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Extra Disability Benefits Help Boomers Fill Gaps

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Plenty of high income baby boomers do without disability insurance because they think theyre made of steel.

But what about Bonnie Boomer, a hypothetical 45-year-old business owner and mom who always keeps an umbrella in her car, stores 6 weeks of emergency supplies in her pantry, contributes as much as she can to her 401(k) plan and buys all of the disability insurance she can get?

Disability insurers usually limit benefits to 60% of the insureds gross income, to give insureds who are less conscientious than Bonnie a financial incentive to return to work.

Some insurers are helping insureds fill the gap by offering extra features that can increase insureds quality of life without putting incentive-killing cash in their bank accounts.

Some of the most common gap fillers are extra education benefits for the insureds children and benefits that keep up a claimants retirement plan contributions.

The features address 2 of nervous boomers most overwhelming fears: the possibility they might let their children slide into poverty, and the possibility they and their spouses might live out their retirement years in poverty.

Benefits to help children stay in college or in private elementary schools or high schools seem to be more common in accidental death policies than in comprehensive disability insurance policies.

But Principal Financial Group Inc., Des Moines, is an example of an insurer that has offered dependent education benefits together with comprehensive group long term disability insurance.

Insurers that offer 401(k) contribution replacement benefits through annuity riders or basic policy provisions include companies such as Massachusetts Mutual Life Insurance Company, Springfield, Mass., and Guardian Life Insurance Company of America, New York.

Some disability insurance experts are skeptical about the idea of marketing special disability benefits at a time when most boomers lack adequate disability benefits of any kind.

“As you add bells and whistles to a product, you simply make it more confusing and difficult to underwrite,” says Robert McDonald, president of CTW Consulting L.L.C., Minneapolis, and chairman of Allianz Life Insurance Company of America, Minneapolis. “We need to keep it basic and fundamental.”

Down in the trenches, “theres been less interest in the exotic forms of benefits,” says Brian Ashe, president of Brian Ashe & Associates Ltd., Lisle, Ill., who served as 2000 president of the Million Dollar Round Table.

But John Newell, manager of disability income training at Berkshire Life Insurance Company of America, Pittsfield, Mass., a unit of Guardian, says the relatively low-risk nature of a benefit such as a 401(k) plan contribution replacement benefit should make the benefit a success.

Berkshire introduced its Retirement Protection Plus program in January. The program uses ordinary disability insurance to replace up to $40,000 per year in employee and employer retirement plan contributions, on top of Berkshire Lifes usual issue limits.

The Berkshire Life benefits go into a special trust rather than the original 401(k) plan. The trust offers claimants many investment options, Newell says.

So far, the program is too new for Guardian to know what the claims experience really will be. But the retirement income replacement trusts will start paying benefits only when claimants turn 65 or die.

“That in itself avoids anti-selection,” Newell says.

The boomers who use the program tend to be more mature than the average boomer who buys disability insurance, and the producers who sell the program tend to be more comfortable than the average producer with discussions about concepts such as trusts, Newell says.

“This is a second sale, not a first sale,” Newell says.

Reproduced from National Underwriter Life & Health/Financial Services Edition, December 19, 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.