The top of the individual disability insurance market seems to be warming up with the rest of the market, but plenty of glacial ignorance remains.
Three income protection specialists told me they have seen more competition throughout the market in the past two or three years, but also a lingering blanket of silence about the holes in group disability plans for well-paid employees.
Steve Brady, an individual disability insurance marketing specialist at Standard Insurance Company, Portland, Ore., believes many of the executives with Swiss cheese coverage do have personal financial advisors. “They said the word ‘disability,’” Brady told me. “The executive said, “I have long-term disability at work,’ and that’s where it stopped. They don’t realize they’re discriminated against.”
The design of a group plan might whittle away protection for executives – or even regular staffers – earning as little as $100,000 a year, according to Thomas Petersen, a vice president at Petersen International Underwriters, Valencia, Calif.
Petersen International is where you could go to get the highest of the high-limit disability coverage. Need $100,000 per month for personal protection, with a participation limit of 75%? Petersen International can arrange for that.
But typical clients simply need coverage in excess of what the traditional insurers admitted to do business in their states can handle. Many agents have clients who fit that description, Petersen said.
Larry Schneider, the disability insurance specialist who runs DI-Resource-Center.com, Albuquerque, N.M., has written the book on selling disability insurance – The Anatomy of Disability Income Insurance.
He said people with high incomes should try to follow the same rule of thumb that everyone else follows: Protect 60% of your pre-disability income.
But a typical group disability plan might max out at $10,000 or $12,000 per month. An ordinary individual policy might have a limit of $25,000 per month.
John Doe, an executive who earns $600,000 per year, will need to buy $30,000 in monthly income protection to replace 60% of his income, but he may have trouble getting group coverage that covers more than $20,000 in monthly income. They policy may not cover major sources of income, such as sales commissions.
Helping high-income individuals reach the 60% income replacement threshold is one area in which insurers have made improvements, Schneider said.
In some cases, Schneider said, a second carrier might come in and top off the first policy by providing $5,000 in additional coverage, to bring the total to $20,000.
Carriers are more interested in that kind of business than they were, in part because like the idea of sharing the underwriting burden with another carrier, and in part because they’re competing harder, Schneider said.