What Consumers Need to Know

Of all the risks you take, if you could only protect yourself against one, would it be: The one most likely to occur? or The one that if it were to occur, could produce the greatest financial loss?

Chances of Disability vs. Other Insurable Losses Life Disability Sources: Transactions. Society of Actuaries Commissioners Disability Table Death – National Center for Health Statistics Fire & Motor Vehicle – Accident Facts. National Safety Council 1 in in 70 1 in 1091 in 8 !

Your Most Valuable Asset is Your Ability To Earn An Income Current Age $25,000 $35,000 $35,000$50,000$60,000$100,000$125,000$150, ,0001,225,0001,750,0002,100,0003,500,0004,375,0005,250, ,0001,050,0001,500,0001,800,0003,000,0003,750,0004,500, , , ,0001,250,0001,500,0002,500,0003,125,0003,750, , , ,0001,000,0001,200,0002,000,0002,500,0003,000, , , , , , , ,0001,500,0001,875,0002,250, , , , , , , ,0001,000,0001,250,0001,500, , , , , , , , , , , , , ,000 Total Income to Age 65

Good News People are living longer Bad News Diseases that used to cause death are now leaving people disabled.

Disability/Death Trends - Major Health Conditions ConditionDeathDisability Hypertension-73%+70% Heart Diseases-29%+44% Cerebrum Vascular-48%+36% Diabetes-27%+36% All Four-32%+55% Source: National Center for Health Statistics 1999

Prevalence of Disability 37.7 million people reporting activity limitation (roughly 15% of all Americans) 73% are classified as disorders / limitations 27% are classified as impairments Source: U.S. Census Bureau Report, , Table 1C

Major Causes of Disabilities 1995 – 2000 (From the data of a major DI Carrier) Musculoskeletal Disorders22% Injury and Poisoning20% Mental Disorders13% Cancer (All Kinds)11% Circulatory Disorders 9% Genitourinary Disorders 7% Nervous System Disorders 6% Digestive Disorders 3% Endocrine, Nutritional, Metabolic 3% Miscellaneous 6%

Different Levels of Disability Total then partial then recovered (i.e. heart attack) Partial then total then death (i.e. cancer) Partial stays partial (i.e. bad back) Total stays total (i.e. auto accident causing permanent paralysis)

No one ever thinks they are going to become disabled, which in their minds means: Why Dont People Buy Disability Income (DI)?

Where do we spend our money? Housing 30.0% * Transportation 19.6% * Food 16.6% * Personal Ins./Pension 8.6% Other/Misc. 8.6% Clothes 5.5% * Entertainment 4.6% Health care 4.4% * Education 1.5% * * Over 75% of what we spend is non-discretionary ! Source: HUD

The Risk of Disability Source: CLU Journal, Vol. VII, No. 1

What Causes More Mortgage Foreclosures – Disability or Death? Source: HUD

When Disability Strikes, It Takes a Long Time to Recover The average duration of disability which lasts over 90 days at certain ages is.... The Result ? The loss of earnings, which can be staggering ! Years Source: Commissioners Disability Table

The Need For DI - The Two Line Story INCOME EXPENSES DEBT When Disability Strikes (SAVINGS) What you may have been able to save in ten years.. may be wiped out in days or months ! (Food, Clothing, Home, Car. Medical Everyday Living)

Options When Disabled Savings…but 80% of all families have less than $5,000 in savings Social Security…but many are initially rejected and must appeal – that can take years Sell Assets (Such as Your Home)…but you may have no choice Borrow Money…but credit is based on income Spouses Income…but today most families are dependent on 2 incomes

But I Have Social Security ! It is very difficult to collect a disability benefit from Social Security. Heres why: 5 month waiting period on the initial benefit Definition of disability that is very strict Must have an impairment that has lasted or could be expected to last for at least 12 months or result in death Must be unable to engage in ANY substantial gainful work that exists in the national economy Work doesnt have to exist in the immediate area in which the claimant lives A specific job vacancy does not have to exist The applicant wouldnt even necessarily have to be hired Source: Social Security Department

What Choices Do You Have? The only logical solution to protecting your most valuable asset (your income) is to buy DI protection –Individual coverage –Group Short Term and/or Long Term Disability coverage This will provide monthly benefits for both total and partial disabilities

DI Product Offerings – For Individuals Individual DI – available through your agent, broker or employer Group Short Term Disability (STD) – may be available through your employer Group Long Term Disability (LTD) – may be available through your employer

Key Features of Individual Policies Types of Policies –Own Occupation – insures ones duties at work Described as Material and Substantial job duties Some contracts may insure ones specialty –Income Replacement – insures ones income and not specific job duties Income loss due to a disability triggers the claim

Key Features of Individual Policies Renewal Options –Guaranteed Renewable Insurance company cannot cancel the policy, or change policy provisions (but it can increase the premium) –Non-cancelable Insurance company cannot cancel the policy, change policy provisions or increase the premium after issue, as long as timely premium payments are made

Key Features of Individual Policies Definition of Disability –Own Occupation – insures the ability to perform ones duties in his/her occupation…it does NOT insure ones job –Most liberal definition is the inability to perform the material and substantial duties of ones own occupation, which may include a specialty (especially in the professional ranks of doctors and lawyers) This is the occupation that is engaged in at the time the disability begins Insured may still be able to work in another occupation and still receive the disability benefit

Key Features of Individual Policies Elimination (or Waiting) Period –When do benefits begin? Normal period offerings are 30, 60, 90, 180 and 365 days Benefit Period –How long are benefits paid? Normal offerings are 2 years, 5 years, to age 65 or 67, and in some very limited cases, lifetime

Key Features of Individual Policies Benefit Amount –How much will you receive each month? Determined as a percentage of your monthly income up to a maximum amount –Maximum amount depends on occupational classification –Benefit Percentage is usually no more than 70% of total monthly income How is Residual or Partial Disability Defined? –This becomes important in professions where you may be able to come back to work on a limited basis, and suffer an income loss

Key Features of Individual Policies What optional riders are available? –These are optional benefits that can enhance your coverage What exclusions does the policy contain? –These are conditions that limit the amount and/or the period of time that you will get paid Other Policy Language –It is important to work with a professional consultant on this as it may be the difference between getting paid a benefit or having the claim denied

Key Features of Group STD Available through your employer –As such, coverage is not portable and stays with the employer if you leave Rates may increase at renewal time Elimination (Waiting) Periods –May have separate days for sickness versus injury –Can range from 0 days, 8 days, 15 days or 30 days

Key Features of Group STD Benefit Periods –Can range from 13 to 52 weeks Benefit Amounts –Can range up to 70% of monthly income with a maximum amount up to $2,500/week (depending on the carrier) Many of these variables are determined by the employer since the contract is between the employer and the carrier

Key Features of Group LTD Available through your employer –As such, coverage is not portable and stays with the employer if you leave Rates may increase at renewal time Elimination (Waiting) Periods –Can range from 30 days to 365 days

Key Features of Group LTD Benefit Periods –Can range from 2 years to Age 65 Benefit Amounts –Can range up to 66 2/3% of monthly income with a maximum amount up to $15,000/month (depending on the carrier) Limited coverage for partial or residual disabilities

Key Features of Group LTD Usually limited or no options for future insurability Normally issued with limitations for mental, nervous, drug and alcohol abuse disabilities May be employer paid (non-contributory) or employee paid (contributory) –If totally contributory, benefits received tax free Pre-existing condition language –Usually a 12 month limitation period Cost is less than for individual coverage

See A Professional DI Advisor There are many professional advisors (insurance agents and brokers) who can show you how each policy works Check with such groups as the National Association of Health Underwriters (NAHU) or the International DI Society for the names of carriers and advisors

Disability Happens With disability, it is not a question of if, but when Protect yourself today - your ability to earn an income is the most important asset that you own –Everything else revolves around this ability to go to work and earn an income

Everything Depends on Income