The problem with disability

As the industry bids another disability insurance awareness month goodbye, one broker reminds us that the product remains the most undersold worksite offering.

"Other products are just easier to sell," says Jim Christensen, CEBS, director of workplace at Emerson, Reid & Co. in Newtown Square, Penn.

While disability remains the second largest worksite product line, sales have slowed considerably over the last couple of years compared to other products. According to Eastbridge Consulting Group, disability sales grew just 3 percent in 2004.

But the need for disability insurance is as great as ever.

The Life and Health Insurance Foundation for Education is a nonprofit organization with the self-appointed role of public educator of life, disability and health insurance as part of a larger financial strategy. According to LIFE, nearly one in five Americans will become disabled for a year or longer before the age of 65.

Nearly 60 percent of Americans believe they can remain financially stable for longer than three months if they were to suddenly lose half their income. But a Census Bureau study reveals that a typical 35-year-old making $50,000 a year had enough savings on hand to cover only two months of expenses. And the numbers indicate that most disabilities last more than three months, while more than 1.5 million Americans are considered permanently disabled and will probably never make it back to work.

Mike Simonds, UnumProvident vice president, marketing and product development, crunches the numbers.

"Actuaries tell us there is a greater chance of becoming disabled than dying before age 65. Yet 61 percent of Americans carry life insurance, but, according to the Bureau of Labor Statistics, 37 percent of employees participate in short-term disability benefits and only 28 percent participate in long-term disability benefits," Simonds says.

Candace Kaplan, CFP, RHU, ChFC, agrees. The president of Kaplan Financial Group, a Washington, D.C., financial services firm, says the economic environment is a big part of that growing need.

"The need for disability coverage is greater than ever, with layoffs from the larger companies, and with more small employers in the marketplace these days, consumers cannot always count on DI as an employee benefit," Kaplan explains. "Also, with the growth of female-owned businesses, there has been a growing demand for DI, as women tend to be very conscious of their morbidity and mortality."

So what's the problem?
The biggest problem facing brokers trying to make the disability sale is the public's -- and the employer's -- inability to see the need.

Ask any employee at the enrollment and more often than not they simply think they don't need it. But what those same naysayers don't grasp is that illnesses -- not on-the-job accidents -- are the leading causes for disability claims. More than 95 percent of disability claims are a result of illness.

"Employees are not aware of the consequences of disability and suffer from Superman syndrome, as in 'it will never happen to me,'" Christensen says. "No one wakes up and says I think I will have a stroke today and most people are unaware of just how long illness recovery periods are. We tend to talk about the lucky ones that get discovered early and are back at home two days after bypass surgery."

Karen Trumbull English, partner at Spring Consulting Group, echoes that sentiment.

"People do not realize that they are three times more likely to be disabled than die and that depending on where their injury occurs (at work or at home), their coverage can be minimal or even non-existent," she says.

But she's also quick to point out that employers bear some of that responsibility as well.

"Some employers are not recognizing their work forces are aging, and they will be challenged with managing older and sicker employees with tight budgets and increasing pressure to improve productivity," English adds.

Most employees also mistakenly believe the government will take care of them when they get hurt.

Yet Social Security disability benefits aren't exactly cut and dry. According to LIFE, the average monthly payment for a disabled worker is $817, or just above the federal poverty level. And benefits are tough to get. The feds turn away roughly 70 percent of those who apply for Social Security disability benefits.

Price, or at least the perception of it, also looms as a large obstacle to the disability sale.

"It is the most expensive voluntary product," Christenson says.

Renee Guariglia, executive vice president at Syracuse, N.Y.-based Falcone Associates Inc., agrees employees often suffer sticker shock.

"People are shocked at the cost of disability insurance especially when they are trying to protect as much of their income as possible, for as long as possible and with benefits paying as soon as they become disabled," she says.

And English points out the price is part of a larger expense-related objection.

"Lack of knowledge and/or priority are really the biggest obstacles, with price being another one for both individuals and employers as they think about what a new 'spend' means for their individual and corporate budgets," she says.

With so much standing in the way, how is the sale made?

Unum's Simonds says the responsibility rests with the broker.

"In today's complex marketplace, brokers play an important role in helping their clients understand the issues and risks. Disability is not a one-size-fits-all product, and it is incumbent upon the broker to be aware of all the benefits and services available so a solution can be crafted to best meet the customer's needs."

At least as far as the price objection, Christenson says it's all about what the employee gets in return.

"Price is always overcome by selling value. When I sell disability insurance, I try to keep it as a single offering. I stress that our ability to earn an income is our most important ability. For example, if I am 45 years old and earn $50,000, I will earn $1 million by the time I turn 65. If I spent $2 a week on a $2,500 disability policy, I would only need to collect on that policy one month every 30 months to break even. If I became disabled permanently, I would collect more than $600,000.

English says that's its important to address the employers' concerns, as well.

"For employers, helping them understand the impact that absence has on their bottom line, and that disability insurance can provide a means for them to provide a competitive benefit while at the same time a means to manage return to work, will help them see how it fits into the big picture," she says.

An important distinction to make to employees is that life insurance protects their family in case of death. Disability insurance protects income in case of serious illness or injury, which happens much more frequently. Convince them it can happen to them.

And half the battle is won.