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For Producer Education & Training Purposes Only
Disability Income Disability Income Selling SkillsSelling Skills
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.
For Producer Education & Training Purposes Only
The Sales Process
• Understand the Client’s Occupation
• Develop the Need
• Highlight Policy Benefits
• Help the premium fit financially
For Producer Education & Training Purposes Only
Understand the Client’s Occupation
• What does your client actually do during the day
• What are his or her “substantial and material duties”
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
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
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
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
For Producer Education & Training Purposes Only
Are You Protecting the Right Asset?
Potential Earnings to Age 65(with 5 percent annual salary increase)
Annual IncomeAge $50,000 $100,000 $150,000
30 $4,516,000 $9,032,000 $13,548,000
35 $3,322,000 $6,644,000 $9,966,000
40 $2,386,000 $4,773,000 $7,159,000
45 $1,653,000 $3,307,000 $4,960,000
For Producer Education & Training Purposes Only
Chances of a DisabilityWhat is the chance of having at least one long-termdisability which lasts for three months or longerbefore reaching age 65?
Age Probability
25 44%
35 41%
45 36%
55 27%
Source: 1985 CIDB Disability Tables1980 CSO
For Producer Education & Training Purposes Only
Chances of a DisabilityWhat is the chance of being disabled for life if thedisability has lasted at least three months?
Age Lifetime Disability
25 25%
35 28%
45 33%
55 40%
Source: 1985 CIDB Disability Tables1980 CSO
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
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
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
For Producer Education & Training Purposes Only
Catastrophic Benefits
• Two qualifying definitions– 2 of 5 Activities of Daily Living (ADL’s) 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
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.
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
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
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
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
For Producer Education & Training Purposes Only
10 Year Premium Refund OptionPRO
Refund*
1,000 1,600
10,000
3,200
12,800
0
2000
4000
6000
8000
10000
12000
14000
16000
*Example of Principal Life Insurance Company’s Premium Refund Option (PRO) rider with a 10 year payment term with 8 years premium refunded and no claims
WithPRO
WithoutPRO
WithoutPRO
WithPRO
Annual Premium Net Cost over 10 yrs.
For Producer Education & Training Purposes Only
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
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
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
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
For Producer Education & Training Purposes Only
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
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
For Producer Education & Training Purposes Only
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?
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? 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
For Producer Education & Training Purposes Only
Group Long Term Disability
• Myth - “It’s cheaper because it’s 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
For Producer Education & Training Purposes Only
Why Supplement Group LTDwith 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
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
For Producer Education & Training Purposes Only
Thank YouDonald 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