June 23,2015

Addressing the gap with executive disability benefits

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.