This is worrying in many respects, but particularly so in the context of disability. When a household’s breadwinner can’t earn a paycheck, it may be difficult for a family to keep up with everyday expenses.
Unfortunately, suffering a disabling injury or illness is more common than many people think: according to the Social Security Administration, one in four U.S. workers will experience a disability requiring more than a year away from work during their career.
A disability can be due to an accident or injury but is more often because of an illness or health issue such as cancer, cardiovascular disease, or musculoskeletal problems. Disabilities can last months or even years, and prevent the employee from earning an income, potentially impacting the family’s ability to pay bills, their kids’ tuition, or maintain their existing lifestyle.
Employers often offer disability insurance, which covers a percentage of base income (usually around 60%) but often excludes income from bonuses or commissions. For higher-wage earners like those within the financial services industry, this can leave significant gaps in financial protection should they experience a disability which prevents them from earning an income.
While a basic long term disability (LTD) insurance policy may cover 60% of a base salary, many policies have a monthly benefit maximum of around $5,000 per month. For those earning more than $100,000 a year, they’ll see a significant gap between their pre- and post-disability income. And if the LTD insurance is employer-paid, the benefits are taxable, bringing that maximum payment down to around $3,600 after tax.
If your workforce earns higher salaries, or rely on bonuses or commissions, you should consider additional income protection to provide for them and their loved ones. LTD insurance is an excellent foundation for income protection; but benefit maximums, uncovered compensation, and taxable benefits may leave higher income earners with a gap in coverage.
Individual disability insurance (IDI) can insure a greater portion of income – often up to 75% – to help bridge this income gap. IDI also replaces a portion of total compensation – including commissions and bonuses – so employees receive benefits that come closer to their actual pre-disability income. This type of insurance is also portable, meaning if an employee changes jobs, they can take their IDI policy with them.
Unum provides a variety of employee benefits, including LTD, to a 5,000-employee financial services company based on the West Coast. The LTD covered 60% of an employee’s salary, up to $10,000 per month. However, during a routine gap analysis, it was discovered that 76 members of the company’s executive team were over the current LTD maximum and underinsured. Unum presented the IDI solution, which would help to close this gap, but the company’s HR team didn’t feel it was necessary.
This was until the following year, when the CFO of the company suffered a massive stroke which led to a long-term disability claim. Unum was then called in to assist with a solution. Current technology benchmarking data was leveraged to show the customer what peer companies were providing for coverage.
When the CFO went out on disability, he was earning $52,000/month, but the LTD only covered up to $10,000/month, meaning just 19% of his monthly earnings were covered, and he had a gap of $42,000 per month in uncovered/lost income.
Unum proposed the addition of up to $10,000/month of IDI for those 76 employees earning $200,000 or more, which would increase the benefit for these executives to $20,000/month combined benefit. Had this policy been in place when the CFO became disabled, he would have doubled his monthly benefit and 38% of his salary would have been covered as opposed to just 19%.
Employers within the financial services industry make up some of the largest portion of Unum’s IDI business for a few key reasons:
- Financial services has a large percentage of highly compensated employees with costly lifestyles to protect
- Commissions and incentive pay often constitute a significant portion of income
- Organizational structure within the financial services industry allows for executive and management group carve-outs
- Employees see the value in having portable disability coverage that they own should they change jobs or roles
IDI policies can be purchased anytime during the year, meaning you may not have to wait until the standard open enrollment period. And while many companies cover premiums on these policies for their top earners, there are a variety of ways to fund an IDI program for your workforce.
For more information about employee benefits, including disability insurance, visit the Unum website.
Michael Miller is an assistant vice president of Unum’s IDI division and has nearly twenty years of experience in the disability insurance industry. For more information, contact him at email@example.com