Unit 9 Berkshire Personal Disability Insurance Products Let s take a close look 1
Personal DI Products High quality markets require high quality products Berkshire s individual disability income products meet all the Essentials of a High quality solution Designed to meet the personal needs of: Professionals Owners of small businesses Executives ProVider Plus Policy form 1100 policy for individual sales. Premiums are sex-distinct. Policy form 0100 policy Employer-sponsored plans or association cases Premiums are unisex. 2
PayGuard Policy form NC 56-A Personal reducing term policy, issued by Guardian Designed to cover long-term debt or other obligations Premiums are sex-distinct. Key Features & Benefits 3
Renewability The Provider Plus is non-cancelable and guaranteed renewable to age 65. This means that Berkshire cannot: cancel the policy; change policy provisions; increase the policy premium after issue... as long as premium payments are made on a timely basis. Renewability after age 65 Conditionally renewable for life. Continued for life at premiums then in effect for his or her age and class of risk Premiums can change on an annual basis Insured must also be: At work full time (min. 30 hours per week) for at least 10 months each year. 4
Occupation Class One of the primary determinants of risk Reflect the company s claims experience Determines both pricing & the benefits that are available Higher the occupation class, the lower the risk, and therefore the price of coverage. 5
Identify Occupation Class Important that you accurately identify an individual s occ class before developing a DI proposal Individual s occupation is made up of his or her duties, not job title Provider Plus policy was designed specifically for individuals in Classes 6 3; in general these occupations should also make up your preferred markets. Berkshire s Occupation Classes Class 6: CPA, Attorney, some Corp Executives, some Architects Class 5: Biochemist, CFO, other Corp Executives, Investment Banker, Pharmacist optometrists, small animal vets, pharmacists Class 4: Computer Programmer, Exec Recruiter, consultants, many non-surgical medical specialties, pediatricians, dermatologists 6
Berkshire s Occupation Classes Class 4P: Dentist, surgeons, allergist, more non-surgical medical specialties, surgeons, family physicians, psychiatrists, dentists Definition of Total Disability Classes 6, 5, 4, 4P Because of sickness or injury, not able to perform the material and substantial duties of your occupation Your occupation means the occupation (or occupations) engaged in at the time disability begins You can work in some other capacity and still collect total disability benefits so long as you are not able to work in your occupation. 7
Occupation Class 3 Clergy Computer Operator Dental Technician Food Broker Definition of Total Disability Class 3 Pure own occupation benefits for 5 years Afterwards, in the same claim, total disability benefits are payable if you are unable to perform the material & substantial duties of your occupation and not actually at work in any occupation. 8
Specialty Language Classes 6 3 If your occupation is limited to a single medical specialty certified by the American Board of Medical Specialties, or A single dental specialty recognized by the American Dental Association Berkshire will deem your specialty to be your occupation. Berkshire s Occupation Classes Class 2*: electricians, plumbers, machinists Class 1*: carpenters, painters, delivery people *Available only in multi-life employersponsored plans; Class 2 is also available to business owners who have owned the business for at least 5 years. 9
Definition for Classes 2 & 1 Pure own occupation benefits for up to 5 years in any one claim However, the actual maximum benefit period available for Class 2 is either 2 or 5 years. For Class 1 the maximum benefit period is 2years. Move Up Option Certain occupations can move up one class if requirements met (see next slide..) The Move Up requirements vary with each occupation Occupational Classification Guide gives specifics 10
Sample Criteria for Move-Up-1 A. $50,000 Income last 2 years B. $75,000 income past 3 years C. Travel less than 25% of time D. Few or no selling duties E. Owner of business for 5 or more years F. Supervisor of Class 4 risks only Sample Criteria for Move-Up-2 G. At least 5 full time employees H. Well established, financially sound firm I. Income >$50,000 & 5 years in insurance business, has CLU/ChFC designation J. Minimum 3 years experience in occupation 11
Monthly Indemnity ( MI ) Dollar amount stated in the policy that is payable for total disability Amount available (determined at time policy is issued) depends upon: Earned income Occupation class Other disability coverage in force (both individual & group LTD coverage) Who pays the premium Who pays the premium? Employer-paid benefits are taxable when received Therefore employer-pay limits are higher than the Individual-pay limits 12
Issue & Participation Issue limit is maximum amount Berkshire itself will offer; this is subject to Participation, which is maximum amount Berkshire is willing to allow in-force its own coverage+what others have issued Issue & Participation tables located in Underwriting Guidelines brochure 13
Maximum Issue Limits by Occupation Class Class Maximum Issue Limits 6, 5, 4 (thru age 60) 15,000 4P*, 3 10,000* 2 7,500 1 7,500 *If Telemed underwriting is utilized, Class 4P is eligible for $12,500 or $15,000 maximum amount, depending on specialty Participation with Group LTD For Classes 6 3 Normally, Berkshire will participate up to $25,000 with group LTD; BUT maximum $15,000 for physicians, dentists, podiatrists, and all other class 3 risks. 14
Lower Limits CA, FL California & Florida Issue limit is $10,000 Participation limit is $15,000 Issue & Participation Example Class 5, income $150,000 No other coverage Berkshire would issue: $6,650 15
Issue & Participation Example $225,000 income $5,000 individual non-can coverage in force Berkshire would issue $3,900 Issue & Participation Example $400,000 income $20,000 Group LTD in force Berkshire would issue $5,000 16
Elimination Period ( EP ) Time during which one must be disabled before monthly benefits become payable. Available elimination periods 1, 2, 3, 6, 12* and 24* months. May be disabled from different causes during the EP Accumulation Period First day of disability starts an accumulation period Accumulation Period is the amount of time insured has to reach the elimination period 17
Accumulation Period is Based on Elimination Period Days do Not have to be consecutive Elimination Period Accumulation Period 1 month 3 months 2 months 5 months 3 months 7 months 6 months 12 months 12 months* 18 months 24 months* 30 months *not available in some states Recurrent disability (Benefit Period To Age 65 ) Recurrent periods of disability considered one continuous period If not separated by recovery of more than 12 months If subsequent disability is be due to the same cause or causes as the first Benefits are payable without a new elimination period 18
Recurrent disability (Shorter Benefit Periods) Recurrent periods of disability considered one continuous period If not separated by recovery of more than SIX months If subsequent disability is be due to the same cause or causes as the first Benefits are payable without a new elimination period When are Benefits Actually Paid? Monthly benefit begins to accrue at the end of the elimination period But benefit is not paid immediately after EP Just like a paycheck, first benefit check is payable in arrears after the insured has been disabled for a full month beyond the elimination period 19
Timeline for Claim (3 Month EP) Months 1 3 Insured is disabled & elimination period is being satisfied Month 4 Insured remains disabled & benefit begins to accrue Beginning of Month 5 (after 4 months) Benefit paid for month 4 of disability UNIQUE PROVISION: Waiver of Elimination Period Berkshire will waive the EP if an insured becomes disabled within 5 years of certain disabilities Requirement for Prior disability Lasted at least 6 months Benefits were paid 20
Benefit Period Longest period of time for which benefits are payable for a covered disability Available periods: 2 years, 5 years, to age 65 and lifetime ( x45 ) Benefit Periods Available varies by Occ Class Classes 6, 5,4, 4P, 3-2 years, 5 years, to 65, lifetime Class 2-2 years, 5 years Class 1-2 years 21
Lifetime Benefit Period Provider Plus lifetime benefit period (X45) Purpose of lifetime benefits is to replace the retirement income that would be lost due to disability Person who becomes totally disabled prior to age 45 would continue to receive the full monthly indemnity after age 65, for life Disability at age 46 or later If disability occurs at or after age 46, FULL benefits payable before age 65 Benefit payable after age 65 is less Benefit after 65 grades down by 5% for each year beyond age 45 at which disability started. 22
x45 claim example $10,000 monthly benefit Lifetime x45 Insured becomes disabled at age 50 FULL $10,000 per month paid to age 65 5x5% benefit reduction (25%) after age 65 Reduction is 5% x number of years past 45 Age Disability Occurs Benefit Payable After 65 Age Disability Occurs Benefit Payable After 65 Before age 45 100% 55 50% 46 95% 56 45% 47 90% 57 40% 48 85% 58 35% 49 80% 59 30% 50 75% 60 25% 51 70% 61 20% 52 65% 62 15% 53 60% 63 10% 54 55% 64 5% 23
Presumptive Total Disability Total disability is presumed Even if the insured is at work Requires total and complete loss of sight, hearing, speech, use of two arms or legs, or one arm & one leg, in their entirety Unexpired part of the elimination period from the date of loss will be waived. Presumptive benefit is payable for the entire benefit period. Capital Sum Benefit Loss of sight in one eye, with no possible recovery; or the complete loss of a hand or foot by severance. A lump sum benefit is paid for the entire loss (from sickness or injury) of: Capital Sum amount equals 12 times the Monthly Indemnity of the policy, and is payable in addition to any other benefits payable under the policy. 24
Rehabilitation Benefit Additional benefits for cost of rehabilitation program while totally disabled Berkshire must agree to the program in writing before it starts Program must be a formal plan of retraining to help insured return to work in his occupation. Rehabilitation Benefit training program must be directed by an organization or individual licensed or accredited covers only costs which are not otherwise covered by health insurance, workers compensation, or any other public program. 25
Transplant & Cosmetic Surgery When the insured is totally disabled because of: Transplant of a part of his/her body to another person Cosmetic surgery to improve appearance or correct a disfigurement. Waiver of Premium requires disability for at least 3 months (or the EP, if shorter) premiums due and paid during that period are refunded premiums that falls due while disabled or within 3 months after recovery are waived On a policy anniversary, premium will be annualized even if you were normally paying premiums on another basis (e.g., quarterly). 26
Exclusions & Limitations Purpose: manage risk prevent potential abuse of the policy make necessary coverage affordable for policyowners. Exclusions & Limitations The Provider Plus will not pay benefits: During any time of incarceration For disability resulting from suspension, revocation or surrender of the insured s professional license. 27
Exclusions & Limitations For normal pregnancy or childbirth no benefits are payable until after 3 months of total disability, or the elimination period, if longer (1100 policy only). Exclusions & Limitations Benefits paid for no more than 12 months during the lifetime of the policy when you are not a resident of the United States or Canada. 28
Optional Benefits All Classes: Social Insurance Substitute Rider Group Disability Insurance Replacement Rider Unemployment Premium Waiver Option Rider Optional Benefits Classes 6, 5, 4, 4P, 3: Residual Disability Riders - Full Benefit Period or 2 years Cost of Living Adjustment Rider (COLA) Future Increase Option (FIO) Automatic Increase Rider (AIR) 29
Classes 2 & 1: Optional Benefits Partial Disability Rider Residual Disability Provides benefit for income loss Reduced ability to work Returning to full-time work after disability 30
Definition of Residual Disability Insured is working Not totally disabled Income loss at least 20% Benefit paid based on percentage of income loss suffered due to the disability Two versions Entire benefit period or 2 years Features of Residual Disability Rider Residual disability counts toward satisfaction of elimination period 1 st 6 months: minimum benefit payment is 50% of total disability benefit 31
Current Income Current income salary, bonus, commissions, and includes share of C Corp taxable profits + qualified plan contributions Current income does not include income from services rendered prior to disability Prior Income Prior Monthly Income is averaged Over past full calendar year OR Over two highest out of last three years Prior income is indexed after 12 months of claim 32
Features of Residual Disability Rider After first 6 months of claim, benefit is determined for 6 month period by average income from prior 6 months Income loss > 75% = 100% benefit When back to work full-time, benefits payable as long as loss is at least 20% But benefits continue below 20% loss, until benefit < $500 per month Example of Income Averaging First 6 months of claim, loss of income is 75%,75%, 60%,50%,50%,40% Average of these is 58.3% For next 6 months of claim, benefit will be 58.3% of total disability benefit REGARDLESS of actual loss Berkshire can agree to other averaging periods or no averaging, but 33
Example of $500 rule Total disability benefit of $10,000/month Insured is totally disabled or residually disabled with at least a 20% loss of income Insured s income rises to 95% of prior income--i.e. loss=5% 5% of $10,000 is $500, so claim continues Cost of Living Adjustment (COLA) Protects against risk of living on fixed income for an extended time After 12 months, benefits adjusted to increase with Consumer Price Index Maximum 3% or 6% rider No cap on increases before age 65 34
COLA Benefits after Recovery After recovery, any increases due to indexing will remain part of the policy monthly indemnity, with no extra premium to age 65. After age 65, client can retain increases at then current renewal rates Future Increase Option ( FIO ) Guaranteed right to purchase additional coverage, including residual & COLA Regardless of any change in health or occupation-same class as original policy Financial justification only Aggregate amount of increase options is 2 X base policy, plus total in-force coverage with Berkshire & Guardian Option dates occur on every policy anniversary to age 55 35
Exercising FIO Until age 45, client can exercise the entire total increase option on any given option date After age 45, up to 1/3 of that amount each year The insured may exercise an option if disabled on an option date Increased indemnity is payable for subsequent disabilities Social Insurance Substitute (SIS) Coordinates with social insurance (e.g., Social Security, Worker s Compensation, and Occupational Disease Law) Up to $1,500 per month Offset dollar-for-dollar by the amount which is received through any of these sources Total benefit is payable until social insurance payments are actually received 36
Sell all base policy Bill s tip Any recovery from Social Security will be in addition to what you have provided Automatic Increase Rider ( AIR ) Generates 4% increases of monthly indemnity (compounded) each year for five years. Increases are granted despite any change in health, income or occupation The insured may refuse an increase without forfeiting any scheduled remaining increases. Before age 60, he or she may apply to extend the rider for additional five-year periods. 37
AIR vs. COLA AIR increases take place before any disability occurs; COLA rider provides benefit increases after the insured becomes disabled. Group Disability Insurance Replacement Rider Ability to increase the monthly indemnity if client s group LTD coverage terminates because: a) employment terminates or b) his or her group LTD plan is ended by the employer and not replaced. No evidence of good health is required at exercise Can be exercised only once. Renewable to age 60 or until the date option is exercised. 38
Unemployment Premium Waiver Option Rider Premiums waived If the insured becomes unemployed and Receives unemployment compensation for at least 60 consecutive days Premiums are waived for 12 months, even if insured returns to work. Can be exercised only once, and is renewable to age 60 or until the date option is exercised. Partial Disability for Classes 2 & 1 only Pays a benefit if sickness or injury causes a loss of: time at work of at least 50% of usual time in a work week, or the ability to perform one or more of the material and substantial duties of the insured s occupation This benefit equals 50% of the total monthly indemnity and is payable for a period of six months 39
Premiums Choices ProVider Plus policy Level premium until age 65 Graded premium plan available up to issue age 50. Graded premium is available only for the to age 65 and X45 lifetime benefit periods. ProVider Plus Discounts Non-tobacco use discount of 15% (12% for the Executive II policy) Preferred risk discount of 5%, available to classes 6-3 (don t quote this!) Multi-policy discount of 5% of the first year premium (applies when the insured owns multiple disability policies with Berkshire, or a Guardian life policy along with a Berkshire disability policy) 40
Multi-life Discounts Employer-sponsored discount of 10% (groups of 2 or more lives) Association discount of 10% may also be available. prior home office approval always required May be extended to specific professional associations, always subject to Minimum participation is 10 or more participants (25 in New York). Remember! Premiums are sex-distinct for individual sales and unisex for employer-sponsored and association plans. Only 2 lives required for list bill Unisex rates provide a substantial advantage to your female clients 41
Executive II (6100) Sometimes you will encounter business owners or key executives in the business who are over our normal issue age of 60 As these are often the decision-makers, we designed the Executive II policy to provide such individuals with some type of disability coverage Executive II Designed to provide personal DI coverage for individuals over the age of 60 - specifically, it is issued at ages 61 64 Available only in multi-life employersponsored plans 42
Executive II Policy defines total disability as the inability to engage in any gainful occupation in which the insured might reasonably be expected to engage. Maximum issue and participation limit for the Executive II policy is $10,000 per month Policy Features Conditionally renewable to age 75, as long as the insured is working full time The maximum indemnity period is 24 months Available only to occupation classes 6, 5, 4 and 4P An insured in occ class 6 will receive an occ class 5 policy; occ class 4P will receive an occ class 4 policy There are no riders available on the Executive II policy 43
PayGuard (NC 56-A) Personal Reducing Term Unique to Guardian Cover long-term debt or other personal financial obligations Pays to a specific date at end of the term period 5 to 30 year terms Term period must expire by age 60. Reducing Term Disability Income insurance Policy Basic coverage for basic needs Not intended as a replacement policy for ProVider Plus 44
When to Use PayGuard Premium is an important issue Voluntary Income Protection Plan--for rank-and-file employees Competitive situation with another company s second tier policy Uses of PayGuard Cover the period of a home mortgage Costs of a college education Costs of a motor home, boat or other major personal loan, and similar mid-to-long-term personal financial obligations Choice of elimination periods 1 month, 2 months, 3 months, 6 months or one year allowing you to totally personalize the plan to meet specific needs. 45
Example Use of PayGuard $1,000 monthly indemnity to cover the monthly payments of a 25-year mortgage. Covered disability occurs during the 25-year period, monthly indemnity payments of $1,000 payable for the remainder of the period, or until the insured recovers in accordance with policy provisions. Policy term = remaining term of the obligation, and the policy takes over the payments if the insured becomes disabled. End of Unit 9 46
End of unit 9 47