Happy New Year!!! Here’s a sales idea to sell more disability with less effort yet earn higher commissions. It’s a great way to start the new selling year.
A recent trend in the individual disability marketplace—Guaranteed Standard Issue Individual Disability Income (GSI) — is stirring up big opportunities for advisors to sell multiple disability income (DI) contracts through a single employer, without the cumbersome financial and medical underwriting associated with these contracts. GSI plans offer tremendous flexibility. They can be designed to be employer-paid or voluntary offerings. And with plans available for as few as five employees, GSI opportunities are plentiful.
Here’s Why
High income employees entirely dependent on the Group Long Term Disability (LTD) plan at the workplace in most cases do not have sufficient income protection.
A Group LTD plan is a good start. But it’s not enough.
All employer-paid group LTD plans have maximum benefit limits, which are often well below the average executive’s compensation. Furthermore, if the benefit is employer-paid, it will be a taxable benefit to the disabled employee on claim. On average, Group LTD plans cover 30-50 percent of executives’ compensation packages. Most financial advisors suggest that their clients aim to replace 60-70 percent of their pre-tax income. For these reasons, many executives need more income protection than group LTD alone can provide.
The Combo
In recent years, individual carriers have stepped- up offers to supplement group LTD plans with guarantee standard issue (GSI) individual policies for groups as small as 5 individuals. Carriers will issue a policy to everyone who meets the conditions for eligibility at standard, discounted unisex rates, with no riders or exclusions.
Consider this common example: employer-paid Group LTD plan covers 60% of base income to a maximum of $6,000. The benefit is taxable.
| Base Annual Income | Total Income with Bonus | Gross Monthy LTD Benefit | Net Monthly LTD Benefit* | Percentage Net Income Replaced* |
| $100,000 | $125,000 | $5,000 | $4,000 | 48% |
| $130,000 | $160,000 | $6,000 | $4,000 | 45% |
| $180,000 | $230,00 | $6,000 | $4,500 | 31% |
| $240,000 | $300,000 | $6,000 | $4500 | 24% |
*Tax bracket assumptions: 20% up to $200,000. 25% at higher incomes.
When you factor in that the benefit is taxable, and that only base income is covered by the group LTD plan, it’s all too common for a company’s executive team to have half or less than half of their take-home pay protected.
This table illustrates the value supplemental disability coverage. Assumes up to an $8,000 maximum monthly IDI, employer-paid.
| Total Income w/ Bonus | Net Monthly Disability Benefit* | Individual DI Net Benefit | Combined Net Monthly Benefit | % Net Income Protected** |
| $125,000 | $4,000 | $2600 | $6600 | 80% |
| $160,000 | $4800 | $3600 | $8400 | 79% |
| $230,000 | $4,500 | $5,600 | $10,100 | 70% |
| $300,000 | $4,500 | $6,000 | $10,500 | 56% |
* Tax bracket assumptions: 20% up to $200,000. 25% at higher incomes.
Structuring the Combo
Professional organizations such as law firms, accounting firms, architectural firms and health care institutions are excellent candidates for GSI. Many times these organizations have high caps—over $15K—on their Group LTD plans to cover the high earning individuals in the group. However, carriers place a significant rate increase on Group LTD plans with maximum benefit limits over $15K. Furthermore, one significant claim can quadruple the Group LTD rate for the entire group. In the long run, it can be more cost- effective to lower the Group LTD cap to $10-$15K and layer GSI on top for the high earning executives in the organization. This strategy places more of the risk on the individual side where premiums are not affected by claims. In addition, broker compensation is significantly higher on GSI plans. First year GSI commissions average between 30-50% of the premium as opposed to 10% on Group LTD plans. Moreover, another broker cannot take over or rip out an established GSI plan, which creates more security for the writing agent.
Source Brokerage can help you get started. All we need is a census to prepare a quote. We’ll review the census with you to determine if the group is a good candidate for GSI.
Contact Steve Crowe at ext. 222, Ellen Crowe at ext. 223 or Brian Hettmansberger at ext. 230 for quotes, tools and sales strategies. Also try our online quote request tool.
