by Gerald M. Kouzmanoff CLU, ChFC 

You’re an insurance producer, a benefit, financial, or investment advisor, and a client asks, ‘How much do I need to retire?” One of your first thoughts is usually, “What is your age and how long do you expect to live?” You get some answers, do some projected calculations, and come up with a number that will provide your client the income they will need from investments should they stop working. You know the old saying, “Income comes from only two sources: people at work or money at work.”

But, what happens if your client is forced to retire because of an illness or accident long before they’ve been able to create the sizeable investment portfolio that will be needed to provide income during those golden years. Where will that needed income come from when they’re not working to earn it and they don’t have enough investments to earn it? That answer is simple — an insurance product that was created a century ago called “disability income or income protection insurance.” Your client could face the following financial consequences from having an extended illness or accident including:

• Loss of personal income to pay needed living expenses for a family.

• Loss of income to pay for a child’s education.

• Loss of income to pay for business expenses

• Loss of business income when a key employee becomes sick or hurt and unable to work.

• Loss of income to pay off educational or other loan obligations.

We’ve heard the statistics time and time again; the chances of a long term disability (lasting more than 90 days) between ages 25 and 65 are three times greater than death. Yet, as insurance advisors, we often immediately think of life insurance. But far too often, we do not discuss that client’s financial consequences in the event of an extended illness or accident.

The Council of Disability Awareness tells us that just over one in four of today’s 20-year-olds will become disabled before they retire. And 64% of wage earners believe they have a 2% or less chance of being disabled for three months or more during the working career. Yet, the actual odds for a worker entering the workforce today are about 25%.

It’s kind of ironic how people spend thousands of dollars on education to earn incredible sums of money over their lifetime. They become money making machines as long as they stay healthy. Yet all too frequently, they don’t protect themselves in the event their own money making machine, their good health, breaks down due to illness or accident.

Think about this one: Someone purchases a new flat screen TV and pays for a warranty in the event the $1,000 TV breaks down. Imagine someone coming into your office with a machine that prints money — enough money that could provide a lifetime of needed income. Would you let that person walk out the door without buying that warranty in the event that machine (their good health) breaks down? That warranty is called “disability/income protection insurance.”

How Financially Valuable Is Disability Income Insurance?

Let’s give one example: Your 36-year-old client purchases a policy that will pay $10,000 monthly (tax-free) until normal retirement age with a cost-of-living benefit built in. That policy could pay up to $3,690,000 in tax-free benefits over their lifetime.

How Big Is The Market In America For Disability Income Insurance? 

Sixty-nine percent of workers in the private sector have no private long-term disability insurance, according to the Social Security Admin.

What Are The Common Causes Of Disability Claims?

The Council of Disability Awareness study finds that the following were the most common causes of existing disability claims in 2012:

• 31% Musculoskeletal/connective tissue disorders

• 15% Cancer

• 14% Nervous system disorders

• 12% Cardiovascular/circulatory disorders

• 9% Cancer

• 8% Mental disorders

So, what’s in it for you, the insurance advisor? Disability income insurance not only provides valuable income protection for your customer, but it also has numerous benefits to the insurance advisor. Commissions from some health insurance carriers have now dropped to as low as 2% of premium whereas individual DI coverage typically pay a commission of 50% of the first year premium and somewhere in the area of 5% in renewal years. Group LTD plans often pay as much as 10% to 15% level commissions. Individual DI is often guaranteed renewable, meaning the carrier cannot cancel the policy, and it is often non-cancellable, meaning premiums cannot increase.

Once you sell an individual DI policy, you typically own the future commissions avoiding the fear of another producer taking away the business you’ve worked hard to create. Unlike health insurance, once a DI policy is issued there is often little, if any, servicing involved in the years that follow.

Disability Income insurance is typically offered on an individual or employer sponsored group policy. Advantages of individual coverage often include a guaranteed renewable feature, premium rate guarantee, and liberal definitions of when an insured is considered totally or partially disabled. Also, it typically pays in addition to social insurance benefits, such as SDI or Social Security. However, individual DI is often fully underwritten with respect to an applicant’s earnings, occupation, and health history.

Group LTD is most often guaranteed issue regardless of previous health history — most often a much lower premium cost since it does not offer guaranteed renewable or non-cancellable features and typically reduces the monthly benefit based upon income an insured receives from other sources.

Isn’t it time that we start better protecting the income, the money making machines, of our clients in the event they become sick or hurt?


Gerald M. Kouzmanoff CLU, ChFC is president of Kouzmanoff Financial & Insurance Services, Inc. A Southern California based insurance firm that specializes in assisting insurance producers to find the proper and most cost efficient disability income insurance products for their clients. Mr. Kouzmanoff has practiced in the disability insurance market for nearly 50 years. He can be reached at 800-653-8003 or