You successfully secured an appointment, made the case for disability insurance, overcame the price objections and submitted the application. Now all that’s left to do is sit back and wait for the commission, right?
You can hope. Unfortunately, many agents find that submitting the application is the first in a series of grueling underwriting steps that end with long and confusing client conversations about exclusions, class changes and premium hikes.
What’s a hard-working agent to do? In five words: Give underwriters what they want.
So, what DO underwriters want? It’s really quite simple. They want accurate information in three critical areas: current income, occupational class and medical history. Read on for three secrets that will make underwriting much simpler.
Secret No. 1: Ask the right income questions and then carefully manage expectations.
A good rule of thumb for determining a benefit amount is to calculate 60 percent of a client’s gross income. However, the gross income level may not be what it seems. The key is to ask your client to come to the appointment with answers to these crucial questions:
- Are you self-employed or do you work for someone else?
- If you work for someone else, what percentage of your income is from base pay? What percentage is from commissions or bonuses?
a) If 100% base pay: What are your documented gross earnings for the past six months? Get one paystub that shows six months of history or the multiple paychecks needed to document six months. Last year’s 1040 Form and supporting W-2s may also be used.
b) If a mixture of base pay, commission and bonus: At the end of last year, what did your 1040 tax form show for your annual earnings? This is normally reported on page one as W-2 earnings.
- If self-employed: At the end of last year, what did your 1040 tax form show for your NET annual earnings as reported on Schedules C or E plus W-2, if applicable? How about the year before?
Use the last year’s W-2 figure as the gross pay to estimate the benefit amount. So, if the client earns $75,000 per year, the monthly gross income is $6,250 and the 60 percent ballpark would be 3,750. From there, explain that each carrier applies maximum benefit levels, based upon the client’s occupational class and medical history. In this example, most carriers would provide a maximum base benefit amount of $2,780 and a SSI rider of $1,170 resulting in a total benefit amount of $3,950 — pretty close to the 60 percent ballpark. However, that’s assuming a typical occupational class and medical history. When meeting with your client, it’s best to stay general until you have been informed of his or her actual earned income.
Secret No. 2: Obtain a clear understanding of the client’s occupational duties.
This is a big pitfall for many agents. They write down the client’s job title without asking questions about the duties performed. The duties performed (not the job title) determine the occupational class and the premium charged.