1. For Producer Education & Training Purposes Only Disability Income Selling Skills

2. For Producer Education & Training Purposes Only This presentation is believed to provide accurate and authoritative information in regard to the subject matter covered. The accuracy of the content is not guaranteed, and it is provided with the understanding that Principal Life Insurance Company is not rendering legal, accounting, tax or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought.

3. For Producer Education & Training Purposes Only The Sales Process Understand the Clients Occupation Develop the Need Highlight Policy Benefits Help the premium fit financially

4. For Producer Education & Training Purposes Only Understand the Clients Occupation What does your client actually do during the day What are his or her substantial and material duties

5. For Producer Education & Training Purposes Only How is Your Client Paid? Base Income (W-2) Bonus (W-2)/Commissions (1099) Profits (Schedule K-1 or Form 1120) Residual Income

6. For Producer Education & Training Purposes Only Fact Gathering Age/DOB Group LTD Plan –waiting period/benefit period –% income covered –maximum monthly benefit –definition of earnings Savings Expenses

7. For Producer Education & Training Purposes Only Describe to me what you would like to see happen if you could not work for a period of time

8. For Producer Education & Training Purposes Only Why Disability Income Protection Your clients needs 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

9. For Producer Education & Training Purposes Only Are You Protecting the Right Asset?

10. For Producer Education & Training Purposes Only Chances of a Disability

11. For Producer Education & Training Purposes Only Chances of a Disability

12. For Producer Education & Training Purposes Only Typical Policy Benefits Noncancelable and Guaranteed Renewable Fixed monthly benefit How does the 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

13. For Producer Education & Training Purposes Only 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

14. For Producer Education & Training Purposes Only 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

15. For Producer Education & Training Purposes Only Catastrophic Benefits Two qualifying definitions –2 of 5 Activities of Daily Living (ADLs) or –Presumptive disability with loss of speech, hearing, sight or the loss of use of any two limbs Benefits may increase monthly benefit or extend benefit period

16. For Producer Education & Training Purposes Only Common Optional Riders Cost of Living Benefits Future Insurability Benefits Automatic Increase Benefits Premium Refund Catastrophic Benefits Long Term Care Conversion - subject to variation and state availability Subject to variation and state availability.

17. For Producer Education & Training Purposes Only Cost of Living Benefits Increase the monthly benefit on each anniversary date of the disability Can be compounded or simple Generally has a minimum benefit of 3% or 4% May have an overall cap of two times the monthly benefit

18. For Producer Education & Training Purposes Only Future Insurability Benefits Allows benefits to be increased without re- qualifying medically Option dates can be annually, bi-annually or every third anniversary date Usually expires between age 51 and 55 Usually has a cap of total benefits

19. For Producer Education & Training Purposes Only Automatic Increase Benefits Increases monthly benefit without re- qualifying medically Exercisable annually Usually capped at 3% to 5% annually Usually exercisable for five years then new qualification is needed Increases may be compounded or simple

20. For Producer Education & Training Purposes Only Return of Premium Your client pays in an extra premium (rider) and receives X% of total premium back after a certain number of years Any claim benefits paid first come out of the return of premium benefit

21. For Producer Education & Training Purposes Only 10 Year Premium Refund Option PRO Refund* *Example of Principal Life Insurance Companys Premium Refund Option (PRO) rider with a 10 year payment term with 8 years premium refunded and no claims With PRO Without PRO Without PRO With PRO Annual Premium Net Cost over 10 yrs.

22. For Producer Education & Training Purposes Only Occupation Classes We are insuring duties not job titles What is your clients 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

23. For Producer Education & Training Purposes Only 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 Creativity What is better - depends on marginal tax rate

24. For Producer Education & Training Purposes Only 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 No FICA paid after 6 months

25. For Producer Education & Training Purposes Only Medical Underwriting Common Concerns –Musculoskeletal –Mental/Nervous/Drug/Alcohol –Stress and anxiety counseling –Diabetes –Blood pressure and cholesterol Attending physician statements Blood and Urinalysis

26. For Producer Education & Training Purposes Only Financial Underwriting What is your clients 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

27. For Producer Education & Training Purposes Only 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

28. For Producer Education & Training Purposes Only Savings…Whats 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?

29. For Producer Education & Training Purposes Only My Spouse Can Work What does your spouse earn now Who will take care of you while you are sick? Whats that worth? If you really dont need the second income why not take a small percentage of it and ensure the second income continues in the event of disability

30. For Producer Education & Training Purposes Only Group Long Term Disability Myth - Its cheaper because its group –Typically more conservative benefits –Pre-existing condition limitations –Usually shorter insurance duration –Less adverse selection –Premiums and benefits can be modified –Plans can be canceled

31. For Producer Education & Training Purposes Only 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 Be careful - some group plans are beginning to offset individual policies Your client needs it

32. For Producer Education & Training Purposes Only 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

33. For Producer Education & Training Purposes Only Thank You Donald J. Schamay Disability Sales Manager Principal Life Insurance Company 5447 Roswell Rd., NE Atlanta, GA 30342 (800) 451-8903 Principal Life Insurance Company Des Moines, IA 50392