The high-limit disability niche

By Joe Russo

The disability insurance marketplace may seem relatively obscure to many life and health insurance advisors active in the industry today. However, the true nature and importance of income protection is not lost on successful agents and brokers who are willing to step out of their comfort zones and market products that are not only pivotal safeguards to millions of consumers, but also provide robust, long-lasting commissions to its prescribers.

Disability insurance is arguably the greatest financial resource to the American workforce. A well-structured and thorough DI portfolio protects an income earner’s greatest asset – their paycheck and their ability to make a continued living in case of unexpected disablement. The average American is three times more likely to suffer a short-term or long-term disability during their career than die during that same period. And the potential loss of earnings through those income accumulation years can be economically devastating to not only the disabled person, but to their family members and financial dependents.

Although DI should be a requisite insurance protection for every working person, the high-limit market poses the greatest opportunities to the financial advisor as well as potential shortcomings and underinsurance dangers to the consumer. High net worth individuals may not seem to exhibit the most obvious needs for income protection such as other Americans who typically live paycheck to paycheck and lack dependable savings and retirement vehicles. But prospects who earn more than $250,000 annually stand to lose more in the long run in the wake of disablement because they simply have more to lose. Their more affluent lifestyles typically require levels of protection that cannot be acquired solely among the usual disability insurance resources.

U.S. disability carriers commonly maintain insurance participation limits that discriminate against high net worth individuals with aggregate benefit caps frequently at 60% of income on the high end, but more commonly in the 30% to 50% range. These income protection levels are not sufficient to attain the goals of family wealth preservation and lifestyle maintenance. Agents should strive to have 65% to 75% of a client’s income covered by comprehensive disability plans. Yet, those figures are not possible in the U.S. group and individual markets alone. Specialty disability marketplaces such as Lloyd’s of London must be tapped to properly accommodate the high-limit disability niche.

Lloyd’s and other European-market carriers developed DI programs and products over the last half-century for the American market that have effectively evolved to complement and supplement the limited offerings of our domestic insurers. Although these specialty carriers cannot by law and regulation compete with U.S. insurance companies for dollar-one business in the life and health space, they are permitted to provide excess insurances as well as baseline coverage when domestic carriers fail or decline to do so.

Disability coverage for the high net worth prospect

The most prevalent of offerings to the high net worth prospect is that of individual, excess high-limit disability insurance. Target demographics for this type of coverage include physicians and surgeons, attorneys, accountants, financial market specialists, C-suite executives and professional athletes as well as those working in the entertainment industry either as spotlighted talent or executives behind the scenes. The high-limit DI niche casts a broad net to serve anyone with substantial earnings who doesn’t have substantial amounts of income replacement insurance.

Group and domestic individual plans allow for longer policy terms and longer benefit periods, so it is always advised that is where an advisor should begin their search for product. Advisors can then access the specialty markets to accomplish those recommended goals of 65% to 75% of income replacement with supplemental, excess DI.

Recent iterations of excess DI in the contemporary marketplace have also evolved into group chassis aimed at firms with several employees who require additional insurance. The development of guaranteed standard issue insurance programs has become a very hot ticket for the specialty DI market, allowing employees of accounting firms, law practices, medical groups, and other large corporations to acquire robust excess DI benefit limits on a guaranteed-issue basis while still affording the employers multi-life discounts and human resources departments the ease of online program implementation and simplified administration. High-limit GSI programs are a dream for employee benefits advisors because of the substantial commissions and the attractive nature of the insurance itself to corporate employers as a significant employee retention tool.

In addition to typical salary and bonus income indemnification standard among most disability carriers, specialty insurers in the high-limit niche also offer separate, standalone disability programs that specifically insure employer-granted stock options for high net worth individuals employed by publicly traded companies. Stock option DI plans have proven to be advantageous ancillary products for clientele whose income is mostly dependent upon vested stock options.

Aside from personal disability insurance, the high-limit niche offers numerous unique opportunities for business owners as well. Once again, the specialty markets deliver where domestic programs stop. Excess, high-limit buy/sell disability policies are available to help fully fund large corporate succession agreements, including prospects over the age of 60 as well as impaired-risk clients. Excess business overhead expense insurance, business loan insurance and key person DI programs are also readily found in the specialty markets at participation limits well above those of domestic disability companies.

The generally liberal underwriting methodologies and product flexibility of specialty-market carriers afford great business opportunities for those working in the high-limit DI space. Provide your clients with guidance and the proper knowledge that unforeseen disablement is a sobering reality of millions of Americans every year, and high-limit disability insurance is the ultimate safeguard of familial financial catastrophe.

Joe Russo is an underwriter and account executive at Petersen International Underwriters. Contact him at [email protected].