Supplemental Disability Income Insurance Continues To Expand Its Reach

By Patrick D. Morris

Supplemental disability income insurance is unequivocally here to stay.

No matter the economy, this insurance should be thought of as the foundation to a financial plan–since arguably, ones ability to earn an income is one of a persons most important assets.

Traditionally owned by high-income professionals with sizeable earnings at stake, supplemental DI offerings have expanded their reach within the last decade and are enticing both executive and middle-income earners who wish to protect more of the income they earn.

To see why it is gaining strength in the market, lets first review supplemental DIs role in the larger economy.

When faced with a poor economy and rising health care costs, employers may be forced to cut back on funding for benefits such as group long term disability plans. At such times, employers often opt to offer supplemental DI as a voluntary benefit, with premiums paid by the employees who elect the benefit.

This strategy allows employers to continue subsidizing perceived basic, routine benefits like medical and dental insurance. However, those who continue working during a choppy economy tend to have heightened appreciation for their earned income. As a result, they are predisposed to recognize the need for protecting more of their earnings than before, should an unforeseen accident or illness strike.

How the premium is funded becomes a secondary issue. For them, supplemental DI during a challenging economy can be key to financial stability.

So, then, how can the advisor position supplemental DI as part of the employers and workers overall financial strategy? It is the industrys job to help identify the need for this coverage with each individual.

To start, its worth spending some time considering this question: If an individual is without an income, how can he or she pay for any expenses? All income earners should be asked to consider this and also the merits of supplemental DI insurance in such a situation.

Point out that, depending on individual income, this coverage can raise the level of income protection by nearly one-third over that of the group disability coverage.

For example, many highly compensated individuals earning bonuses or commissions should be made aware that only a portion of their salary (approximately half after taxes) is covered by their group long term disability plan. They should also be made aware that most times bonuses are not included in the group plans.

In positioning the program for middle-income earners, consider providing an analysis tool to let the individuals measure just how much of a shortfall they will experience.

In addition, consider the employers situation and needs. Less than one-third of employers polled in the July 2002 “MassMutual Benefits Barometer Survey” said they offer both group and supplemental individual DI insurance.

However, there are now employer and association discounts that are opening more doors to worksite marketing of supplemental DI. These worksite programs are helping ease financial pressures by reaching into the underserved middle market.

Interestingly, nearly one-third of respondents to the survey mentioned above cite rising benefit costs and the economy as key considerations for offering supplemental benefits such as individual DI. More than half of those polled indicated that employee satisfaction and recruitment are important considerations.

However, even though traditional insurance sales tend to increase in a worsening economy while equities tend to be hot in a good economy, the economic environment should be irrelevant for those who are truly “financial” professionals.

Point out that it is just common sense to insure what we have before investing for what we would like to have, no matter what the economy.

Looking ahead, the need for supplemental DI will not go away, regardless of how the economy turns. Voluntary products supplementing company sponsored plans are here to stay. However, in a more robust economic environment, employers may partially or fully subsidize premium payments on behalf of employees.

When they are part of employer benefit packages, these products become a tool to recruit and retain employees. Indeed, ever since the early 1990s, multiple DI sales through employers have increased, no doubt because of that fact.

The products have benefits for carriers and producers, too. For example, carriers have realized that, when Supplemental DI is offered at the worksite, DI sales potential increases while spread of risk (persistency and morbidity) improves. As for producers, they have found that renewal streams from supplemental DI business are very attractive.

Patrick D. Morris, RHU, is vice president, disability income insurance sales and marketing at Massachusetts Mutual Life Insurance Company, Hartford, Conn. His e-mail is pdmorris@massmutual.com.


Reproduced from National Underwriter Edition, February 24, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.