1. Comprehensive income protection coverage
Presenter’s name
The presenter’s title goes on this line
For financial professional use only. Not for use with consumers or the public.

2. OVERVIEW
Insurance is issued by Principal Life Insurance Company, Des Moines, Iowa , This seminar provides general education on the topic of individual disability insurance. It is not a statement or summary of specific insurance products and services offered by Principal Life. The information presented here is provided with the understanding that Principal® is not rendering legal, accounting or tax advice. No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by any information storage and retrieval system, without prior written permission from the Principal Financial Group®. Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.
During this presentation, we will cover how you can help your clients protect more of their paycheck by combining Individual Disability Income insurance with Group Long Term Disability insurance. We will discuss:
The Need for Income Protection
Perceptions and Realities of group LTD and individual DI coverage
Types of Coverage
A Case Study to highlight the benefit of offering comprehensive solutions to clients
For financial professional use only. Not for use with consumers or the public.

3. Agenda The Need Perception and Reality Types of Coverage Case Study
OVERVIEW
Agenda
The Need
Perception and Reality
Types of Coverage
Case Study
During this presentation, we will cover how you can help your clients protect more of their paycheck by combining Individual Disability Income insurance with Group Long Term Disability insurance. We will discuss:
The Need for Income Protection
Perceptions and Realities of group LTD and individual DI coverage
Types of Coverage
A Case Study to highlight the benefit of offering comprehensive solutions to clients
For financial professional use only. Not for use with consumers or the public.

4. The Need
For financial professional use only. Not for use with consumers or the public.

5. How solid is your client’s financial foundation?
Your client’s income is the foundation of a solid financial strategy. It’s what makes everything else possible. Without it, how would they maintain their current lifestyle and save for their future retirement goals? Just as you help them protect themselves against unexpected property damage, medical expenses and loss of life, you should also help protect them against loss of income due to disability.
For financial professional use only. Not for use with consumers or the public.

6. Help your clients understand the risk of becoming disabled
Help your clients understand the risk of becoming disabled. Many of your clients may not realize that over 1 in 4 of today’s 20 year-olds will become disabled before reaching retirement.1
1Social Security Fact Sheet, Social Security Administration, April 2014, viewed 09/15.
1 Social Security Administration, The Facts About Social Security’s Disability Program, 2016.
For financial professional use only. Not for use with consumers or the public.

7. Disability plays no favorites
Source: Principal Disability insurance claims payments issued in The above is for illustrative purposes only and is not intended as an inclusive representation of all claims. .
For financial professional use only. Not for use with consumers or the public.

8. Perception and Reality
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9. Perception vs. Reality Perception
PERCEPTION & REALITY
Perception vs. Reality
Perception
Group disability insurance coverage is enough.
Reality
Group LTD is a great start, but these benefits are usually taxable. A typical policy covering 60% of an employee’s income up to a monthly benefit cap. After taxes it may only actually cover 42%. This number decreases more for higher income earners.
Plus, most group disability policies don’t cover bonus and incentive pay, which can lead to an even larger income protection gap.
When discussing individual disability insurance with companies that already offer group disability insurance, it’s important to stress the flexibility of individual coverage. Depending on their objectives, the employer could offer individual disability income insurance in any of these ways:
Pay for coverage for only a select group of employees and allow other employees to participate on a voluntary basis
Offer individual coverage only on a voluntary basis.
Purchase coverage for all employees.
Regardless of how the benefit program is structured, employees ultimately receive the same quality, portable coverage at a multi-life discount. The amount of discount offered will vary depending on participation levels.
For financial professional use only. Not for use with consumers or the public.

10. Perception vs. Reality Perception
PERCEPTION & REALITY
Perception vs. Reality
Perception
Additional disability coverage is too expensive
Reality
Employers continue to be concerned about the needs of their employees. Most employers realize that to attract and retain employees, they need a comprehensive benefits package.
Adding individual coverage on a voluntary basis can add that value without adding cost to the business.
As we covered earlier, employers are concerned about their employees – in fact, in a recent Harris Poll Survey, employers ranked taking care of their employees as the top concern when designing a benefits program.1 As the search for top talent becomes more competitive, employers realize that they need to offer a comprehensive benefits package to attract top talent, as well as to retain the top talent they already employ to avoid impacts to their bottom line.
As you review prospective employer benefits and discuss opportunities for additional financial protection for their employees, ask the employer if the cost to offer additional coverage outweighs the impact to their bottom line if they cannot attract and retain key talents. Costs of employee turnover include:
Loss of productivity
Cost of resources to interview / hire new talent
Cost of resources to train new talent on the job
Impact to key relationships managed by employee that left
Can they afford not to offer comprehensive income protection solutions?
1Top Business Owner Concerns, Principal Financial Group®, 2015 Business Owner Market Study, June 2015, viewed 09/15
For financial professional use only. Not for use with consumers or the public.

11. Disability Coverage Options
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12. Type of coverage options
DISABILITY COVERAGE
Type of coverage options
Group Long-Term Disability (LTD) Insurance
Individual Disability Income (DI) Insurance
Two solutions working together
In this section, we will cover the different types disability coverage options available to your clients and how to utilize each type to maximize the benefit to your clients:
Group Long-Term Disability (LTD) Insurance
Individual Disability Income (DI) Insurance
Combination Program
For financial professional use only. Not for use with consumers or the public.

13. Group LTD
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14. DISABILITY COVERAGE
Group LTD Benefits
Group LTD coverage is sponsored and often paid for by the employer
Easier to administer
One master policy covers all employees
Typically replaces 60% of current income
May be taxable and have a monthly benefit cap; both of which can reduce the percentage of take home pay while on disability.
For most businesses, it is more economical for the employer to provide Group LTD to their employees because the coverage is sponsored, and often paid for by the employer. And because there is one master policy that covers all employees, it is easy to administer.
Group LTD usually covers about 60% of the employee’s current income (before taxes). It usually starts after any sick leave and short-term disability benefits have been exhausted and will continue for years or until Social Security Normal Retirement Age (SSRNA), depending on what benefit period the employer chooses.
For financial professional use only. Not for use with consumers or the public.

15. DISABILITY COVERAGE
Group LTD Benefits
Usual cost to the employer is only ½ to 1% of gross covered monthly pay
Limited medical/financial underwriting
Automatic benefit adjustments
Rehabilitation focus
Employee assistance programs that may be available at no extra cost
This coverage is cost effective for the employer, costing only ½ to 1% of gross covered monthly pay. There are limited medical and financial underwriting requirements. Some features in a Group LTD policy include:
An automatic benefit adjustment to keep up with inflation
A focus on rehabilitation for the employee
Assistance programs that may be available to employees at no additional cost
For financial professional use only. Not for use with consumers or the public.

16. Group LTD insurance considerations
DISABILITY COVERAGE
Group LTD insurance considerations
Benefit provisions within the policy are typically conservative
Benefit maximums and offsets
Doesn’t cover bonus or incentive pay
Benefits are typically taxable
Policy is not usually portable for the employee
Benefits and premiums can be modified at renewal
Some considerations with a Group LTD policy to think about are:
Typically conservative
There are “caps” or maximum benefits allowed and these benefits can be offset with other coverage at claim time.
Depending on the cap that the employer selects, it can create a disadvantage for your key employees. The cap can limit the benefits at an amount that is too low for higher-paid employees, thus not providing adequate coverage for key employees.
For those key employees, they are at an even greater disadvantage when you consider bonuses and incentive pay are typically not covered by Group LTD
Benefits are typically considered taxable income, reducing the amount of benefit for the insured even further
With a group policy, since it is one master policy, the individual employee cannot take this coverage with them when they leave the employer leaving them without any disability coverage.
For financial professional use only. Not for use with consumers or the public.

17. Individual Disability Income
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18. Individual disability income
DISABILITY COVERAGE
Individual disability income
Employer-sponsored or voluntary
Works well with existing coverage or can stand alone
Base salary, commissions, and bonuses often covered
Non-cancelable coverage*
Insured owns the policy so it can go with them no matter where their career takes them
Customizable policy provisions
If employees are covered by Group LTD benefits, that is a great start. But as was covered at the end of the last section, it only covers a portion of the employees income. They may need additional insurance, such as Individual DI, to make up an even greater portion of their income in the event of a disability to maintain their current lifestyle. Employers and employees alike can take advantage of the benefits of an individual DI policy. The individual coverage can be sponsored and paid for by the employer or offered on a voluntary basis. With Individual DI you can cover the employee’s base salary and any consistent commissions and/or bonuses that they receive.
If employees don’t have the benefit of Group LTD benefits, Individual DI is a great way for them to protect them against a disability:
It covers base salary, commissions, and bonuses
The policy is non-cancelable, meaning that except for non-payment of premiums, the policy cannot be changed or cancelled for any reason
And the individual owns the policy, so if they leave their current job, this policy goes with them.
You should look for a company that allows the employer-paid premium to be taken over by the employee and allow any discounts that the policy may have received to remain and not increase the premium.
*Except for non-payment of premium.
For financial professional use only. Not for use with consumers or the public.

19. Limitations of Individual DI insurance
DISABILITY COVERAGE
Limitations of Individual DI insurance
Typically more expensive than Group LTD – 1-3% of income
Complete medical, occupational and financial underwriting may be required depending on the case
Individual DI is typically more expensive for an employer to offer to all of their employees, but voluntary options are available. If not offered on a Guarantee Issue basis, there most likely will be complete medical and financial underwriting required. The insurance company can decide to decline to offer coverage to everyone.
For financial professional use only. Not for use with consumers or the public.

20. Two solutions working together
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21. Why a Combination Program?
Larger monthly benefit to individual
Combines strengths of Group LTD and Individual DI insurance
Explain to your employer clients that offering a comprehensive benefits package has an impact on their workforce. In fact, 64% of employees cite good benefits packages as a motivator to working harder and performing better. Therefore, the best approach to taking care of employees and helping employees protect more of their paycheck is by offering a combination Group LTD and Individual DI package.
A combination program blends the strength of the ease of administration, cost effectiveness and limited medical financial underwriting benefits of the Group LTD policy with individual DI’s non-cancellable, portable, flexible and customizable coverage to more fully protect an employee’s paycheck from the threat of a disability.
For financial professional use only. Not for use with consumers or the public.

22. Supplementing existing coverage
Supplement group benefits to help protect more of your client’s income.
Sample – Annual Gross Income: $60,000
62% income replacement (post-tax)
100%
$5,000
80%
42% income replacement
$3,500
$1,000
60%
$3,000
40%
$2,100
$2,100
20% 0%
Monthly Income before taxes
Monthly Income after taxes
Group LTD Benefit (before taxes)
Group LTD Benefit (after taxes)
Group LTD benefit + Individual DI policy
Group LTD benefits of 60% up to $10,000/month, a $1,000 IDI benefit, and assuming a 30% tax bracket for Federal, State and FICA.
For financial professional use only. Not for use in sales situations.

23. Flexibility for higher income earners
DISABILITY COVERAGE
Flexibility for higher income earners
To help protect higher income earners with a larger gap in coverage it’s sometimes helpful to carve a solution out for them.
This particular group can be offered individual coverage on top of their group insurance.
This helps close the gap while at the same time providing a stronger income protection package for key employees.
In a carve out situation, the employer selects key employees to receive Individual DI policies.
This solution is intended to provide basic group LTD coverage for all employees, and supplement the benefits for key employees with individual disability income insurance. Unfortunately for highly-compensated employees that earn a bonus or additional compensation, group LTD coverage alone is typically not enough to protect them, since bonus and additional compensation is not covered by these benefits. And with a cap on the coverage, highly-compensated employees are even more disadvantaged by the benefit coverage offered by group LTD. Recommending Individual DI helps create a more attractive and comprehensive benefits program .
If the policy is set up for the employee to be the owner of the policy, then he/she will have full rights to the IDI policy.
The next couple slides will detail how this works.
For financial professional use only. Not for use with consumers or the public.

24. Hypothetical example No Individual DI Coverage
Title
Annual Base Salary
Annual Bonus
Total Annual Salary
Group LTD Monthly Benefit
Individual DI Monthly Benefit
Percentage of Salary Replace
CEO
$200,000
$150,000
$350,000
$10,000 $0
34%
Sr. VIP
$175,000
$100,000
$275,000
$8,750
38% VP
$75,000
$5,000
Manager
$50,000
$125,000
$3,750
36%
$25,000
$2,500
40%
With Individual DI Coverage
Title
Annual Base Salary
Annual Bonus
Total Annual Salary
Group LTD Monthly Benefit
Individual DI Monthly Benefit
Percentage of Salary Replace
CEO
$200,000
$150,000
$350,000
$10,000
$11,250
73%
Sr. VIP
$175,000
$100,000
$275,000
$8,750
$8,200
74% VP
$75,000
$5,000
$6,000
75%
Manager
$50,000
$125,000
$3,750
$4,250
77%
$25,000
$2,500
$2,250
80%
This is an example of census information taken on an employer client that does not offer Individual Disability Income insurance, but does offer Group LTD insurance.
As you can see, the group LTD covers 34-40% of the employee’s income. You have the CEO of the company that would only be receiving $10,000/month of benefit which is only a 34% income replacement if they became disabled, a portion of which may be taxed.
Adding in an Individual DI policy on top of Group LTD insurance the replacement ratios are up to 75%. You CEO would receive approximately $21,875/mo, or 75% of his/her income, before taxes.
*For illustrative purposes only. 60% of base salary, 90 day Elimination Period, To Age 65 Benefit Period, taxable, integrated with Social Security.
For financial professional use only. Not for use with consumers or the public.

25. Employer or Employee Paid?
DISABILITY COVERAGE
Employer or Employee Paid?
Group LTD benefit
Employer sponsors
Employer pays
Provided for full-time employees
IDI program
Employer sponsors
Employer pays
Employee pay
A basic Group LTD benefit is provided for full-time employees (40 to 60% percent of income) and paid for by the employer.
Typically, the employer that sponsors a voluntary IDI program for employees, desires more protection beyond the monthly caps of Group LTD. If premiums are employee-paid, it allows the employer to expand the firm’s employee benefit package at no cost to the employer. The employer could also pay all or part of the individual coverage on selected employees. Obtaining the highest percentage of income protection is the key benefit.
For financial professional use only. Not for use with consumers or the public.

26. Case Studies
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27. Company profile 2,160 total employees 40 executives making $180,000+
CASE STUDY #1
Company profile
2,160 total employees
40 executives making $180,000+
Offers group LTD to all employees
60% taxable benefit
$11,000 maximum benefit; employer is paying for the maximum benefit that only benefits 40 employees
The following employer is an ideal candidate to help reduce the risk associated with the group LTD by recommending individual disability coverage for the company’s executives. The company’s demographic and existing program highlights include:
2160 employees
40 executives making $180,000 or more
Offers group LTD to all employees
60% taxable monthly benefit
$11,000 maximum monthly benefit
The employer is paying for the total premium paid for all 2,160 employees, so he can provide the maximum benefit that only benefits 40 employees.
For financial professional use only. Not for use with consumers or the public.

28. Solution Lower the taxable Group LTD replacement ratio to 50%
CASE STUDY #1
Solution
Lower the taxable Group LTD replacement ratio to 50%
Decrease maximum monthly benefit to $9,000 on the executive class only
Experience an 8% savings ($62,000/annually) on the Group LTD coverage.
To help this employer maximize their benefit offering, review the current structure of the coverage. In this case, by lowering the taxable Group LTD replacement ratio to 50% and the maximum monthly benefit to $9,000 on the executive class only, there is a potential for 8% savings ($62,000/annually) on Group LTD coverage.
For financial professional use only. Not for use with consumers or the public.

29. Company profile 200 total employees
CASE STUDY #2
Company profile
200 total employees
Changed group LTD insurance from employer-paid to voluntary
New program covered 60% of employee’s income up to $10,000 maximum monthly benefit
23 executives needed more income protection than was provided by group program
Consider this communications company who wanted to give executives more income protection than the group LTD insurance program could provide:
200 employees
Company changed its group long-term disability (LTD) insurance program from employer-paid to voluntary
The new group LTD program covered 60% of an employee’s income up to $10,000 maximum monthly benefit
23% of the top executives needed more income protection than was provided by the group program
For financial professional use only. Not for use with consumers or the public.

30. Solution Implement Guaranteed Standard Issue (GSI) program
CASE STUDY #2
Solution
Implement Guaranteed Standard Issue (GSI) program
Help close income protection gap
Replace higher percentage of income for top executives
Implement Executive Bonus program
Company could bonus premium back to employees to pay for Individual DI policies
To help this employer protect its top employers,
A Guaranteed Standard Issue (GSI) program was implemented to help close the income protection gap and replace a higher percentage of income for top executives
An Executive Bonus program was implemented that allowed the company to bonus premium back to employees to pay for the Individual Disability Income (DI) policies
For financial professional use only. Not for use with consumers or the public.

31. Questions
DI | 02/2017 | © 2017 Principal Financial Services, Inc.
For financial professional use only. Not for use with consumers or the public.