By John Medrzycki, Partner, CFP, CLU, CH.F.C, RHU, REBC
If you’re an executive, when was the last time you reviewed your workplace benefits package? Take a close look and you’ll likely find that something may be missing. Although living benefits, such as critical illness and long-term care insurance, get priority when an executive makes his/her financial plan, many higher-income earners don’t consider additional disability insurance. Instead, they simply count on their group long-term disability (LTD) program for their necessary protection. Depending on how the disability program is structured, that may be a mistake because group plans often have “gaps” that leave executives without enough coverage.
In many firms, executives inadvertently discriminate against themselves when setting up a group benefits plan. This happens in part because different employees have different needs, but group LTD is a product designed to cover everyone, generally without customization. Under a typical group plan, executives receive a lower LTD benefit – calculated as a percentage of total compensation – than their lower-income earning colleagues.
There are many reasons why this happens:
- There is a “ceiling” on the LTD plan that may not provide maximum coverage to all employees
- The income used to calculate benefits doesn’t typically include bonuses, commission, pension, profit sharing, or stock options
- The quality of the benefits may be inappropriate, e.g., accumulation of days lost, lack of partial/residual benefits, etc.
- Many employers aren’t aware of the differences between individual and group disability programs, and they don’t know the options available when creating their corporate disability program.
In the next entry, I will present an innovative option as one possible solution to address the gap in executive coverage.