1
DISABILITY PRODUCTS FOR THE BUSINESS MARKET
Presented by:
Disability Resource Group, Inc.800.945.9719
www.drgdi.com
2
DISABILITY PRODUCTS DISABILITY PRODUCTS FOR THE BUSINESS MARKETFOR THE BUSINESS MARKET
• Business Overhead ExpenseBusiness Overhead Expense
• Buy-SellBuy-Sell
• Multi-Life SalesMulti-Life Sales
3
Business Overhead ExpenseBusiness 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?
4
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; * Health Association of America; The New York Times, 02.02The New York Times, 02.02
****National Safety Council Accident Facts, 02.02National Safety Council Accident Facts, 02.02
***Based on recent disability insurance industry experience***Based on recent disability insurance industry experience
Consider The Likelihood...Consider The Likelihood...
Chances of a Disability Lasting 12 Months or Longer (before age 65)
Age 2 Owners 3 Owners 4 Owners
27 26.3% 36.7% 45.7%
37 24.5% 34.5% 43.1%
47 20.7% 29.4% 37.1%
57 12.1% 17.6% 22.8%
Commissioner’s Individual Disability Table B - Equally Weighted 90 Day Elimination Period.
6
Ideal CandidatesIdeal Candidates
• Medical Professionals
• Veterinarians
• Architects
• Smaller Law Firms
• Smaller CPA firms
• Hairdressers
• Photographers
• Tailors
7
Ideal CandidatesIdeal Candidates
• Owner is the major revenue generator
• Business has less than 10 employees
• Been in same location two years or more
8
Examples of Covered ExpensesExamples 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
9
Expenses that are Expenses that are NOTNOT covered 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.
10
Other Expenses that are Other Expenses that are NOTNOT covered 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*
11
Elimination and Benefit Periods AvailableElimination 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
12
Optional RidersOptional Riders
• Replacement Expense Rider
• Residual Disability Rider
• Future Insurability Option
• Income Protection
13
Issue and Participation LimitsIssue 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
14
Business Overhead Expense Business Overhead Expense Underwriting 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)
15
Other BOE Features can haveOther 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
16
Sales Opportunity?Sales Opportunity?
• There are more than 6.6 millioncompanies in the United States.
• More than 50% are small businesses.
• 68% have no DI coverage at all!
17
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?
Disability Buy/Sell ContractsDisability Buy/Sell Contracts
In the Event of a Disability,There In the Event of a Disability,There Are Many Issues to be ResolvedAre 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, thereIn the Event of a Disability, there are Many Issues to be Resolved 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
20
Advantages of a Buy-Sell AgreementAdvantages 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.
21
Advantages to the Disabled Advantages to the Disabled Business OwnerBusiness 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
22
Advantages to the Active Advantages to the Active Business OwnersBusiness 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
Once Again, Consider The Likelihood...Once Again, Consider The Likelihood...
Chances of a Disability Lasting 12 Months or Longer (before age 65)
Age 2 Owners 3 Owners 4 Owners
27 26.3% 36.7% 45.7%
37 24.5% 34.5% 43.1%
47 20.7% 29.4% 37.1%
57 12.1% 17.6% 22.8%
Commissioner’s Individual Disability Table B - Equally Weighted 90 Day Elimination Period.
24
Buy-Sell ConsiderationsBuy-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
25
Buy-Sell Agreement ConsiderationsBuy-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
The most practical solution is...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.
27
Why Disability Buy-Out 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
28
How Does it Work?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.
29
Cross Purchase AgreementCross 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
30
How a Cross Purchase Agreement WorksHow a Cross Purchase Agreement Works
Premium
BusinessOwner A
BusinessOwner B
Buy-Sell Agreement
Insurance Company
Premium
Policy andDisability Benefits
on Owner B
Policy andDisability Benefits
on Owner A
31
Advantages/Disadvantages of a Advantages/Disadvantages of a Cross Purchase AgreementCross 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
32
Entity Purchase AgreementEntity 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
33
How an Entity Purchase How an Entity Purchase Agreement WorksAgreement Works
BusinessOwner A
BusinessOwner B
Business
InsuranceCompany
Premium Policy andDisability Benefits
on Owners A and B
Buy-SellAgreement
Buy-SellAgreement
34
Advantages/Disadvantages of an Advantages/Disadvantages of an Entity Purchase AgreementEntity 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
35
Ideal CandidatesIdeal 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
36
Common Methods to Calculate Common Methods to Calculate Business ValueBusiness Value
• For Personal Service Businesses:
- 2 times income plus the profit of the business
• For General Businesses:
- Book value plus capitalization of excess earnings
37
Elimination PeriodsElimination Periodsand Pay Out Methodsand 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
38
Issue and Participation LimitsIssue and Participation Limits
• Total Pay Out: Up to $2,000,000
• Limits per Occ Class
• Limits per Pay Out Method
• Limits per Elimination Period
39
Disability Buy/Sell Underwriting 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)
40
Disability Buy/Sell CarriersDisability Buy/Sell Carriers
• Lloyd’s of London
• MassMutual
• MetLife
• Principal
41
Multi-Life Disability InsuranceMulti-Life Disability Insurance
YYOUR GATEWAY TO A OUR GATEWAY TO A SUCCESSFUL CARRER IN SUCCESSFUL CARRER IN
INSURANCE SALESINSURANCE SALES
42
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
43
Underwriting Concessions?Underwriting Concessions?
• Simplified Underwriting
• Guarantee To Issue
• Guaranteed Standard Issue
Guaranteed Guaranteed
Standard Issue?Standard Issue?
YES!YES!
It’s a Win-Win-Win It’s a Win-Win-Win
For Everyone!For Everyone!
Guaranteed Guaranteed
Standard Issue?Standard Issue?
YES!YES!
It’s a Win-Win-Win It’s a Win-Win-Win
For Everyone!For Everyone!
45
• Guaranteed Issue
• No detailed underwriting process
• Discounted premiums on unisex rates
• Rapid turnaround of application
• Higher income protection
• Can be employer paid
Insured WinsInsured Wins
46
• 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
Employer WinsEmployer Wins
47
• 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 $$$
Broker WinsBroker Wins
48
Guaranteed Standard IssueGuaranteed 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
49
Ideal CandidatesIdeal 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
50
Appropriate IndustriesAppropriate Industries
• Law Firms
• I.T. Firms
• Accounting Firms
• Engineering Firms
• Architecture Firms
• Banks
51
Inappropriate Industries
• Medical Professionals
• Commissionable Sales
• Fewer than 10 Full Time Employees
• 1099 Employees
• Blue Collar
52
Case DesignCase 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
53
Employer-Paid Voluntary
Min. Size Group 15 participants 70 or more eligible participants*
Min. Participation 100% required 70+ eligible participants 30%
Occ Class 5AP-3AP3AP cannot be more than 15% of total lives
N/A to medical occupations
5AP-3AP3AP cannot be more than 15% of total lives
N/A to medical occupations
Discounts Discounts range from 20 to 30% off unisex rates depending on the case size.
Discounts range from 20 to 30% off unisex rates depending on the case size.
GI Max Issue Limits
# of Issue Part. Max. GI Amt.**
15-99 $100/life/month to max. of $6000
100+ $8000
# of Eligible Max. GI Issue Participants Amount**
70-149 $3000
150-299 $4000
300+ $5000
Employer-Paid and Voluntary Plan Specifications
*For cases with 15-69 eligible lives, the Home Office will consider making an offer on a Guaranteed Issue basis. Such an offer is contingent on a minimum of 15 paid lives. If fewer than 15 paid lives are written, full underwriting will be required. Discounts and GI maximum Issue Limits are the same as for cases of 70-149 eligible participants.
**The maximum amount available can vary based on the characteristics of the group.
Sample Plan DesignSample Plan Design
54
Minimum Participation:
Employer Paid — 100% required minimum of 10 participants
Voluntary — 30% target minimum of 25 participants
Guaranteed Standard IssueGuaranteed Standard Issue
55
DiscountsDiscounts
• 100% Voluntary GI
• Employer-Paid Eligible
• Participation Employees Discount
• 15 – 49 70 – 149 20%
• 50 – 99 150 – 299 25%
• 100 + 30% 35%
56
Guaranteed Standard IssueGuaranteed 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
57
Information Needed to QuoteInformation 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
58
Other Multi-Life OpportunitiesOther Multi-Life Opportunities
• Guaranteed to Issue
• Simplified Underwriting
• Fully Underwritten
• Group Supplement
• Retirement Completion
• Association Plans
59
Multi-Life CarriersMulti-Life Carriers
• MassMutual
• MetLife
• Principal
• Union Central
60
Group Supplement FeaturesGroup 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
61
Group LTD LimitationsGroup 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
62
Disability Multi-Life SalesDisability 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
63
Benjamin K. Perez800.945.9719 Ext. 303
drgdi.com