Speaker 1: 0:00

Is disability insurance the forgotten but essential piece of your client's health insurance strategy? We'll find out on this episode of Shift Shapers.

Speaker 2: 0:11

Change either energizes or paralyzes. The choice is yours. This is the Shift Shapers podcast, bringing the employee benefits industry interviews with individuals and companies who are shaping the industry shifts. And now here's your host, david Saltzman.

Speaker 1: 0:32

And to help us answer that question, we've invited my old friend, Don Chimay, who is Regional Director of Executive Benefits at the Principal, and, like myself, another old DI, dork Don. Welcome to the program. Thank you, myork Don. Welcome to the program. Thank you, my friend. It's great to see you. It's great to see you as well. So we always like to ask people what's your journey? How do you get to be doing what you're doing? So give us a quick thumbnail.

Speaker 3: 0:56

Oh, my goodness. So I've been doing this for longer than I'd almost like to admit, right? So my journey started when I left the military. After I went to college I went in the military for a few years and at the time a company called Provident Life and Accident was aggressively recruiting young military officers. And I fell into this bucket and was recruited by a gentleman by the name of Bob Opplinger, a great man who asked me to come work with him in Baltimore, maryland, at Providence Life and Accident, and through that period of time I was doing just individual disability wholesaling.

Speaker 3: 1:36

I learned the business from Bob and a gentleman by the name of Tony Malagheri who helped me a lot when I was there, a great friend of mine as well. And those gentlemen kind of brought me into the business, taught me how to be a wholesaler, taught me where this product would fit and do so much good for people. If, god forbid, they got sick or hurt for an extended period of time. Unfortunately, dave, you know this, but our industry went through some trials and tribulations in the kind of mid-'90s, kind of got skinnied down and through that process I left what had morphed into Provident Paul Revere and Unum and was asked by another friend of mine, brian Lauber, to join him and some other cohorts who were starting the disability insurance department at Principal. And lo and behold, here I sit, 27 years later. It's been a great run with Principal. It's been a great company to be a part of. But I am still doing the same thing trying to convince people to buy, and not only just buy, but have advisors sell this solution to their clients.

Speaker 1: 2:47

Yeah, and it's funny because for a while years ago probably before most of our listeners will remember it was a stable in the kind of risk strategy that you undertook for a client. It was an essential part of it, and I'll ask you to quote some stats in a minute. But I mean, if anything, the need is probably greater today than it's been before. We have people making more money than ever before and spending more money than ever before and saving less than ever before. So let's talk a little bit about what the likelihood of becoming disabled is, because I don't think it's something everybody realizes.

Speaker 3: 3:20

Yeah, you know, depending a little bit on what statute you kind of get. Yeah, you know, depending a little bit on what statute you kind of get, but if you took a 20, you that anywhere from about three to three and a half years, that when somebody is disabled for more than 90 days that's what's considered a long-term disability they'll be out for three to three and a half years. And, as you said, when you think about those statistics, right gosh, my goodness, if somebody's out for three and a half years, what resources do they have to fall back on? What do we?

Speaker 3: 4:10

you know, most of us don't have three and a half years worth of income saved, nor can we cobble together resources outside of our savings to do anything, so it's an important benefit that needs to be talked about as any part of any sort of foundational financial planning that we're doing for folks.

Speaker 1: 4:29

Well, and it's kind of like the good news, bad news, except there's only one answer, and it's you know, the things that used to kill us aren't killing us, we're able to survive more, but it does make a significant difference in your ability to earn an income.

Speaker 3: 4:42

It does. You know, I have a friend of mine, kevin Quinn, who I've worked with for many, many years at Paul Revere. And when I was at Paul Revere and at Principal, kevin started his career paying claims at Paul Revere and he used to tell a story you know when I would watch him with advisors all the time that I thought was very powerful. You know by sitting at that desk and paying claims he said it didn't matter what the disability was caused by, it didn't matter how long it was. But you know what? These folks said the same thing to me over and over again.

Speaker 3: 5:15

The first thing they said was boy, I'm really glad that my advisor made me buy this coverage right. So to your point about bringing it up, it's an important thing. That really was for many, many years a staple. Maybe we've gotten a little bit away from that. But there was a second thing that he said. They invariably said right after that when do you think that was right? It was hey, I wish I had just bought more right. So that just talks to you about how important it is if somebody is out for an extended period of time, how important that income is to them and how important it was that the advisor had brought that conversation and basically that solution to the client itself.

Speaker 1: 5:58

Before we talk about a couple of different flavors of DI. Just a level set for the audience, don. Waivers of DI. Just a level set for the audience, don. What is disability?

Speaker 3: 6:06

income protection. So, yeah, just think of any product, any solution that's offered in the marketplace that if somebody becomes sick or hurt for an extended period of time, is going to replace that individual's income. Right, and we do that with individual product, we do that with some of the voluntary benefit products, and we do that with some of the group products and kind of a hybrid sometimes of all three of those things. There's different solutions that are in the marketplace, but at the foundation it's hey, if I get sick or hurt, what resources through that insurance entity are going to be coming into my household to replace my income?

Speaker 1: 6:49

I think a lot of our audience is probably more familiar today with group long-term disability than they are with individual. Let's spend a few minutes and talk about what they are and why they're different and where they fit.

Speaker 3: 7:03

So group insurance I always consider as the foundational benefit that an employee benefit advisor is going to have a conversation with their small business clients and hire right Group disability insurance. I'll always describe it as think of it as a blanket Right it's. It's a product that we throw over the top of the employees, typically replacing 60 percent of income, typically starting on the long term disability side after 90 days, on the short term disability side, after maybe as early as zero days, paying out on the short term maybe 15 to 26 weeks and then paying out excuse me, 13 to 26 weeks and on the long term paying out to age 67. Those products have great benefit, I think, in a couple of ways for a business client, right, they are almost invariably guaranteed, issue huge benefit and they're really not that expensive.

Speaker 3: 8:04

Most group disability insurance hovers between two-tenths of 1% of covered earnings or somebody's earnings. We're going to replace that 60%. So if it's maybe a heavy blue collar, maybe 1%, right, david? If you think about it, if I can protect my income at just on average, let's say, four-tenths of 1%, less than one-half of 1% of my income it's good value right, you know how valuable is that and I can at least usually replace about 60% of that Group disability, generally starting probably at about five lives.

Speaker 3: 8:46

Some carriers actually go down to two lives at the business setting, but that's kind of the starting point and obviously larger than that goes up into the larger companies, as large as you can imagine. The individual product is just what it sounds like. It's the individual disability insurance sold to that one individual person to really, at least in theory, be done as an individual financial planning solution. We're talking to those individuals and we're saying, look you might you might have something at work, but we want to.

Speaker 3: 9:22

If you don't, you need this right. But if you even do, we may want to analyze how that group disability benefit is covering that, what income it's going to cover. We'll talk a little bit more about this. But then that individual is just bought, typically by the individual. The marketplace has grown to where we're doing a lot of that individual at the business setting. But functionally that's the difference. One is put in as a blanket right for the entire population, the other is put in an individual basis, customized more to that individual solution.

Speaker 1: 10:02

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Speaker 3: 11:47

It depends on what stats you read, but only about 30% of businesses under 100 lives have long-term disability benefits in place. Actually, I think if you were to kind of parse that stat a little bit, it's really under 10 or 15 lives that you're probably really going to see that. That's the stat you hear a little bit in the marketplace. So so when you run into a situation as an advisor who, when you're you're talking to an individual business owner, let's say, or just an individual you're doing financial playing for, and they say to you, hey, they had, they think they have group disability insurance at work, we then want to know what that is and what really the key is what is it covering?

Speaker 3: 12:34

We do a lot of work enhancing in-force group disability plans with individual coverage. David, I would bet 90% of the time when I look at a census from a group employee benefit provider that income on there is only the salary for the individual. It's very rarely do I have any of the incentive come which so many people now get. Right, you may have bonus income. You may. If you're a business owner. You may have K-1 distributions as the owner of the business. You may have other benefits such as, you know, 401k matches. They may even do some perks, you know, so that you get, you know, maybe a country club membership or a health club membership covered.

Speaker 3: 13:23

Those are all, in a sense, forms of income. Group is typically not covering all of that variable income. The individual can pick up and incorporate that as well. By the way, group can cover most of that. Can't cover the perks, so to speak, in the 401k match, which individual can't really either. But that's just value of working somewhere. But we can certainly cover it by a group. But the key is understanding whether or not the group plan is in fact covering that benefit.

Speaker 1: 13:54

There's another piece to that as well, and that is at what point do you buy? Which coverage Does one offset for the other?

Speaker 3: 14:04

In our vernacular we have what's called an issue and participation table. So think about that. The insurance carriers typically don't want to insure much more than about 80% of a client's take-home pay. So when we say they offset, what we will do as an individual carrier is, if we have group insurance in force, we'll take into consideration how much is there right, what is the maximum monthly benefit of that group insurance and what percentage of income is covered and what type of income is covered, and then we will stack that individual coverage on top of that group to get that client from perhaps you know if only the base salary is covered there.

Speaker 3: 14:45

They may only have 30% or 40% of a client's income covered by the group.

Speaker 3: 14:49

We'll bring in the additional 50%-ish or so with individual coverage. But when you say the two do they offset? There's the issue and participation limit that we're talking about. There is also a situation where if you happen to have bought individual coverage before you had any group disability coverage and then you layer in group disability coverage later on maybe that you join a company that now has group you've owned this individual coverage personally. Typically that group does not offset. Typically it won't. There are some carriers that do.

Speaker 3: 15:28

There are some provisions within the group plan that says we won't insure more than 100% replacement of your income because they want there to be some incentive for the client to come back to work. We don't want to have an over-insurance issue. Somebody goes on, claim they have more than 100% of their income replaced and then, consequently, the person really doesn't have an incentive to come back to work and then the insurance claim situation that we had been predicting is not what we're predicting. We did a little bit of that back in the 90s. We got a little bit of an over-insurance problem and that caused some issues back then.

Speaker 1: 16:03

That's a bit of an understatement, but yes, and that caused some issues back then. That's a bit of an understatement, but yes, both of those points are absolutely correct. It crashed and burned us a little bit. Yeah, just a wee bit. If I'm an insurance advisor, however, and I'm going into a Virgin group and they have a bunch of highly compensated executives, would it make sense to talk to the highly compensated folks first about individual coverage and then drop the group coverage into the plan?

Speaker 3: 16:30

You know it was maybe 20 years ago, but not anymore. What the carriers have all done today is, when you have group disability insurance in force, they've expanded the coverage where the percentage of income that's replaced that 80% that I was talking about. That used to be flat 60% years ago and that cares whether it was individual or group. They didn't want to replace more than 60% Today. Because they've expanded those, it makes a lot of sense to talk about them both at the same time. I think there's a good reason to at least get the group disability in there first. It's like I mentioned earlier. It's a foundational benefit. It's not that expensive, it's a guaranteed issue. Let's make sure that we've got that benefit in place. Tell advisors that there's typically about 5% to 10% of the typical employee population where that group disability insurance just can't reach up and cover all their income, right. So then we are naturally going to talk about some enhancements with individual products where the combination of the two gets those folks back to about 80% of that take-home pay that I mentioned earlier.

Speaker 1: 17:45

As an advisor. Is that a conversation you suggest that advisors have with clients before they start the process of looking at the overall risk?

Speaker 3: 17:54

I think there's an education that happens and I think education is a huge part of the planning process. People in my group of friends are always sick of me saying this, but I was like you know what? You're not convincing anybody to buy dental insurance, right, you're not convincing them to buy health insurance. But sometimes we have to convince people to buy disability insurance, not because they don't think they need it. It's much more that it's just become a financial blind spot because they don't think they need it. It's much more than it's just become a financial blind spot. So it's important that the advisor brings it up and is very intentional about the conversation.

Speaker 3: 18:41

I think it really just you know. You say, hey, you know, should you talk about both at the same time? I think the starting point is just to talk about income protection, right. Which we did at the very beginning is hey, let's make sure that the client understands the need for the protection right that we talked about early. Then let's make sure they understand the possible solutions right and that education. When that's done properly, I think when you get to the premium like it's going to cost you something to do this much easier to have the premium conversation, because the client already feels that they understand the need, they understand what solutions are out there and then we can make sort of an educated decision about what kind of plan that we're going to implement.

Speaker 1: 19:17

But it is a critical part of the risk discussion. I mean, I often tell clients especially these days with self-funded plans floating around and all that kind of happy stuff there's three things you can do with risk you can take it, you can share it or you can give it away. And I think to your point, the advisor's role is, at least at the beginning, to make sure that the client understands that this is a risk and that there is an option to either share it or give it away.

Speaker 3: 19:46

Right, and I will tell you this too, that the industry has made it easier and easier for you to give it away, meaning you know. I will tell you that over the last 15 years, between the price going down the price has actually gone down as a percentage of someone's income on both the group and the individual side and then the tools that we're now using to onboard people, whether it's an individual tool or a group tool. Your folks employee benefits advisors know about the group tools that we have, but we've also expanded those on the individual side as well. It has made it easier and easier to offload that risk, as you say right.

Speaker 3: 20:30

Or at least share it right. You can self-fund for some of this right with how much you want to take on in your own personal financial plan. But then, hey, how much are you going to offload? It's easier today to do it than ever before.

Speaker 1: 20:44

You alluded before we wrap up segment one here you alluded to the fact that there was a few years back some consolidation and some carriers that we maybe knew as household names ceased to be offering the product or ceased altogether. Has that stabilized now? Do you see the market and the availability? Pretty much stable.

Speaker 3: 21:03

Oh for sure you know, and I you know, you've all heard, and I am a firm believer of this, that competition is good, right, and we didn't have a lot of competition in the marketplace in the early to even kind of early 2000s, kind of into the mid 2000s, but we've had carriers come and enter more aggressively into the marketplace on the individual side in the last 10 years. That has helped tremendously. The more choice people have and the more competition there is in a marketplace, to your point, the more things stabilize and even get better, and that's what I was alluding to.

Speaker 1: 21:42

Even more is that competition has helped the industry get better, get cleaner, get a little bit sharper if you want to. Production or professional graphic design. Josh Hatcher is the expert to contact For more information. Visit him at HatcherMedianet. That's H-A-T-C-H-E-R. Media dot net.

Speaker 2: 22:14

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