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What to do when your high-income clients are underinsured.

What does it mean to be underinsured? It's generally understood as having insufficient insurance to cover the value of something--an easy concept to understand when it comes to automobiles or a piece of fine art, but a lot more complex when talking about the value of an individual's income.

When it comes to disability insurance, we often find that high-income earners are underinsured and cannot obtain adequate insurance through domestic market carriers because of their occupations, avocations, or medical histories. This presents you with an opportunity to look at high-limit disability products designed to protect against any insurance shortcomings.

Let's take a look at some examples:

* High-earning executives: Many executives earn in excess of $500,000 annually. An executive making $500,000 who has the typical disability coverage of $15,000 per month is only protecting 36 percent of their income.

Case study: A CEO earning $1.6 million with $25,000 per month of personal disability in force seeks an additional $55,000 per month to bring their replacement ratio from 19 percent to 60 percent of gross income. A high-limit disability income product could fill that gap.

* Mergers/acquisitions: Corporations involved in mergers and acquisitions often apply for life insurance on a key employee or employees to protect their investment. Fewer are applying for disability income insurance on the same key employee(s). Current data has shown that the risk of disability versus death during a defined time period has greatly increased because of advancements in medical treatments and safety technology. In cases like these, a corporation's key employees are likely underinsured.

Case study: A private equity firm closed the acquisition of a new portfolio company. As a condition of the deal, $10 million of key person life and disability coverage was required to be in force on the CEO. Looking to high-limit disability providers, a $10 million lump sum benefit was arranged in the event of a permanent total disability, protecting the company if the CEO becomes disabled.

* Overcoming underwriting periods: Corporations applying for life and/ or disability insurance on a key employee may have to wait up to 90 days for the underwriting to be completed and a policy placed. During the underwriting period, the corporation is facing a period of time where there is no coverage in place.

Case study: A private equity firm was scheduled to close the acquisition of a new portfolio company. As a condition of the deal, $10 million of key person coverage was required to be in force on the CEO before the deal could be completed--a clause overlooked until the closing date. Accessing the high-limit disability income insurance marketplace, $10 million of key person coverage was secured on a 90-day interim basis the same day, allowing the deal to close while traditional underwriting procedures were being completed.

* Entertainers: This often hard-to-define occupation may be the most at risk for being underinsured. For those at the top of the heap and earning millions of dollars per year, traditional carriers are typically unable to provide the amount of insurance needed to meet the standard 60 percent of salary, resulting in an underinsured individual.

Case study: A famous actress was in need of personal disability coverage, but no coverage was available through traditional carriers at the amounts being applied for. Once again looking to the high-limit specialty disability income insurers, a total disability policy was secured, which would pay $50,000 per month for up to five years, followed by a $2 million lump-sum payout, with a plan designed especially to meet the needs of artists and entertainers.

* High-risk foreign travel: Any individual whose occupation requires them to travel to high-risk areas is typically declined for many types of insurance, especially while traveling outside the United States. Whether the travel is for business or pleasure, these travelers are risking a lot more than the perils of Montezuma's revenge when they travel without adequate insurance coverage. Beyond disability, protection can be obtained for accidental death, including limited war and terrorism-related deaths.

Case study: An engineering firm is sending several civilians to Iraq. Traditional life insurance policies will not cover these individuals out of the country. Using specialty providers, accidental death and dismemberment coverage can be secured to provide $150,000 per person including coverage for war and terrorism-related deaths on a 12-month policy.

Ed Kenney is senior vice president of Hanleigh Special Markets, a Crump Company. He can be reached at 201-505-1050.
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Title Annotation:Products
Author:Kenney, Ed
Publication:Agent's Sales Journal
Date:Feb 1, 2009
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