Disability insurers seek greater product awareness

NEW YORK — If the print media diverted some of its reporting resources from Paris Hilton’s incarceration to disability insurance, the public would be a lot better informed, at least according to disability insurers.
A round table for reporters held here last week by New York-based Guardian Life Insurance Company of America and the Arlington, Va.-based Life and Health Insurance Foundation for Education attempt-ed to remedy that imbalance.
The media’s shortcomings often leave advisers and their clients confused about what disability insurance does and why it is needed, said Lawrence Hazzard, vice president of product and marketing with Berkshire Life Insurance Company of America, a Pittsfield, Mass., subisidiary of Guardian.
Twenty-nine percent of approximately 250 financial articles mentioning disability insurance published in 2006 were “incomplete” — compared with 16% of about the same number published in 2005, according to a Guardian study presented at the round table. An “incomplete” article mentioned disability insurance without adequately explaining it or presented the coverage in an “unflattering” way.
“Good” articles — accounting for about half of both years’ journalistic output — presented disability insurance as desirable but lack “key messages.”
“Better” and “best” articles, which made up the remainder, emphasized the importance of the coverage in financial plans and went into greater detail about its uses and benefits.
Articles that were extremely “incomplete” — those that lambasted insurers for alleged denial of legitimate claims — can be overcome with consumer education, noted David Woods, LIFE’s president. “Insurers don’t want adverse publicity, but no one benefits if they pay claims they should not pay,” he said.
“Just a few more sentences of elaboration” often is all that stands in the way of a loftier designation for an article and “reporters’ winning more appreciation from readers,” the study noted.
Among the misperceptions about disability insurance is that the coverage is not essential, because workers’ compensation and Social Security will pay disability-related lost wages, said Barry Petruzzi, Guardian’s second vice president for group life and disability.
The truth is, only about 10% of disabilities are job-related and therefore covered by work comp, he noted. Also, Social Security benefits often pay only 20% to 30% of a salary, compared with the 70% or more that usually is required to maintain the client’s lifestyle, Mr. Petruzzi added.
“Only about 40% of Social Security applicants qualify for benefits, because the application process is so arduous,” Mr. Woods said. The “disability test” of Social Security is the “inability to perform any work for wage or profit” — compared with private disability insurance plans — which often pay if the clients can’t perform their own job, he noted.
Another disability myth, Mr. Hazzard said, is that individual coverage is not needed if clients have group coverage through their employment. Group coverage generally replaces only 60% of a salary, and since the benefits not paid for by the client are taxable, they, in fact, can walk away with less then half their prior earnings, he said.
“Most clients don’t know that there is a way for them to continue 401(k) contributions — up to $45,000 a year — when they’re disabled,” said Matthew Gottfried, director of individual disability income for Berkshire. They can do that by paying the money into a trust. Although the buildup of assets in the trust is taxable, there is no requirement to start taking distributions at age 70½, Mr. Gottfried added.
Many clients who own small businesses are unaware they can use disability insurance to buy out a partner who no longer can work due to an injury or illness, he said. The policy pays the fair market value of the disabled partner’s interest in the business to the healthy partners, Mr. Gottfried explained.
Women are more intuitive about their disability insurance needs, as they recognize the benefits of the coverage in their 20s, Mr. Hazzard said. Group insurance rates — which don’t differentiate between the sexes — are especially attractive to women, because they become disabled more frequently than men, he added.
Men are more apt to be fooled by what they read, Mr. Hazzard said; usually it does not dawn on them to buy the insurance until they are in their mid-30s.

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