Statistically, most insurance professionals do not sell disability insurance, and among those who do, it is sold so infrequently that the process can quickly become an unfamiliar chore. One of the most common reasons producers do not sell DI at the same level and intensity as other products is because they’ve had negative experiences: The policy language and underwriting practices for disability insurance are far more complex than other products.
For example, with a life insurance policy, there are only so many ways to say, “Die and you get a benefit.” The bulk of a life insurance policy deals with cash accumulation and contractual issues. As for the underwriting, there are very good statistics as to how many people, within specific populations and having specific conditions, will die within a certain period of time.
Disability insurance poses more difficult underwriting issues than life insurance. A person could be a “little bit” disabled or a “whole lot” disabled. A disability could be very visible or very discreet. A person could be covered for some forms of disabilities, but not for others. The underwriters must take information about the applicant’s current health and project how that person will be affected in the future.
Coupled with all this is the lack of positive reinforcement by potential clients. Many people are more comfortable discussing their death than their life. Every person knows that one day, they, too, will die. However, not everybody will suffer a permanent disability or a temporary disability of any significance. These ideas can be difficult for us to visualize.
One way to begin the transition of thought with a business owner is to discuss the idea of a disability and its impact on financial issues. Business owners are more concerned with how a disability will affect the bottom line than how a disability may directly affect them. Fortunately, the business market has many traditional and non-traditional disability insurance programs about which you can initiate discussions.
1. Buy-sell agreements
Most business partnerships and corporations should have a formal agreement as to what to do in the event of a voluntary withdrawal from business, dissolution, death, or disability. These buy-sell agreements address the fact that, if one partner is out, the business must somehow continue. Many producers forget that a business suffers the same financial concerns if one of the partners becomes disabled for any length of time. A disabled owner is dead financially.
2. Key-person disability
Many businesses can identify an individual or a group of people who are essential to the business’ operation. These “key people” may be the Achilles’ heel to a business. Because it is bottom-line oriented, a business owner can often visualize the effect of losing a key person more easily than they can visualize becoming disabled themselves.
A key-person disability contract can be developed to help the company with some cash flow, or reimbursement, while trying to replace the key person. A company may lose revenue following the loss of the key person, and will incur extra costs in searching for and hiring a replacement. They may also experience a dip in morale.
3. Severance disability packages
In the era of downsizing, many people have found themselves without a job. Many will have severance packages that will often include benefits. The problem is that, although medical and life insurance can be transferred to an individual for a fixed period of time, disability insurance is often left out since they are not employed. A classic problem in these situations is that the severance package is written with the promise to provide full benefits. The problem is then discovered that the employer is now liable for the disability protection since the contract guarantees the benefits, but the disability insurance carrier is no longer able to offer the coverage. Severance disability programs can protect companies against the financial loss due to contractual obligations.
4. Buy-in agreements
When partners determine an entrance plan, they experience problems that are similar to the ones they face when considering an exit plan. A buy-in contract occurs when two or more parties make financial transactions over time to transfer ownership from one party to another. One classic example is a young doctor and an older doctor. When the older doctor decides that retirement is nearing, he agrees to sell the practice to the young doctor over a period of time.
What would happen if the younger doctor suddenly became permanently disabled? The older doctor would retain part ownership but would be out the remaining money, and the younger doctor would have some ownership but no control.
A buy-in contract, like the buy-sell contract, provides a built-in market to complete the transaction and allow the young doctor to obtain full control. Additionally, the selling party is then guaranteed to receive the fair market value for their ownership.
5. Excess coverage
High-income earners, regardless of occupation, often find that the issue and participation limits of most disability plans are insufficient. Excess programs can layer over existing disability coverage to bring the maximum benefit up to a more acceptable level of coverage. In some cases, this could be as high as 75 percent of income, regardless of their income level.
6. Business overhead expense plans
Many businesses forget that there is usually only one income source, but there are two budgets: a personal budget and a business budget. Business overhead expense plans provide benefits to pay for expenses associated with running a business while the owner is disabled.
The property and casualty markets have a similar program called business interruption insurance. This coverage pays for overhead expenses should the business not open because of fire, theft, etc. Business overhead expense plans pay in the event that the business cannot open because of a disability.
7. International employee benefits
Many businesses find themselves with more and more international exposure, one of the most common of which is relocated employees. Most insurance carriers do not cover employees outside of the United States, but there are some who will write coverage with international exposures.
Sell to the business, not the individual
In each of these examples, there is a common thread: The loss is no longer a personal issue, but a business issue. This speaks to the truth that business owners will often protect the company before they’ll protect themselves. However, as time progresses, many business owners who take action to protect the business will eventually be receptive to disability insurance coverage for themselves.
As an insurance producer, you will encounter fewer objections to buying disability insurance when it protects a company. An added benefit is that, from an underwriting perspective, carriers are often more relaxed when a third party is designated to receive a disability benefit.
The lesson? When you sell non-traditional forms of disability insurance, you often have far more success than writing standard personal disability insurance.
Thomas R. Petersen is the vice president of sales and marketing at Petersen International Underwriters. He can be reached at 800-345-8816 or [email protected]
For more exclusive DI coverage, visit ASJ’s Disability Resource Center.
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