Is Your Executive Team Vulnerable to This Risk?

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June 08, 2017

Life insurance is a very important employee benefit. That said, only 14 percent of workers will die during their working years. Comparatively, the chance of income interruption due to an illness or injury is between 21 and 25 percent.

It’s clear that disability is a significantly higher risk, and one less likely to be insured. Because of this, employer-sponsored disability insurance programs are increasing in popularity, and Guaranteed Standard Issue (GSI) disability insurance makes them more attractive than ever – particularly for business owners and other highly-compensated employees who are not adequately protected by standard disability insurance coverage.

How can your executive team benefit?

The addition of a GSI program can supplement the coverage gaps that uniquely affect those earning more than $92,500 annually or whose income includes bonus and/or commission. Individual or private disability products, like GSI, are different from group disability or LTD in several ways:

Comparison –
GROUP LTD vs. Individual GSI DI

Group LTD

Individual GSI DI

Percentage of salary covered

60 - 65 percent up to a maximum monthly benefit amount, usually $5,000

70 percent or more; significantly higher monthly maximums

Definition of salary

Only base salary

Can include commission and bonus

Definition of disability

Until able to return to work in any capacity

Until able to return to work in same occupation as before disability

Integration with SSDI benefits

Insurance benefit is reduced by the amount of the SSDI benefit

Full insurance benefit; not reduced by SSDI benefits

Premiums paid

Often by employer

Employer or employee; can be part of an Executive Bonus package

Eligibility

Usually all employees

May be a select group of employees

Individual underwriting

None if group eligible for program

 

Although a Guaranteed Standard Issue program can be used effectively for all employee groups, there are features particularly attractive to higher earners. Consider the difference in the benefit calculation of an individual earning $200,000 in annual salary with a bonus opportunity of $50,000.

Comparison –

Benefits for person with $200K salary + $50K bonus

Group LTD

Individual GSI

Coverage Description

  • Monthly benefit of 65% of base salary (in this case $200K)
  • Maximum monthly benefit of $5,000
  • Employer-paid
  • Monthly benefit of 70% of total compensation (in this case $250K)
  • Maximum monthly benefit of $20,000
  • Employer-paid

Monthly Benefit

$5,000 less applicable income taxes

$14,583 less applicable income taxes

 

As you can see, for the difference in benefits for this highly-compensated employee is significant. Under the standard Group LTD plan, this person’s disability protection is sadly insufficient – only replacing roughly 2 percent of income.

An individual GSI policy would provide much greater protection, and because of the guaranteed standard issue feature, underwriting is easy.

Understanding the extra vulnerability of high earners when facing an income-interrupting illness or injury, is the first step in closing the gap.

The experts at Heffernan Insurance Brokers have the background and expertise to help you implement a disability insurance program that protects employees at all earning levels. Plans can be developed to cover the entire employee population or just executives. Premium can be paid for by the employer (usually a tax-deduction), paid entirely by the employee, or a combination of both. And, if your firm already offers group disability, we can help you implement a supplemental plan that closes the gaps for you and your executive team.  Call us at 800-437-0045.