Planning

Disability Coverage is Key for High Net-Worth Clients

by Edward A. Tafaro

Exceptional DI

hink of your largest incomeproducing clients. With a clear picture in mind, lets brainstorm. What is the profile? Entrepreneur? Privately held business owner with income off the charts? Fabulously wealthy, globetrotting celebrity? Lets look at a case with a successful business owner. Well assume he is 51, owns a 60 percent controlling stake in a business worth $60 million and draws a pre-tax income of $4 million annually. 1. Have you adequately protected his income? At $4 million, 60 percent of his income is $200,000 per month. 2. After you secured $36 million in life insurance to fund the company cross purchase, did you fund the disability provision?

Exceptional clients deserve exceptional solutions. Last month, we worked with an advisory firm in NYC that brought this very profile to us. The insured maintained $15,000 of individual disability income insurance. His company owned various term insurance policies on his life totaling $12 million to fund their stock repurchase plan. The insureds previous advisor told him that he was unable to secure additional disability insurance, as his net worth was too great. After a few months of the requisite back and forths with the advisor, owner, CPA and attorney, we helped redesign his disability program with the goal of accomplishing two key objectives:

1. Protecting the entrepreneurs lifestyle with more adequate disability income replacement coverage. This was delivered in the form of a monthly disability income product with a monthly benefit of $185,000, bringing his total disability income protection to $200,000 per month. 2. Protecting his equity. The advisor updated his life insurance portfolio to more appropriately insure his equity ownership. Simultaneously, we underwrote a $36 million disability buy-sell policy, two-year elimination period, own-occupation coverage. This is all above and beyond what traditional disability underwriters would consider for their best prospects. When working with non-traditional carriers, advisors need to understand fully the strengths and weaknesses of specialized disability products.

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health insights Your Industry. one Publication.

Although carriers such as Lloyds can offer tremendous benefit limits, their products are not without limitations. The largest limiting factor in working in the non-traditional market is that advisors are working with term disability insurance contracts. These contracts maintain duration of less than one year to a maximum term of five years. While not ideal when working with a young client, the protection afforded under these plans is tremendous. As an example, take a typical corporate acquisition. Hypothetically, lets assume you work with a company that is highly acquisitive, and buys businesses that are considered smalland medium-sized from a corporate acquisition perspective ($10 million to $50 million purchase price). Very often, businesses of this size are highly leveraged off of the CEOs relationships, experience, skills and contacts. A common deal requirement in a transaction such as this is the purchase of key person life insurance on the founder and CEO of the business being acquired. Key person life insurance is commonly available to advisors through dozens of high-quality life insurance companies. So lets assume your clients company acquires a business with a purchase price in the area of $30 million. Your instructions are to secure $5 million of key person life insurance on the founder of the company being acquired. With the need clearly established, you intuitively recognize that the companys greater risk is the disability of the 46-year-old founder, and not the death. Now turn to any traditional disability income insurer, and ask them to underwrite a disability policy that can pay the corporation a $5 million benefit within one year from the onset of disability, and wait to hear the crickets. The exceptional disability markets can easily handle a $5 million disability exposure. With the insured signing a

five-year employment contract and a portion of the purchase price paid over a five-year earn out, underwriters in the specialty market can accommodate a five-year policy term. Most companies that grow through acquisition deploy thoughtful transition programs to ensure that over a two- to five-year period, any obvious business succession issues are managed appropriately.

Well, maybe you dont have a Tom Cruise, a Kobe Bryant, a Jack Welch or a Martha Stewart on your client list. But you might have someone exceptional. And you dont bring traditional planning to an exceptional table.
Structurally, the insurance can be designed to deliver the $5 million in benefit a number of different ways, but the most common form tends to be a combination of monthly payments and lump sum benefits. Keeping with our 46-year-old founder, we might design a plan that offers a 90-day elimination period, paying a disability benefit of $100,000 per month for a period of 12 months. Following that benefit period, we pay the corporation an additional $3.8 million in the event the insured were totally disabled, delivering an aggregate benefit of $5 million to the corporation. All of which can be delivered to the client for about $25,000 annually, compensating the advisor well over all five years for implementing a plan that more appropriately protects his client than life insurance alone. Business Overhead Expense (BOE) insurance is another class of coverage where the exceptional DI market can differentiate your practice. An advisor working with a substantial medical group needed $155,000 per month on a top radiologist to protect the practice adequately in the event of the loss of a

senior physician in the practice. Traditional disability underwriters could not accommodate the entire risk given the required monthly benefit. Complicating matters, the radiologist was a Type 1 diabetic, under good control. With the medical and financial underwriting complete, Lloyds underwriters issued a policy for the full $155,000 per month, payable to a maximum of 18 months. On a net cost basis, coverage cost the practice about one percent of the aggregate benefit annually. How do you transact business in the exceptional DI marketplace? It is up to you. Our industry has a handful of elite advisors who will conduct joint work for a split of the commission, which may be worthy of consideration if you do not foresee replicating these transactions in the future. Many local life brokerage agencies and aggregators offer these products as part of their insurance carrier portfolio, and select advisors with larger cases or books of business may choose to work directly with a U.S.-based correspondent. Transacting the business is easy, but just be sure that you are working with a qualified distributor that will provide you with the appropriate level of regulatory support to ensure that the transaction is compliant with local state laws. At the end of the day, these are great products that can enhance your practice, and add considerable value to your best client relationships, while building a nice revenue base for your practice.
Edward A. Tafaro is one of the countrys foremost experts on high-limit specialty life, accident and disability products for clients with exceptional insurance needs. Ted is a Lloyds of London underwriter responsible for managing various underwriting authorities that exceed $50 million per individual risk. He can be reached by e-mail at ted.tafaro@exceptionalriskadvisors.com.

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Disability Buy-Sell Coverage

Business owners create a foundation of human capital that drives the success of the company. What happens to the company if one of the owners becomes disabled and their expertise is lost? The sophisticated advisor should consider Disability Buy-Sell coverage to protect such organizations and the remaining partners. Exceptional Risk Advisors has designed a high limit Disability Buy-Sell policy to protect private and public organizations, law firms, and medical professionals from the risk of a career ending disability to an owner.

COVERAGE INCLUDES:

Disability Buy-SellLimits to $100,000,000 Lump Sum payouts beginning after 6, 12, 18, or 24 months

Exceptional

Risk

Advisors

experts

can

manuscript policy wording to match a clients contractual obligation or other specific needs

Expect the Exceptional TM

CASE STUDY
An organization had a contractual Buy-Sell agreement covering all 18 of its owners, ranging from $300,000 to $20,000,000. Exceptional Risk Advisors designed a Disability Buy-Sell policy on all the owners with an aggregate benefit in excess of $50,000,000.

CASE STUDY
A large corporation with four equal shareholders sought to protect against the disablement of any of the four partners on a first-to-be-disabled basis. With the business valued at nearly $60,000,000, Exceptional Risk Advisors designed a $15,000,000 Buy-Out policy that would pay a benefit in the event of the permanent disablement of one of the four principal owners.

One International Blvd., Suite 625 Mahwah, New Jersey 07495 (Toll Free) 866.512.0444 (Fax) 201.512.0221 www.ExceptionalRiskAdvisors.com
DISCLAIMER: All information contained herein is subject to change at any time. The case studies contained herein are representations only and may be fictitious; they are not intended to imply actual people and/or situations. The information herein in no way represents or warrants a guarantee of coverage. Exceptional Risk Advisors will not be held liable to anyone in connection to the misuse or misrepresentation of the contents herein.

High Limit Golden Gavel Coverage

An attorneys ability to earn a substantial income is their biggest asset and should be protected as such. However, traditional insurers are often unwilling or unable to meet the income replacement needs of those in the law profession. Law firms are also at risk of losing their most valuable employees and partners to a serious disability. Exceptional Risk Advisors can offer solutions to mitigate these risks. Exceptional Risk Advisors provides high limit disability solutions for law firms and attorneys above and beyond what traditional insurers provide. High limit Key Person and Buy-Out Disability coverage is also available. COVERAGE INCLUDES:

Monthly Benefits up to $200,000 per month Own Occupation Coverage Elimination Periods of 90, 180 and 365 days Benefit Periods of up to 60 months, plus Lump Sum Benefits exceeding $25,000,000 Key Person Coverage / Buy-Out Coverage Individual or Group CSI Coverage Residual Benefit available

Expect the Exceptional TM

CASE STUDY

An attorney earning $1,500,000 per year maintained $25,000 per month of disability coverage in-force. Exceptional Risk Advisors was able to secure an additional $50,000 per month of disability coverage to better protect the attorneys earnings. CASE STUDY A law firm sought to protect the partnership against the loss of their key rainmaker and named partner. With extensive knowledge and a sterling reputation, the firm feared the adverse effects that would result if the individual were to become disabled. Exceptional Risk Advisors provided a $10,000,000 Key Person Disability policy to the firm to help mitigate losses resulting from the lawyer becoming disabled.

One International Blvd., Suite 625 Mahwah, New Jersey 07495 (Toll Free) 866.512.0444 (Fax) 201.512.0221 www.ExceptionalRiskAdvisors.com
DISCLAIMER: All information contained herein is subject to change at any time. The case studies contained herein are representations only and may be fictitious; they are not intended to imply actual people and/or situations. The information herein in no way represents or warrants a guarantee of coverage. Exceptional Risk Advisors will not be held liable to anyone in connection to the misuse or misrepresentation of the contents herein.

High Limit Key Person Coverage

All successful companies, no matter the size, have key personnel as the foundation driving success. What happens if those rainmakers are disabled? The sophisticated advisor should consider key person disability for all of their key person clientele. Exceptional Risk Advisors provides high limit key person disability for private and public organizations, law firms, and medical professionals.

COVERAGE INCLUDES:
E x p e c t t h e E x c e p t i o n a l TM

Key Person Disability Limits to $100,000,000 Business Overhead Expense Limits to $500,000 per month Monthly benefits beginning after 30, 60, 90 or 180 days. Lump sum payouts beginning after 6, 12, 18 or 24 months. Individual or Multi-Life Plans Exceptional Risk Advisors experts can manuscript policy wording to match a clients contractual obligation or other specific needs.

CASE STUDY A global Public Relations firm acquired another agency to round out their portfolio. With three key owners managing the key client relationships and providing the creative lead, key person life and disability insurance was required to consummate the transaction. Exceptional Risk underwrote three key person disability contracts delivering $100,000 per month after a 90 day elimination period, followed by $4,000,000 of lump sum disability benefit.

CASE STUDY An Aircraft Corporation contracted an industry leading software engineer responsible for the further development and integration of revolutionary auto-flight controls. Exceptional Risk Advisors secured a $23 million key person policy that would pay out as a lump sum to the Aircraft Corporation in the event that the engineer could not fulfill his contractual obligation due to a career ending injury or illness.

One International Blvd, Suite 625 Mahwah, New Jersey 07495 (Toll Free) 866.512.0444 (Fax) 201.512.0221 www.ExceptionalRiskAdvisors.com
DISCLAIMER: All information contained herein is subject to change at any time. The case studies contained herein are representations only and may be fictitious; they are not intended to imply actual people and/or situations. The information herein in no way represents or warrants a guarantee of coverage. Exceptional Risk Advisors will not be held liable to anyone in connection to the misuse or misrepresentation of the contents herein.

High Limit Income Coverage

Your clients ability to earn a sizeable income is his/her biggest asset, yet it is often taken for granted. Traditional insurers are often unable to meet the income replacement needs of high earners in the event of disability. Exceptional Risk Advisors provides high limit disability solutions for your very affluent clientele. Coverage is available above and beyond what traditional insurers offer.

COVERAGE INCLUDES:

Monthly Benefits up to $500,000 per month Elimination Periods of 90, 180, and 365 days Benefit Periods up to 60 months, plus Lump Sum Benefits exceeding $25,000,000 Individual or Multi-Life Coverage Residual Benefit Rider and COLA available Own Occupation definitions available

Expect the Exceptional TM

CASE STUDY

An executive made over $2,000,000 per year, but had only $15,000 per month of disability coverage inforce. This represented less than a 10% income replacement ratio. Exceptional Risk Advisors was able to secure an additional $85,000 per month of disability coverage to better protect the executives earnings. CASE STUDY A successful Los Angeles web designer made over $300,000 annually. Because of his occupation, and the fact that he worked from home, he was unable to obtain disability coverage from traditional carriers. Exceptional Risk Advisors was able to offer an own occupation $15,000 per month, followed by a $1 million lump sum.

One International Blvd., Suite 625 Mahwah, New Jersey 07495 (Toll Free) 866.512.0444 (Fax) 201.512.0221 www.ExceptionalRiskAdvisors.com
DISCLAIMER: All information contained herein is subject to change at any time. The case studies contained herein are representations only and may be fictitious; they are not intended to imply actual people and/or situations. The information herein in no way represents or warrants a guarantee of coverage. Exceptional Risk Advisors will not be held liable to anyone in connection to the misuse or misrepresentation of the contents herein.