Disability Insurance Education

Three Underwriting secrets for securing more approvals in less time, with fewer disappointed clients

You successfully secured an appointment, made the case for disability insurance, overcame the price objections and submitted the application. Now all that's left to do is sit back and wait for the commission, right? Hopefully.

Unfortunately, many agents find that submitting the application is the first in a series of grueling underwriting steps that end with long and confusing client conversations about exclusions, class changes and premium hikes.

What's a hard-working agent to do? In five words: Give underwriters what they want.

So, what DO underwriters want?

It's really quite simple. They want accurate information in three critical areas:

1. Current income
2. Occupational class
3. Medical history

SECRET #1:

Ask the right income questions and then carefully manage expectations.

A good rule of thumb for determining a benefit amount is to calculate 60 percent of a client's gross income. However, the gross income level may not be what it seems. The key is to ask your client to come to the appointment with answers to these crucial questions:

1. Are you self-employed or do you work for someone else?
2. If you work for someone else: What percentage of your income is from base pay? What percentage is from commissions or bonuses?
   1. If 100% base pay: What are your documented gross earnings for the past six months? Get one paystub that shows six months of history or the multiple paychecks needed to document six months. Last year's 1040 Form and supporting W-2s may also be used.

      

      b. If mixture of base pay, commission and bonus: At the end of last year, what did your 1040 tax form show for your annual earnings? This is normally reported on page one as W-2 earnings.

3. If self-employed: At the end of last year, what did your 1040 tax form show for your NET annual earnings as reported on Schedules C or E plus W-2, if applicable? How about the year before?

Use the last year's W-2 figure as the gross pay to estimate the benefit amount. So, if the client earns $75,000 per year, the monthly gross income is $6,250 and the 60 percent ballpark would be 3,750. From there, explain that each carrier applies maximum benefit levels, based upon the client's occupational class and medical history. In this example, most carriers would provide a maximum base benefit amount of $2,780 and a SSI rider of $1,170 resulting in a total benefit amount of $3,950pretty close to the 60 percent ballpark. However, that's assuming atypical occupational class and medical history. When meeting with your client, it's best to stay general until you have been informed of his/her actual earned income. Follow D.I. Dan's script to establish a ballpark, while managing client expectations.

D.I. Dan's Script:

Your gross annual salary is $75,000? Great, that means you're earning $6,250 each month, gross. Now I'm going to multiply that by 60 percent to get a rough ballpark of what you can expect for your monthly benefit amount. 60 percent of $6,250 is $3,750. Remember, disability benefits are tax free. Now, I want to be clear that $3,750 is just a ballpark figure. We'll have to review your income documentation before we know the exact figure. The underwriters may adjust that number based on your occupation or your medical history. Whatever the figure, it's better to have some protection in the event of disability, rather than none at all. Don't you agree?

Do your clients get frustrated by the required income documentation?

Quickly review the requirements needed to obtain a mortgage loan compared to the requirements to obtain a DI policy. It's actually not too bad!

D.I. Dan's Script:

Well, I know all this documentation is a pain, but it's definitely worth your time, especially when you consider that this policy will pay over one-million dollars if you become sick or hurt. Banks ask for a lot more just to give you a loan on a $300,000 house and they can get the house back if you don't pay your mortgage. The odds of becoming sick or hurt are so high it's easy to see why they want to know a little about those who they insure.

SECRET #2:

Obtain a clear understanding of the client's occupational duties.

This is a big pitfall for many agents. They write down the client's job title without asking questions about the duties performed. The duties performed (not the job title) determine the occupational class and the premium charged. For example, one agent submitted an application for an Oil Company Owner.

Initially, that would suggest a 5A class with the most favorable rates. However, after learning the job duties, the underwriters determined that the applicant was really an Owner-Operator of a gas station, with an A classification. This occupational class change more than doubled the price of the DI plan!

Lesson learned: Always look at the duties not the title!

D.I. Dan's Script:

Now, I'd like you to tell me about your job

• Is it full-time or part-time? (If part-time, ask the same questions about other jobs. Note: The client must work at least 30 hours per week to qualify for coverage).
• What kinds of things do you do in an average week?
• How much time do you spend supervising these activities? How often do you personally perform these activities?
• Have you been doing this type of work for at least three years in a row?
• What percentage of time do you spend working in your office? Working at home? Working in the field or your car? Traveling?
• What kind of certifications / licenses do you have?
• How many years of education do you have? Bachelor's degree?
• IF DOCTOR: Do you perform surgeries or interventional procedures? What percentage of your income is derived from surgeries?
• What is the most hazardous part of your job? How often do you do that hazardous activity?
• IF YOU BELIEVE CLIENT MAY BE 4A: Have you earned at least $75,000 per year in each of the past three years?
• IF YOU BELIEVE CLIENT MAY BE 3A: Have you earned at least $40,000 per year in each of the past three years?
• IF SELF-EMPLOYED: What percentage of the business do you own? What is the legal entity type (i.e. S-Corp, LLC, Sole Proprietorship, C-Corp, Partnership)?

 

This provides a rough picture of the class structure. Each carrier's guidelines are slightly different.

SECRET #3:

Be thorough with medical information.

This is no time to be shy. Tell your client that it's important to be forthcoming about any and all medical conditions. The client can either give you the information directly, or, use the telephone application option to provide his/her medical information to the carrier. It's best to know about medical impairments up front so that we can shop for coverage from carriers that accept medically impaired risks.

Not Recommended:

• Copying medical information off old medical exams from prior files
• Assuming no change in medical history without specifically asking the questions
• Providing only the last name of doctors consulted without phone and address
• Providing only sketchy info about treatment, dates, prescriptions, recovery / resolution

Strongly Recommended:

• Tell your client that taking five minutes to carefully record up-to-date medical information today will save weeks in the underwriting process
• Ask every question on the medical section of the application, even if the client is being examined
• Allow us to cut down on the time it takes to get an APS by providing the info needed up front without waiting for the exam
• When a question is answered "yes," get the dates treatment was provided, medicines prescribed and the issue resolution. Also include the name and contact information for the practitioner consulted

 

D.I. Dan's Script:

We're almost finished. The last thing that I need to ask you about is your medical history. It's important that you're forthcoming about any treatment or medication. Even if you have some type of medical impairment, chances are good that we can get you a policy if we have that information up front and can approach the right carrier. Believe me ... Being thorough now will save us weeks of underwriting time and hassles. We have two options - you can either answer some questions for me, or, if you'd prefer I can arrange to have you provide the medical information to the carrier directly by phone. Which do you prefer?

THREE SECRETS ADD UP TO UNDERWRITING SUCCESS

When it comes to making friends with underwriting, there truly are no shortcuts. Each of the three secrets has one common ingredient: Thorough and accurate information. Increased preparation leads to increased approval rates every time. Don't be afraid to ask your clients for the necessary documentation. Yes, it can be uncomfortable. But, remember, they provide a lot more information than that every time they apply for a home loan. Considering the potential risks and the potential benefits, it's well worth the time.

Daniel C. Steenerson, CLU, ChFC, RHU is a principal of Disability Insurance Services, a national disability brokerage agency which specializes in assisting insurance producers with case design and product support of individual non-cancelable disability products. He can be reached at: Disability Insurance Services, 4444 Zion Avenue, Suite B, San Diego, CA 92120 / 800-898-9641 / fax 619-325-8444 /