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The ABC ’ s of Disability

The Sales Process

 Understand the Client ’ s Occupation  Develop the Need  Highlight Policy Benefits  Help the premium fit financially

Understand the Client ’ s Occupation  What does your client actually do during the day  What are his or her “ substantial and material duties ”

How is Your Client Paid?

 Base Income (W-2)  Bonus (W-2)/Commissions (1099)  Profits (Schedule K-1 or Form 1120)  Residual Income

Fact Gathering

 Age/DOB  Group LTD Plan     waiting period/benefit period % income covered maximum monthly benefit definition of earnings  Savings  Expenses

Describe to me what you would like to see happen if you could not work for a period of time

Why Disability Income Protection  Your clients need the protection  Effect on the family  Effect on the client  Effect on society  Mortgage foreclosures - 48% due to disabilities according to the U.S. Housing Authority (1984)  Potential effect on small business/employment

Age 30 35 40 45 Are You Protecting the Right Asset?

Potential Earnings to Age 65 (with 5 percent annual salary increase)

$50,000 $4,516,000 $3,322,000 $2,386,000 $1,653,000 Annual Income $100,000 $9,032,000 $6,644,000 $4,773,000 $3,307,000 $150,000 $13,548,000 $9,966,000 $7,159,000 $4,960,000

Chances of a Disability

What is the chance of having at least one long-term disability which lasts for three months or longer before reaching age 65?

Age 25 35 45 55 Probability 44% 41% 36% 27%

Source: 1985 CIDB Disability Tables 1980 CSO

Chances of a Disability

What is the chance of being disabled for life if the disability has lasted at least three months?

Age 25 35 45 55 Lifetime Disability 25% 28% 33% 40%

Source: 1985 CIDB Disability Tables 1980 CSO

Typical Policy Benefits

 Noncancelable and Guaranteed Renewable  Fixed monthly benefit  How does the base policy pay?

 20% loss of earnings  cannot perform the substantial and material duties of your job and not working in another occupation  under the care of a physician  Regular Occupation rider removes the loss of earnings requirement.

Understanding the Basics

 Benefit Period - how long benefits will be paid  Elimination Period - how long the insured waits before benefits begin  Benefit Amount - the monthly benefit payable under a total disability  Occupation Class - risk class affecting benefits and premium

 Common Definition of Residual Disability Requires a loss of income and usually a loss of time or duties  Percent of income lost equals percent of income paid  Ex.: a 60% loss of income with a $5,000 monthly benefit will result in a $3,000 monthly benefit  Partial Disability - 50% of benefit payable for 6 or 12 months

Catastrophic Benefits

 Presumptive Disability  Presumptive disability with loss of speech, hearing, sight or the loss of use of any two limbs  Benefits are paid for life and no elimination period is applied.

Common Optional Riders

 Cost of Living Benefits  Future Insurability Benefits  Automatic Increase Benefits  Premium Refund  Residual  Return to work  Extended disability benefit rider Subject to variation and state availability.

Cost of Living Benefits

 Increase the monthly benefit on each anniversary date of the disability  Compounded interest  Has an overall cap of two times the monthly benefit  The younger the client the greater the need.

Future Insurability Benefits Benefit Update Rider  Allows benefits to be increased without re-qualifying medically. No limit to amount of increase except for maximum issue amount.

 Option dates will be every 3 years or by special trigger. Expires at age 55  Triggers that open an early option are loss of group sponsored LTD, reduction of LTD, or change of employment(When purchased on top of Group LTD it acts as a portability rider to the group).

Occupation Classes

 We are insuring duties not job titles  What is your client ’ s day like  If any manual duties what are they and what % of time do they represent  Do they have ownership  How many employees  Affects costs and benefit

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Tax Consequences

Premiums paid with pre-tax dollars - taxable  Premiums paid with after tax dollars income tax-free  More than 2% owners of Partnerships, S-Corps, LLC cannot deduct premiums

Example

 $100,000 income qualifies for $4,800 income tax-free or $5,950 taxable benefits  Assuming 28% marginal tax bracket $4,800 income tax free benefit is comparable to $6,666 monthly gross income

Medical Underwriting

 Common Concerns  Musculoskeletal  Mental/Nervous/Drug/Alcohol  Stress and anxiety counseling  Diabetes  Blood pressure and cholesterol  Attending physician statements  Blood and Urinalysis

Financial Underwriting

 What is your client ’ s net income after business expenses  Complete the income history including bonus and pension contributions  Include signed tax returns with all schedules for business owners  Unearned income

Common Objections

 I have savings  My spouse can work  I can do my job from bed  I have protection at work  It costs too much

Savings…What ’ s It Really Worth?

 40 year old with $250,000 in the bank  Assume 20 years of disability with investments accruing at 8%  $1,900 per month will be paid out over 20 years  Can you live on $1,900?

My Spouse Can Work

 What does your spouse earn now  Who will take care of you while you are sick? What ’ s that worth?

 If you really don ’ t need the second income why not take a small percentage of it and ensure the second income continues in the event of disability

Group Long Term Disability  Myth “ It ’ s cheaper because it ’ s group ”  Typically more conservative benefits  Pre-existing condition limitations  New cost containment provisions  Less adverse selection  Premiums and benefits can be modified  Plans can be canceled

        Why Supplement Group LTD with Individual Policies Benefit may be too low Benefits are typically taxable Rates not guaranteed Usually not portable Usually conservative definitions Bonus and Pension benefits may not be covered Your client needs it With Benefit update rider you now add portability

Cost

 Try to keep premium at 2% or less of income  90, 180 or 365 day wait  Five year or age 65 benefit period  COLA or not  SSI Integration

Thank You

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