March 18, 2025 • 22 mins
Welcome to Part One of our deep dive into Disability Insurance (DI) on the ShiftShapers Podcast! In this two-part series. In this episode, host David Saltzman converses with Don Schamay, Regional Director of Executive Benefits at The Principal, about the often-overlooked importance of disability insurance in a comprehensive health insurance strategy. Don shares his journey from military service to a seasoned expert in disability insurance, emphasizing the critical need for both individual and group disability insurance to protect one's income. The discussion covers the prevalence of disability, how group and individual disability insurances differ, and the significance of educating clients about income protection and insurance options.
Key Takeaways from the Episode:
✅ Importance of DI – Disability insurance (DI) is an often-overlooked but crucial component of a comprehensive health insurance strategy. It provides financial protection if one is unable to work due to illness or injury.
✅ Group vs. Individual DI – Group disability insurance often covers basic salary and is a cost-effective, foundational benefit for businesses. Individual DI can supplement group coverage by filling in gaps and covering additional forms of income.
✅ Coverage and Income Protection – Properly structured DI ensures that individuals have a safety net that covers up to 80% of their income, considering both salary and other compensations like bonuses and K1 distributions.
✅ Market Trends – The DI market has become more competitive and robust, improving the quality and affordability of coverage. Newer carriers have entered the marketplace, stabilizing and enhancing the options available.
✅ Advisor’s Role – Advisors must educate clients on the significance of DI, ensuring that they understand the risks and the options for mitigating them. This includes both group and individual solutions tailored to the client's specific needs.
Episode Timestamps:
⏳ 00:00 Introduction to Disability Insurance
🛡️ 00:48 Don Schamay's Journey into Disability Insurance
💡 02:47 The Importance of Disability Insurance Today
📊 05:57 Understanding Disability Income Protection
🔍 06:57 Group vs. Individual Disability Insurance
📈 11:41 Coordinating Group and Individual Coverage
🎯 17:44 Advisors' Role in Disability Insurance
📉 20:44 Market Stability and Competition
📢 This Episode is Sponsored by BenePower
BenePower is an AI-powered platform that helps advisors build high-impact, self-insured health plans quickly and seamlessly by integrating the best point solutions, eliminating inefficiencies, and improving collaboration. It streamlines plan creation, reduces costs, enhances member outcomes, and positions advisors as industry leaders.
🔗 Learn more at Benepower.com.
Resources & Links:
🌐 Council for Disability Income Awareness: https://thecdia.org/
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Is disability insurance the forgotten but
essential piece of your client'shealth insurance strategy?
We'll find out on this episodeof Shift Shapers.
Speaker 2 (00:11):
Change either energizes or paralyzes.
The choice is yours.
This is the Shift Shaperspodcast, bringing the employee
benefits industry interviewswith individuals and companies
who are shaping the industryshifts.
And now here's your host, davidSaltzman.
Speaker 1 (00:32):
And to help us answer that question, we've invited my
old friend, Don Chimay, who isRegional 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 peoplewhat's your journey?
(00:52):
How do you get to be doing whatyou're doing?
So give us a quick thumbnail.
Speaker 3 (00:56):
Oh, my goodness.
So I've been doing this forlonger than I'd almost like to
admit, right?
So my journey started when Ileft the military.
After I went to college I wentin the military for a few years
and at the time a company calledProvident Life and Accident was
aggressively recruiting youngmilitary officers.
And I fell into this bucket andwas recruited by a gentleman by
(01:20):
the name of Bob Opplinger, agreat man who asked me to come
work with him in Baltimore,maryland, at Providence Life and
Accident, and through thatperiod of time I was doing just
individual disabilitywholesaling.
I learned the business from Boband a gentleman by the name of
Tony Malagheri who helped me alot when I was there, a great
(01:43):
friend of mine as well.
And those gentlemen kind ofbrought me into the business,
taught me how to be a wholesaler, taught me where this product
would fit and do so much goodfor people.
If, god forbid, they got sickor hurt for an extended period
of time.
Unfortunately, dave, you knowthis, but our industry went
through some trials andtribulations in the kind of
(02:05):
mid-'90s, kind of got skinnieddown and through that process I
left what had morphed intoProvident Paul Revere and Unum
and was asked by another friendof mine, brian Lauber, to join
him and some other cohorts whowere starting the disability
insurance department atPrincipal.
(02:28):
And lo and behold, here I sit,27 years later.
It's been a great run withPrincipal.
It's been a great company to bea part of.
But I am still doing the samething trying to convince people
to buy, and not only just buy,but have advisors sell this
solution to their clients.
Speaker 1 (02:47):
Yeah, and it's funny because for a while years ago
probably before most of ourlisteners will remember it was a
stable in the kind of riskstrategy 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, theneed is probably greater today
than it's been before.
(03:07):
We have people making moremoney than ever before and
spending more money than everbefore and saving less than ever
before.
So let's talk a little bitabout what the likelihood of
becoming disabled is, because Idon't think it's something
everybody realizes.
Speaker 3 (03:20):
Yeah, you know, depending a little bit on what
statute you kind of get.
Yeah, you know, depending alittle bit on what statute you
(03:42):
kind of get, but if you took a20, you that anywhere from about
three to three and a half years, that when somebody is disabled
for more than 90 days that'swhat's considered a long-term
disability they'll be out forthree to three and a half years.
And, as you said, when youthink about those statistics,
(04:02):
right gosh, my goodness, ifsomebody's out for three and a
half years, what resources dothey have to fall back on?
What do we?
you know, most of us don't havethree and a half years worth of
income saved, nor can we cobbletogether resources outside of
our savings to do anything, soit's an important benefit that
(04:23):
needs to be talked about as anypart of any sort of foundational
financial planning that we'redoing for folks.
Speaker 1 (04:29):
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'tkilling us, we're able to
survive more, but it does make asignificant difference in your
ability to earn an income.
Speaker 3 (04:42):
It does.
You know, I have a friend ofmine, kevin Quinn, who I've
worked with for many, many yearsat Paul Revere.
And when I was at Paul Revereand at Principal, kevin started
his career paying claims at PaulRevere and he used to tell a
story you know when I wouldwatch him with advisors all the
time that I thought was verypowerful.
You know by sitting at thatdesk and paying claims he said
(05:06):
it didn't matter what thedisability was caused by, it
didn't matter how long it was.
But you know what?
These folks said the same thingto me over and over again.
The first thing they said wasboy, I'm really glad that my
advisor made me buy thiscoverage right.
So to your point about bringingit up, it's an important thing.
That really was for many, manyyears a staple.
(05:29):
Maybe we've gotten a little bitaway from that.
But there was a second thingthat he said.
They invariably said rightafter that when do you think
that was right?
It was hey, I wish I had justbought more right.
So that just talks to you abouthow important it is if somebody
is out for an extended periodof time, how important that
income is to them and howimportant it was that the
(05:51):
advisor had brought thatconversation and basically that
solution to the client itself.
Speaker 1 (05:58):
Before we talk about a couple of different flavors of
DI.
Just a level set for theaudience, don.
Waivers of DI.
Just a level set for theaudience, don.
What is disability?
Speaker 3 (06:06):
income protection.
So, yeah, just think of anyproduct, any solution that's
offered in the marketplace thatif somebody becomes sick or hurt
for an extended period of time,is going to replace that
individual's income.
Right, and we do that withindividual product, we do that
with some of the voluntarybenefit products, and we do that
(06:27):
with some of the group productsand kind of a hybrid sometimes
of all three of those things.
There's different solutionsthat are in the marketplace, but
at the foundation it's hey, ifI get sick or hurt, what
resources through that insuranceentity are going to be coming
into my household to replace myincome?
Speaker 1 (06:49):
I think a lot of our audience is probably more
familiar today with grouplong-term disability than they
are with individual.
Let's spend a few minutes andtalk about what they are and why
they're different and wherethey fit.
Speaker 3 (07:03):
So group insurance I always consider as the
foundational benefit that anemployee benefit advisor is
going to have a conversationwith their small business
clients and hire right Groupdisability insurance.
I'll always describe it asthink of it as a blanket Right
it's.
It's a product that we throwover the top of the employees,
(07:24):
typically replacing 60 percentof income, typically starting on
the long term disability sideafter 90 days, on the short term
disability side, after maybe asearly as zero days, paying out
on the short term maybe 15 to 26weeks and then paying out
(07:46):
excuse me, 13 to 26 weeks and onthe long term paying out to age
67.
Those products have greatbenefit, I think, in a couple of
ways for a business client,right, they are almost
invariably guaranteed, issuehuge benefit and they're really
not that expensive.
Most group disability insurancehovers between two-tenths of 1%
(08:11):
of covered earnings orsomebody's earnings.
We're going to replace that 60%.
So if it's maybe a heavy bluecollar, maybe 1%, right, david?
If you think about it, if I canprotect my income at just on
average, let's say, four-tenthsof 1%, less than one-half of 1%
(08:31):
of my income it's good valueright, you know how valuable is
that and I can at least usuallyreplace about 60% of that Group
disability, generally startingprobably at about five lives.
Some carriers actually go downto two lives at the business
setting, but that's kind of thestarting point and obviously
(08:55):
larger than that goes up intothe larger companies, as large
as you can imagine.
The individual product is justwhat it sounds like.
It's the individual disabilityinsurance sold to that one
individual person to really, atleast in theory, be done as an
individual financial planningsolution.
(09:15):
We're talking to thoseindividuals and we're saying,
look you might you might havesomething at work, but we want
to.
If you don't, you need thisright.
But if you even do, we may wantto analyze how that group
disability benefit is coveringthat, what income it's going to
cover.
We'll talk a little bit moreabout this.
But then that individual isjust bought, typically by the
(09:38):
individual.
The marketplace has grown towhere we're doing a lot of that
individual at the businesssetting.
But functionally that's thedifference.
One is put in as a blanketright for the entire population,
the other is put in anindividual basis, customized
more to that individual solution.
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(11:34):
And now back to ourconversation.
Now there are a few things thatadvisors need to know about how
those two things coordinate,aren't there.
Speaker 3 (11:47):
It depends on what stats you read, but only about
30% of businesses under 100lives have long-term disability
benefits in place.
Actually, I think if you wereto kind of parse that stat a
little bit, it's really under 10or 15 lives that you're
probably really going to seethat.
(12:08):
That's the stat you hear alittle bit in the marketplace.
So so when you run into asituation as an advisor who,
when you're you're talking to anindividual business owner,
let's say, or just an individualyou're doing financial playing
for, and they say to you, hey,they had, they think they have
group disability insurance atwork, we then want to know what
(12:28):
that is and what really the keyis what is it covering?
We do a lot of work enhancingin-force group disability plans
with individual coverage.
David, I would bet 90% of thetime when I look at a census
from a group employee benefitprovider that income on there is
(12:52):
only the salary for theindividual.
It's very rarely do I have anyof the incentive come which so
many people now get.
Right, you may have bonusincome.
You may.
If you're a business owner.
You may have K-1 distributionsas the owner of the business.
You may have other benefitssuch as, you know, 401k matches.
(13:14):
They may even do some perks,you know, so that you get, you
know, maybe a country clubmembership or a health club
membership covered.
Those are all, in a sense, formsof income.
Group is typically not coveringall of that variable income.
The individual can pick up andincorporate that as well.
(13:35):
By the way, group can covermost of that.
Can't cover the perks, so tospeak, in the 401k match, which
individual can't really either.
But that's just value ofworking somewhere.
But we can certainly cover itby a group.
But the key is understandingwhether 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 offsetfor 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 carrierstypically don't want to insure
much more than about 80% of aclient's take-home pay.
So when we say they offset,what we will do as an individual
carrier is, if we have groupinsurance in force, we'll take
(14:26):
into consideration how much isthere right, what is the maximum
monthly benefit of that groupinsurance and what percentage of
income is covered and what typeof income is covered, and then
we will stack that individualcoverage on top of that group to
get that client from perhapsyou know if only the base salary
is covered there.
They may only have 30% or 40% ofa client's income covered by
(14:48):
the group.
We'll bring in the additional50%-ish or so with individual
coverage.
But when you say the two dothey offset?
There's the issue andparticipation limit that we're
talking about.
There is also a situation whereif you happen to have bought
individual coverage before youhad any group disability
(15:11):
coverage and then you layer ingroup disability coverage later
on maybe that you join a companythat now has group you've owned
this individual coveragepersonally.
Typically that group does notoffset.
Typically it won't.
There are some carriers that do.
There are some provisions withinthe group plan that says we
(15:31):
won't insure more than 100%replacement of your income
because they want there to besome incentive for the client to
come back to work.
We don't want to have anover-insurance issue.
Somebody goes on, claim theyhave more than 100% of their
income replaced and then,consequently, the person really
doesn't have an incentive tocome back to work and then the
insurance claim situation thatwe had been predicting is not
(15:57):
what we're predicting.
We did a little bit of thatback in the 90s.
We got a little bit of anover-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 backthen.
That's a bit of anunderstatement, but yes, both of
those points are absolutelycorrect.
It crashed and burned us alittle bit.
Yeah, just a wee bit.
If I'm an insurance advisor,however, and I'm going into a
Virgin group and they have abunch of highly compensated
executives, would it make senseto talk to the highly
(16:25):
compensated folks first aboutindividual coverage and then
drop the group coverage into theplan?
Speaker 3 (16:30):
You know it was maybe 20 years ago, but not anymore.
What the carriers have all donetoday is, when you have group
disability insurance in force,they've expanded the coverage
where the percentage of incomethat's replaced that 80% that I
was talking about.
That used to be flat 60% yearsago and that cares whether it
(16:51):
was individual or group.
They didn't want to replacemore than 60% Today.
Because they've expanded those,it makes a lot of sense to talk
about them both at the sametime.
I think there's a good reasonto 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 aguaranteed issue.
(17:11):
Let's make sure that we've gotthat benefit in place.
Tell advisors that there'stypically about 5% to 10% of the
typical employee populationwhere that group disability
insurance just can't reach upand cover all their income,
right.
So then we are naturally goingto talk about some enhancements
(17:35):
with individual products wherethe combination of the two gets
those folks back to about 80% ofthat take-home pay that I
mentioned earlier.
Speaker 1 (17:45):
As an advisor.
Is that a conversation yousuggest that advisors have with
clients before they start theprocess 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 partof the planning process.
People in my group of friendsare always sick of me saying
this, but I was like you knowwhat?
You're not convincing anybodyto buy dental insurance, right,
(18:14):
you're not convincing them tobuy health insurance.
But sometimes we have toconvince people to buy
disability insurance, notbecause they don't think they
need it.
It's much more that it's justbecome a financial blind spot
because they don't think theyneed it.
It's much more than it's justbecome a financial blind spot.
So it's important that theadvisor brings it up and is very
(18:35):
intentional about theconversation.
I think it really just you know.
You say, hey, you know, shouldyou talk about both at the same
time?
I think the starting point isjust to talk about income
protection, right.
Which we did at the verybeginning is hey, let's make
sure that the client understandsthe need for the protection
right that we talked about early.
Then let's make sure theyunderstand the possible
solutions right and thateducation.
(18:57):
When that's done properly, Ithink when you get to the
premium like it's going to costyou something to do this much
easier to have the premiumconversation, because the client
already feels that theyunderstand the need, they
understand what solutions areout there and then we can make
sort of an educated decisionabout 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 clientsespecially these days with
self-funded plans floatingaround and all that kind of
happy stuff there's three thingsyou can do with risk you can
take it, you can share it or youcan give it away.
And I think to your point, theadvisor's role is, at least at
the beginning, to make sure thatthe client understands that
(19:39):
this is a risk and that there isan 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 andeasier for you to give it away,
meaning you know.
I will tell you that over thelast 15 years, between the price
going down the price hasactually gone down as a
percentage of someone's incomeon both the group and the
(20:06):
individual side and then thetools that we're now using to
onboard people, whether it's anindividual tool or a group tool.
Your folks employee benefitsadvisors know about the group
tools that we have, but we'vealso expanded those on the
individual side as well.
It has made it easier andeasier to offload that risk, as
(20:29):
you say right.
Or at least share it right.
You can self-fund for some ofthis right with how much you
want to take on in your ownpersonal financial plan.
But then, hey, how much are yougoing to offload?
It's easier today to do it thanever before.
Speaker 1 (20:44):
You alluded before we wrap up segment one here you
alluded to the fact that therewas a few years back some
consolidation and some carriersthat we maybe knew as household
names ceased to be offering theproduct or ceased altogether.
Has that stabilized now?
Do you see the market and theavailability?
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 believerof this, that competition is
good, right, and we didn't havea lot of competition in the
marketplace in the early to evenkind of early 2000s, kind of
into the mid 2000s, but we'vehad carriers come and enter more
(21:24):
aggressively into themarketplace on the individual
side in the last 10 years.
That has helped tremendously.
The more choice people have andthe more competition there is
in a marketplace, to your point,the more things stabilize and
even get better, and that's whatI 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 professionalgraphic design.
(22:03):
Josh Hatcher is the expert tocontact For more information.
Visit him at HatcherMedianet.
That's H-A-T-C-H-E-R.
Media dot net.
Speaker 2 (22:14):
This Shift Shapers podcast is copyrighted content
and may not be reproduced inwhole or in part without the
express written permission ofShift Shapers Solutions LLC.
Copyright 2024.
Is disability insurance the forgotten but
essential piece of your client'shealth insurance strategy?
We'll find out on this episodeof Shift Shapers.
Speaker 2 (00:11):
Change either energizes or paralyzes.
The choice is yours.
This is the Shift Shaperspodcast, bringing the employee
benefits industry interviewswith individuals and companies
who are shaping the industryshifts.
And now here's your host, davidSaltzman.
Speaker 1 (00:32):
And to help us answer that question, we've invited my
old friend, Don Chimay, who isRegional 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 peoplewhat's your journey?
(00:52):
How do you get to be doing whatyou're doing?
So give us a quick thumbnail.
Speaker 3 (00:56):
Oh, my goodness.
So I've been doing this forlonger than I'd almost like to
admit, right?
So my journey started when Ileft the military.
After I went to college I wentin the military for a few years
and at the time a company calledProvident Life and Accident was
aggressively recruiting youngmilitary officers.
And I fell into this bucket andwas recruited by a gentleman by
(01:20):
the name of Bob Opplinger, agreat man who asked me to come
work with him in Baltimore,maryland, at Providence Life and
Accident, and through thatperiod of time I was doing just
individual disabilitywholesaling.
I learned the business from Boband a gentleman by the name of
Tony Malagheri who helped me alot when I was there, a great
(01:43):
friend of mine as well.
And those gentlemen kind ofbrought me into the business,
taught me how to be a wholesaler, taught me where this product
would fit and do so much goodfor people.
If, god forbid, they got sickor hurt for an extended period
of time.
Unfortunately, dave, you knowthis, but our industry went
through some trials andtribulations in the kind of
(02:05):
mid-'90s, kind of got skinnieddown and through that process I
left what had morphed intoProvident Paul Revere and Unum
and was asked by another friendof mine, brian Lauber, to join
him and some other cohorts whowere starting the disability
insurance department atPrincipal.
(02:28):
And lo and behold, here I sit,27 years later.
It's been a great run withPrincipal.
It's been a great company to bea part of.
But I am still doing the samething trying to convince people
to buy, and not only just buy,but have advisors sell this
solution to their clients.
Speaker 1 (02:47):
Yeah, and it's funny because for a while years ago
probably before most of ourlisteners will remember it was a
stable in the kind of riskstrategy 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, theneed is probably greater today
than it's been before.
(03:07):
We have people making moremoney than ever before and
spending more money than everbefore and saving less than ever
before.
So let's talk a little bitabout what the likelihood of
becoming disabled is, because Idon't think it's something
everybody realizes.
Speaker 3 (03:20):
Yeah, you know, depending a little bit on what
statute you kind of get.
Yeah, you know, depending alittle bit on what statute you
(03:42):
kind of get, but if you took a20, you that anywhere from about
three to three and a half years, that when somebody is disabled
for more than 90 days that'swhat's considered a long-term
disability they'll be out forthree to three and a half years.
And, as you said, when youthink about those statistics,
(04:02):
right gosh, my goodness, ifsomebody's out for three and a
half years, what resources dothey have to fall back on?
What do we?
you know, most of us don't havethree and a half years worth of
income saved, nor can we cobbletogether resources outside of
our savings to do anything, soit's an important benefit that
(04:23):
needs to be talked about as anypart of any sort of foundational
financial planning that we'redoing for folks.
Speaker 1 (04:29):
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'tkilling us, we're able to
survive more, but it does make asignificant difference in your
ability to earn an income.
Speaker 3 (04:42):
It does.
You know, I have a friend ofmine, kevin Quinn, who I've
worked with for many, many yearsat Paul Revere.
And when I was at Paul Revereand at Principal, kevin started
his career paying claims at PaulRevere and he used to tell a
story you know when I wouldwatch him with advisors all the
time that I thought was verypowerful.
You know by sitting at thatdesk and paying claims he said
(05:06):
it didn't matter what thedisability was caused by, it
didn't matter how long it was.
But you know what?
These folks said the same thingto me over and over again.
The first thing they said wasboy, I'm really glad that my
advisor made me buy thiscoverage right.
So to your point about bringingit up, it's an important thing.
That really was for many, manyyears a staple.
(05:29):
Maybe we've gotten a little bitaway from that.
But there was a second thingthat he said.
They invariably said rightafter that when do you think
that was right?
It was hey, I wish I had justbought more right.
So that just talks to you abouthow important it is if somebody
is out for an extended periodof time, how important that
income is to them and howimportant it was that the
(05:51):
advisor had brought thatconversation and basically that
solution to the client itself.
Speaker 1 (05:58):
Before we talk about a couple of different flavors of
DI.
Just a level set for theaudience, don.
Waivers of DI.
Just a level set for theaudience, don.
What is disability?
Speaker 3 (06:06):
income protection.
So, yeah, just think of anyproduct, any solution that's
offered in the marketplace thatif somebody becomes sick or hurt
for an extended period of time,is going to replace that
individual's income.
Right, and we do that withindividual product, we do that
with some of the voluntarybenefit products, and we do that
(06:27):
with some of the group productsand kind of a hybrid sometimes
of all three of those things.
There's different solutionsthat are in the marketplace, but
at the foundation it's hey, ifI get sick or hurt, what
resources through that insuranceentity are going to be coming
into my household to replace myincome?
Speaker 1 (06:49):
I think a lot of our audience is probably more
familiar today with grouplong-term disability than they
are with individual.
Let's spend a few minutes andtalk about what they are and why
they're different and wherethey fit.
Speaker 3 (07:03):
So group insurance I always consider as the
foundational benefit that anemployee benefit advisor is
going to have a conversationwith their small business
clients and hire right Groupdisability insurance.
I'll always describe it asthink of it as a blanket Right
it's.
It's a product that we throwover the top of the employees,
(07:24):
typically replacing 60 percentof income, typically starting on
the long term disability sideafter 90 days, on the short term
disability side, after maybe asearly as zero days, paying out
on the short term maybe 15 to 26weeks and then paying out
(07:46):
excuse me, 13 to 26 weeks and onthe long term paying out to age
67.
Those products have greatbenefit, I think, in a couple of
ways for a business client,right, they are almost
invariably guaranteed, issuehuge benefit and they're really
not that expensive.
Most group disability insurancehovers between two-tenths of 1%
(08:11):
of covered earnings orsomebody's earnings.
We're going to replace that 60%.
So if it's maybe a heavy bluecollar, maybe 1%, right, david?
If you think about it, if I canprotect my income at just on
average, let's say, four-tenthsof 1%, less than one-half of 1%
(08:31):
of my income it's good valueright, you know how valuable is
that and I can at least usuallyreplace about 60% of that Group
disability, generally startingprobably at about five lives.
Some carriers actually go downto two lives at the business
setting, but that's kind of thestarting point and obviously
(08:55):
larger than that goes up intothe larger companies, as large
as you can imagine.
The individual product is justwhat it sounds like.
It's the individual disabilityinsurance sold to that one
individual person to really, atleast in theory, be done as an
individual financial planningsolution.
(09:15):
We're talking to thoseindividuals and we're saying,
look you might you might havesomething at work, but we want
to.
If you don't, you need thisright.
But if you even do, we may wantto analyze how that group
disability benefit is coveringthat, what income it's going to
cover.
We'll talk a little bit moreabout this.
But then that individual isjust bought, typically by the
(09:38):
individual.
The marketplace has grown towhere we're doing a lot of that
individual at the businesssetting.
But functionally that's thedifference.
One is put in as a blanketright for the entire population,
the other is put in anindividual basis, customized
more to that individual solution.
Speaker 1 (10:02):
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And now back to ourconversation.
Now there are a few things thatadvisors need to know about how
those two things coordinate,aren't there.
Speaker 3 (11:47):
It depends on what stats you read, but only about
30% of businesses under 100lives have long-term disability
benefits in place.
Actually, I think if you wereto kind of parse that stat a
little bit, it's really under 10or 15 lives that you're
probably really going to seethat.
(12:08):
That's the stat you hear alittle bit in the marketplace.
So so when you run into asituation as an advisor who,
when you're you're talking to anindividual business owner,
let's say, or just an individualyou're doing financial playing
for, and they say to you, hey,they had, they think they have
group disability insurance atwork, we then want to know what
(12:28):
that is and what really the keyis what is it covering?
We do a lot of work enhancingin-force group disability plans
with individual coverage.
David, I would bet 90% of thetime when I look at a census
from a group employee benefitprovider that income on there is
(12:52):
only the salary for theindividual.
It's very rarely do I have anyof the incentive come which so
many people now get.
Right, you may have bonusincome.
You may.
If you're a business owner.
You may have K-1 distributionsas the owner of the business.
You may have other benefitssuch as, you know, 401k matches.
(13:14):
They may even do some perks,you know, so that you get, you
know, maybe a country clubmembership or a health club
membership covered.
Those are all, in a sense, formsof income.
Group is typically not coveringall of that variable income.
The individual can pick up andincorporate that as well.
(13:35):
By the way, group can covermost of that.
Can't cover the perks, so tospeak, in the 401k match, which
individual can't really either.
But that's just value ofworking somewhere.
But we can certainly cover itby a group.
But the key is understandingwhether 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 offsetfor 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 carrierstypically don't want to insure
much more than about 80% of aclient's take-home pay.
So when we say they offset,what we will do as an individual
carrier is, if we have groupinsurance in force, we'll take
(14:26):
into consideration how much isthere right, what is the maximum
monthly benefit of that groupinsurance and what percentage of
income is covered and what typeof income is covered, and then
we will stack that individualcoverage on top of that group to
get that client from perhapsyou know if only the base salary
is covered there.
They may only have 30% or 40% ofa client's income covered by
(14:48):
the group.
We'll bring in the additional50%-ish or so with individual
coverage.
But when you say the two dothey offset?
There's the issue andparticipation limit that we're
talking about.
There is also a situation whereif you happen to have bought
individual coverage before youhad any group disability
(15:11):
coverage and then you layer ingroup disability coverage later
on maybe that you join a companythat now has group you've owned
this individual coveragepersonally.
Typically that group does notoffset.
Typically it won't.
There are some carriers that do.
There are some provisions withinthe group plan that says we
(15:31):
won't insure more than 100%replacement of your income
because they want there to besome incentive for the client to
come back to work.
We don't want to have anover-insurance issue.
Somebody goes on, claim theyhave more than 100% of their
income replaced and then,consequently, the person really
doesn't have an incentive tocome back to work and then the
insurance claim situation thatwe had been predicting is not
(15:57):
what we're predicting.
We did a little bit of thatback in the 90s.
We got a little bit of anover-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 backthen.
That's a bit of anunderstatement, but yes, both of
those points are absolutelycorrect.
It crashed and burned us alittle bit.
Yeah, just a wee bit.
If I'm an insurance advisor,however, and I'm going into a
Virgin group and they have abunch of highly compensated
executives, would it make senseto talk to the highly
(16:25):
compensated folks first aboutindividual coverage and then
drop the group coverage into theplan?
Speaker 3 (16:30):
You know it was maybe 20 years ago, but not anymore.
What the carriers have all donetoday is, when you have group
disability insurance in force,they've expanded the coverage
where the percentage of incomethat's replaced that 80% that I
was talking about.
That used to be flat 60% yearsago and that cares whether it
(16:51):
was individual or group.
They didn't want to replacemore than 60% Today.
Because they've expanded those,it makes a lot of sense to talk
about them both at the sametime.
I think there's a good reasonto 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 aguaranteed issue.
(17:11):
Let's make sure that we've gotthat benefit in place.
Tell advisors that there'stypically about 5% to 10% of the
typical employee populationwhere that group disability
insurance just can't reach upand cover all their income,
right.
So then we are naturally goingto talk about some enhancements
(17:35):
with individual products wherethe combination of the two gets
those folks back to about 80% ofthat take-home pay that I
mentioned earlier.
Speaker 1 (17:45):
As an advisor.
Is that a conversation yousuggest that advisors have with
clients before they start theprocess 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 partof the planning process.
People in my group of friendsare always sick of me saying
this, but I was like you knowwhat?
You're not convincing anybodyto buy dental insurance, right,
(18:14):
you're not convincing them tobuy health insurance.
But sometimes we have toconvince people to buy
disability insurance, notbecause they don't think they
need it.
It's much more that it's justbecome a financial blind spot
because they don't think theyneed it.
It's much more than it's justbecome a financial blind spot.
So it's important that theadvisor brings it up and is very
(18:35):
intentional about theconversation.
I think it really just you know.
You say, hey, you know, shouldyou talk about both at the same
time?
I think the starting point isjust to talk about income
protection, right.
Which we did at the verybeginning is hey, let's make
sure that the client understandsthe need for the protection
right that we talked about early.
Then let's make sure theyunderstand the possible
solutions right and thateducation.
(18:57):
When that's done properly, Ithink when you get to the
premium like it's going to costyou something to do this much
easier to have the premiumconversation, because the client
already feels that theyunderstand the need, they
understand what solutions areout there and then we can make
sort of an educated decisionabout 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 clientsespecially these days with
self-funded plans floatingaround and all that kind of
happy stuff there's three thingsyou can do with risk you can
take it, you can share it or youcan give it away.
And I think to your point, theadvisor's role is, at least at
the beginning, to make sure thatthe client understands that
(19:39):
this is a risk and that there isan 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 andeasier for you to give it away,
meaning you know.
I will tell you that over thelast 15 years, between the price
going down the price hasactually gone down as a
percentage of someone's incomeon both the group and the
(20:06):
individual side and then thetools that we're now using to
onboard people, whether it's anindividual tool or a group tool.
Your folks employee benefitsadvisors know about the group
tools that we have, but we'vealso expanded those on the
individual side as well.
It has made it easier andeasier to offload that risk, as
(20:29):
you say right.
Or at least share it right.
You can self-fund for some ofthis right with how much you
want to take on in your ownpersonal financial plan.
But then, hey, how much are yougoing to offload?
It's easier today to do it thanever before.
Speaker 1 (20:44):
You alluded before we wrap up segment one here you
alluded to the fact that therewas a few years back some
consolidation and some carriersthat we maybe knew as household
names ceased to be offering theproduct or ceased altogether.
Has that stabilized now?
Do you see the market and theavailability?
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 believerof this, that competition is
good, right, and we didn't havea lot of competition in the
marketplace in the early to evenkind of early 2000s, kind of
into the mid 2000s, but we'vehad carriers come and enter more
(21:24):
aggressively into themarketplace on the individual
side in the last 10 years.
That has helped tremendously.
The more choice people have andthe more competition there is
in a marketplace, to your point,the more things stabilize and
even get better, and that's whatI 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 professionalgraphic design.
(22:03):
Josh Hatcher is the expert tocontact For more information.
Visit him at HatcherMedianet.
That's H-A-T-C-H-E-R.
Media dot net.
Speaker 2 (22:14):
This Shift Shapers podcast is copyrighted content
and may not be reproduced inwhole or in part without the
express written permission ofShift Shapers Solutions LLC.
Copyright 2024.
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