Larry Schneider-Disability Insurance Specialist
Historical background: Back in the ‘80’s when selling disability income insurance was flourishing, carrier profits were high, interments got a good return, policies were issued with relatively little financial underwriting and basically on a handshake. Doctors in particular typically got $20-25K issued without a problem.
Then came managed care and doctor’s incomes dropped dramatically and co-incidentally claims dramatically increased as a result of realizing they could get paid $25K/month tax free, payable for the rest of their lives without having to work 60 hours/week! Then the bloodbath began and many carriers exited the marketplace (to 15 from 150!) and agents got scared and decided selling DI was longer a viable effort.
Today, there are so many other products agents can sell which then creates a consumer’s dilemma in that most American consumers seem to hear when the various carriers of the insurance industry knocks on their door? “Apply for this; no, apply for that. No, not that; this. No, what you really need is this…”etc.!Is it any wonder why working Americans are insurance-poor and may not realize they could be without the type of coverage they really need the most?
To further confuse the consumer, there are many different types of coverage available (some examples are; life, health, auto, home, annuities, long-term care, critical illness, group and individual disability income, just to name a few). Consumers are constantly bombarded through work, direct mail, financial planners, agents, friends, news articles, television and radio, magazines, or from some other source, all saying, “apply now, apply now” Unfortunately, most people respond to the information overload by doing nothing.
Take life insurance for example. There’s term, whole life, universal life, variable life, etc., all with variations, so which one is the right product for a person’s specific needs? Are consumers really given adequate and reliable information to properly guide them through the product maze so they can make the best choice? Are they actually getting the coverage they really need? (I’m talking about all coverage, not just life insurance.) I don’t think so, because if they were getting the right type of coverage, far fewer people would be without the most important coverage of all: disability insurance (DI), which in essence, can normally replace a substantial portion of lost income when people are disabled due to an injury, or an illness and unable to work.
Having this form of coverage enables people to also pay for all or most of their other policies, which would probably otherwise lapse while they are unable to work and are without an income. Without an income protection policy, it can become a domino effect – what about paying for other necessities, such as food, rent, electricity, etc.? Where does the money come from for these expenses? Will the family help? Will the banks loan money to a disabled person? Will that person’s employer continue to pay his or her salary? I don’t think so!
Financial planners have always said, “protecting one’s income, is the cornerstone of all financial planning,” and if this is true, why don’t more workers have this form of protection? Why don’t more financial planners either sell or recommend DI? Why don’t more agents sell it? Why don’t more employers offer their employees this “cornerstone”? Why have so many carriers stopped offering DI?
Let me provide some possible reasons why:
1. Employees don’t believe they will get disabled, when in fact, mortgage foreclosure is 16 times greater due to a disability than due to death.
2. Employees believe their employers will continue their salary,( this can’t be done since salary can only be paid for services rendered).
3. Employees haven’t been told this coverage is available (whose fault is this?).
4. They believe this form of coverage is too expensive.
5. They haven’t been told it can be customized to make it affordable.
6. They haven’t understood how disability insurance can help when disabled. A 30-year-old, earning $50,000 a year, stands to lose $2.1 million over a 35-year period.
7. Employees believe they will be paid under Social Security disability insurance, when in fact, Social Security has an approximate 72% denial rate because of their very strict definition of total disability.
8. Employees believe that their employer has given them long-term disability coverage, when in fact, they may not have. Even if they have, and a disabled employee ultimately collects benefits, he or she may not realize that it is taxable income and is subject to offsets (Social Security and worker’s compensation). Also, he or she may have been discriminated against as a result of being highly compensated.
In fact, because of the split definition of total disability, the employee may only be paid for two years rather than up to age 65 as believed, Also, group coverage usually isn’t portable, nor does it typically cover income from bonuses, or pay claims based on mental/nervous causes of disability longer than two years.
What’s behind all these reasons for the lack of proper coverage?
1. Agents are reluctant to sell disability insurance (see “agent” reasons below).
2. Financial planners are reluctant to sell disability insurance.
3. Carriers have not done enough to educate their distribution systems, agents, or the public for that matter, on the need for income protection.
4. State insurance departments appear to have gone overboard in their requirements to get agents licensed in their non-resident states.
The commissioners have gone too far with their bureaucracy, thus forcing some carriers to withdraw from the marketplace, which reduces the number of agents educating prospects – sounds like a self-destructive and counterproductive policy to me, and it is the consumer who suffers! Why can’t there be an optional national license for agents who wish to sell on a national basis, with each state sharing in the fees?
Why are agents afraid or reluctant, or simply unwilling to sell disability insurance? Some reasons could be:
1. Fear of rejection, exclusions, ratings, or not being able to rebut an objection. I call this “disabilityphobia.”
2. Lack of sales, knowledge, or opportunities some of which are: individual/group, supplementing group coverage due to reverse discrimination, taxation of benefits etc., key-person, BOE, split dollar, retirement, loan indemnification, buy-sell
3. Too many other products competing for an agent’s time.
4. Too many other products that are available and are easier to sell.
5. Too tough to get the application through underwriting, issued and delivered (some issues are; financial, medical, occupation/duties, working at home or abroad, age, exclusions/rating (compared to life insurance which has far fewer underwriting requirements and bears out my point that other products are easier to sell)
6. Too many policies issued with exclusions and/or declined, thus affecting agent/client relationships.
However, contrary to the above reluctance reasons, here are but just a few key reasons why agents should rethink their
DI reluctance position and develop some selling power through knowledge:
1. DI is a great door opener.
2. DI can be a daytime business
3. DI selling has very little competition.
4. DI is a great prospecting tool
5. DI builds fences around your client
6. DI is a market that has been virtually untapped
7. DI is a product that involves due diligence
8. DI has great renewals
9. DI yields persistency
10. DI strikes…can you face your client when that happens
How can the carriers/insurers help to overturn all these negatives and rejuvenate the sales of this necessary form of coverage? Here are some possible solutions for the carriers to implement:
1. Streamline some of the underwriting and other key procedures.
2. Provide more agent training. (And, I might add, train their own home office staff so that they are more knowledgeable about their own products. I hate to mention how many times I have called a home office for contract and product information and gotten wrong answers!)
Some agent training components might be; how to properly complete an application, what are some of the underwriting landlines that can cause a decline ( this is one of my articles and is yours for the asking), how to explain the different definitions of total disability, how to handle rebuttals (please contact me for my turnkey system, which provides rebuttals to objections and much more).
3. Further improve the somewhat generous commission structure, which is better than for most other products. Example: assume first year commission of 50% on placing a $2,000 annual premium policy with 10% lifetime renewals. Now imagine if you sold 10 policies a year rather than just one – do the math, it adds up! I might add, premiums have been lowered for many occupations as a result of reclassifying many occupations and in particular the medical field along with better definitions for total disability and more options. These commissions should be paid more frequently than just monthly.
4. Create more consumer awareness on the need to protect income.
5. Create incentives for the new agents to sell disability insurance.
6. Bring new agents into the marketplace
7. Announce product commitment to the marketplace in view of the fact that too many carriers have exited in the last 10 years, giving rise to agent’s fears.
In conclusion, with the goal of rejuvenating this vitally needed but undersold product, what else can be done to educate agents and make consumers more aware of their real needs? For starters, join with others who believe in the importance of disability income insurance. The International Disability Income Society (IDIS) was formed a few years ago for carriers, producers, trainers, and regulators who want to be in on the cutting edge of all new DI information. Pass this information along to your co-workers and tell your home office to attend the next meeting. Of course, plan to attend yourself; you won’t be disappointed! For more information, visit the society’s Web site: www.internationaldisociety.com.
Larry Schneider has specialized exclusively in disability insurance since 1973 and has had published more than 40 articles on DI in many of the industry publications. He has lectured to many national associations, financial planners, CPAs, and other groups. Mr. Schneider is also an expert witness/consultant for DI claims that have been inappropriately denied. His company, the Disability Insurance Resource Center, is a national resource for hard-to-place or declined applicants and provides national brokerage for standard applicants. He can be reached at: firstname.lastname@example.org or his website which is: www.di-resource-center.com He has recently published a manual called The Anatomy of Disability Income Insurance which has been designed to make even a new agent an overnight expert.