The IDI Landscape

The Individual Disability Income landscape has changed in two significant ways over the past few years. These two changes present an opportunity to Insurance Brokers who are interested in to taking advantage of them.

It’s also an opportunity to help your high income clients and prospects, in a consultative manner, protect their financial security.

Let’s first examine these two basic but significant changes, and then outline the opportunity these changes present.

Change Number 1:

There are fewer Insurance Agents, Brokers and other Financial Advisors discussing disability planning and disability insurance (abbreviated to DI for the remainder of the article) with their clients. Just a few years ago, there were many large life insurance agencies with many life insurance agents. They were trained in DI and some of these agents, looking for daytime activity, would pound the pavement, calling on professionals (physicians, dentists, CPA’s, veterinarians, etc.) and business owners. They would communicate to their audience the importance of planning for a disability and how disability insurance could fund their plan. These agents were keeping this important subject in front of the best DI prospects. Those days are gone. Today, not only are there fewer agents to remind professionals and business owners about the need for disability planning and DI, compounding the problem is many Financial Advisors do not want to discuss the subject. Why not? As a DI brokerage manager, these are just a few of the reasons given to me:

“The product is complicated and I don’t do enough to really learn it”
“I no longer know who the right DI insurers are”
“I’ve tried to sell DI but nobody ever buys”
“It’s too time consuming”
“Underwriting is too difficult”

To a certain extent, these are valid reasons for some Financial Advisors to stay away from DI. However, with proper support and guidance from a DI brokerage agency or DI Company representative, these speed bumps can be dealt with. For the Financial Advisor who is willing to work in DI, the field is much less crowded than it used to be.

Change Number 2:

DI insurers have, over the past few years, vastly improved their offerings to high income professionals, particularly to physicians and dentists. In the late 1990’s, many insurers left the DI market. Those that remained pulled in the reigns by reducing income replacement limits and taking off the table provisions like Own Occupation and lifetime benefit periods. The pendulum has now swung nearly completely back. Higher income replacement and stronger contract provisions (like Own Occupation) are just two of the improvements that have taken place over the past few years.

If we put Change Number 1 together with Change Number 2, we get this result: Many high income professionals are woefully underinsured, jeopardizing their and their families’ financial security. This is creating an opportunity in DI for the Financial Advisor today.

There’s a good chance you’re thinking “I don’t know DI well enough to work this market” or you might have some of the same concerns listed earlier that other Financial Advisors have about DI. You should know that the majority of our brokerage agency’s best DI producers are far from DI experts. One does not need to be an expert in DI to help professionals and business owners. If you’re not an expert and don’t want to become one, you can leverage your relationship with professionals prospects by partnering with one of the following: a DI brokerage agency, a DI company representative or a Financial Advisor who does specialize in DI.

At this point I will divide this article into addressing two basic groups of DI prospects and the issues involved as they pertain to DI. I’ll then conclude with a few points that cover both groups, including the all important subject of how to get in front of these prospects.

Preferred DI Prospect Group I: Professionals…Physicians, Dentists, CPA’s, Veterinarians, etc.

I realize it’s not news that these are great DI prospects. What I will detail is what you have to offer them.

The emphasis is on doing a review of their DI. Since most (but not all!) will have disability insurance of some sort, it’s best to approach them about a review. Offer a review that will help your high income professionals prospect feel secure about their families' financial security in the event of a disabling illness or injury. Ask your prospect this simple but effective question: “If you were in a car accident and unable to work for months or longer, are you 100% sure how your disability insurance will work”? The worst time to find out the details of your disability coverage is when you need it. Why not be sure ahead of time? Especially since it concerns your ability to support and provide for your family, who depend on you.

Here’s an example of the successful use of the review approach. This is a case I worked on at the end of last year. I was contacted by a Property and Casualty agent. He has a P & C client a family medical practice with two partners in their forties. The agent had just attended a CE class on disability insurance, but otherwise, he knew nothing about the ins and outs of disability insurance. He suspected his clients had not kept their disability insurance current. He was able to get a meeting with one of the physicians by suggesting they review their DI. We did some basic fact finding which confirmed they had not been kept current. Here is a classic example of underinsurance due the lack of agents and other advisors discussing DI: The partner’s disability insurance was all of $6000 of group LTD insurance. Their annual incomes were around $250,000. Not difficult for them to recognize they could not maintain their families’ standard of living on $6000 per month of income if disabled. We also discussed the need for Business Overhead Expense and Disability Buy Sell, for which they also understood the need.

Why hadn’t their group LTD broker sold them more DI? I don’t know, but for whatever reason, he or she did not, leaving the door open for an agent who was willing to press the issue with the physicians.

Is it unusual for a successful medical practice to be this underinsured for disability insurance? I’ll agree this case might be extreme. On the other hand, it’s a safe bet they are not alone. Underinsured professionals are more commonplace than you might think.

The key to our suggested approach of the review is to emphasize the changes in the DI market and keeping this extremely important type of insurance up to date. Here are the changes and other attention-getters you should point out in your attempt to do a review:

• Improved contract provisions, including the availability of the Own Occupation definition of disability. For years most DI insurers either did not offer Own Occupation to physicians and dentists. If they did, they offered it to just a select few specialties. Now, an Own Occupation definition is available to all medical specialties and dentists
• Increased coverage limits. This has changed drastically. In the late 1990’s some physician specialties could get no more than $10,000 of monthly benefit. That has gone up to $20,000 and in some situations, even more.
• Premium discounts. DI insurers have many Association discount programs in place. Your client could be missing out on significant premium discounts.
• Disability Insurance that allows a Professional to continue retirement savings while disabled. This is important because basic DI, especially for the higher income professionals, does not allow enough income replacement to maintain one’s lifestyle and continue to set aside money for retirement.
• Overhead Expense limits have increase from $30,000 to $50,000.
• The availability of coverage for impaired risks. There are plenty of professionals who have applied for DI and have been declined. There’s a chance you can get coverage for them now.

Preferred DI Prospect II: Business Owners:
Along with physicians, dentists and other Professionals, self employed owners of businesses are a great source of DI business. Even more so than the professionals, many business owners are often not getting proper, if any advice, from Financial Advisors about disability planning.

To successfully market DI to business owners, I suggest two things:

1. Don’t start the discussion with “disability insurance” as the topic. Instead, talk about Salary Continuation Planning as a concept. The need for DI will often sell itself as a logical way to fund the plan
2. Focus on smaller, successful businesses with multiple owners, primarily those with 2-4 owners.

Why businesses with multiple owners? Think of the difference between discussing disability planning with one owner versus discussing the same subject with two owners. For the sole owner, the decision is a personal one. In the end it’s completely up to him or her to plan for a disability and buy DI. Sure, sole owners of businesses are good prospects and they buy DI, but the reasons for Salary Continuation Planning and buying DI as a funding vehicle are more compelling when there are multiple owners: Consider this line of thought as it concerns multiple owner businesses:

The disability of one owner affects not just the healthy owner (and family) but also affects the healthy owner (and family). Consider the case of A and B, who are partners. A is in a car accident and suffers a head injury. He is now unable to work and might be unable to work for months. He might be permanently out, but not dying. If there has been no disability planning done, not only does disabled owner A have a problem, so does owner B.

For a business with multiple owners, the decision to plan for a disability (and possibly buy DI) becomes less of a personal decision and more of a business decision. Every successful multiple owner business should have a plan…” What is your plan if a partner is disabled?” Not having a plan is out of the question. They will see the logic of having a plan. The next logical question is how they fund their Salary Continuation plan, which is where insurance plays a very important role.

Beyond Salary Continuation, the other contingency the successful multiple-owner business must plan for is the agreement for the healthy owner(s) to buy out the interest of the disabled partner. This is critical planning if the disability is permanent. Like Salary Continuation, if you discuss the plan, the insurance will follow as a logical next step to provide the finding for the plan.

The key to selling DI to multiple owner businesses is to focus on the plan. A very common mistake we see advisors make is they focus on the insurance. If you focus on helping a business with prudent planning, the insurance will often sell itself as the funding of their plan.

Prospecting

If you would like to enter this market or if you are in it but would like to do more, here are the ways advisors are getting in front of these prospects:

• For the professionals… ask your own doctor, dentist, CPA, veterinarian, etc, if you can review their disability plan. Emphasize the changes in DI and the benefits of being prepared for this critical part of their protection. Use the same approach with professionals who are clients of yours now.
• Call on your business owner clients, especially those with two or more owners, and ask them about their Salary Continuation Plan, not their disability insurance. Most will have no plan.
• Team up with someone who specializes in other areas (group medical, P & C, Financial Planner among others) who have relationships with Professionals or Multiple Owner businesses.
• For the Professionals, another way get an introduction is to get the endorsement from a local or state association. We have several such association endorsements, allowing us to market DI to their members by promoting premium discounts.
• Cold calls can work. If this were my starting point I suggest calling on businesses first, dentists second and physicians third. Physicians have more layers of defense than the other two and therefore are more difficult to see.

Disability Insurance is as much a need now for Professionals and business owners as it has ever been. The combination of the improvements in DI for and fewer advisers discussing it leads to a great opportunity.

Chris Herrmann

About the Author

Chris has extensive experience in the disability insurance field. He has promoted disability insurance and worked as a consultant to all types of financial advisors in this specific field since 1990.

His experience in both Individual Disability Income and Group LTD gives him a well-rounded background in all aspects of disability insurance. He is a frequent speaker to industry groups. He is the Disability Income Insurance Brokerage Manager at Diversified Brokerage Specialists in Cincinnati Oh. Diversified Brokerage is a member of The Plus Group and has been an independent DI brokerage agency since 1946. The Plus Group represents several leading disability insurance carriers with offices throughout the US. They assist insurance brokers and financial advisors, helping them find the right insurer and the best plan design for each client.

Chris is a Chartered Life Underwriter and Certified Employee Benefit Specialist. He and his family reside in Cincinnati, Oh. He can be reached at (800) 621-6161 or email cherrmann@dbs50.com. For more information about The Plus Group, please visit www.plusgroupus.com .