Expecting The Unexpected.

Agents can translate a growing need for individual income protection and long-term care into additional sales.

Investing in individual income protection is a critical element of an effective financial plan that is often overlooked. The ability to earn an income is an individual's greatest financial asset. When someone becomes disabled, that person can lose the ability to pay day-to-day expenses, to afford a home, to pay for a child's education, to cover the cost of important medical treatment and to save for the future.

In order to create a truly solid financial plan, income earners need to do more than just save for the future--they need to protect themselves against the unexpected. The loss of the ability to earn and save can undermine and erode all other financial investments that have been made to prepare for the future, quickly exhausting a life's savings.

Many people do not have all the information they need about the value of income protection, including long-term and short-term disability cover-ages and long-term-care insurance and how the lack of adequate protection can affect a person's financial future. Herein lies an opportunity for insurance agents. People rarely hesitate to protect their homes with homeowners or renters insurance, their cars with auto insurance and the financial future of their family or loved ones with life insurance. But many people fail to protect their income--the asset that makes all other assets possible.

Nobody Is Immune

Even income earners who have some form of income protection through their place of employment are at risk of financial loss due to a disability. For instance, highly compensated employees who are unable to work due to a disability may discover that their salary far exceeds the replacement ratio offered through their affordable group policy. As a result, the monthly income they receive on a disability claim is not enough to preserve their assets and lifestyle. Or maybe middle-income earners who through a claim on their group policy are eligible to receive a high percentage of their salary--perhaps just about as much as if they were working--are vulnerable to a devastating financial loss if they develop a severe illness or disability that incurs high expenses, such as private health care, rehabilitation or additional child care.

From blue-collar workers to executives, income earners who lack an understanding of the benefits and products that are available to them and who do not examine their financial portfolio to determine whether they would have an adequate income should a disability arise may be exposed to the financial risks of being underinsured.

Change Is Constant

Keeping income-protection coverage up to date is a continual process: With changes in needs or in lifestyle, a benefit package quickly becomes outmoded. When a customer purchases a home, has children or takes out a loan, that person's income coverage needs change. Such life changes bring about additional financial liabilities, and people become even more reliant upon their ability to earn an income. As a result, they increase their need for adequate protection.

Customers with income-protection plans need to re-evaluate their coverage periodically. They may not realize that over time, their salaries may have increased to a point where they now exceed the payment cap of their group coverage. Or they may not realize that their coverage does not protect important variable compensation, such as bonuses.

Another common misconception is that only elderly people need to have long-term-care insurance. In fact, nearly 50% of Americans receiving long-term care are under age 65, according to the 2000 Medical Expenditure Panel Survey Findings 12, published by the Agency for Healthcare Research and Quality, a division of the U.S. Department of Health and Human Services.

Employment Variables

Several trends in the employment market have contributed to the increased gap of people without income-protection coverage. To cover the rising costs of health-care benefits and prescription drugs, many employers have reduced budgets designated for other types of benefits and have shifted some of the financial responsibility for those benefits to employees. With income-protection benefits, some employers have trimmed costs by lowering payment caps for employees. Many individuals also are under the impression that the government will cover long-term-care costs, but the reality is that individuals and their families bear the biggest burden.

More employers are turning to the use of variable compensation for employees--a form of compensation often not covered by standard group income-protection plans. According to a 2000 study by Hewitt Associates LLC, a consulting firm specializing in human-resources issues, 78% of surveyed employers had at least one type of variable compensation in place in 2000-up from 70% in 1999 and 47% in 1990. Although many more employees receive variable compensation on a regular basis than ever before, few employees have the necessary income-protection coverage to protect that valuable asset.

Opportunities for Agents

Given this need for individual income protection, producers are presented with valuable sales opportunities when they look critically at their existing customers' income-protection plans. Producers must determine whether the current coverage is suited to meet the changing needs of each individual and whether their customers' income and assets will be protected for a lifetime. By presenting customers with an opportunity to purchase supplemental group protection with the appropriate individual income-protection features--either voluntary supplemental benefits or executive benefits--and long-termcare coverage, a producer can help make sure that the customer's assets are protected in the future.

Selling an integrated portfolio of benefits also serves the producer. Producers can stand apart from competitors when they educate their existing customers about coverage gaps and offer supplemental products to meet that need. Customers value the opportunity to customize their portfolio of coverages by selecting products and services specific to their individual needs. And since the integration of such products allows customers to tailor their coverage through various stages of life, selling comprehensive lifelong financial protection helps producers to nurture and solidify valuable customer relationships over time and build customers for life.

The sale of supplemental voluntary benefits through a comprehensive workplace-benefits package offers advantages to both the employee and the employer. When employers add a voluntary supplemental plan, it is possible to provide employees with the advantages of additional protection, with no disturbance to the group plan and no additional strains on the benefit budget. Plus, by offering employees the opportunity to supplement group policies with individual protection, employers often benefit from value-added features that ultimately bring about important cost savings for the company. For example, some insurance companies offer valuable return-to-work support and rehabilitation options that help employees recover from a disabling condition. With the addition of these premium features, voluntary benefits have helped smaller employers compete with larger employers by giving smaller employers an affordable way to offer comparable benefits.

Supplemental individual income protection is designed to be convenient and affordable for employees. Certain individual plans are constructed to integrate easily with a corresponding group income-protection plan; these combinations of plans are written with common language, common definitions and complementary features so the individual and group plans are integrated and highly compatible. By purchasing a supplemental plan through their employer, payment can be done through payroll deductions.

For the executive client, individual disability protection provides coverage for compensation not addressed in other plans, which is particularly beneficial to those with higher salaries who often do not receive adequate protection due to payment caps. In addition to increasing income-replacement ratios, supplemental insurance can be used to cover bonuses and other forms of variable compensation not addressed in many group plans and entitle clients to tax-free individual benefits if they pay for that coverage with after-tax dollars. Individual income protection is also portable, another important benefit to executives in a fluid job market.

Long-Term-Care Component

Whether a customer opts for supplemental voluntary benefits or executive benefits, the key to ensuring that all customers maintain the ability to preserve their assets for a lifetime--and the freedom of choice that comes with financial stability--is the integration of long-term-care insurance in the benefit package. It does not take long for the cost of long-term care to deplete a customer's savings and assets. According to the Health Insurance Association of America's 1999 Guide to Long Term Care, the average cost of nursing home care in the United States is $46,000 a year-although in some regions of the country it can reach twice that amount--and home-care expenses can equal $12,000 or more annually.

It is important to inform customers that the purchase of long-term care is not just about paying for nursing-home care. The majority of long-term care is provided in the home. Long-term-care insurance allows customers to maintain choice and control over their lives by giving them the resources to choose who will provide care, where they will receive care and how assets should be used.

Younger buyers sometimes have difficulty relating to the need for long-term care. But many younger income earners can relate to the need to preserve quality of care later in life and the desire to protect the nest egg that they are working hard to build. And that trend is growing. According to a 1999 survey conducted by the American Council of Life Insurers, when long-term-care planning is incorporated in the retirement-planning process, it motivates younger people to buy--more workers are thinking that long-term-care insurance is part of a retirement plan and is not just for after retirement.

The integration of long-term care with affordable group disability coverage and an appropriate supplemental individual income-protection plan offers income earners the opportunity to build customized, cost-effective benefit plans that provide a lifetime of financial protection. This mix of product offerings is designed to meet the needs of employees at all levels and at all career stages, so all employees have access to complete financial protection.

Kevin P. McCarthy is senior vice president of Products, Marketing and International with UnumProvident Corp.