Chapter Ten
Looking to the Future
Directing Your Marketing Efforts
Now that you've studied the disability income insurance product, where do you want to go with your new knowledge? Your next step is to decide where to focus your efforts-which markets to explore and which markets to avoid. Once again we remind you that annual income of about $25,000 is the minimum that offers any opportunity for you to place an individual DI policy. Thai figure is higher in certain markets and, as time passes, the minimums are likely to increase as cost of living adjustments are made to government-sponsored programs that originally caused the deterioration of the DI market at lower income levels.
Professional and Business Policies
Most analysts see professional DI policies and policies designed for business purposes as the disability income profit-makers of the future. The professional market, encompassing incomes of more than $100,000 annually, is highly competitive and has been penetrated intensely in recent years. However, plenty of opportunities exist for agents who are willing to challenge themselves to succeed in this market. Insurers continue to introduce innovative product features that can open doors for both new and replacement policies that compete successfully with existing policies. Examples include the HIV and assault benefits (Chapter Three) and the malpractice liability rider (Chapter Five), all of which are of particular interest to professionals.
The emergence of the professional corporation has changed the nature of certain segments of the professional market by sharpening the line between professionals operating as owners and professionals operating more like employees. Distinguishing between the business and personal needs of the professional people involved will help you explore and explain their dual needs for individual disability income policies and for policies designed to protect their businesses specifically.
Small Business Opportunities
Small to medium-sized businesses that are less likely to self-insure provide a huge pool of prospects for disability insurance sales. In fact, statistics indicate that the small business market for disability “pie” shown in Figure 10-1 makes the point. Only about 25% of all
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small businesses in the United States have any type of disability insurance plan, individual or group. Furthermore, only about half of all small businesses have a formal plan for continuing the business in the event of an owner's death or disability.
Businesses in this group have a maximum of 50 employees, but many have high annual earnings. Even smaller businesses with earnings of $100,000 and less annually can be a prime prospecting pool for you since this group has been largely ignored by disability insurance marketers. In general, all except the larger businesses represent fertile prospecting ground for agents who are prepared to compete for placement of group and business-oriented disability coverages.
Know What's Hot, What's Not and What's New
Agents who intend to survive and thrive in any line of insurance stay attuned to consumer demands and new product developments. Insurers have learned from experience, with life insurance products in particular, that consumers will take their money elsewhere if the insurance industry fails to respond to their changing needs and demands. As is true for any competitive business, creative products that answer consumer's insurance needs make the difference between the companies that succeed and those that falter and sometimes fail. Agent success goes hand-in-hand with the fortunes of insurers.
For you, this means taking an active role, being sensitive to your clients' requests and shopping your insurers for the products that are in demand-an ever-changing landscape, by the way. Consumers of financial products are becoming more sophisticated about their needs and where to go to fulfill them. More and more, you'll find that your clients expect you to demonstrate how a particular insurance product fits into their complete financial program.
Figure 10-1
The Small Business Disability Pie
Have Any Type----------------25%
of Disability Insurance
50%-----------------Have a Business
Continuation Plan
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Consumers also are more likely to have shopped your competition themselves and will challenge you to prove the superiority of your product. Today, you must know what policies compete with yours because, chances are, your prospects know. Educate yourself to be able to fairly and accurately compare other policies to yours. This is not just sound advice, it's the law-and most of your prospects know it.
The next several paragraphs briefly describe several developments in the disability income insurance marketplace that are currently getting attention from both the insurance industry and consumers.
Annually Renewable "Term" DI Insurance
This product, which we are calling annually renewable "term" disability income insurance, may be identified by different names according to the insurer offering it. We use this terminology because the product is similar to annually renewable term life insurance.
So-called term DI is used as a marketing tool to provide DI policies to individuals whose incomes are expected to be significantly higher in the future than they are currently. Good prospects include new physicians, lawyers and other professionals who are just starting in business. The policy is written for a one-year period with a low initial premium that increases each year that the policy is renewed as indicated in Figure 10-2.
At a specified point, the insurer expects to convert the renewable policy to a standard DI policy with a higher, level premium. Most of these policies are noncancelable and guaranteed renewable until age 65.
Figure 10-2
"Term" DI Insurance
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Step-Rate DI Insurance
Another product that has a life insurance counterpart is step-rate DI insurance. The disability insured pays a lower than normal premium in the early years of the policy-perhaps for as long as 10 years-after which the premium “steps-up” or increases significantly to an amount that remains level for the duration of the policy Step-rate DI is illustrated in Figure 10-3.
Like the annually renewable policy, step-rate DI is aimed at younger professionals whose incomes are likely to increase significantly over the years. This product is slightly less competitive than the term product because of the pricing differences. Over many years, the step-rate premiums are greater in total, while the annually renewable DI policy generally costs less over the long term than a standard DI policy.
Life/Disability Insurance Combination Policy
One of the newer developments is a life/disability income insurance combination policy that is not the same as a life policy with a disability income rider. The combination policy is designed to allow the cash values of the life insurance portion to eventually pay the premiums for the disability income insurance.
Insureds pay the life insurance premium for the entire policy period according to a pre-established schedule and at a level that builds the necessary cash values. The term “vanishing premium DI” has been applied to this concept since the insureds responsibility to pay the DI premium theoretically vanishes when cash values are adequate to take
Figure 10-3
Step-Rate DI Insurance
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over the payment. At whatever point cash values are high enough as stipulated in the contract, the portion of the premium covering the DI insurance is eliminated and the insured pays only the life premium.
Long-Term Care Conversion
As an outgrowth of the accelerated or living benefit features being included in many newer life insurance policies, some insurers now offer DI policies with long-term care conversion features to meet similar needs.
Still a new concept, these policies permit insureds above a stipulated age, generally age 65, to convert disability income policies to long-term care policies. The policies specify the circumstances under which the policy may be converted, just as is true for life policies with this type of benefit. Stay up to date with these policies, which are likely to become more important to an aging population of U.S. consumers.
Lifetime Benefit Extension
While lifetime benefit periods are not new, such periods have traditionally been restricted only to the highest risk classifications. Again because of the aging population, lifetime benefit extensions are likely to become much in demand and are being offered to more consumers. Such an extension continues the full DI benefit for the insureds lifetime if the disability begins before a specified age, such as 65. Some policies offering this extension also pay a reduced lifetime benefit if disability begins after the specified age.
The Evolving Future
The product developments we've discussed are still evolving and they deserve your watchful attention as consumers respond to new features and insurers continue making improvements that expand your disability markets and enhance your sales opportunities. Be especially alert for products that track with the increasing consumer interest in disability coverages featuring more liberal definitions of disability, higher monthly benefits, longer benefit periods, and a wide variety of options and riders.
Profitable Underwriting
Agents and insurers alike must be mindful of the historical cycle of disability income insurance as presented in Chapter One. In the past, policy liberalizations have resulted in poor claims experience followed by tightening of policy provisions. Currently, the industry appears to be in the part of the historical cycle characterized by underwriting constraints because of recent poor profits. However, insurers who have stayed in the DI business through
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varying market conditions have identified and implemented better underwriting controls. Stricter attention to medical and financial factors and careful classification of risks has resulted in an increase in better risks accepted, poor risks declined, and appropriate policy modifications for mid-range risks. Insurers who have so improved their underwriting practices are in a position to continue offering the more beneficial features and provisions that make DI policies attractive to consumers.
Insurers known for being at the cutting-edge of DI developments are currently examining a managed care approach to DI claims, similar to managed care concepts associated with medical expense insurance. Managed care for disability claims appears to be a natural extension of the tendency for insurers to provide rehabilitation benefits and could be a giant step toward controlling costs to ensure the stability of disability insurance products.
Agent Opportunity
As an agent, you can benefit yourself and your clients by becoming allied with the insurance companies that have a proven record of successful innovation and maintenance in the disability income insurance field. We encourage you to begin at once to investigate the opportunities that await you en route to becoming a full service" insurance agent for your present and future clients.
As a service-oriented agent, you will be interested in the professional and ethical issues discussed in the next chapter.
Chapter 10 Review Questions
1. Statistics indicate that the small business market for Disability Income Insurance has:
a. Been over sold
b. Barely been tapped
c. Come and gone
d. Is unaccessible to the agent
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2. With an "annual renewable term" Disability Insurance the policy has:
a. A high initial premium
b. A low initial premium
- A level premium
- A disappearing premium
3. A Life Disability Insurance combination policy
a. Allow cash values of the life policy to pay premiums for disability income insurance
b. Requires the insured to purchase two separate policies
c. Cannot be written on an individual bases
- Is the same as a life policy with a disability rider
4. Newer Disability Income insurance policies provide:
a. Long-term care conversions
b. Lifetime benefit extensions
c. Both of the above
d. Neither of the above
5. Underwriting for Disability Income Insurance
a. Has always been profitable
b. Has had poor claims experiences in the past
c. Ignore medical and financial factors
- Is the same as underwriting for Life Insurance
Answers
- b. Barely been tapped
- b. A low initial premium
- a. Allows cash values of the Life
Policy to pay premiums for
Disability Income Insurance
- c. Both of the above
- b. Has had poor claims
experiences in the past