Welcome to Ask an Adviser, EBN’s weekly column in which brokers and benefit advisors answer (anonymous) questions sent in by our readers. Looking for expert advice? Please submit your questions to [email protected]. This week, we asked Brian Lacher, Vice President of Benefits at Nielsen Benefits Group, to comment on the following: How can an executive disability insurance policy close coverage gaps?
One of the biggest blind spots in employee benefit plans is the lack of adequate disability coverage for highly paid. Although group long-term disability (LTD) has become a employee benefitstoo many C-Suite executives and high-income employees are grossly underprotected when it comes to income protection.
These unprotected employees are vulnerable when life events, the Great Resignation, and other factors impact their earnings. But there are solutions to fill the gaps in disability coverage while providing a talent management tool. One is an Individual Disability Income (IDI) policy, commonly referred to as executive disability.
Read more: Disability insurance can pave the way to health equity
Marc Warrington, Senior Vice President at Sun Life Financial and longtime disability advocate, coined a saying that LTD doesn’t mean long-term disability; rather, it is the last topic discussed. Discussions about group LTD coverage usually take place towards the end of benefits meetings and tend to get overlooked.
Typical group LTD plans may contain a maximum monthly benefit of 60% up to $10,000. This means that anyone earning $200,000 or less a year could receive 60% up to $200,000. What about anyone earning over $200,000, like the CEO or CFO, who is often one of the people approving benefits decisions? If the CEO earns $300,000 a year (or $25,000 a month), that same group LTD plan would cap out at $10,000. In other words, this CEO would only get 40% income replacement. During this time, all other employees would receive 60% income replacement. This scenario is far too common.
The solution to underinsured disability benefits can be solved by IDI, which is a hybrid of individual and group disability plans that can be layered on top of the existing group plan. This overlay results in higher maximum monthly benefits and true 60% income replacement. Group size, income, industry and demographics are factors in the structure of the IDI plan, including whether funding is employer paid or a voluntary benefit. The guaranteed issue component of IDI makes it attractive and easy to implement, especially for those who are used to earning a large income.
Read more: 3 Top Ways Disability Insurance Can Help Working Parents
Disability insurance is an overlooked benefit. Don’t let this be your blind spot. Identify the coverage gap and deliver a comprehensive group plan layered with IDI to deliver robust benefits that cover even high earners.