Group long term disability insurance (LTD) is one of our industry’s most complex products. Unlike life insurance, which has a simple definition of claim eligibility – death – group disability insurance requires an insured to meet a variety of requirements in order to be considered disabled under the contract: Is the policyholder disabled, prevented from doing their own job? Are they prevented from doing any job? Are they prevented from doing any job for which they are suitably trained? Will they experience a loss of time, duties, or income – and in what combinations? And it goes on and on from there.
It’s no wonder when we ask our clients about their LTD coverage that they say they have it, but don’t know much about it.
If your client’s company’s health plan isn’t working the way they expect at claim time, their benefits broker changes the plan, and HIPAA and state laws allow for the transfer to a new plan, which would cover the ongoing claims. If their dental insurance doesn’t work, their benefits broker puts in a new plan, resulting in a “take over” and “no loss no gain” provisions to make sure that the employees don’t lose coverage from the change. Pre-existing conditions clauses are waived, and ongoing claim liability is transferred to the new insurer per these provisions. But disability insurance has no provisions for transferring ongoing claims liability – and understandably so. Nobody really knows how well their LTD works until claim time. If there is a problem with the plan by that point, it’s too late.
Over the years, the policies I’ve helped my clients purchase have paid hundreds of claims. The last thing I want to have to tell a client is that they are not “disabled enough.” LTD is one of the lowest-cost products an employer purchases, and it is one of the most important. A few dollars saved at purchase time can have a significant effect on whether a policy pays at claim time. I’ve found that if I treat every policy I sell as if it will end in a claim, the client is always best served.
How the product is sold
If you want to be in a position to help your clients, you need to understand how LTD is often sold. Unfortunately, price competition and broker spreadsheeting has resulted in carriers often leading with their lowest-priced plans rather than their most comprehensive plans.
Most employee benefits brokers compare LTD the way they compare health insurance: They compare the common and easy-to-quantify aspects of the policy. So a typical disability spreadsheet compares benefit period (age 65), elimination period (90 days), benefit percentage (60 percent), benefit maximum ($10,000 per month), and cost. You end up reviewing four identical features and price. You could have 10 companies side by side on a spreadsheet, but you’re comparing similarities and price, not differences and price. This gives the client no useful information upon which to base a decision.
Imagine researching the next car you purchase in the same way. Each car has a windshield, a steering wheel, four doors, and an engine. Car 1 costs $10,000, Car 2 costs $20,000, and Car 3 costs $30,000. Which car do you purchase?
Based on the comparison points available, and if you didn’t know better, you would likely choose the $10,000 car because you would assume that all three were exactly the same. Too often, this is how benefits brokers have employers purchase group disability insurance.
Herein lies the opportunity for agents who take the time to learn the different contracts. Ask to see your client’s certificate of coverage. Become an expert on “policy differences,” which would include the definition of disability. Is there a zero-day residual feature? Is there a partial disability feature? What offsets the benefit?
Look carefully at how and if the benefits are reduced by sick or vacation pay. Does the policy have restrictions on such conditions as musculoskeletal disorders, or self-reported claims, which typically involve a claimant suffering from pain or fatigue? These variables can be added or removed from a contract to make it more or less comprehensive – and more or less expensive. Have the local carrier representatives explain all of this to you; they don’t like what the competitive landscape has done to the sales process, either.
These are not difficult things on which to develop expertise, and it’s an easy to way to differentiate yourself from the competition. Being an LTD expert provides good agents with two opportunities – and the first, and most obvious, is helping a company with its LTD insurance. Sometimes, a client – or prospective client – can introduce you to the HR people or office manager so you can make suggestions about how to enhance a group contract. If that opportunity is neither possible nor appropriate, you should also be able to explain to a prospective client why they need to supplement their group plan with individual coverage.
Brad Elman is a principal at Nine Dots Benefits. He is an 18-year member of MDRT, with eight Court of the Table qualifications. He can be reached at [email protected].