For Producer Information and Education Only Principal Life Insurance Company Individual Disability Insurance

For Producer Information and Education Only

Principal Life Insurance CompanyIndividual Disability Insurance


This presentation is a general summary. All features, provisions and riders may not be available in all states and may be subject to state variations. Refer to the state policy and riders forms for the full definition of all policy provisions, benefits, limitations and exclusions.


Why Sell Disability Insurance


0

25

20

15

10

5

76 Million

11 Million

16 Million

Professionals Managers Middle Income

Estimated Individual disability market-size and penetration.

Penetration is minimal.

Penetration

Market Size

Mil

lio

ns

of

Peo

ple

Significant Market

Potential

Source: Response Analysis Corporation, 1994


Favorable Demographics

There are a substantial number of individuals who are not protecting their most valuable asset… their ability to

generate income!

78 million “emerging affluent” workers

# of “emerging affluent” workers with individual DI

No coverage

Source: Life Insurance Selling 3/98

1%

Your

OPPORTUNITY


Growth of Businesses on the

Rise• New employer firms rose to an estimated 5.8

million in 2000, up from the 1999 level of 5.7 million*

• Small firms constituted about three-quarters of the employment growth and 90 percent of the new business location growth in the 1990s*

*U.S. Department of Labor and U.S. Census Bureau data, 2000


The NeedApproximately 30% of all people aged 35 to 65 will

suffer a disability for at least 90 days, and about one

in seven can expect to become disabled for five years

or more*

*Health Insurance of America, 2000


The NeedAn estimated 120,000 employers, representing upwards of 12 million employees, would consider adding voluntary benefits to their overall benefits package in the next five years. They have not already done so because they simply have not been

approached*

*LIMRA International, Conning & Company, May 2000


The Need•50% of U.S. households now are dependent on dual incomes*

•In 2000, only 21% of Small Businesses with fewer than 100 employees planned to add LTD benefits*

*Jason Fields and Lynne Casper, “America’s Families and Living Arrangements: March, 2000.” Current Population report. U.S. Census Bureau (2001): 20-537


The NeedAnd . . . during the course of a career, your clients are three and a half times more likely to be injured and need disability insurance than they are to die and need life insurance*

*Health Insurance of America, 2000


Who Has Disability Insurance ?

• Less than 4% of employees have individual disability income insurance*

• Less than 30% of employees have group LTD insurance*

*Response Analysis Corporation, 1994


Complete Disability Insurance Portfolio

• Disability Income Insurance - Non-Cancelable &

Guaranteed Renewable

• Overhead Expense Insurance - Non-Cancelable &

Guaranteed Renewable

• Disability Buy-Out Insurance - Conditionally renewable

with guaranteed premiums to age 65


HH700 Disability Income (DI) Insurance


• Issue Ages

– Single Life: 18 - 60

– Multi-Life: 18 - 64

• Occupation Classes: 5A, 4A, 3A, 2A and A

• Benefit Periods: 2 years, 5 years and To Age 65

• Elimination Periods: 30, 60, 90, 180 and 365 days

DI Policy Basics


DI Base Policy

Total Disability means solely due to Injury or Sickness:

1. During the Your Occupation Period:a. You are unable to perform the substantial and

material duties of Your Occupation; andb. You are not Working.

2. You satisfy the requirements of the Claim Information section.


1. After the Your Occupation Period You are unable to Work in any occupation You are reasonably suited to by Your education, training and experience.

2. You satisfy the requirements of the Claim Information section.

DI Base Policy


Your Occupation Period

Your Occupation Period options:

• 2 years - built into the base policy

• 5 years - available to all occupation classes

• To Age 65 - available to 3A-5A occupation classes


Regular Occupation Rider

• Available to certain 5A occupation classes

• Issue ages are 18-50

• Not available to attorneys

• Must have a To Age 65 Your Occupation Period

and Benefit Period


Social Insurance Substitute (SIS) Benefit

• Optional for 5A-3A occupation classes

• 2A-A occupation classes must apply for a combination of base and SIS benefits to be eligible for the maximum amount available at their income level


Benefit Update (BU) Rider

• No additional premium

• Issue ages: 18-55

• Available to all occupation classes

• Initial Benefit must be 75% of eligible benefit


• Every 3 years

• Must accept 50% of each offer to keep BU on the policy

• Advance Option – if insured loses group coverage

• No Cap per option / no cap per lifetime*

* Up to the current Issue & Participation Limits

Benefit Update (BU) Rider


New Automatic Increase Option (AIO) Rider

• Replaces Automatic Benefit Increase (ABI) Rider

• No additional premium

• Available on all DI standard issue policies

• Issue ages: 18-55



AIO Rider Continued

• Annual increases based on CPI-U

• Min.= 4% and Max.= 10% compounded

• Renewable every 6 years with financial underwriting

• May decline 1 of 6


AIO and BU Together

• Available to be on the same policy with the Benefit Update rider

• When AIO and BU are on the same policy, the AIO option is waived in the years of the BU option


Residual Disability Benefit Rider• Available to 5A - 2A occupation classes

• Benefit Period matches the policy benefit period

• Minimum of 50% of the Maximum Monthly Benefit paid for the first 6 months of a Residual Disability

• 100% of the Maximum Monthly Benefit paid if the Loss of Earnings is greater than 75%

• Not available with the Short Term Residual Disability Benefit rider


Residual Disability Benefit RiderDefinition:1. You are not Totally Disabled; and2. Solely due to Injury or Sickness:

a. You are able to perform some, but not all, of the substantial and material duties of Your Occupation; or

b. Your ability to Work in any occupation is restricted; and

c. You have a Loss of Earnings equal to or greater than 20%; and3. You satisfy the requirements of the Claim Information section of the policy.


New Catastrophic Disability Benefit (CDB) Rider

• Issue Ages 18-60 (Multi-life 18-64)


• CDB elimination period must be equal to or greater than the base elimination period; 90 day minimum elimination period

• CDB benefit period must be equal to or less than the base benefit period


• The COLA rider will apply to the CDB amount, if COLA is on the policy

• ABI/AIO yearly increases do not apply

• BU increase will apply to both base amount and CDB amount if BU is on the policy– Increases will be based on our then current underwriting

guidelines.

CDB Rider, Cont.


CDB Rider Definition

• The CDB rider provides benefits if the Insured is catastrophically disabled. By definition, this means, solely due to an Injury or Sickness the Insured is:

o ADL Disabled (unable to perform two or more Activities of Daily Living (ADL) without assistance); or

o is Cognitively Impaired; or

o is Presumptively Disabled


Activities of Daily Living

• Bathing

• Continence

• Dressing

• Eating/Feeding

• Toileting

• Transferring


• Requires a minimum of $500 benefit at the time of new policy issue.

• Maximum benefit amount of $8,000

• Up to 100% of earned income

• Cannot exceed five times (5X) the sum of the base benefit amount plus Social Insurance Substitute (SIS)

CDB Monthly Benefit Amount


Disability Benefit

After a 90 day elimination period, maximum monthly benefit is

$4,100 from day 91 to Age 65 $1,680.18

Riders:

Automatic Increase Option $0.00

Benefit Update $0.00

Residual Disability Benefit $350.55

Catastrophic Disability Benefit $2,575 monthly benefit, 90 day elimination period, to age 65 benefit period

$111.24

Total Rider Premium $461.79

Total Annual Premium (2.68% of income) $2,141.97

Assumptions: $80,000 annual income, male, 4A occupation class, Nonsmoker, State of Colorado, 90 day elimination period, To Age 65 Benefit Period, To Age 65 Your Occupation Period

CDB Example


Extended Total Disability Benefit Rider

• Available to 5A – 2A occupation classes

• Issue ages are 18-50

• Benefit Factors Available: 50, 75 and 100

For example: $4,000 base + $1,000 SIS = $5,000 max. monthly benefit$5,000 x 50 (Benefit Factor) = $250,000 (Max. Aggregate Benefit)$5,000 x 75 (Benefit Factor) = $375,000 (Max. Aggregate Benefit)$5,000 x 100 (Benefit Factor) = $500,000 (Max. Aggregate Benefit


Additional DI Riders

• Cost of Living Adjustment (COLA)

– 3% or 6% compounded, no cap

• Short Term Residual Disability Benefit

– 6 or 12 months

• Recovery Benefit

– 1 or 3 years


Additional DI Features

• Capital Sum Benefit – 12 times monthly benefit

• Death Benefit – 3 times monthly benefit

• Presumptive Benefit – Benefit period or lifetime

if To Age 65 Benefit Period

• Rehabilitation Benefit – Optional


• Transplant Surgery Benefit

• Interrupted Elimination Period

• Waiver of Premium

Additional DI Features


Disability Income Rates• Single Life - Sex Distinct*

• Multi-Life - Unisex

• Smoker/Nonsmoker - Smoker rates for the following:– Cigarette use within the past 12 months

– Use of a nicotine patch, gum or inhaler within the past 12 months

Use of chewing tobacco, cigars or pipes is considered to be a nonsmoker classification

* Unisex in Montana


The Employer (Multi-life) Discount

Discounts 0-2 Lives 0%

3+ Lives 20%

• Easy to Administer

• Cost Effective

• Multiple Commissions

• Portable


The Employer (Multi-Life) Discount90 Day Elimination Period, To Age 65 Benefit Period, To Age 65 Your Occupation Period, Residual Disability Benefit Rider, $5,000 Monthly Benefit Amount

Annual PremiumsOwner 1 (Male) $2,116.50Owner 2 (Female) $2,969.00Total $5,085.50

Assumptions: Age 40, IA, nonsmoker, 5A occupation class


The Employer (Multi-Life) DiscountAdd third life with 90 Day Elimination Period, To Age 65 Benefit Period, 5 year Your Occupation Period, $500 Monthly Benefit Amount, Residual Disability Benefit Rider

Annual PremiumsOwner 1 (Male) $1,796.00Owner 2 (Female) $1,796.00Valued Employee $ 335.60 Total $3,927.60Savings $1,157.90

Assumptions: Age 35, IA, nonsmoker, 2A occupation class


Multi-Life Case Design Center• Case design center:

– Illustrate individual premiums and benefit amounts

– Help with case designs

– Personalized pitchkits for voluntary program enrollment

– New case proposals


Service

• New business proposals

• Program renewals available annually at employer request and home office approval

• 3-5 day policy turnaround time

• Dedicated billing and administration team for each employer


• Saves producer time completing application

• Client answers questions only once

• Reflexive Question System means full details in the underwriting process

• Eliminates phone interviews and some medical exam questions

• Eliminates special questionnaires

TeleApp Benefits


TeleApp Statistics

• 83% of clients prefer providing medical information over the telephone rather than in person

• 80% of all DI applications are completed through the TeleApp process


Compensation

50% First Year Commission - 5A, 4A and 3A45% First Year Commission - 2A and A

Renewals are tiered based on production:DI FYC Years 2-5Years 6-10 Years 11+*

0-4,999 5% 5% 3%5,000 - 9,999 10% 7% 3%10,000+ 15% 7% 3%

* Renewals in years 11+ are contingent upon $5,000 of standard DI commissions in the prior year


Compensation, Cont.

• Quality Business/Persistency Bonus– Paid for up to 9 years on each year of business


2004 DI Quality Producer Requirements• At least $12,500 DI ICCs earned and paid in 2003• At least 12 DI policies in force OR $40,000 annual in force DI

premium• Contracted at least 1 year with Principal Life• 90% or better 2001, 2002 and 2003 DI persistency• Favorable morbidity experience for 2002 and 2003• Less than 25% DI wastage (not takens, cancels, close outs

or declines) for 2003• At least 8 cases put in force in 2003 (a case is a policy sold

to an individual, an employer sponsored case, a GSI case or a GTI case)

• In good Business Conduct standing


DI Quality Producer Benefits

• Priority handling• Higher non-medical limits• Recognition in company publications


• New Automatic Increase Option and Catastrophic Disability Benefit riders launching May 19, 2003

• Approved in 42 States as of April 21, 2003

• Watch for 2nd Quarter MarKit (delivery date May 19, 2003) for complete package of marketing and education materials for the new riders

• Able to illustrate with the May Symphony Software release.

Important Dates


Thank You

Principal Life Insurance Company

Des Moines, IA 50392

Documents

For Producer Information and Education Only Principal Life Insurance Company Individual Disability Insurance