Here’s why you should sell disability insurance.
- It’s a great door opener that places you above your competition.
- There’s very little competition.
- First-year commissions (50%) and renewals (10%) are outstanding.
- There’s no need to re-quote every year; rates are guaranteed.
- You can avoid being sued when a disability occurs, and your client says: “Why didn’t you recommend this type of coverage to me?!?!?”
So, how do you bring up the need for clients to protect themselves against disability risk?
Here’s a seven-part presentation script you could use to discuss this topic with a client.
- Why do people need to protect their ability to earn income?
Could you continue to pay your personal daily living expenses (food, rent etc.) if you were unable to work for any length of time because of a disabling injury or sickness? Do you know how much money would still be coming in each month, and from what source, should you become disabled?
If you are between the ages of 35 and 65, your chances of being unable to work for 90 days or more because of a disability are between 35% and 50%.
Some people can rely on disability benefits from their employers and or the government, but for a great many workers, income stops when work stops! Disability income protection insurance is designed to replace lost income when that happens.
- What is disability insurance?
Disability income insurance can provide you with guaranteed income should you become either sick or injured — whether that be as a result of something that happens either on the job or off the job — and are unable to work at your occupation.
Disability insurance helps to protect a family from financial catastrophe, by providing income to help meet daily expenses and can come in two forms as follows;
A variety of employer-paid group disability and government-sponsored programs are available to the worker.
Private policies, paid for by the individual, can protect income when there is no other applicable coverage, or when available programs do not adequately meet the individual’s needs.
- Are you covered by group long term disability benefits?
First, find out exactly what benefits if any, your employer offers in the event of a disabling injury or sickness. Most employers allow some short-term sick leave. A short-term leave might last anywhere from a few days to six months, depending on a company’s policy and the employee’s length of employment.
No law requires an employer to offer group long-term disability coverage. However, approximately half of medium and larger sized U.S. companies offer disability coverage that lasts for at least five years. Typical plans cover 60% of the employee’s salary, up to a limit, and the premiums are fully paid by the employer. As a result, the benefits are taxable. Income taxes may reduce the net benefit amount. Check with your company benefits office, to see if you are covered, and for how long, and what the benefit amount offsets might be.
An offset is an amount the group disability plan deducts from the benefit the plan pays a beneficiary. A group disability plan might, for example, deduct a claimant’s monthly workers’ comp payment and monthly Social Security benefits payment from what the group disability plan pays. After taking all of the offsets into account, the group disability plan benefit payment might be small.
- What about Social Security benefits?
Most workers participate in the Social Security benefits programs. In addition to providing retirement benefits, Social Security also provide benefits for a covered disability. Your salary, prior income and number of years worked determine how much you might receive.
You should know that you are only eligible for disability benefits after you have been disabled for five months, and only if the disability is expected to last at least 12 months.
These benefits might be reduced by benefits coming from other programs, and eligibility is based on the inability to perform any gainful employment, not just the duties of the job you were doing at the time of disability. The Social Security Disability Insurance (SSDI) program has a 72% denial rate, and SSDI benefits can be taxed.
Contact your Social Security office for more information.
- Are you eligible for other disability income benefits?
There may be other potential sources of income, should you become disabled. For example:
- Workers’ compensation for on the job injuries).
- Veterans pension benefits.
- Civil service benefits.
- Union benefits.
- Black Lung benefits for miners.
- Private disability coverage that’s already in force.
- How much coverage (income) will you need?
Add up all of the benefits you are entitled to plus your savings.
If the total approaches your required income needs after taxes, you can assume you have enough to cover your expenses while recuperating from a disability.
If not and you are eligible, you will want to consider buying individual disability insurance to make up the difference.
A special note for the self-employed: Buying your own coverage can be particularly important. You won’t get any disability benefits from a group plan, and your entire business may suffer if you are unable to work.
- What else do you need to know?
Selecting the amount and duration of disability insurance benefits is only the first step.
Because you want to make sure coverage won’t be canceled and ask about the policy’s renewability and rate increase provisions.
Disability insurance policies have three different types of renewal guarantees:
- Non-cancelable and guaranteed renewable policies, give you the right to continue coverage without threat of cancellation, wording changes or rate increases upon timely payment of premium.
- Guaranteed renewable only policies, only takes away the threat of being cancelled, but allows the carrier to increase rates.
- Optionally, or conditionally renewable, policies, or policies with no renewal guarantees. An insurer only renews the policy for a set period of time, usually just one year, and rates can be increased.
Most types of policies include a waiver-of-premium feature, which means that, after the deductible has been satisfied (usually 90 days), a disabled person doesn’t have to make premium payments. If and when the insured individual returns to work, any back payments owed are forgiven.
There are a few other options that are available that take care of other circumstances. Protecting one’s ability to work in one’s “own occupation” which should be the basis for satisfying the definition of total disability (this governs how your disability is viewed for claims purposes) is also very important.
In general, when the premium is paid by an individual, the benefits are tax-free.
If your employer paid all or some of the premium, then all or some of the benefits are taxable.
When you buy an individual policy, buy one that covers for both accident and sickness. In fact, as one gets older, it is more likely that a disability will result from a sickness than from an accident.
— Read Young John (and Jane) Does, on ThinkAdvisor.
Larry Schneider is a disability specialist with more than 45 years of experience. He is the owner of Disability Insurance Resource Center. He works with hard-to-place applicants, and he provides brokerage for standard cases. He also acts as an expert witness in cases involving claim denials. He helped rewrite the American College disability insurance manual, and he is one of the founding members of the International Disability Insurance Society.