Individual Disability Income Insurance is the product most often used to replace one's income for their own personal needs.
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Common Needs for IDI are to replace any shortfall from an Employer's Coverage, replace an individuals income when no coverage is available through an employer and to give a portion a feature of portability. A downside to Group LTD is that it lacks Portability. Features such as Benefit Update and Future Purchase Options allow for a triggering to increase coverage if there is ever a loss of Group LTD coverage.
Individual Disability Income Protection
While Individual Disability Income is used to replace one's income, Overhead Expense Coverage is used to cover the businessowners monthly expenses.
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When working with Small Business Owners you need to be aware the IDI only covers personal NET Income. The look at income as Gross Income after Expenses and before Taxes. This leaves a shortfall for the businessowner to be able to cover expenses when they have a disabling condition.
Professional Overhead Expense Coverage
This product is designed to provide cash for business owners to purchase a disabled owners share of the business.
Disability Buy-Out Coverage
This product is designed as either a rider on a Professional Overhead policy or as Stand-Alone Product. Coverage reimburses for a monthly business loan obligation or lease payment.
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Common uses are business loans and lease payments for office space.
Loan-Lease Protection
Until recently, there hasn’t been a way to ensure divorce settlement payments and child support continue if the person making those payments, “the Payor,” becomes totally disabled. While some people in white collar and professional/technical jobs may have disability income insurance through work or carry personal disability income insurance, it only insures a portion of their income, typically 40% to 60%. Many people don’t have any disability income coverage other than Social Security. So, if the Payor becomes disabled, it ranges from difficult to impossible to continue divorce settlement and child support payments to an ex-spouse, “the Recipient,” on top of paying his/her own bills. The Payor’s only option has been to file for a reduction in the obligation based on his/her current financial circumstances, which is costly and stressful for both the Payor and Recipient.
Covering a Divorce Decree
Guaranteed Issue plans are available from most of our carriers. Guaranteed Issue provides individual DI insurance to a group of individuals working with the same employer. Guaranteed standard issue programs (known as GSI) means that everyone who meets the conditions for eligibility will be issued a policy at standard, discounted unisex rates. Conditions for eligibility include:
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Participants must be on the census submitted to underwrit
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Participants must have been actively at work for the past 180 days
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Participants must not have total DI coverage in force that exceeds the Issue and Participation Limits,
An offer for GSI underwriting must be approved by the carrier before it is presented to an employer.
Simplified Issue plans do not require medical exams, labs or financial documentation. A more extensive phone interview is done by the carrier in lieu of the lifestyle and health questions normally found in an application. The applications are underwritten, and companies do maintain the right to rider, rate, exclude and even decline. With the streamlined underwriting, turnaround time is greatly reduced. Simplified underwriting amounts vary by carrier.
Executive Carve-Out
Key person coverage provides income to the business if a key employee becomes disabled. Key Person coverage can only be used for persons with less than 51% ownership of the business.
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Coverage is payable to the employer or business and the employer has discretion on how they use the funds.
Key Person Coverage
This product continues retirement contributions in the event of a disability. Funds are invested into a trust that are distributed at retirement age. Coverage is available up to actual 401(k) contributions (including employer match), or 15% of income if no plan is place.
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Protect Retirement Contributions
Definitions of Disability
How the occupation of the client is defined is one of the most important policy differentiations. Everyone should have coverage if they are sick or hurt and cannot work. We will always offer as a first choice the best definition available. If available, we want the client to be able to receive benefits if he or she is unable to perform his or her occupation, but that does not mean that the strongest (and most expensive) necessarily makes sense for everyone.
There are four definitions of disability that are most often available from insurance companies (described here from strongest to weakest).
Own Occupation or Regular Occupation
(True Own Occ.)
How the occupation of the client is defined is one of the most important policy differentiations. Everyone should have coverage if they are sick or hurt and cannot work. We will always offer as a first choice the best definition available. If available, we want the client to be able to receive benefits if he or she is unable to perform his or her occupation, but that does not mean that the strongest (and most expensive) necessarily makes sense for everyone.
There are four definitions of disability that are most often available from insurance companies (described here from strongest to weakest).
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Ex. Proposed Insured qualifies for disability claim based on not being able to do their own-occupation. If the proposed insured decides to work at a later point - they will be paid as long as they are not doing their own-occupation.
Transitional Own Occupation
This definition is similar to the own occupation definition. It differs only if the client chooses to work in a different occupation. In that circumstance, the carrier will compare the new income of the client in combination with their benefit amount with their pre-disability earnings. If the new income and benefit amount are less than the pre-disability earnings, the client will continue to receive the full benefit (same as the true own occupation definition). However, if the new income and the benefit combined exceed the pre-disability earnings, then the carrier will reduce dollar for dollar the benefit amount. This is a less expensive option to True Own occupation definition, but still indemnifies at 100% of pre disability earnings.
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Ex. Proposed Insured qualifies for disability claim based on not being able to do their own-occupation. If the proposed insured decides to work at a later point - they will be paid as long as they are not doing their own-occupation; however, their income can not exceed 100% of pre-disability earnings.
Own Occupation and Not Working (or not engaged)
The inability to perform the substantial and material duties of your occupation and not working. The and not working is what differentiates this from the true own occupation definition. Often this definition comes with language that relates the definition of disability to the client’s level of training and experience The vast majority of all clients who return to work after being disabled return to their same pre-disability profession—this is particularly true for executives and small business owners The key here is that clients are protected as long as they do not choose to work in a different occupation—and the carrier cannot force them into a different occupation.
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Ex. Proposed Insured qualifies for disability claim based on not being able to their own-occupation. They will receive claim as long as they choose not to work in another occupation.
Any Occupation
The inability to perform the substantial and material duties of your occupation and not working in any occupation. With some occupations or health conditions, however, this is the best definition that is available.
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Ex. In order to qualify for claim, it has to be deemed by the carrier that they can not do the substantial and material duties of any-occupation/job, or for which they were reasonbly trained to do.
Disability Insurance Statistics
At age 40, the average worker faces only a 14% chance of dying before age 65 but a 21 percent chance of being disabled for 90 days or more.
- Insurance Information Institute, www.iii.org November, 2005
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A 20-year old worker has a 30% chance of becoming disabled before retirement age, and only a 17% chance of dying before age 65.
- Social Security Administration Disability Benefits Publication; National Vital Statistics Report, 1999
51.2 million Americans have some level of disability. They represent 18% of the population.
- U.S. Census Bureau, July, 2006
The number of disabled workers in America has risen by 35% since 2000.
- Social Security Administration, 2007
In 2007, 12.8% of people ages 21-64 surveyed have a disabling illness.
- U.S. Census Bureau, American Community Survey, 2007
You have a 1 in 21 chance that you'll have a disabling accident.
- 2005 Field Guide to Estate Planning, Business Planning &Employee Benefits, by Donald Cady
In the U.S., a disabling injury occurs every 1 second, a fatal injury occurs every 4 minutes.
- National Safety Council®, Injury Facts® 2008 Ed.
In the last 10 minutes, 498 Americans became disabled.
- National Safety Council®, Injury Facts® 2008 Ed.
In the home, a fatal injury occurs every 12 minutes and a disabling injury every 3 seconds.
- National Safety Council®, Injury Facts® 2008 Ed.
There is a death caused by a motor vehicle crash every 12 minutes; there is a disabling injury every 13 seconds.
- National Safety Council®, Injury Facts® 2008 Ed.
Almost 3 in 10 workers entering the workforce today will become disabled before retirement.
- Social Security Administration, Fact Sheet, January 31, 2007
In 2007, the employment rate of working-age people with disabilities in the U.S. was 36.9%.
- U.S. Census Bureau, American Community Survey, 2007
43% of all people age 40 will have a long-term disability event prior to age 65.
- JHA Disability Fact Book, 2006
A new Harvard University report reveals that 62% of all personal bankruptcies filed in the U.S. in 2007 were due to an inability to pay for medical expenses.
- June 4, 2009. The American Journal of Medicine.
Unfortunately, most Americans have little understanding of the likelihood of experiencing a disability. A recent CDA survey of workers found:
90% underestimate their own chances of becoming disabled.
85% express little or no concern that they might suffer a disability lasting three months or longer.
56% do not realize that the chances of becoming disabled have risen over the past five years.
- Council for Disability Awareness, 2007 Disability Awareness Survey
Causes of Disability
Illnesses generally cause disabilities, not accidents.
Over 85% of disabling accidents and illnesses are not work related.
- National Safety Council®, Injury Facts® 2008 Ed.
While many people think that disabilities are typically caused by freak accidents, the majority of long-term absences are actually due to illnesses, such as cancer and heart disease.
- Life and Health Insurance Foundation for Education November, 2005
Stroke is a leading cause of serious long-term disability.
- Centers for Disease Control and Prevention, 2007
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Disability Duration
An average disability may last longer than you think.
The average duration of a long-term disability is 30 months.
- JHA Disability Fact Book, 2006
Nearly 1 in 5 Americans will become disabled for 1 year or more before the age of 65.
- Life and Health Insurance Foundation for Education. November 2005
Three out of 10 workers between the ages of 25 - 65 will experience an accident or illness that keeps them out of work for 3 months or longer.
- Social Security Administration, Fact Sheet, January 31, 2007
Nearly 1 in 3 Americans ages 35-65 will become disabled for more than 90 days.
- 2005 Field Guide tEstate Planning, Business Planning &Employee Benefits, by Donald Cady
Misconceptions
Common back-up plans to loss of income may not be an option.
More than 1 in 5 adults believe that unemployment or Social Security will cover them if they become disabled.
- Disability Literacy: How Consumers Rate Today, April 2005, The Hartford
Less than half, 39%, of the 2.1 million workers who applied for Social Security Disability Insurance (SSDI) benefits in 2005 were approved.
- Social Security Administration, Office of Disability and Income Security Programs
The average monthly SSDI benefit is $1,004.
- Social Security Administration, Fact Sheet 2008
In 2007, the percentage of working-age people with disabilities receiving SSDI payments in the US was 17.1%.
- U.S. Census Bureau, American Community Survey, 2007
Over 85% of disabling accidents and illnesses are not work related, and therefore not covered by workers' compensation.
- National Safety Council®, Injury Facts® 2008 Ed.
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