Disability Income Insurance

1. Disability IncomeInsurance

2. Your Health is Your Wealth

3. Mutt & Jeff ECONOMIC VALUE Reprint Permission from King Features Syndicate by J. Cavett, Hearst Corporation 11-20-2000

4. WHEN DISABILITY STRIKES INCOME INCOME INCOME REPLACEMENT THROUGH DISABILITY INCOME INSURANCE D E B T DISABILITY INCOME INSURANCE OR EXPENSES EXPENSES

5. Disability is More Common Than You Think, It Can Happen To Anyone: Over 51 million Americans are classified as disabled, representing 18 percent of the population. - U.S. Census Bureau, Public Information Office, November 2008 In the U.S., a disabling injury occurs every 1 second, a fatal injury occurs every 4 minutes. - National Safety Council, Injury Facts 2008 Ed. Three in 10 workers entering the work force today will become disabled before retiring. - Social Security Administration, Fact Sheet January 31, 2007

6. Disability is More Common Than You Think, It Can Happen To Anyone: Over 6.8 million workers are receiving Social Security Disability benefits, almost half are under age 50. - Social Security Administration, Fact Sheet January 31, 2007 While many people think that disabilities are typically caused by freak accidents, the majority of long-term absences are due to back injuries and illnesses, such as cancer and heart disease. - Council for Disability Awareness, Long-Term Disability Claims Review, 2007 In the last 10 minutes, 498 Americans became disabled. - National Safety Council, Injury Facts 2008 Ed.

7. Disability Often Keeps People Out Of Work: An illness or accident will keep 1 in 5 workers out of work for at least a year before the age of 65. - Life and Health Insurance Foundation for Education, November 2005 One in 7 workers can expect to be disabled for five years or more before retirement. - "Commissioners Disability Table, 1998," Health Insurance Association of America, the New York Times, February 2000 The average long-term disability absence lasts 2.5 years. - Commissioner’s Individual Disability Table A

8. Disability Can Cause Financial Hardship: 71% of American employees live from paycheck to paycheck. - American Payroll Association, "Getting Paid in America" Survey, 2008 Unexpected illnesses and injuries cause 350,000 personal bankruptcies each year. - "Illness and Injury as Contributors to Bankruptcy," Health Affairs, February 2, 2005 Disability causes nearly 50% of all mortgage foreclosures, 2% are caused by death. - Health Affairs, The Policy Journal of the Health Sphere, 2 February 2005

9. Most American Workers Can't Afford to Become Disabled: Over 70% of working Americans do not have enough savings to meet short-term emergencies. - National Investment Watch Survey, A.G. Edwards Inc. 2004 According to the Federal Reserve, 44% of U.S. families spend more than they earn. - Federal Reserve Board, Survey of Consumer Finances 2004 Over 50% of the workforce has no private pension coverage and a third have no retirement savings. - Social Security Administration, Fact Sheet 2007

10. Most American Workers Can't Afford to Become Disabled: In 2007, the median income of households that include any working-age people with disabilities in the US was $38,400. - U.S. Census Bureau, American Community Survey, 2007 Only 40% of adult Americans have separate emergency savings funds. - National survey commissioned by the Consumer Federation of America (CFA) and carried out by Opinion Research Corporation, February 2007. The average American savings rate in October 2008 was 2.4% of disposable personal income, compared to 1985 when the savings rate was 10.3%. - A Guide to the National Income and Product Accounts of the United States (NIPA)

11. Social Security and Workers' Compensation May Not Be Adequate: Close to 90% of disabling accidents and illnesses are not work related. - National Safety Council, Injury Facts 2008 Ed. The average monthly Social Security Disability Insurance (SSDI) benefit is $1,004. - Social Security Administration, Fact Sheet 2008 Less than half - 39% - of the 2.1 million workers who applied for SSDI benefits in 2005 were approved. - Social Security Administration, Office of Disability and Income Security Programs

12. Most American Workers Are Not Covered by Disability Insurance: Over 100 million workers do not have private disability income insurance. - Council for Disability Awareness, Long Term Disability Claims Review, 2005 70% of the private sector workforce has no long-term disability insurance. - Social Security Administration, Fact Sheet January 31, 2007 Disability is a real and growing risk and is widespread in the United States.

13. Facts on Disability 48% of all home foreclosures are the result of disability, while only 3% of all foreclosures results from death. Source: Housing and Home Finance Agency of the U.S. Government, 1998 Disability is the cause of nearly half of all home foreclosures.Source: Compton Insurance Marketing, 2002A fatal injury occurs every 5 minutes. A disabling injury occurs every 1.5 seconds.Source: Injury Facts®, 2003There is a death caused by a motor vehicle crash every 12 minutes. There is a disabling injury every 14 seconds.Source: Injury Facts®, 2003

14. Facts on Disability Income lost through disability is 2 times as great as auto accident losses, and 3 times as great as fire losses.Source: National Safety Council, 20031 in 5 people will be disabled for one year or more before age 65. Source: Compton Insurance Marketing, 2002Women between ages of 35 and 65 are 40% more likely than men to become disabled for 90 or more days. Source: Compton Insurance Marketing, 2002

15. Facts on Disability For 30-year-old males, the risk of a long-term disability is 4.1 times more likely than the risk of death. For 40-year-olds, it is 2.9 times more likely. And at age 50, it is 2.2 times more likely.Source: National Safety Council, 2003Leading contributors to disability burden are road traffic accidents, alcohol use, cardiovascular disease, major depression, and ischemic heart disease.Source: World Health Organization, 2003

16. Facts on Disability Nearly half of small employers (5 to 100 workers) believe that the likelihood of an employee becoming disabled is one in 50. The actual likelihood, ACLI reports, is one in three.Source: American Council of Life Insurers (ACLI), 200332% of the workforce has no savings set aside specifically for retirement.Source: Social Security Basic Facts, July 2004Only around 68% of workers have actually set aside some money for retirement, and only 58% are doing so currently.Source: Employee Benefits Research Institute and Greenwald & Associates, April 2004

17. Disability -vs- Death There are two threats to your ability to earn an income - Death and Disability. We don't know exactly when death will occur, but we know it is inevitable. Disability, on the other hand, isn't a certainty. But what are the chances that you will be disabled before age 65? 1985 CIDTA, Male, 30 Day Elimination Period, Top Occupational Class, and the 1980 CSO

18. Disability -vs- Death An individual’s chances of disability are 2 to 3 times greater than death during their working years. 3.5 to 1 3.5 3.3 to 1 3.0 2.8 to 1 2.7 to 1 2.5 2.2 to 1 2.0 1.5 1.0 0.5 0.0 27 37 42 47 52 AGE Disability Death Commissioner’s Individual Disability Table A

19. The Percentage of People Who Can Expect to Suffer A Long Term Disability of 90 Days or More Before They Reach the Age of 65. 1985 Commissioner's Disability Table

20. The Chances a Disability Lasts Longer Than Expected If a disability of 90 days or more lasts two years, it will probably continue longer, even for life.

21. Income Loss Due to Disability

22. Alternative Sources of IncomeDuring Disability Social Security Disability Payments Worker’s Compensation Personal Savings Family & Friends Bank Loan Group Long-Term Disability Insurance

23. Alternative Sources of IncomeDuring Disability Social Security Disability Payments Qualifying for Social Security benefits is very difficult because the disability must prevent you from doing any kind of work - not just your usual job. The definition of disability for social security states that one must be completely disabled with no hope of recovery for a period of at least one year, or have a disability expected to end in death.

24. Alternative Sources of IncomeDuring Disability Worker’s Compensation Workers Compensation only covers job related sickness or injury. In addition, these benefits are limited.

25. Alternative Sources of IncomeDuring Disability Personal Savings Add up your monthly bills, then multiply by 12 and you can see how fast even substantial savings can be depleted by unexpected illness or injury. If you saved just 5% of your income each year, a six-month disability would wipe out 10 years of savings, and when savings are gone your other assets would begin to dwindle as well.

26. Number of Years' Savings to Equal Income LossBased on Indicated Savings Rate & Duration of Disability

27. ARE YOU PREPARED WHEN DISABILITY STRIKES? Disability is the cause of nearly half of all home foreclosures. Source: Compton Insurance Marketing, 2002 A fatal injury occurs every 5 minutes. A disabling injury occurs every 1.5 seconds. Source: Injury Facts®, 2003 Income lost through disability is 2 times as great as auto accident losses, and 3 times as great as fire losses. Source: National Safety Council, 2003 1 in 5 people will be disabled for one year or more before age 65. Source: Compton Insurance Marketing, 2002

28. Disability You may have saved for the rainy day. But have you saved enough for a hurricane?

29. Alternative Sources of IncomeDuring Disability Family & Friends or Bank Loan After your savings depleted rapidly, would family and friends be so willing to help you out? Even a bank wouldn't want to give a loan to a disabled person with no income and no guaranteed prospect of being able to repay.

30. Alternative Sources of IncomeDuring Disability Group Long-Term Disability Insurance Availing of a disability income plan offered through your employer is a start. But workplace disability benefits often times cover only about 50% of your income. Can your family survive on half of your paycheck?

32. LTD benefits are generally taxable if the employer pays the premiums

33. Many plans don’t cover bonus or incentive compensation

35. The Financial Impact of DisabilityAre You Prepared? A recent Parade Magazine study** found that most Americans are living paycheck to paycheck and have little or no money left after paying their everyday living expenses. Planning ahead in case disability strikes makes good sense. Building a personal financial security plan can help you get an idea of the financial hardship disability may cause you and your family. It can also help you better prepare for the unthinkable. Why not start building your plan today? ** Parade Magazine, April 24, 2006

36. Do You Need Your Monthly Earned Income YES NO Could Sickness or Injury Cause You to Lose It? Could You Live Off With Your Savings to Age 65? YES NO Are You Insurable? YES NO NO YES Can You Live Off With Just Social Security? YES NO Poor Being, You Waited Too Long! No Problem! DI Problem-Solving Flowchart

37. Three Ingredients in aDisability Income Policy COST COST BENEFITS BENEFITS VERBIAGE VERBIAGE

38. Three Ingredients in aDisability Income Policy THE RULE COST The insurance company will always allow you to pick any two of the three ingredients as long as they reserve the right to pick the third. BENEFITS VERBIAGE

39. Three Ingredients in aDisability Income Policy FOR EXAMPLE Suppose you want to spend X amount of dollars per year in premium and want to receive $5,000 per month if you become sick or injured and unable to work. The two ingredients you have chosen are Cost and Benefits. COST BENEFITS VERBIAGE The Insurance Company now picks the third – Verbiage or Policy Language.

40. Three Ingredients in aDisability Income Policy FOR EXAMPLE The company then says, “In exchange for your X dollars per year, we will pay $5,000 per month if you are unable to work because you are hit by a train at 11:35 p.m., Christmas Eve, as it crosses R.M. 620, in Austin, Texas.” COST VERBIAGE BENEFITS You Picked

41. Three Ingredients in aDisability Income Policy FOR EXAMPLE But you say: “Wait a minute, I want $5,000 per month if I am unable to perform the substantial duties of my occupation, no matter what the cause, when or where it occurs.” VERBIAGE BENEFITS You’ve Picked The Insurance Company Now Picks COST

42. Three Ingredients in aDisability Income Policy FOR EXAMPLE You’ve Picked VERBIAGE Consequently, they tell you “In exchange for Ten Dollars per day ($300/month), we will pay you $60,000 per year or $5,000 per month, if you are unable to perform the substantial duties of your occupation, no matter the cause, when or where it occurs.” BENEFITS The Insurance Company Now Picks COST

43. What Really is Covered? What the Client thinks is covered What the Insurance Company thinks is covered What the Policy say is covered

44. Definitions of Disability

45. Pure Own OccupationDefinition of Disability TOTAL DISABILITY occurs if you “unable” to perform the "substantial and material duties" of your occupation or recognized specialty, due to injury or sickness. You must be under a doctor's care.” Note: If while unable to do the "substantial and material duties" of your occupation or recognized specialty and you choose to work in another occupation, the Full Benefit is Paid. However, If you are able to do some of the "substantial and material duties" of your occupation or recognized specialty, you are not considered totally disabled, but would receive proportionate residual disability benefits based on the percent of income lost between 20%-75%. if loss exceeds 75% the Full Benefit is payable.

46. Modified Own OccupationDefinition of Disability TOTAL DISABILITY occurs if due to injury or sickness, you cannot perform the main duties of your occupation, and are "not working" in any other occupation. You must be under a doctor's care." Note: It is your choice to work in another occupation, if you choose not to work the full benefit is paid. If you choose to go back to work, as long as your income loss is greater than 75% of your Indexed Pre-Disability Earnings, you will receive 100% of the monthly benefit. (Extended Partial/Residual Disability Rider) This means you can earn up to 25% of your Indexed Pre-Disability Earnings and still receive the Full Benefit. If you are working and earning 25% or more of indexed pre-disability earnings, you will receive a proportionate benefit based on the percent of income lost between 20% and 75%. If loss exceeds 75%, the Full Benefit is payable.

47. Any OccupationDefinition of Disability TOTAL DISABILITY occurs if due to injury or sickness, you are Unable to perform the main duties of your occupation, and you are "unable" to work in another occupation. You must be under a doctor's care." This means if you are "able to work" in another occupation you are not totally disabled! REMEMBER: The Opposite of Unable is Able!

48. Disability Income InsuranceToo Expensive? If a 40-Year Old Male, Non-Smoker Buys to Age 65 Plan Buys a $250,000 Life Insurance policy Buys a $5,000 a month DI Insurance policy and suffers a disability lasting 90 days or longer, and dies, His Life Insurance policy will pay $250,000 Death Benefit. His Disability Income Insurance policy will pay up to $1,500,000 in Total Benefits

49. Price –vs- Cost We need to understand the difference between Price(Premium) and Cost(Premium/Potential Benefits). In Disability Income Insurance, there is an inverse relationship.

50. Price-vs- Cost The premium structure of disability insurance is deceiving. What appears on the surface to be the least expensive is actually the most expensive, and The benefit period that looks to be the most expensive is actually the cheapest.

51. The Exponential Curve ofDisability Income Insurance Premiums ASSUMPTIONS: Benefit = $5,000/Month; Male, Age 40 Class: 4A Non-Smoker, 90-Day Waiting Period, No Residual & No COLA Annual Benefit: $60,000 TWO-YEAR BENEFIT Maximum Pay-Out: $120,000 Annual Premium: $796 Cost per Thousand: $6.63 10 YEAR BENEFIT Maximum Pay-Out: $600,000 Annual Premium: $1,431 Cost per Thousand: $2.39 TO AGE 65 Maximum Pay-Out: $1,500,000 Annual Premium: $1,758 Cost per Thousand: $1.17 FIVE YEAR BENEFIT Maximum Pay-Out: $300,000 Annual Premium: $1,161 Cost per Thousand: $3.87

52. Disability Income InsurancePremium Cost per 1,000 Comparisons The Two-Year Benefit Plan Costs: 5.80 times as much as the to Age 67 Benefit Plan 5.66 times as much as the to Age 65 Benefit Plan 2.78 times as much as the 10-Year Benefit Plan 1.71 times as much as the 5-Year BenefitPlan The Five-Year Benefit Plan Costs: 3.39 times as much as the to Age 67 Benefit Plan 3.30 times as much as the to Age 65 Benefit Plan 1.62 times as much as the 10-Year Benefit Plan The Ten-Year Benefit Plan Costs: 2.09 times as much as the to Age 67 Benefit Plan 2.03 times as much as the to Age 65 Benefit Plan

53. Disability Income InsurancePremium Cost per 1,000 Comparisons Excel File

54. A Thought About Value Paying Too Much, Paying Too Little IT IS UNWISE TO PAY TOO MUCH... BUT IT IS WORSE TO PAY TOO LITTLE. “When you pay too much, you lose some money... that is all. When you pay too little, you sometimes lose everything, because the thing you bought was incapable of doing the thing it was supposed to do. The common law of business balance prohibits paying a little and getting a lot. It can't be done. If you deal with the lowest bidders, it is well to add something for the risk you run. And if you do that, you will have enough to pay for something better.” - John Ruskin 1819-1900

55. Price-vs- Cost A wise person once said… “When you buy the very best, you only wince once?”

56. Cost-vs- Benefits Before The Sale During The Sale After The Sale

57. Remember If People Don’t Buy the Concept, All the Details are Meaningless! If You Don’t Understand the Details, You are Meaningless!

58. SynergiaBusiness Presentations Joaquin “Duke” G. Wilwayco8301 Ephraim Road, Austin, TX 78717Phone: (512) 799-2999 Fax: (512) 671-6377Email: dgwilwayco@aol.com