What DI Producers Need To Succeed In Multi-Life

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By many estimates, the fastest growing segment of the individual disability income insurance market over the last few years has been the sale of multi-life products.

In the multi-life DI market, carriers will issue coverage on a guaranteed standard issue basis, with premium discounts up to 35%, for employer-paid and voluntary benefit programs.

While the amount of coverage issued on a guaranteed standard issue basis will vary based on the number of participants in a case, it is not unusual to see offers for $10,000 or more of monthly individual DI benefits. This volume-driven business offers significant income potential to individual DI producers.

As the market has developed, producers who traditionally sell individual DI on a one-on-one basis to professionals, executives and business owners have shown increased interest in distributing multi-life individual DI, too. But to be successful in the multi-life market, these professionals need to master certain sales concepts. These concepts are related to the sale of group long term disability insurance.

Some examples follow:

See group LTD as friend, not foe.

Producers who sell exclusively in the individual DI market often view group LTD in a negative light. When selling to an individual buyer, they may try to diminish the value of LTD by pointing out limitations of LTD relative to individual DI, especially its lack of guarantees.

But this approach can work against these producers if they want to enter the multi-life market. For example, in the multi-life market, the decision-makeroften a benefit managermay have been the person who made the decision to buy the LTD plan.

A better strategy is to learn to see group LTD for its strength as a low cost disability insurance plan that is easy to install. Then, build upon that base to create multi-life individual DI sales opportunities.

Solve reverse discrimination issues in group LTD.

Most group LTD plans cover 60% of earnings up to a specified monthly maximum benefit. This means that a plan with a $5,000 monthly maximum covers 60% of wages for people who earn $100,000 or less.

As income goes up from there, the income replacement ratio goes down. At $250,000, for example, the replacement ratio has fallen below 25%.

The producer needs to know that there is a sales concept, known as executive carve-out, that addresses this problem. It does this by combining individual DI and group LTD to provide an adequate level of coverage for highly compensated employees.

Manage group LTD rate stability.

If a group LTD plan has a very high monthly maximum benefit to meet the coverage needs of just a few high wage earners, the plan may be prone to rate volatility. The effect of a claim by a highly compensated employee, who receives a high maximum LTD benefit, can be significant on a rate renewal.

The producer should know that, by using executive carve-out in this situation, the employer could limit the exposure of a group LTD from a claims perspective. That will help the benefit manager control the cost of LTD benefits over time.

Find a solution to medical benefit funding.

The cost of medical health insurance is putting pressure on virtually every other benefit that employers provide. A group LTD plan, regardless of its level of coverage, may offer a source of additional benefit dollars to an employer.

By lowering the maximum monthly benefit significantly–say from $5,000 to $3,000–an employer may be able to re-deploy the LTD savings to a group medical plan.

Of course, lowering the monthly benefit maximum also lowers the income replacement ratio for a large group of employees. But a voluntary LTD Buy-Up plan gives employees the opportunity to bring their coverage back up to the level of income protection they desire.

In sum, multi-life sales commonly are focused on harvesting sales opportunities created by the dynamics of group LTD.

As a result, when marketing multi-life individual DI insurance, it is important for the producer to maintain objectivity about LTD coverage, since the 2 plans will most often work together.

Finally, always keep in mind that the decision-maker in the multi-life saleoften a benefit managermay also be responsible for installing the LTD plan.

Mark R. Ameigh, CLU, is manager of sales support and industry research at Berkshire Life Insurance Company of America, Pittsfield, Mass., a wholly owned stock subsidiary of The Guardian Life Insurance Company of America, New York, NY. His e-mail address is mameigh@berkshirelife.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, February 27, 2004. Copyright 2004 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.