LTC Close-Up  

Real Changes Bring DI and LTC Sales Opportunities
Jack B. Schmitz, CLU, ChFC

The more things change, the more they stay the same. Disability Income insurance has entered a new phase with simplified underwriting, high limits, no medical exams, and even guarantee issue.

We may be seeing the lowest rates we will ever see again. Some products in Calif. are priced so low that it is my experienced and educated opinion (guess), that competition is going to say these plans are priced too low. It is also my opinion, based on experience in the LTC market, that carriers will file higher rates as a reaction to the contention that they are underpriced. A client who takes your advice and purchases a new lower priced DI product should be quite happy with that advice for many years.
Before I talk about what to sell and what is selling at our agency, let’s tear open a DI policy and expose the real meaning of some major DI policy definitions.

I have been a DI specialist for 25 years. I blame the industry for driving me nuts by using multiple terms to describe the same feature: “your occ,” “own occ,” “true occ,” “pure occ,” “regular occ,” "transitional occ.”

An “own occ” definition will simply state that you are totally disabled if, due to accident or sickness, you cannot perform the main duties of your occupation. Period.(Remember the period). Some companies insert the words: “and not working” before the period, and then they call it “your occ.”

This might seem confusing, but your occ is simply modified own occ; modified with the words “and not working.”  Own occ was designed for surgeons and dentists. A surgeon or dentist who loses a hand will change occupations. A salesperson, advisor, consultant, or executive who loses a hand, becomes a one handed salesperson, advisor, consultant, or executive. A loss of earnings, partial disability, or residual disability contract would be more important than own occ to most business owners.

Own occ claims are very rare. Most claims are “residual/loss of earnings,” or are considered total because the claimant cannot return to work. Own occ, your occ, transitional occ -- it’s all so confusing. “I don’t even want to sell this stuff,” is what I hear from agents. I agree, transitional occ is confusing, and in Calif., we don’t sell it on individual policies, so don’t sweat it.

Loss of Earnings, Residual, or Partial

Partial disability used to be a six-month recovery benefit after a total disability. Now, partial, residual, and loss of earnings generally mean that you can access a proportional benefit based on your loss of earnings because of a disability. Most carriers do not require a total disability, but just loss of time or duties due to accident or sickness to be benefit-eligible.

Non Cancelable, Guaranteed Renewable, Conditionally Renewable

Non-cancelable guarantees the rate, usually to age 65. “Guaranteed renewable” guarantees that you can renew the policy, but that rates may be increased by class and state if warranted and approved by the Dept. of Insurance. “Conditionally renewable” means you can renew the policy if you meet a condition, such as working 30 hours per week, and paying whatever premium is charged. The confusion here is that non-cancelable policies are also guaranteed renewable, and some non-cancelable policies guarantee increasing rates. If that last sentence was confusing, read the first two sentences again.

The DI and LTC Sales Opportunity

Sell guaranteed renewable with a loss of earnings provision to Baby Boomers. Millions of Baby Boomers are in their peak earning years with millions of dollars more to earn before retirement. Potential earnings for retirement make up a huge exposed and uninsured asset for many.
Selling a guaranteed renewable “your occ” policy with a loss of earnings provision will save the client 25% to 50% over non-cancelable own occ with a loss of earnings provision. Use the savings to insure retirement income with LTC insurance. Both types of DI policies will pay the same, unless the client changes to a completely different occupation and makes substantial income while they continue to be disabled in their regular occupation.

An actuary I spoke with recently reconfirmed for me that own occ claims are very rare. Clients who buy guaranteed renewable with a loss of earnings provision (or partial or residual rider) will value their coverage and not let it lapse once they realize what the policy will do for them if disabled. Blood, urine, tax returns, and interviews at higher benefits amounts have kept loss ratios low, so the risk of a rate increase should be low. I am talking about selling to Baby Boomers age 49 to 59, not Millennium Echo Boomers or Y or Generation X. We recommend adding the Non-cancelable rate guarantee feature to those in the younger demographic groups.

The Bottom Line

Sell Baby Boomers DI to protect their huge potential earned income before we have a real change to higher rates (again) for new business. Use the savings to buy long-term care insurance to protect their retirement income.
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Jack B. Schmitz, CLU, ChFC
DI & LTC Insurance Services
4302 Redwood Hwy, #400
San Rafael, CA 94903
800-924-2294