As we move past the harvest and settle into winter, the rapid approach of year-end holidays leaves many of us in disbelief that the year is almost over. Your great expectations for this year’s business production have either materialized or have remained beyond reach, but there is still time to hit those high notes and perhaps even surpass expectations.
DI Production Checklist
• Lead your sales calls with disability insurance, explaining to your prospects that in order to develop a financial plan they must first protect the income that makes any financial plan possible.
• Cross-sell your clients who have purchased other insurance products from you, asking them how they would pay those premiums if they were to become disabled.
• Review your client files, looking to make sure they have disability insurance and, just as important, that they have adequate amounts of income replacement coverage.
• Segregate clients’ personal insurance needs and investigate subsidiary business insurance needs, e.g., buy/sell, business overhead, key person, bank loan indemnification, etc.
• Encourage your clients to become interactive with you by providing them a link to third party disability needs calculators, available at no cost from organizations such as LIFE (Life and Health Insurance Foundation for Education) and the Council for Disability Awareness. Calculators such as these can validate your proposal of disability insurance.
• Join and participate in associations such as the International DI Society and NAIFA so as to be included in this dynamic and surging disability insurance industry.
Find a Focus Point
Let’s examine the subject of buy/sell disability plans as an example. This time of year is usually when businesses begin to make their financial and business plans for the next year. You want to suggest that this is also an excellent time to review their buy/sell agreement. If they do not have one, you can certainly assist them in developing one; if they already have one, make certain that it addresses how the buyout will be funded in the event of a disability. The disability contingency portion of a buy/sell agreement should precede the death contingency page, as industry statistics show that disability is far more likely than death during one’s working years.
Careful review of an existing buy/sell agreement needs to make sure there is indeed a funding mechanism for disability. You should examine the provisions of the agreement to make sure they align with any buy/sell disability policy that is either in place or will be prescribed. For example, if the trigger for the buy/sell to take effect is 12 months of disability, make certain the disability insurance has the same elimination period. If the agreement calls for a lump sum as opposed to an installment, again make sure the insurance matches.
Analyze the buy/sell disability plan to make certain the funding does not reduce when approaching the designated retirement age. This is a very important practice, as we know from studies that people today are having to work into their senior years and push back retirement. If their existing buy/sell disability plan begins to reduce, this can be fixed by either replacing the existing plan with one that does not reduce, or adding a “rescue plan” that would prop up the reducing portion of the existing plan.
With the insurance industry’s preoccupation with retirement income, it is easy to overlook this very important aspect of senior-aged workers. Many of these people feel good about maintaining their relevance in the work force, and plugging their disability coverage gap is a heroic effort on a producer’s part.
Another concern is the probable need for a buy/sell agreement to increase every year or two as a business grows. If the firm is progressive and making money, DI insurance needs to be increased accordingly to stay in balance. Suppose the agreement was established when the firm had a value of $100,000—the buy out was $50,000 per partner. Let’s say the firm has flourished and now has a total value of $4 million. Obviously, insurance must be brought to this level, otherwise each partner is liable for $1.95 million should the other become disabled and the buy/sell agreement demand a buy out. This is why annual reviews are crucial for insurance professionals to keep their clients current with acceptable amounts of insurance.
As harvest season nears its end, there is still time in 2012 to review and correct the unintended shortfalls in your valued clients’ disability coverage. Disability financial planning is an ongoing practice, and if you want a bountiful year end, take the time to bring the idea of adequate disability insurance to your clients and prospects.
Don’t forget, DI is a crop that replants itself every year with strong renewal commissions, which can mean less plow time for you! Have I run the metaphor into the ground yet? Well, probably!
W. Harold Petersen, RHU, DFP
RHU, DFP, is founder and chairperson of Petersen International Underwriters. He is recognized as an expert in underwriting development and policy innovation for such products as high-limit disability insurance, residual disability benefits, cash-value DI, and the expanding field of disability financial planning. The life/disability industry has acknowledged his leadership as an author, educator, motivator and leader, and has bestowed upon him the Harold R. Gordon Memorial Award (NAHU), the Will G. Farrell Award (NAIFA Los Angeles), the Lifetime Achievement Award (IDIS) and the Distinguished Service Award (NAIFA CA). His extensive industry involvement includes NAIFA, LIMRA, NAHU and The American College, all on local, state and national levels as well as IDIS. Petersen can be reached at Petersen International Underwriters, 23929 Valencia Boulevard, Valencia, CA 91355. Telephone: 800-345-8816. Email: firstname.lastname@example.org.