COMPLETE DISABILITY PRODUCT PORTFOLIO

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DISABILITY PRODUCTS FOR THE BUSINESS
MARKET Presented by Disability Resource Group,
Inc. 800.945.9719 www.drgdi.com
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DISABILITY PRODUCTS FOR THE BUSINESS MARKET

• Business Overhead Expense
• Buy-Sell
• Multi-Life Sales

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Business Overhead Expense

• If you are a business owner and become too sick
  or hurt, what impact would that have on your
  business?
• Who would pay your business overhead expenses?
• How could you keep your business open?

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The Reality

• 30 of all people 35 to 65 will suffer a
  disability for at least 90 days and one in seven
  will be disabled for five years.
• There is a disability caused by a motor vehicle
  crash every 30 seconds.
• The probability of at least one owner in a
  two-owner firm becoming disabled before reaching
  age 65 is 23, if each is age 30.

Health Association of America The New York
Times, 02.02 National Safety Council Accident
Facts, 02.02 Based on recent disability
insurance industry experience
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Consider The Likelihood...
Commissioners Individual Disability Table B -
Equally Weighted 90 Day Elimination Period.
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Ideal Candidates

• Medical Professionals
• Veterinarians
• Architects
• Smaller Law Firms
• Smaller CPA firms
• Hairdressers
• Photographers
• Tailors

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Ideal Candidates

• Owner is the major revenue generator
• Business has less than 10 employees
• Been in same location two years or more

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Examples of Covered Expenses

• Lease or mortgage payments
• Utilities
• Employee salaries and benefits
• Payments for leasing or purchasing furniture and
  equipment
• Accounting, billing, and collection fees
• Janitorial, security, and maintenance
• Premiums for malpractice, property, liability
  insurance
• Professional trade dues and subscriptions

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Expenses that are NOT covered

• Salary and Benefits for
• The insured
• Any person sharing business expenses with the
  insured
• Any member of the insured's profession
• Any individual hired to perform the insureds
  duties
• Any person responsible for the generation of
  income for the business
• Any member of the insureds immediate family, who
  was not a full-time employee prior to disability.

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Other Expenses that are NOT covered

• Expenses that are passed along to the consumer
• (Lab Fees, Medical Supplies, etc.)
• Professional Tools or Wares
• Travel and Entertainment
• Costs of Goods
• Additions to Inventory
• Any Expense the Insured did not have prior to the
  disability

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Elimination and Benefit Periods Available

• Waiting Periods
• 30, 60, or 90 days
• (0 days for presumptive disabilities, some
  carriers)
• Benefit periods
• 12, 18, and 24 months

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Optional Riders

• Replacement Expense Rider
• Residual Disability Rider
• Future Insurability Option
• Income Protection

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Issue and Participation Limits

• White Collar
• Max issue 30,000 per month Top Occ Classes
• Limits per Occ Class will vary,
• i.e. 3A-Issue 15k /Participate 20
• Blue Collar
• Issue 10,000/ Participate 12,000 per month
• Top Classes only
• Limits per Occ Class will vary,
• i.e. 3A-Issue 9k, 2A-7,000 per month
• May not offer to all classes or occupations

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Business Overhead Expense Underwriting

• Financial
• Most Recent Business Tax Returns, all schedules.
• (Two Full Years Preferred)
• Medical
• Telephone Interview (all amounts and ages),
• Blood/Urine, Para Med, EKG (by amount, age, and
  state)

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Other BOE Features can have

• True Own Occupation Definition
• Non Cancelable Contracts
• Covers expenses for up to two years
• Conversion Options Available
• Premiums waived during disability
• Premiums are Tax Deductible
• Discounts for Three or More Partners

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Sales Opportunity?

• There are more than 6.6 millioncompanies in the
  United States.
• More than 50 are small businesses.
• 68 have no DI coverage at all!

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What happens when a Business Partner becomes
disabled?
Disability Buy/Sell Contracts

• Would they want to sell their share of the
  business?
• Would they want to buy out the healthy
  partner(s)?
• How would the price be determined?
• Where would the money come from?
• Is it guaranteed to be there when its needed?

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In the Event of a Disability,There Are Many
Issues to be Resolved

• The disabled partner may
• Become a drain on income while not contributing
  to the business
• Have different priorities for the business income
  and profits and may not want to reinvest profits
• Decide to let their spouse or relative take over
  his/her role in the business

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In the Event of a Disability, there are Many
Issues to be Resolved

• The healthy partner
• May not be able to pay the disabled partner an
  income and maintain the business
• May not have funds to buy the disabled partner
  out
• May not want to share business decisions with the
  disabled partners family

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Advantages of a Buy-Sell Agreement

• Assures active business owner can buy out the
  disabled owner at a predetermined price and
  pre-arranged time after disability strikes.
• Maintains business continuity and credibility -
  which are concerns of customers, creditors and
  employees.

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Advantages to the Disabled Business Owner

• Creates an automatic market by guaranteeing a
  definite and fair price and a buyer for the
  business interest
• Assures that his/her financial future is no
  longer contingent upon the strength of the
  business
• Provides money which may be needed to pay medical
  bills and living costs
• Avoids involving the disabled owner and his/her
  family in the management of the business

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Advantages to the Active Business Owners

• Avoids negotiation of price
• Assures complete and orderly transfer of
  ownership
• Retains control of the business
• Competitors cannot purchase the disabled owners
  business interest in the firm and force out the
  active owners

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Once Again, Consider The Likelihood...
Commissioners Individual Disability Table B -
Equally Weighted 90 Day Elimination Period.
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Buy-Sell Considerations

• Date to Establish a Plan
• The date the owner first becomes disabled or
• The trigger date of the buy-sell agreement
• Method of payment
• When is the first payment due?
• How should it be paid?
• Lump sum payment
• Monthly installments
• Combination of both

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Buy-Sell Agreement Considerations

• Structure of the agreement
• Cross-purchase agreement
• Works best with two owners
• Insurance company reimburses the non-disabled
  owner(s)
• Receive step up in basis
• Entity purchase agreement
• Insurance company reimburses the corporate entity
• Best to use with multiple owners

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The most practical solution is...

• A written agreement that specifies when and for
  how much the buy-out will take place, and...
• is funded with the right amount of Disability
  Buy-Sell insurance.

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Why Disability Buy-Out Insurance?

• Objective
• The objective of Disability Buy-Sell insurance is
  to reimburse money paid for the purchase of a
  disabled owners interest in the business in the
  event of a long-term disability
• Benefits
• Benefits are income tax-free - the disabled owner
  is taxed only on the gain from the sale of the
  business
• Provides a funding solution for the business

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How Does it Work?

• The non-disabled owner(s) are reimbursed for
  buy-out expenses paid during the buy-sell process
• Premiums are non-deductible (IRC 265 Rev. Rul.
  66-262, 1966-2 C.B. 105)
• Benefits are received income tax-free (IRC
  104(a)(3) Rev. Rul. 66-262, 1966-2 C.B. 105)
• The disabled owner is taxed only on the gain from
  the sale of the business. The gain may be
  considered an installment sale if at least one
  payment is to be received after the close of the
  tax year in which the sale was made. Clients
  should contact their tax advisor for details.

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Cross Purchase Agreement

• Each owner owns a policy on each of the other
  owners
• After disability, the non-disabled owner(s)
  purchase the disabled owners share in accordance
  to the Buy-Sell Agreement and receives policy
  benefits (up to the maximum policy limit) as a
  reimbursement
• The non-disabled owner(s) then own the business,
  and the disabled owner has been paid the price
  agreed upon

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How a Cross Purchase Agreement Works
Business Owner A
Business Owner B
Buy-Sell Agreement
Premium
Premium
Insurance Company
Policy and Disability Benefits on Owner B
Policy and Disability Benefits on Owner A
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Advantages/Disadvantages of a Cross Purchase
Agreement

• Advantages
• Policies are not available to business creditors
• Non-disabled owners receive an increase in their
  basis
• Disadvantages
• If there are more than two owners, the number of
  policies needed may not be practical

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Entity Purchase Agreement

• The business purchases and owns a disability
  buy-out policy on each owner
• After disability, the business purchases the
  interest of the disabled owner in accordance to
  the buy-sell agreement and receives policy
  benefits (up to the maximum policy limit) as a
  reimbursement
• The non-disabled owners then own the business,
  and the disabled owner has been paid the price
  agreed upon

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How an Entity Purchase Agreement Works
Business Owner A
Business Owner B
Buy-Sell Agreement
Buy-Sell Agreement
Business
Policy and Disability Benefits on Owners A and B
Premium
Insurance Company
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Advantages/Disadvantages of an Entity Purchase
Agreement

• Advantages
• Only one policy per business owner is necessary
• Disadvantages
• Policies are open to claims by creditors
• The buy-out will not increase the healthy owners
  basis

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Ideal Candidates

• White to Gray Collar, small to medium-sized
  businesses with less than 10 owners
• 10 ownership to be considered
• Need to have a plan for succession
• Owners that depend on each other to keep the
  business running smoothly

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Common Methods to Calculate Business Value

• For Personal Service Businesses
• - 2 times income plus the profit of the business
• For General Businesses
• - Book value plus capitalization of excess
  earnings

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Elimination Periodsand Pay Out Methods

• 365, 540, or 730 Day Elimination
• Lump Sum
• Monthly Installments over 2, 3, or 5 Years
• Combination of Lump Sum and Monthly Installments

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Issue and Participation Limits

• Total Pay Out Up to 2,000,000
• Limits per Occ Class
• Limits per Pay Out Method
• Limits per Elimination Period

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Disability Buy/Sell Underwriting

• Financial
• Most Recent Business Tax Returns, all
  schedules.
• (Three Full Years Preferred)
• Medical
• Telephone Interview (all amounts and ages),
• Blood/Urine, Para Med, EKG (by amount, age, and
  state)

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Disability Buy/Sell Carriers

• Lloyds of London
• MassMutual
• MetLife
• Principal

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Multi-Life Disability Insurance

• YOUR GATEWAY TO A SUCCESSFUL CARRER IN INSURANCE
  SALES

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What is it?

• Individual Disability Insurance offered at a
  discounted and Uni-Sex Rate to 3 or more
  employees at the same firm
• Discounts can range from 15 to 35
• Individual, Group Supplement, and Retirement
  Completion products available
• Higher Issue and Participation Limits
• Underwriting Concessions

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Underwriting Concessions?

• Simplified Underwriting
• Guarantee To Issue
• Guaranteed Standard Issue

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Guaranteed Standard Issue? YES! Its a
Win-Win-Win For Everyone!
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Insured Wins

• Guaranteed Issue
• No detailed underwriting process
• Discounted premiums on unisex rates
• Rapid turnaround of application
• Higher income protection
• Can be employer paid

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Employer Wins

• Create perks for key employees
• Deductible business expense
• List billing
• Reduce LTD costs
• Foster persistency and loyalty among key
  employees
• Allow employer to add an additional benefit
  without incurring additional cost

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Broker Wins

• No detailed underwriting process streamlined
  underwriting
• Approach multiple insureds
• cross-selling opportunities
• Discounted premiums on unisex rates
• One plan design for all
• Multiple sales more commission

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Guaranteed Standard Issue

• Guaranteed standard issue to those meeting
  eligibility requirements
• Targeted at executive/professional occupational
  groups within single employer
• Minimum 10 participating lives for 100
  employer-paid cases
• Plan design at group level
• Can be 100 employer-paid, partially employer-
  paid, or 100 employee-paid

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Ideal Candidates

• 25 person or larger Law Firm, 60 of income
  covered by employer paid group plan with 7,000
  cap, employer will pay for supplement, average
  income 175,000
• 12 person Accounting firm, no group LTD in place,
  employer will pay premium, average income 65,000
• 100 person I.T. firm, 60 of income covered by
  employer paid group plan with 5,000 cap,
  supplement is Voluntary, average income 95,000

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Appropriate Industries

• Law Firms
• I.T. Firms
• Accounting Firms
• Engineering Firms
• Architecture Firms
• Banks

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Inappropriate Industries

• Medical Professionals
• Commissionable Sales
• Fewer than 10 Full Time Employees
• 1099 Employees
• Blue Collar

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Case Design

• Generally with Group LTD
• Carve out
• Wrapped around group
• Reverse carve out
• Available riders
• Residual/partial
• Social Insurance Offset
• Inflation
• Catastrophic Benefit
• Retirement Completion

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Sample Plan Design
Employer-Paid and Voluntary Plan Specifications
Employer-Paid Voluntary
Min. Size Group 15 participants 70 or more eligible participants
Min. Participation 100 required 70 eligible participants 30
Occ Class 5AP-3AP 3AP cannot be more than 15 of total lives N/A to medical occupations 5AP-3AP 3AP cannot be more than 15 of total lives N/A to medical occupations
Discounts Discounts range from 20 to 30 off unisex rates depending on the case size. Discounts range from 20 to 30 off unisex rates depending on the case size.
GI Max Issue Limits of Issue Part. Max. GI Amt. 15-99 100/life/month to max. of 6000 100 8000 of Eligible Max. GI Issue Participants Amount 70-149 3000 150-299 4000 300 5000
For cases with 15-69 eligible lives, the Home
Office will consider making an offer on a
Guaranteed Issue basis. Such an offer is
contingent on a minimum of 15 paid lives. If
fewer than 15 paid lives are written, full
underwriting will be required. Discounts and GI
maximum Issue Limits are the same as for cases of
70-149 eligible participants. The maximum
amount available can vary based on the
characteristics of the group.
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• Guaranteed Standard Issue

• ?

Minimum Participation Employer Paid 100
required minimum of 10 participants Voluntar
y 30 target minimum of 25 participants
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Discounts

• 100 Voluntary GI
• Employer-Paid Eligible
• Participation Employees Discount
• 15 49 70 149 20
• 50 99 150 299 25
• 100 30
  35
  

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Guaranteed Standard Issue

• Guaranteed Issue Maximum
• IP Limits for Employer-Paid Cases
• Specific plan design and maximum Guaranteed Issue
  amounts depend on group characteristics
• - Industry - Turnover rate
• - Occupations - LTD experience
• - Financials - Age
• - Local economy
• Each case is different

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Information Needed to Quote

• Carrier Specific Multi-Life Offer Proposal
  Request Form
• Electronic Census with Occupation, Titles,
• Income, Bonus, Gender, Smoking Status
• As much information on the group and company as
  possible

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Other Multi-Life Opportunities

• Guaranteed to Issue
• Simplified Underwriting
• Fully Underwritten
• Group Supplement
• Retirement Completion
• Association Plans

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Multi-Life Carriers

• MassMutual
• MetLife
• Principal
• Union Central

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Group Supplement Features

• An individually owned and portable contract.
• Premiums that will never be increased and a
  contract that is non-cancelable.
• Enhanced return-to-work benefits to supplement
  your current group LTD plan.
• Discounted premiums (discount is portable).
• But, most importantly
• Supplemental income insurance plans enhance
  existing group LTD benefit to maximize income
  protection in the event of a disability

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Group LTD Limitations

• Benefit maximums and offsets
• Benefits usually income-taxable
• Bonus, commission, pension benefits may not be
  covered
• Typically not portable
• Cost of living adjustments typically not standard
• Rate guarantees no longer than three years
• Cancelable coverage by carrier

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Disability Multi-Life Sales

• Everybody Wins with GSI
• Substantial Discounts
• Uni-Sex Rates
• Guarantee to Issue/Simplified Underwriting
• Cross Selling with the Employer
• Tremendous Prospecting Opportunities

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Benjamin K. Perez800.945.9719 Ext. 303drgdi.com