COMPLETE DISABILITY PRODUCT PORTFOLIO by shuifanglj

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									  DISABILITY PRODUCTS
FOR THE BUSINESS MARKET
              Presented by:
   Disability Resource Group, Inc.
             800.945.9719
            www.drgdi.com
                                     1
    DISABILITY PRODUCTS
  FOR THE BUSINESS MARKET


• Business Overhead Expense
• Buy-Sell
• Multi-Life Sales


                              2
  Business Overhead Expense

• If you are a business owner and
  become too sick or hurt, what impact
  would that have on your business?
• Who would pay your business
  overhead expenses?
• How could you keep your business
  open?


                                         3
                                             The Reality
      • 30% of all people 35 to 65 will suffer a
        disability for at least 90 days and one in
        seven will be disabled for five years .*

      • There is a disability caused by a motor
        vehicle crash every 30 seconds. **

      • The probability of at least one owner in a
        two-owner firm becoming disabled before
        reaching age 65 is 23%, if each is age 30.
* Health Association of America; The New York Times, 02.02

**National Safety Council Accident Facts, 02.02

***Based on recent disability insurance industry experience   4
 Consider The Likelihood...




Commissioner’s Individual Disability Table B - Equally
Weighted 90 Day Elimination Period.
             Ideal Candidates
•   Medical Professionals
•   Veterinarians
•   Architects
•   Smaller Law Firms
•   Smaller CPA firms
•   Hairdressers
•   Photographers
•   Tailors
                                6
          Ideal Candidates

• Owner is the major revenue
  generator
• Business has less than 10
  employees
• Been in same location two years
  or more

                                    7
     Examples of Covered Expenses
• Lease or mortgage payments
• Utilities
• Employee salaries and benefits
• Payments for leasing or purchasing furniture and
  equipment
• Accounting, billing, and collection fees
• Janitorial, security, and maintenance
• Premiums for malpractice, property, liability
  insurance
• Professional trade dues and subscriptions

                                                     8
   Expenses that are NOT covered
Salary and Benefits for:
  • The insured
  • Any person sharing business expenses with
    the insured
  • Any member of the insured's profession
  • Any individual hired to perform the insured’s
    duties*
  • Any person responsible for the generation of
    income for the business
  • Any member of the insured’s immediate family,
    who was not a full-time employee prior to
    disability.
                                                    9
      Other Expenses that are NOT covered

• Expenses that are passed along to the consumer
     (Lab Fees, Medical Supplies, etc.)
•   Professional Tools or Wares
•   Travel and Entertainment
•   Costs of Goods
•   Additions to Inventory
•   Any Expense the Insured did not have prior to the
    disability*


                                                  10
Elimination and Benefit Periods Available

 Waiting Periods:
 • 30, 60, or 90 days
 (0 days for presumptive disabilities, some carriers)

 Benefit periods:
 • 12, 18, and 24 months




                                                        11
         Optional Riders
• Replacement Expense Rider
• Residual Disability Rider
• Future Insurability Option
• Income Protection



                               12
        Issue and Participation Limits
White Collar :
Max issue $30,000 per month Top Occ Classes
Limits per Occ Class will vary,
i.e. 3A-Issue $15k /Participate $20

Blue Collar:
Issue $10,000/ Participate $12,000 per month
Top Classes only
Limits per Occ Class will vary,
i.e. 3A-Issue $9k, 2A-$7,000 per month
May not offer to all classes or occupations
                                               13
      Business Overhead Expense
             Underwriting
• Financial:
Most Recent Business Tax Returns, all
 schedules.
(Two Full Years Preferred)


• Medical:
Telephone Interview (all amounts and ages),
Blood/Urine, Para Med, EKG (by amount, age, and state)


                                                         14
   Other BOE Features can have

•True Own Occupation Definition
•Non Cancelable Contracts
•Covers expenses for up to two years
•Conversion Options Available
•Premiums waived during disability
•Premiums are Tax Deductible
•Discounts for Three or More Partners


                                        15
      Sales Opportunity?

• There are more than 6.6 million
  companies in the United States.
• More than 50% are small
  businesses.
• 68% have no DI coverage at all!


                                    16
     Disability Buy/Sell Contracts
What happens when a Business Partner becomes
                 disabled?
• Would they want to sell their share of the
  business?
• Would they want to buy out the healthy
  partner(s)?
• How would the price be determined?
• Where would the money come from?
• Is it guaranteed to be there when it’s
  needed?
                                               17
  In the Event of a Disability,There
  Are Many Issues to be Resolved
The disabled partner may:
• Become a drain on income while not
  contributing to the business
• Have different priorities for the
  business income and profits and may
  not want to reinvest profits
• Decide to let their spouse or relative
  take over his/her role in the business
  In the Event of a Disability, there
   are Many Issues to be Resolved
The healthy partner:
• May not be able to pay the disabled
  partner an income and maintain the
  business
• May not have funds to buy the disabled
  partner out
• May not want to share business
  decisions with the disabled partner’s
  family
Advantages of a Buy-Sell Agreement

• Assures active business owner can buy
  out the disabled owner at a predetermined
  price and pre-arranged time after disability
  strikes.
• Maintains business continuity and
  credibility - which are concerns of
  customers, creditors and employees.



                                                 20
         Advantages to the Disabled
             Business Owner
• Creates an automatic market by guaranteeing a
  definite and fair price and a buyer for the
  business interest
• Assures that his/her financial future is no longer
  contingent upon the strength of the business
• Provides money which may be needed to pay
  medical bills and living costs
• Avoids involving the disabled owner and his/her
  family in the management of the business

                                                  21
       Advantages to the Active
          Business Owners
• Avoids negotiation of price
• Assures complete and orderly transfer of
  ownership
• Retains control of the business
• Competitors cannot purchase the disabled
 owner’s business interest in the firm and
 force out the active owners



                                             22
Once Again, Consider The Likelihood...




    Commissioner’s Individual Disability Table B - Equally
    Weighted 90 Day Elimination Period.
     Buy-Sell Considerations
• Date to Establish a Plan
    • The date the owner first becomes disabled; or
    • The trigger date of the buy-sell agreement

• Method of payment
• When is the first payment due?
• How should it be paid?
    • Lump sum payment
    • Monthly installments
    • Combination of both


                                                      24
     Buy-Sell Agreement Considerations

Structure of the agreement:
  • Cross-purchase agreement
    • Works best with two owners
    • Insurance company reimburses the non-disabled owner(s)
    • Receive step up in basis

  • Entity purchase agreement
    • Insurance company reimburses the corporate entity
    • Best to use with multiple owners




                                                               25
  The most practical solution is...
• A written agreement that
  specifies when and for
  how much the buy-out
  will take place, and...
• is funded with the right
  amount of Disability Buy-
  Sell insurance.
Why Disability Buy-Out Insurance?

• Objective
  • The objective of Disability Buy-Sell
    insurance is to reimburse money paid for
    the purchase of a disabled owner’s interest
    in the business in the event of a long-term
    disability
• Benefits
  • Benefits are income tax-free - the disabled
    owner is taxed only on the gain from the
    sale of the business*
  • Provides a funding solution for the business

                                                   27
              How Does it Work?
• The non-disabled owner(s) are reimbursed for buy-
  out expenses paid during the buy-sell process
• Premiums are non-deductible (IRC 265; Rev. Rul.
  66-262, 1966-2 C.B. 105)
• Benefits are received income tax-free (IRC
  104(a)(3); Rev. Rul. 66-262, 1966-2 C.B. 105)
• The disabled owner is taxed only on the gain from
  the sale of the business. The gain may be
  considered an installment sale if at least one
  payment is to be received after the close of the tax
  year in which the sale was made. Clients should
  contact their tax advisor for details.


                                                         28
    Cross Purchase Agreement
• Each owner owns a policy on each of the other
  owners
• After disability, the non-disabled owner(s)
  purchase the disabled owner’s share in
  accordance to the Buy-Sell Agreement and
  receives policy benefits (up to the maximum
  policy limit) as a reimbursement
• The non-disabled owner(s) then own the
  business, and the disabled owner has been paid
  the price agreed upon
                                                   29
How a Cross Purchase Agreement Works

        Business                               Business
        Owner A                                Owner B
                        Buy-Sell Agreement

               Premium                       Premium



      Policy and             Insurance              Policy and
  Disability Benefits         Company           Disability Benefits
     on Owner B                                    on Owner A


                                                             30
    Advantages/Disadvantages of a
     Cross Purchase Agreement

Advantages
• Policies are not available to business
  creditors
• Non-disabled owners receive an increase in
  their basis
Disadvantages
• If there are more than two owners, the
  number of policies needed may not be
  practical
                                          31
  Entity Purchase Agreement
• The business purchases and owns a disability
  buy-out policy on each owner
• After disability, the business purchases the
  interest of the disabled owner in accordance to
  the buy-sell agreement and receives policy
  benefits (up to the maximum policy limit) as a
  reimbursement
• The non-disabled owners then own the business,
  and the disabled owner has been paid the price
  agreed upon




                                                    32
    How an Entity Purchase
      Agreement Works
  Business                          Business
  Owner A                           Owner B

 Buy-Sell        Business                Buy-Sell
Agreement                               Agreement

             Premium        Policy and
                         Disability Benefits
                        on Owners A and B

                 Insurance
                 Company

                                                33
Advantages/Disadvantages of an
  Entity Purchase Agreement
Advantages
• Only one policy per business owner is
  necessary
Disadvantages
• Policies are open to claims by
  creditors
• The buy-out will not increase the
  healthy owner’s basis
                                          34
           Ideal Candidates
• White to Gray Collar, small to medium-
  sized businesses with less than 10
  owners
• 10% ownership to be considered
• Need to have a plan for succession
• Owners that depend on each other to
  keep the business running smoothly


                                           35
   Common Methods to Calculate
        Business Value

• For Personal Service Businesses:

  - 2 times income plus the profit of
   the business

• For General Businesses:
  - Book value plus capitalization of
   excess earnings
                                        36
              Elimination Periods
             and Pay Out Methods

•   365, 540, or 730 Day Elimination
•   Lump Sum
•   Monthly Installments over 2, 3, or 5 Years
•   Combination of Lump Sum and Monthly
    Installments




                                             37
    Issue and Participation Limits

•   Total Pay Out: Up to $2,000,000
•   Limits per Occ Class
•   Limits per Pay Out Method
•   Limits per Elimination Period




                                      38
   Disability Buy/Sell Underwriting

• Financial:
Most Recent Business Tax Returns, all
 schedules.
(Three Full Years Preferred)


• Medical:
Telephone Interview (all amounts and ages),
Blood/Urine, Para Med, EKG (by amount, age, and state)


                                                         39
    Disability Buy/Sell Carriers

• Lloyd’s of London
• MassMutual
• MetLife
• Principal


                                   40
Multi-Life Disability Insurance


 YOUR GATEWAY TO A
SUCCESSFUL CARRER IN
  INSURANCE SALES


                                  41
              What is it?
• Individual Disability Insurance offered
  at a discounted and Uni-Sex Rate to 3
  or more employees at the same firm
• Discounts can range from 15% to 35%
• Individual, Group Supplement, and
  Retirement Completion products
  available
• Higher Issue and Participation Limits
• Underwriting Concessions
                                            42
 Underwriting Concessions?

• Simplified Underwriting
• Guarantee To Issue
• Guaranteed Standard Issue




                              43
    Guaranteed
  Standard Issue?
       YES!
It’s a Win-Win-Win
   For Everyone!
           Insured Wins
•   Guaranteed Issue
•   No detailed underwriting process
•   Discounted premiums on unisex rates
•   Rapid turnaround of application
•   Higher income protection
•   Can be employer paid




                                          45
             Employer Wins
•   Create perks for key employees
•   Deductible business expense
•   List billing
• Reduce LTD costs
• Foster persistency and loyalty among key
    employees
• Allow employer to add an additional benefit
    without incurring additional cost


                                             46
              Broker Wins
• No detailed underwriting process;
    streamlined underwriting
• Approach multiple insureds —
•     cross-selling opportunities
• Discounted premiums on unisex rates
• One plan design for all
• Multiple sales — more commission $$$



                                         47
 Guaranteed Standard Issue
• Guaranteed standard issue to those meeting
  eligibility requirements

• Targeted at executive/professional occupational
  groups within single employer

• Minimum 10 participating lives for 100% employer-
  paid cases

• Plan design at group level

• Can be 100% employer-paid, partially employer-
  paid, or 100% employee-paid

                                                      48
             Ideal Candidates
• 25 person or larger Law Firm, 60% of income covered
  by employer paid group plan with $7,000 cap,
  employer will pay for supplement, average income
  $175,000

• 12 person Accounting firm, no group LTD in place,
  employer will pay premium, average income $65,000

• 100 person I.T. firm, 60% of income covered by
  employer paid group plan with $5,000 cap,
  supplement is Voluntary, average income $95,000

                                                    49
       Appropriate Industries
•   Law Firms
•   I.T. Firms
•   Accounting Firms
•   Engineering Firms
•   Architecture Firms
•   Banks



                                50
       Inappropriate Industries
•   Medical Professionals
•   Commissionable Sales
•   Fewer than 10 Full Time Employees
•   1099 Employees
•   Blue Collar




                                        51
                Case Design
•   Generally with Group LTD
     Carve out
     Wrapped around group
     Reverse carve out

•    Available riders
     Residual/partial
     Social Insurance Offset
     Inflation
     Catastrophic Benefit
     Retirement Completion



                                52
                                          Sample Plan Design
   Employer-Paid and Voluntary Plan Specifications
                                   Employer-Paid                                                 Voluntary
Min. Size Group                    15 participants                                               70 or more eligible participants*

Min. Participation                 100% required                                                 70+ eligible participants              30%

Occ Class                          5AP-3AP                                                       5AP-3AP
                                   3AP cannot be more than 15% of total lives                    3AP cannot be more than 15% of total lives
                                   N/A to medical occupations                                    N/A to medical occupations

Discounts                          Discounts range from 20 to 30% off                            Discounts range from 20 to 30% off
                                   unisex rates depending on the case                            unisex rates depending on the case
                                   size.                                                         size.


GI Max Issue                       # of Issue Part.               Max. GI Amt.**                 # of Eligible                Max. GI Issue
Limits                             15-99                         $100/life/month                 Participants                  Amount**
                                                                 to max. of $6000                70-149                         $3000
                                                                                                 150-299                        $4000
                                   100+                          $8000                           300+                           $5000



 *For cases with 15-69 eligible lives, the Home Of f ice will consider making an of f er on a Guaranteed Issue basis. Such an of f er i s contingent on a
 minimum of 15 paid lives. If f ewer than 15 paid lives are written, f ull underwriting will be required. Discounts and GI maxim um Issue Limits are the
 same as f or cases of 70-149 eligible participants.
 **The maximum amount available can vary based on the characteristics of the group.
                                                                                                                                                    53
 Guaranteed Standard Issue

Minimum Participation:
Employer Paid — 100% required minimum
 of 10 participants

Voluntary — 30% target minimum of
 25 participants




                                        54
             Discounts

• 100%            Voluntary GI
• Employer-Paid      Eligible
• Participation   Employees      Discount
• 15 – 49          70 – 149        20%
• 50 – 99         150 – 299        25%
• 100 +             30%            35%


                                        55
  Guaranteed Standard Issue
• Guaranteed Issue Maximum
• I&P Limits for Employer-Paid Cases
• Specific plan design and maximum Guaranteed
  Issue amounts depend on group characteristics:
     - Industry            - Turnover rate
     - Occupations         - LTD experience
     - Financials           - Age
     - Local economy
• Each case is different
                                               56
 Information Needed to Quote
• Carrier Specific Multi-Life Offer Proposal
  Request Form

• Electronic Census with Occupation, Titles,
  Income, Bonus, Gender, Smoking Status

• As much information on the group and
  company as possible



                                               57
    Other Multi-Life Opportunities

•   Guaranteed to Issue
•   Simplified Underwriting
•   Fully Underwritten
•   Group Supplement
•   Retirement Completion
•   Association Plans



                                     58
         Multi-Life Carriers

•   MassMutual
•   MetLife
•   Principal
•   Union Central




                               59
   Group Supplement Features
• An individually owned and portable contract.
• Premiums that will never be increased and a
  contract that is non-cancelable.
• Enhanced return-to-work benefits to
  supplement your current group LTD plan.
• Discounted premiums (discount is portable).
But, most importantly…
Supplemental income insurance plans enhance
      existing group LTD benefit to maximize
   income protection in the event of a disability
                                                    60
     Group LTD Limitations
• Benefit maximums and offsets
• Benefits usually income-taxable
• Bonus, commission, pension benefits may
  not be covered
• Typically not portable
• Cost of living adjustments typically not
  standard
• Rate guarantees no longer than three years
• Cancelable coverage by carrier

                                               61
    Disability Multi-Life Sales
• Everybody Wins with GSI
• Substantial Discounts
• Uni-Sex Rates
• Guarantee to Issue/Simplified
  Underwriting
• Cross Selling with the Employer
• Tremendous Prospecting Opportunities


                                     62
 Benjamin K. Perez
800.945.9719 Ext. 303
     drgdi.com

                        63

								
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