For Disability Insurance Opportunities, Turn to Business Owners

By Cyril Tuohy
InsuranceNewsNet

Forget the doctors, the dentists and even the lawyers. Those prospects are tapped out, old news, saturated with advisors hitting them up for sales.

Disability insurance producer coach Chris Carlson says financial advisors looking to grow their disability books of business are better off cultivating business owners.

Not only are business owners good candidates for individual disability income insurance, but they are also prospects for business overhead expense coverage, buy-sell insurance, key man insurance and multilife coverage.

“The business owner market for disability insurance has no competition,” Carlson said during an April 1 webinar sponsored by the Society of Financial Service Professionals and the International Disability Insurance Society.

In one sense Carlson, principal of The D.I. Coach, is spot on. There is little or no competition from other advisors selling disability insurance to business owners in part because fewer advisors are selling the coverage than in the past.

Seen from the reverse angle, however, the disability insurance sale is neither quick nor easy, said Robert Wesley Shannon, founder of SJK Financial Planning in Hurst, Texas, who first started selling the coverage in 1987.

“It’s not five agents knocking on the doors trying to sell the owner disability insurance,” Shannon said in an interview with InsuranceNewsNet. “The competition for the business owner is other demands on cash flow like making payroll.”

Still, Carlson says the market for disability insurance is huge and the dogfight among producers to sell disability insurance has all but disappeared.

The Council on Disability Awareness estimates there are 150 million people in the U.S. labor force, but that only 50 million — one-third — are covered under a group or individual disability plan. Those who are covered typically only receive 60 percent of base salary, which is a standard benefit offered by many disability insurance policies.

Carlson said that insurance agents have turned down the “path of least resistance,” and chased doctors, dentists and lawyers.

He also said that with able disability insurance producers close to or heading into retirement, fewer agents are taking to prospects about the category. With fewer agents selling disability coverage, the line sometimes becomes “out of sight, out of mind.”

Shannon said disability insurance is its own universe because underwriters often have a difficult time calculating profits generated by a business, particularly when business owners declare as little income as possible to trigger lower taxes.

For carriers to underwrite a disability income policy, business owners need to show income but since many owners forsake a salary in favor of a draw, “underwriters have a difficult time establishing what the income stream is and so that an issue,” Shannon also said.

Underwriters, therefore, need to tease out the income from corporate and personal tax returns, a process neither quick nor easy.

“You can make $2 million in sales and show little income because the business is paying for health insurance, the car and other expenses,” he said.

When it comes to disability insurance, it’s the agents who often find themselves guiding underwriters about how to evaluate a business’s income.

“The game the small-business owner is playing is he or she doesn’t want to show any income,” Shannon said. “The issue for an agent is when the small business shows no income and the owner shows up in a decked-out Ford F-150 and living in a $500,000 home.”

Another contradiction within the disability insurance world is that while a disability policy may be easier to sell for veteran advisors familiar with income protection products, and while carriers make offers they would have been declined in the past, disability insurance as a whole has become a slower sale due to the requests for medical information.

Morbidity and financial issues mean agents “don’t push it as much,” Shannon said. “It’s a lot of work.”

The need among business owners for disability coverage is real, but so are the complications around the sale.

“When small-business owners are in the creation stage they don’t have lots of cash flow and that’s a problem because disability insurance can be expensive for them even if it is important to buy disability insurance coverage,” Shannon said.

“But when the business is more established, the business owner questions buying disability insurance saying the business can run without me.”

InsuranceNewsNet Senior Writer Cyril Tuohy has covered the financial services industry for more than 15 years. Cyril may be reached at cyril.tuohy@innfeedback.com.

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at cyril.tuohy@innfeedback.com.