What Consumers Need to Know

Of all the risks you take, if you could only protect yourself against one, would it be:

The one most likely to occur? or

The one that if it were to occur, could produce the greatest financial loss?

Chances of Disability vs. Other Insurable Losses

LifeLifeDisabilityDisability

Sources:

Transactions. Society of ActuariesCommissioners Disability TableDeath – National Center for Health StatisticsFire & Motor Vehicle – Accident Facts. National Safety Council

1 in 1300 1 in 70

1 in 109 1 in 8 !

Your Most Valuable Asset is Your Ability To Earn An Income

CurrentCurrent AgeAge

$25,000$25,000

$35,000$35,000 $50,000$50,000 $60,000$60,000 $100,000$100,000 $125,000$125,000 $150,000$150,000

3030 875,000875,000 1,225,0001,225,000 1,750,0001,750,000 2,100,0002,100,000 3,500,0003,500,000 4,375,0004,375,000 5,250,0005,250,000

3535 750,000750,000 1,050,0001,050,000 1,500,0001,500,000 1,800,0001,800,000 3,000,0003,000,000 3,750,0003,750,000 4,500,0004,500,000

4040 625,000625,000 875,000875,000 1,250,0001,250,000 1,500,0001,500,000 2,500,0002,500,000 3,125,0003,125,000 3,750,0003,750,000

4545 500,000500,000 700,000700,000 1,000,0001,000,000 1,200,0001,200,000 2,000,0002,000,000 2,500,0002,500,000 3,000,0003,000,000

5050 375,000375,000 525,000525,000 750,000750,000 900,000900,000 1,500,0001,500,000 1,875,0001,875,000 2,250,0002,250,000

5555 250,000250,000 350,000350,000 500,000500,000 600,000600,000 1,000,0001,000,000 1,250,0001,250,000 1,500,0001,500,000

6060 125,000125,000 175,000175,000 250,000250,000 300,000300,000 500,000500,000 625,000625,000 750,000750,000

Total Income to Age 65Total Income to Age 65

Good NewsGood News

People are living longer

Bad NewsBad News

Diseases that used to cause death are now leaving people disabled.

Disability/Death Trends - Major Health Conditions

Condition Death Disability

Hypertension -73% +70%

Heart Diseases -29% +44%

Cerebrum Vascular -48% +36%

Diabetes -27% +36%

All Four -32% +55%

Source: National Center for Health Statistics 1999

Prevalence of Disability

37.7 million people reporting activity limitation (roughly 15% of all Americans) 73% are classified as disorders / limitations 27% are classified as impairments

Source: U.S. Census Bureau Report, 1994-1995, Table 1CSource: U.S. Census Bureau Report, 1994-1995, Table 1C

Major Causes of Disabilities 1995 – 2000 (From the data of a major DI Carrier)

Musculoskeletal Disorders 22%

Injury and Poisoning 20%

Mental Disorders 13%

Cancer (All Kinds) 11%

Circulatory Disorders 9%

Genitourinary Disorders 7%

Nervous System Disorders 6%

Digestive Disorders 3%

Endocrine, Nutritional, Metabolic 3%

Miscellaneous 6%

Different Levels of Disability

Total then partial then recovered(i.e. heart attack)

Partial then total then death(i.e. cancer)

Partial stays partial(i.e. bad back)

Total stays total (i.e. auto accident causing permanent paralysis)

No one ever thinks they are going to become “disabled,” which in their minds

means:

Why Don’t People Buy Disability Income (DI)?

Where do we spend our money?

• Housing 30.0% *• Transportation 19.6% *• Food 16.6% *• Personal Ins./Pension 8.6%• Other/Misc. 8.6%• Clothes 5.5% *• Entertainment 4.6%• Health care 4.4% *• Education 1.5% *

* Over 75% of what we spend is non-discretionary !

Source: HUD

The Risk of Disability

0

0.5

1

1.5

2

2.5

3

3.5

Age 32 37 42 47 52 57

Disability

Death

Source: CLU Journal, Vol. VII, No. 1

What Causes More Mortgage Foreclosures – Disability or Death?

0%

10%

20%

30%

40%

50%

Disability Death

Source: HUD

When Disability Strikes, It Takes a Long Time to Recover

• The average duration of disability which lasts over 90 days at certain ages is....

• The Result ? The loss of earnings, which can be staggering!

0

1

2

3

4

5

6

Age30

Age35

Age40

Age45

Years

Source: Commissioners Disability Table

The Need For DI - The Two Line Story

INCOME

EXPENSES

DEBT

When Disability Strikes

(SAVINGS)

What you may have been able to save in ten years..may be wiped out in days or months !

(Food, Clothing, Home, Car. MedicalEveryday Living)

Options When Disabled• Savings…but 80% of all families have less than

$5,000 in savings• Social Security…but many are initially rejected and

must appeal – that can take years• Sell Assets (Such as Your Home)…but you may

have no choice• Borrow Money…but credit is based on income• Spouse’s Income…but today most families are

dependent on 2 incomes

But I Have Social Security ! It is very difficult to collect a disability benefit

from Social Security. Here’s why: 5 month waiting period on the initial benefit Definition of disability that is very strict

Must have an impairment that has lasted or could be expected to last for at least 12 months or result in death

Must be unable to engage in ANY substantial gainful work that exists in the national economy

Work doesn’t have to exist in the immediate area in which the claimant lives

A specific job vacancy does not have to exist The applicant wouldn’t even necessarily have to be hired

Source: Social Security Department

What Choices Do You Have?

• The only logical solution to protecting your most valuable asset (your income) is to buy DI protection– Individual coverage– Group Short Term and/or Long Term Disability

coverage

• This will provide monthly benefits for both total and partial disabilities

DI Product Offerings – For Individuals

• Individual DI – available through your agent, broker or employer

• Group Short Term Disability (STD) – may be available through your employer

• Group Long Term Disability (LTD) – may be available through your employer

Key Features of Individual Policies • Types of Policies

– Own Occupation – insures one’s duties at work• Described as “Material and Substantial” job duties• Some contracts may insure one’s specialty

– Income Replacement – insures one’s income and not specific job duties

• Income loss due to a disability triggers the claim

Key Features of Individual Policies • Renewal Options

– Guaranteed Renewable• Insurance company cannot cancel the policy, or change policy

provisions (but it can increase the premium)

– Non-cancelable • Insurance company cannot cancel the policy, change policy

provisions or increase the premium after issue, as long as timely premium payments are made

Key Features of Individual Policies • Definition of Disability

– Own Occupation – insures the ability to perform one’s duties in his/her occupation…it does NOT insure one’s job

– Most liberal definition is the inability to perform the material and substantial duties of one’s own occupation, which may include a specialty (especially in the professional ranks of doctors and lawyers)

• This is the occupation that is engaged in at the time the disability begins

• Insured may still be able to work in another occupation and still receive the disability benefit

Key Features of Individual Policies • Elimination (or Waiting) Period

– When do benefits begin?• Normal period offerings are 30, 60, 90, 180 and 365 days

• Benefit Period– How long are benefits paid?

• Normal offerings are 2 years, 5 years, to age 65 or 67, and in some very limited cases, lifetime

Key Features of Individual Policies • Benefit Amount

– How much will you receive each month?• Determined as a percentage of your monthly income up to a

maximum amount– Maximum amount depends on occupational classification– Benefit Percentage is usually no more than 70% of total monthly

income

• How is Residual or Partial Disability Defined?– This becomes important in professions where you may

be able to come back to work on a limited basis, and suffer an income loss

Key Features of Individual Policies • What optional riders are available?

– These are optional benefits that can enhance your coverage

• What exclusions does the policy contain?– These are conditions that limit the amount and/or the

period of time that you will get paid

• Other Policy Language– It is important to work with a professional consultant on

this as it may be the difference between getting paid a benefit or having the claim denied

Key Features of Group STD

• Available through your employer– As such, coverage is not portable and stays with the

employer if you leave

• Rates may increase at renewal time• Elimination (Waiting) Periods

– May have separate days for sickness versus injury– Can range from 0 days, 8 days, 15 days or 30 days

Key Features of Group STD

• Benefit Periods– Can range from 13 to 52 weeks

• Benefit Amounts– Can range up to 70% of monthly income with a

maximum amount up to $2,500/week (depending on the carrier)

Many of these variables are determined by the employer since the contract is between the employer and the carrier

Key Features of Group LTD

• Available through your employer– As such, coverage is not portable and stays with the

employer if you leave

• Rates may increase at renewal time• Elimination (Waiting) Periods

– Can range from 30 days to 365 days

Key Features of Group LTD

• Benefit Periods– Can range from 2 years to Age 65

• Benefit Amounts– Can range up to 66 2/3% of monthly income with a

maximum amount up to $15,000/month (depending on the carrier)

• Limited coverage for partial or residual disabilities

Key Features of Group LTD

• Usually limited or no options for future insurability• Normally issued with limitations for mental,

nervous, drug and alcohol abuse disabilities• May be employer paid (non-contributory) or

employee paid (contributory)– If totally contributory, benefits received tax free

• Pre-existing condition language– Usually a 12 month limitation period

• Cost is less than for individual coverage

See A Professional DI Advisor

• There are many professional advisors (insurance agents and brokers) who can show you how each policy works

• Check with such groups as the National Association of Health Underwriters (NAHU) or the International DI Society for the names of carriers and advisors

Disability Happens

• With disability, it is not a question of “if”, but “when”

• Protect yourself today - your ability to earn an income is the most important asset that you own– Everything else revolves around this ability to

go to work and earn an income

Everything Depends on Income