A company may offer a strong long-term disability (LTD) benefit and still leave its highest-paid employees significantly underinsured.
Group LTD coverage is typically built around an income replacement percentage and a maximum monthly benefit. Once compensation rises beyond what that maximum supports, the percentage of income actually protected can begin to fall.
For advisors working with law firms, medical practices, financial firms and other organizations with highly compensated professionals, that creates an important planning question:
Are the people earning the most actually receiving the income protection everyone assumes they have?
Start With the Benefit, Not the Product
When reviewing a client's disability program, it's easy to focus on the headline percentage. A plan may be designed to replace 60% of an employee's earnings, but that doesn't necessarily mean every employee can actually replace 60% of their income.
Consider an executive or partner earning $800,000 or $1 million annually. If the employer's group disability plan has a monthly benefit cap, that employee may reach the limit well before achieving the intended replacement percentage.
Variable compensation can complicate the picture further. Bonuses, commissions and other incentive-based compensation may also need to be considered when evaluating how much income is actually protected.
For advisors, the opportunity starts with identifying the gap, not recommending a product.
Three Questions That Can Uncover an Opportunity
A benefits review can begin with three straightforward questions:
- Who are the organization's highest earners? Look beyond the C-suite. Partners, physicians, attorneys, consultants, and other specialized professionals may have compensation well above standard benefit limits.
- What is the maximum monthly disability benefit available today? Compare the plan's maximum benefit with actual compensation rather than assuming the stated replacement percentage tells the entire story.
- What percentage of income would really be replaced? For highly compensated employees, the answer may look very different from the percentage shown in the benefits booklet.
A Gap Doesn't Mean the Existing Plan is Poorly Designed
An income protection gap doesn't necessarily mean an employer has a poorly designed benefits program.
A group LTD plan may work well for most employees while providing a much smaller effective replacement percentage for a select group of high earners.
For example, we worked with a children's hospital where four executives earning more than $850,000 each had a combined disability benefit of $42,500 per month. The organization wanted its executive group to move closer to the 60% income replacement ratio available through its broader program. A mandatory GSI structure provided an additional $15,000 in monthly benefit for each executive, subject to the program's specific provisions.
The takeaway isn't that every organization needs the same solution. It's that the coverage review should come before the solution.
Blog Post: Explore High Limit GSI Plans for Professionals
Where GSI May Fit
When a defined group of highly compensated employees has a meaningful coverage gap, Guaranteed Standard Issue (GSI) disability insurance can provide another layer of income protection.
Rather than approaching every employee through traditional individual medical underwriting, a GSI program can be structured around an eligible employee group and simplified eligibility requirements. Depending on the organization and case specifics, program structures may include mandatory, voluntary, default-in or buy-up approaches.
For advisors, it starts with a simple question: Have your client's highest earners outgrown the protection provided by their existing benefits program?
Look at Existing Clients Differently
Law firms, medical practices, consulting organizations, financial firms, and companies with highly compensated executives can all be worth reviewing.
And the opportunity may already exist within your current book of business.
Sometimes, it simply takes comparing compensation with the benefits already in place to uncover it.
Working with a group of highly compensated employees? Exceptional Risk Advisors can help you evaluate the existing disability structure and explore whether there may be an income protection gap worth a closer look.
