This is the second article in an eight-part series, which discusses the importance of income insurance protection.
When constructing a proposal, what are the important features one should consider? Well before answering that question, the financial planner or agent should have met with the client (of course) and completed a questionnaire which provided insights as to what the client’s needs were/are. For an example, at one end of the spectrum, if your client is independently wealthy, then obviously there is no need, and even if there were, their financials might hinder the ability to get coverage.
In any event, fact-gathering should include, but not be limited to the following areas, which can impact the quote and possible issuance of a policy: Name, degree, DOB, health issues/dates etc., occupation/duties/travel, self-employed (and if so, how long?), work sector (private/government), salary/bonuses (and their consistency), or in the case of self-employed people their net profit for the last two years, other income (even if passive/unearned), other coverage/premiums, smoking or non-smoking All of the preceding can affect not only the rates, but also the issuance of a policy with/without exclusions or even a decline!
Once this basic information has been gathered and you have qualified the prospect by informing them that coverage could cost between 1%-4%, depending on their age, sex, duties, etc., then a request for a quote can be created by yourself or by forwarding it to your carrier of choice. The specs should state the following components, which are the basis for constructing a disability insurance plan:
NOTE: Not all options and benefit periods, etc., will be offered to all occupations.
Elimination period: Unless there are special circumstances, such as a wrap-around situation, usually the 90-day elimination period is the most practical and most economical. The longer the period, the lower the cost. Be sure to tell your client that this is the period of time for which no benefits will be paid and when the period has been satisfied, benefit start from that day forward and are not paid retroactively (there are some exceptions besides the recurrent clause).
Benefit period: This represents how long the claimant will be paid and the longer the period is, the higher the cost. Typical benefit periods can range from one year to age 67, or with some carriers, the benefit period can be payable for lifetime.
Benefit amount: With individual policies (not to be confused with group), the amount that can be issued is based on income and not a percentage of income. The percentage can thereafter be articulated by having the agent calculate the amount against income. The higher the income, the lower the percentage. Amounts can be broken down by base and or Social Security integration. If all in base, the cost will be higher in view of the fact there are no offsets from the Social Security Death Index.
Premium structure: Can be level, step rate, graded and the like, with each type having a special function in the plan design. For example, graded/step begins with a lower premium when compared to level and is useful for the medical professional which has a high debt to income ratio. These either convert or can be converted to a level premium later on at a higher cost than if the insured began with a level premium.
Common optional benefits