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

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

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Describe to me what you would like to see happen if you could not work for a period of time

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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