Why You Shouldn’t be Reluctant to Sell Disability Insurance
by Larry Schneider

No wonder working Americans are insurance poor. Many are not aware of the kind of coverage they really need or they are reluctant to buy anything. To further confuse the consumer, many different types of coverage are available including life, health, auto, home, annuities, LTC, critical illness, group, and individual disability insurance. These products have been proposed to the average worker at one time or another through work, direct mail, financial planners, agents, friends, the media, and from some other source, all saying, “apply now,” which confuses the layperson so much that they end up doing nothing.

Take life insurance, there’s term life, whole life, universal life, and variable life -- all with variations. Which one is the right product?

Consumers are not getting adequate and reliable information to guide them through the product maze. It would be ideal if agents could be all things to all people, but they can’t and that is why some of us have chosen to specialize, as I have. Most agents have to be jacks-of-all-trades. They must know about a variety of products for a variety of situations, which is why many agents work with a product specialist.
Disability insurance can replace a substantial portion of lost income when a person is disabled and unable to work. Having this form of coverage allows the insured to pay for all or most of their other policies, which would probably lapse otherwise.
Being without income protection has a domino effect. The most dramatic effect of all is the inability to pay for necessities, such as food, rent, and electricity. Will the banks loan money to a disabled person? Will their employer continue to provide their salary? I don’t think so.

Financial planners have always said that protecting your income is the cornerstone of financial planning. If that’s true, why don’t more workers have this protection? Why don’t more financial planners and agents sell it or recommend it? Why don’t more employers offer employees this financial planning cornerstone?
Let me provide some possible reasons:
• Workers don’t believe they will get disabled. But, the rate of mortgage foreclosures is 16 times greater due to disability than it is due to death.
• Workers believe their employers will continue their salary. This can’t be done since salary can only be paid for services rendered.
• Workers haven’t been told of this coverage. Whose fault is this?
• Workers think that the coverage is too expensive
• Workers haven’t been told that it can be customized to make it affordable.
• Workers don’t understand how disability insurance can help when disabled. A 30-year old earning $50,000 year stands to lose $2.1 million over a 35-year period.
• Workers assume that they will be paid under Social Security disability insurance. However, Social Security has a denial rate of about 72% due to a very strict definition of “total disability.”
• Workers assume that their employer is providing long-term disability when the employer is actually providing short-term disability insurance. Benefits are considered taxable income even if the employee has long-term disability insurance. This income has offsets, such as Social Security and Worker’s Compensation. They may be discriminated against as a result of being highly compensated along with a low benefit amount cap. Due to the split definition of total disability, they may only be paid for two years rather than up to age 65. Group coverage usually isn’t portable nor does it cover income from bonuses. Claims that are mental/nervous are only paid for 24 months. It only pays a percentage of current income.

The problem is that agents and financial planners are reluctant to sell disability insurance and carriers have not done enough to educate their distribution systems, agents, or the public for that matter, on the need for income protection. Also, state insurance departments have gone overboard in their requirements to get agents licensed in their non-resident states. The days of the covered wagon have long passed whereby eyeball to eyeball sales are necessary.

Commissioners may have gone too far by forcing some carriers to withdraw from the marketplace, which has reduced the number of agents who are educating prospects. It seems counter productive when the consumer also suffers. Why can’t there be an optional national license for agents who wish to sell on a national basis with each state sharing in the fees?

Agents may be reluctant to sell disability insurance or they don’t know when to sell it because of the following:
• Fear of rejection, exclusions, and rating, and not being able to rebut an objection (Also known as “Disabilityphobia”).
• There is a lack of selling opportunities and knowledge.
• Too many other products competing for agent’s time.
• Too many other products are available and are easier to sell.
• It’s too tough to get the application through underwriting and issued.
• Too many policies are issued with exclusions or declined, which affects the agent’s relationships with clients.
How can the carriers stem the tide of declining sales and declining agent participation in the marketplace? Here are some easy solutions for the carriers to implement:
• Streamline underwriting and other key procedures.
• Provide more agent training and train their own people to become more knowledgeable with their own products. I hate to say how many times I have called the home office and got the wrong contract and product information.
• Improve the somewhat generous commission structure, which is better than most other products. For example, let’s assume that an agent has a first year commission of 50% on a $2,000 yearly premium with 10% renewals. The commission would be $1,000 in the first year and $1,000 plus a $100 renewal in the second year. Do the math, it adds up.
• Create more consumer awareness on the need to protect incomes.
• Create incentives for new and existing agents to sell disability insurance.
• Bring in new agents into the marketplace.
• Announce real product commitment to the marketplace. Too many carriers have exited in the last 10 years or so, giving rise to agent’s fears.

What else can be done to make consumers more aware of their real needs and educate agents to rejuvenate this much needed and undersold product? For one, the International Disability Insurance Society has been formed especially for producers who want to be in on the cutting edge of all new disability insurance information, such as claims, products, and underwriting. To further promote its third year of success, please pass along this information to your co-workers and tell your home office to attend the next meeting. Of course, plan to attend yourself. You won’t be disappointed. For more information, call me or visit the Society’s Website at www.internationaldisociety.com. q
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Larry Schneider has been a disability insurance specialist since 1973. He has published more than 30 disability insurance articles and has lectured to many national associations, financial planners, and CPAs. He has also appeared on television talking about the contractual differences between carriers. He is also an expert witness and consultant for disability insurance claims that have been denied inappropriately. He provides a national resource for hard to place or declined applicants in addition to having national brokerage for standard applicants. For more information about the Disability Insurance Resource Center and Larry Schneider, visit www.di-resource-center.com, e-mail info@di-resource-center.com or call 800-551-6211.