The Custom Approach to Disability Financial Planning
(No More Missed Opportunities with New Products)
A well planned “Dead Death” estate without an accompanying “Living Death” estate is likely to result in delusion and despair, for statistically few people have the luxury of dropping dead. They suffer to death! The suffering period may be short term or long term, but whichever it is, the insured will consume accumulations that were intended for other purposes such as wealth creation or comfortable retirement.
Get out of that bed of pain a person must, for the world is passing him by. Therefore he will spend everything he has saved or accumulated to accomplish this overwhelming task. Disability income insurance is the logical antidote, but it is seldom available in the required amounts. Consequently, many producers tend to ignore the living death challenge because of its many shortcomings that may leave the consumer disappointed and the producer embarrassed.
As an industry, the insurers of disability insurance have, for various reasons, not provided solutions for living death planning like those available for dead death. But there is a solution. It comes from the creation of a package of disability plans that can be arranged to provide a true disability financial plan, providing adequate amounts of coverage for not only personal needs but also for all one’s contingencies, including business needs.
Of the two economic deaths, Dr. Huebner believed the living death to be the worst financially because the victim is here as a total consumer without being a producer. In the case of dead death the family or business is spared the cost of the victim living and being an ongoing consumer.
The consequences of dead death are easier to manage than the living death. It is grievous and sad, but it is final and non-lingering. Life insurance in its various forms is available to offset the loss of the victim’s earning power. More than 1,100 life insurance companies offer dead death solutions, but only 26 offer living death solutions.
The consequences of living death are far trickier, for choices have to be made which will hopefully provide a steady and sufficient replacement of lost income. Personal disability is a subject met with disdain by many people, who resist the possibility of it affecting them.
A business owner’s concerns can very well be vastly multiplied:
• Personal annual income $1,000,000~disability needs $55,000 per month.
• Overhead expense $240,000~disability needs $20,000 per month.
• Bank loan $600,000~disability needs $11,500 per month.
• Airplane Lease $792,000~disability needs $22,000 per month.
• Pension disability.
Additionally, people are living longer and working longer. Some are forced to continue working because of insufficient investment results or to sustain a certain lifestyle. Working to age 70 and beyond is becoming more commonplace.
Designers of insurance plans had little trouble in finding or inventing forms of life insurance to handle dead death concerns. Disability insurance falls far behind in this respect because the underwriter is victimized by fear, prejudice and a seeming lack of concern by those comparatively few advisors who deal in this field.
By co-mingling the best of legal reserve insurance and the capacity and flexibility found in the surplus lines field, there are now reliable solutions to the many glaring needs left unattended by producers due to lack of product or unwilling underwriting. Surplus lines insurance is sometimes referred to as the non-admitted market. This does not mean these carriers are unregulated. In fact, each state has specific financial qualifications to which a non-admitted carrier must conform each year. These qualifications are frequently more stringent than those required for admitted carriers.
Retire? Yes, when passive income (earnings or savings) equals earned income, it will be financially safe to retire.
Is the client there yet? Many people are not, because most Americans save less than .05 percent of their earned income.
The “New World” of disability financial planning has only come to fruition because of an underwriting attitudinal change. Disability insurance has been miserly doled out according to the underwriter’s declaration of the applicant’s need. The prevailing attitude has been a concept of survival, not of sustaining a lifestyle. “Bread and water and a tent in the park” was and is the design of issue limits in the mind of the underwriter.
Artificial roadblocks were inserted into the issue formulas consistent with the century-old concept of “need” as opposed to “want.” Whereas Dr. Huebner’s declaration was that the only difference between the living death and the dead death is six feet of sod, that concept was acceptable in 1915 because the only disability insurance at that time was offered as a limited benefit rider on a life policy. In those days we were barely beyond considering life insurance for a burial fund. Since then we have developed a more sophisticated attitude as to the uses and needs for life insurance, but disability insurance has remained locked in the doldrums. Any thoughts about liberalizing disability insurance were met with a lack of understanding and disdain on the part of insurers.
It is now more than 95 years since Huebner declared his concept of living death. We are in large part still mired in the mediocrity of thought and the hypocrisy of insurers that claim to be the friend and protector of consumers while seeking only the collection of premiums without venturing far (if at all) into the field of risk. Attempts to lift the issue limits, broaden the uses and set out to insure people on a want basis instead of an artificial needs basis consistently met with failure.
Persistence has its rewards. The logjam has been broken by the astute design and use of disability plans underwritten by carriers in the excess-surplus lines market. This aged and dependable market now provides solutions to high-limit disability wants to supplement the traditional market’s issue limits, so people who earn a million dollars a year or more can be insured on the same ratio of income to benefits as more modestly compensated people. Further, this market allows the many people who are denied disability insurance because of their occupation to now be insured adequately and with the same benefit to risk ratio as all other occupations.
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.