On the Third Hand: Disability Insurance Observer: Gaps at the Top

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.

Brady said he thinks every disability carrier has seen an uptick in sales. Petersen said he has a list of more than 30 carriers now competing in the individual disability market, up from a low of 23 about 10 years ago. Like Schneider, he has started to see an increase in participation limits. The increase has cut into Petersen International's market a bit, by closing some of the gaps in the traditional disability market. Petersen said he's fine with that. "We believe a good, healthy disability market is a very good thing," Petersen said. Petersen also would like to see a more general understanding of the high-limit market, including a recognition that an executive earning $500,000 per year who becomes disabled shouldn't simply plan to "sell one of his homes" if he becomes disabled. An executive earning $500,000 per year probably has just one nice home, and, even if he does have a second home, "why should they have to sell a home when there's a solution there that would prevent them from having to do that?" Petersen asked. One barrier to an increase in sales at the high end, as in the middle market, is a lack of new disability insurance producers. "Disability insurance should be the cornerstone of all financial plans," Schneider said.

Learning to sell disability insurance takes time, but keeping business on the books is relatively easy, and the commission streams are good, Schneider said. So far, though, he's facing no hordes of would-be disability insurance producers begging him for advice about selling what he sells.