LifeMarketers Presents 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

Are You Protecting the Right Asset?

Chances of a Disability

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

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

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