & Financial Services, in Boise, Idaho. He also is a founding partner of My Wellchoice+, a wellness promotion company. Scott is the current president of the National Association of Health Underwriters.
From the May 01, 2009 issue of Life Insurance Selling • Subscribe!
