Sales Campaigns: Module V

SALES CAMPAIGNS: MODULE V

This module is designed to give you specific information about marketing selected Life insurance products. You'll find that many of the campaigns we present here center on coverages that are part of the Top Lines product portfolio. Thus, with Top Lines we're providing you with the products; with the sales campaigns we're providing you with the know-how to sell them.

The campaigns are written for the generic product, however, not with one company's product in mind. Some of the campaigns provide an overview of the product and its history, if appropriate, and all provide a description of the coverage provided by the product. We want you to understand each product and the ramifications of selling it fully, so we provide you with both pros and cons concerning it. You'll also find information on choosing a carrier who sells that product, where to find prospects for the product, what sales strategies to use in selling the product, and sample letters you can use in your mailings about the product. You'll find in most cases that your sales strategies follow the seven action steps to the sale presented in the 'Sales and Marketing' section of your Agent's Guide.

These campaigns will be added to with the updates to your LifePLUS Agent's Guide, just as Top Lines will be added to.

The 1950s marked the decade that Disability insurance was first widely available. In the 1970s, Disability took another step forward, with the introduction of more sophisticated forms of Disability coverage, such as Income Replacement. While no one can dispute the need for Disability protection, many agents are unsure of the finer points, and therefore don't sell this vital coverage.

Disability insurance protects a client's most important resource-his or her income. In the broadest sense, it provides policyholders with a continuing source of income if an accident or illness prevents them from working. Unless the client is independently wealthy, he or she will need Disability insurance to cover the costs of day-to-day living. The agent's first job is to convince the client of this need, and second to adequately cover that need. These needs can range from straight income protection to keeping an entire business going.

In addition, Disability commissions are comparable to Life commissions. First-year Disability commissions are higher than those of many Life and financial products sold--40% to 50% or higher. And renewals are generally at least 10% for five to 10 years, generally reducing from the 11^th year on, and usually vested for life. Agents who earned more than 10% of their 1983 first-year commissions from Disability averaged $30,000 in first-year Life insurance commissions, according to Life Insurance Marketing and Research Association's 1984 Survey of Agent Opinion. So not only do Disability sales improve an agency's income, but they also pave the way to more Life sales.

Although the Disability policy can be designed to suit many needs, the following are its basic components:

• 'Any occ' and 'own occ.': The definition 'any occupation,' or 'any occ,' means the policyholder is considered totally disabled if he or she can't perform any and every duty pertaining to any type of gainful occupation for which he or she is fit by training or experience. 'Own occupation,' or 'own occ,' is a more liberal coverage than strict replacement of lost earnings. The distinction between any occ and own occ is very important.

• Benefit period: The benefit period is simply the length of time the Disability benefits will pay out. Periods are generally two years, five years, to age 65, and lifetime. Lifetime benefits generally provide that if an accidental disability occurs before age 65, the policy will pay for life. If the disability is due to illness, it must happen before age 60 for the policy to pay for life. Another more recent lifetime option provides lifetime benefits for a disabling accident or illness before age 65. Many policies stop benefits after age 65 because other retirement benefits may provide income coverage.
   
• Benefit payment: The average benefit payment ranges from 40% to 70%. The most common Disability payment is 60% of current income. Keep in mind that 'too much' Disability insurance is exactly that-too much. Disability insurance 'wraps around' other coverages, adjusting for other insurance benefits, such as Social Security benefits.
  
• Elimination period: The elimination period (how long the policyholder has to wait for benefit payments after the disability occurs) can be anywhere from three days to a year. A longer elimination period reduces the premiums, but it is very important that the client know how long he or she can manage without any income.
  
• Presumptive disability: Presumptive disability is another basic feature. Total disability is generally considered the loss of sight in both eyes, hearing in both ears, and loss of use of two limbs, or some combination of these. Some policies pay from the date of loss, waive the elimination period, and will pay for life if the benefit period is to age 65 or longer. Other policies will pay after the full elimination period and for the benefit period only.
  
• Definition of illness: Some policies define illness as a condition that 'originates' before the effective date of the policy. Others define an illness as one that 'manifests' itself after the effective date of the policy. The latter is preferable for the client. For example, if he or she discovered a tumor diagnosed as malignant that developed before the policy was purchased, it would not be covered under the definition of illness as a condition that originates before the policy date begins.
  
• Recurrent disability: Recurrent disability lets the client accumulate the elimination period within a set period so that it will qualify as one disability by the same or related causes. Policies vary on this accumulation period, generally from six to 12 months. The best policy allows the elimination period to accrue over 12 months. For example, a policyholder with a 90-day elimination period is sick from the same illness six days one month, ten days the next month, and so on. If the client doesn't accumulate 90 days of disability within six months, the waiting period starts over. A 12-month period is clearly preferable for this client.
  
• Exclusions: Disability policies generally contain exclusions, although some policies only exclude war or an act of war. Among the other possible exclusions: self-inflicted injury, committing or attempting to commit a felony, normal pregnancy, drug abuse, and alcoholism.
  
• Premium waivers: The waiver of premium generally takes effect after 90 days, or the elimination period. This waiver will reimburse the premiums paid during that period. In addition, some insurance companies will continue to pay the agent renewal commissions while the client is collecting for the claim.
  
• Rehabilitation: A rehabilitation benefit allows the client a set amount toward an occupational rehabilitation program, along with the regular monthly benefits. The treatment of injuries feature allows the policyholder 25% to 50% of the monthly benefit for a nondisabling accidental injury. It can be used per occurrence, and it doesn't coordinate with current medical coverage. In addition, there's no cap on how many times it can be used.
  

Disability policies offer a number of options, allowing the agent to tailor the policy to the client's specific needs. These options include:

• Residual benefit: Under the residual benefit, the policyholder can receive a portion of the benefits, even while working and under a doctor's care. The client must lose 20% to 25% of income to qualify for a partial benefit, and 75% to 80% to receive full benefits. This option should also follow the consumer price index to keep the claim up to date with cost-of-living increases. This option may include a back-to-work feature, which gives the policyholder time to bring income back to its original level. The benefit should also include a provision stating that pre-disability income is adjusted to the consumer price index.
  
• Cost of living: Cost of living (COLA) increases also help protect the client while disabled. The client can buy 3% to 12% to index the monthly benefit annually while he or she is on claim. For example, if there's a 5% inflation rate in ten years, a $24,000 annual Disability payment will be worth $14,370 without the COLA increase.
  
• Guaranteed insurability options: Future increases or guaranteed insurability options act as an additional insurance policy within the policy. These options allow the client to buy a set amount of coverage even if a medical problem occurs that would otherwise prevent him or her from qualifying for coverage. This provision usually allows additions up to age 52. The option also can offer an amount to be applied to an existing claim, giving the policyholder additional coverage when needed and the benefit of waiver of premium, meaning the client won't pay for the additional coverage until after coming off the claim.
  
• Non-cancellation clause: A non-cancelable, guaranteed renewal option, while expensive, may prove worthwhile to clients. This guarantees that the premium rate will stay the same and the policy cannot be cancelled as long as the premiums are paid. The insurance company has the option of taking back the policy if it feels the original application was incorrect, or if there's a possible fraud. Some companies extend this time limit by any period of claimed disability. The renewal provision is especially important.
  
• Social Security riders: Social Security riders pay an additional sum if the policyholder can't collect Disability benefits from Social Security. About half of all Social Security Disability applicants are turned down, making this an important option. Before the policyholder can collect on this option, he or she has to be turned down by Social Security. It takes at least 12 months to be officially denied Social Security benefits, during which time the client cannot receive rider benefits. The benefits are not retroactive. Some Social Security riders require the policyholder to litigate for Social Security benefits, extending the period before which the client can receive rider benefits.
  
• Business Overhead Expense: Business Overhead Expense coverage (BOE) is offered by some companies. This provides professionals and small business owners with a way to protect their businesses. This Disability policy pays most of the common business expenses in the event of a disability. These expenses include rent, utilities, mortgage principal and interest, and interest payments on equipment. Some forms include coverage for employee salaries. The policyholder's salary, fees, anticipated profits, cost of equipment, and salary for anyone hired to perform the disabled person's job are not covered.
  

PROS

The advantages of Disability insurance are strong. Because the odds of someone becoming disabled are so high-a four in 10 chance a person will be disabled for three months or more before age 65--adequate Disability protection is vital for every income-producing person.

Policies can be arranged to provide coverage for anywhere from two years to a lifetime. The elimination period-the period before benefit payments begin-can last from three days to two years, depending on the policyholder's needs. The policy can cover the client's ability to work at any job, or at his or her own specific profession, or can strictly replace the client's income. A client can purchase a policy that guarantees the premium will not increase, and/or a noncancelable policy.

In short, Disability policies can be tailored to meet anyone's needs and options can be added that provide for specific situations.

Some Disability policies, especially Group Disability coverage, may not adequately provide for a client's needs, but there really are no drawbacks to Disability insurance. Unless a client or prospect is individually wealthy, he or she needs Disability protection.

A good Disability policy will provide the policyholder with the most liberal definition of disability, an elimination period he or she can afford, lifetime benefits, and other applicable options. A Disability policy can be restrictive in language and offer inadequate features, so each policy must be looked at carefully in light of the client's needs.

Disability insurance can be created to suit a number of needs. With the options described above, the average Disability policy can adequately cover most people. But there are a couple of other forms of Disability insurance designed to suit other markets:

Group Disability coverage is essentially the same as individual Disability, with a few exceptions. The main difference is that the employer generally pays for the policy. This lets the employer avoid the paperwork and potential problems of payroll deduction. Employers also receive tax benefits if they pay the full cost. Group policies are generally easy to administer and offer a relatively low premium.

The entire employee group is generally covered, avoiding the problem of discrimination. Employees with insurability problems also benefit, since Group plans are issued on a guaranteed basis with a stated waiting period before preexisting conditions are covered. Group policies generally pay a disabled employee on either a short-term or a long-term basis. With short-term policies, benefits are usually paid for one or two years. Long-term policies provide benefits for longer periods, usually to age 65. With both types of plans, benefit payments range from 50% to 65% of the employee's earnings.

On the negative side for policyholders, group policies can be cancelled by the carrier or policy language can be changed. When an employee leaves the company, he or she generally can't take the policy along. Group policies don't usually contain cost of living options and lifetime guarantees. For many people, Group Disability insurance is not enough to protect their full needs. The best Disability plan for most people is a combination of Group Disability and Individual Disability to fill in the gaps.

Income Replacement has been on the market since the late 1970s. It lets the policyholder collect the difference between former earnings and whatever income is earned after the disability, generally after a 20% deductible or at least a 20% loss of earnings. There are two types of Income Replacement: dollar-for-dollar and proportionate. Dollar-for-dollar pays a benefit equal to the difference between 80% of the client's former earnings and the amount earned after disability. Proportionate pays a benefit that is determined by the percentage of income lost, with a minimum 20% loss required before any benefits can be collected.

Traditional Disability policies look at the policyholder's ability or inability to perform certain tasks. Income Replacement looks strictly at income, regardless of the policyholder's occupation. When the policyholder's income drops by more than 20% because of a covered accident or illness, then benefits are available-even if the client is not totally disabled.

Income Replacement is better suited for some clients than others. Although insuring the client's occupation under the 'own occ' clause is often adequate, sometimes the best protection is Income Replacement. This is especially true for those who suffer temporary partial or permanent partial disability, but never total disability. For example, a salesperson who spends a lot of time on the road suffers an accident and can no longer drive. Under Income Replacement, this person is protected. However, in some cases the only way to protect income is through protecting the occupation. Clients who have specialized physical skills, such as surgeons, should be insured under the 'own occ' plan. Income Replacement is best for those whose earned income is easily measured.

Income Replacement elimination periods range from one to six months, or more. A big difference between traditional Disability products and Income Replacement is that most Income Replacement products use calendar months rather than continuous days. With calendar months, the elimination period begins on the first day of the month that net earnings become less than 80% of base earnings due to a covered illness or injury. This means the policyholder would have to be disabled for the entire month. However, most disabilities, especially illnesses, start slowly before they turn into a total, covered disability.

Optional Income Replacement features may include recovery benefits, cost of living rider, waiver of premium, rehabilitation benefits, organ donor for transplant operations (usually a minimum period of coverage is required before this benefit is available), and guaranteed insurability rider.

When choosing a Disability insurance carrier, look for the following features:

• Preferred and Standard Occupational Groups: A carrier should offer both preferred and standard occupational groups. The ability to write both 3A and 4A (professionals) and 1A and 2A (blue collar) risks is vital. Look for a full spectrum of products from a company.
• Ratings: Check the company's ratings. Use only A or A + Best's rated carriers. A company that is shown to be financially capable of meeting its obligations is clearly a necessary part of doing business.
• Servicing: The prospective company should be able to handle servicing quickly and efficiently. Your clients-and you-require fast claims processing.
• Underwriting: Access to a company's underwriter is highly desirable. If you are able to develop a professional relationship with the underwriter, you will be vastly aided in your job.
• Training: Find out how much training the company is willing to provide to you and your staff. Will the company or marketing group help you with your paperwork? For example, Attending Physician Statement (APS) forms must be correctly filled out. Your company should show you how to fill these out properly. The more training materials you receive, the better you can sell and service your Disability clients.
• Preferred treatment: Does the company offer preferred treatment to new agents until they have thoroughly learned Disability insurance? Look for such a company to help you get on your feet.
• Computer proposals: Look for a company that will provide computer proposals or free software. Does the company provide software? Do they pay for the software? Also find out whether they will train you in how to use the software or if they'll do the proposals for you.
• Commissions: On the commissions side, look for a company contract that will pay at least 40% on first-year sales. While favorable commissions are important, make sure the company meets the above standards first before checking its commission levels. Secure at least a 40% contract, with more awarded as performance increases. Discover what the thresholds are and if commission levels are retroactive.

Take a look at these figures:

• A 25-year-old has a 50% chance of being disabled for at least 90 days before age 65
• At age 45, there's a 40% probability of suffering a three-month disability before age 65
• Only 10% of Americans can last financially 90 days without a paycheck
• If a person is disabled for 90 days, the disability period will probably be even longer--2 1/2 years on average
• 52% of households depend on two paychecks
• The average Disability policyholder is underinsured by 50%
• Between ages 42 and 65, a person has a three times greater chance of being totally disabled for 90 days than of dying
• About 6% of the potential disability-buying public actually buys Disability insurance
• About 8% of small, closely held businesses and 16% of professional practices carry Business Overhead Expense coverage
• 27% of small business owners provide Disability protection for their employees

These figures, combined with the fact that everyone, unless independently wealthy, needs Disability insurance, dramatically point to the wide-open Disability market. While 'Action Step 1--Prospecting' in your 'Sales and Marketing' section can show you how to generate leads, the following list highlights who your prospects for Disability insurance are, including a few you may not have considered:

1. Your Top 100 Clients: You've established a relationship with these clients. They buy two or more policies from you, which are either Commercial or Personal Lines, or a combination of the two. Because you already know their needs, and they trust you, the Disability sale should be simple.
2. Businesses and Commercial Lines clients and prospects: Not only do these prospects need Individual Disability protection, their employees also could benefit from a Group Disability program. Business Overhead Expense covers the small business owner's commercial needs. All your Commercial Lines insureds are prospects.

Professionals are probably the best Disability prospects as they need this coverage. Their level of training and expertise is higher than the average worker, which means their protection needs are also higher.

The blue collar market is wide open. As income-producers, they also require Disability protection.

1. Personal Lines, Life clients and prospects: