How can an executive disability policy close coverage gaps?

Welcome to Ask an Adviser, EBN’s weekly column in which benefit brokers and advisers answer (anonymous) queries sent in by our readers. Looking for some expert advice? Please submit questions to [email protected]. This week, we asked Brian Lacher, VP of employee benefits at the Nielsen Benefits Group, to weigh in on the following: How can an executive disability policy close coverage gaps?

One of the biggest blind spots in employee benefit packages is a lack of adequate disability coverage for the highly compensated. Although group long-term disability (LTD) has become a staple of employee benefit packages, too many C-Suite executives and high-income employees are significantly under-protected on their income protection. 

These unprotected employees are vulnerable when life events, the Great Resignation and other factors impact their income. But there are solutions to closing gaps in disability coverage while also providing a talent-management tool. One is an individual disability income (IDI) policy, commonly referred to as executive disability. 

Read more: Disability insurance can forge the path toward health equity

Marc Warrington, SVP at Sun Life Financial and longtime disability advocate, coined a saying that LTD does not stand for Long Term Disability; rather, it stands for Last Topic Discussed. Group LTD coverage discussions usually occur near the end of benefits meetings and tend to get neglected. 

Typical group LTD plans can contain a maximum monthly benefit of 60% up to $10,000. This means that anyone earning $200,000 or less annually could receive 60% up to $200,000. What about anyone making over $200,000, like the CEO or CFO, who is often one of the people approving benefit decisions? If the CEO is making $300,000 a year (or $25,000 a month), that same group LTD plan would cap at $10,000. In other words, that CEO would be getting only 40% income replacement. Meanwhile, all other employees would be receiving 60% income replacement. This scenario is far too common.

The solution to underinsured disability compensation can be solved through IDI, which is a hybrid of individual and group disability plans that can layer on top of the existing group plan. This layering helps achieve greater maximum monthly benefits and true 60% income replacement. Group size, incomes, industry and demographics factor into IDI plan structure, including whether the funding is employer paid or a voluntary benefit. The guaranteed issue component to IDI makes it attractive and easy to implement, especially to those accustomed to earning a large income. 

Read more: 3 key ways disability insurance can support working parents

Disability insurance is an overlooked benefit. Don’t let it be your blind spot. Identify the coverage gap and provide a comprehensive group plan layered with IDI to offer robust benefits that cover even the highly compensated. 

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