When Traditional Carriers Can’t, or Won’t

Most insurance professionals do not sell disability insurance — and many of those who do sell it so infrequently that the sales process becomes an unfamiliar chore. One of the most common reasons that producers do not sell DI programs at the same level and intensity as other products is because they have had negative experiences: everything from more complex policy language to challenging underwriting procedures.

The bulk of a life insurance policy deals with cash accumulation and contractual issues. Disability insurance poses far more difficult underwriting issues than life insurance. For example, a person could become a “little bit” disabled or a “whole lot” disabled. A disability could be very visible or very discreet. A person could be covered for some forms of disabilities, but not for others. Because of all these variables, the underwriters must take information about the applicant’s current health and project how that person will be affected in the future.

One way to begin a conversation with a business owner is to discuss the idea of a disability and its impact on financial issues. Business owners are more open to the concern of a disability affecting the bottom line than how a disability may impact them directly. Fortunately, the business market has many different forms of traditional and non-traditional DI programs you can use to help start the dialogue, including the ones below.

Buy-sell agreements

Most business partnerships and corporations should have a formal agreement as to what to do in the event of a voluntary withdrawal from business, dissolution, death or disability. These buy-sell agreements lay down the understanding that if one partner is out, the business must continue somehow. Many producers forget that a business suffers the same financial concerns if one of the partners becomes disabled for any length of time.

Key-person disability

Many businesses have a single person or group of people who may be essential for the operations of the business, although these “key people” may be the Achilles heel to a business. A key-person disability contract can be developed to assist the company with some cash flow or reimbursement while trying to replace the key person, as the company may lose revenue, incur extra costs or even see a dip in morale while that person is ill.

Severance disability packages

In this era of downsizing, many people will find themselves without jobs, and will have severance packages that include benefits. The problem is that although medical and life insurance can be transferred to an individual for a fixed period of time, DI is often left out. And, since the severance package is generally written with the promise to provide full benefits, the employer is now liable for the disability protection. Severance Disability programs can be offered to protect companies against the financial loss due to contractual obligations.

Buy-in agreements

When partners determine an entrance plan, they often encounter the same type of problems that you would find when constructing an exit plan. A buy-in contract allows two or more parties to make financial transactions over time in order to transfer ownership from one party to another. The classic example is a young doctor and an older doctor. The older doctor has determined that retirement is nearing. He agrees to sell the practice to the young doctor for a price over a period of time.

What would happen if the younger doctor suddenly becomes permanently disabled? The older doctor still retains partial ownership, but is now out the money remaining, and the younger doctor has some ownership, but no control. A buy-in contract, like the buy-sell contract, provides a built-in market to complete the transaction and allow the young doctor to obtain full control. Additionally, the selling party is then guaranteed to receive the fair market value for his/her ownership.

In each of these examples, the loss is no longer a personal issue, but a business issue. Business owners will often protect the company before they will protect themselves. However, as time progresses many business owners will eventually be receptive to individual DI coverage, too. As an insurance producer, you will also encounter fewer objections to buying DI when it protects a company. An added benefit is that from an underwriting perspective, often carriers are more relaxed when a third party is to receive the disability benefit.


Thomas R. Petersen, MBA, RHU, is the vice president of sales and marketing at Petersen International Underwriters in Valencia, Calif.


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