How To Talk To Rank-And-File Workers About Buy-Up DI
Disability “buy-up” programs, which use individual disability income contracts to supplement group long term disability coverage, are popular in the executive benefits market.
For worksite marketers selling to rank-and-file employees, a very similar approach can yield good enrollment and participation results. Consider the parallels:
In the executive market, the buy-up presentation focuses on the limitations of group LTD coverage. For instance, it is not unusual for a group LTD plan to provide maximum monthly benefit of 60% of base pay or $5,000. If an executive earns $12,000 a month, the LTD program provides less than 50% of pre-tax income.
The strategy: Individual DI coverage, layered on top of the group coverage, can provide a more reasonable income replacement ratio. Furthermore, when compared to a group LTD contract, the top-of-the-line individual DI contract may offer language that is far less restrictive. Finally, the individual DI coverage has the advantage of being portable, a point heavily promoted in the buy-up presentation.
Now, lets turn to the worksite DI product. It may offer some of the same advantages to rank-and-file employees. And, if the group LTD benefit is employer paid, then there may be room for you to offer supplemental coverage here, as well. (Within limits, some carriers will offer additional DI coverage in these situations since the taxation of group LTD benefit mitigates some of the concerns a carrier would have about over-insurance.)
Consider the example of a person earning $3,500 a month. The group LTD program will provide $2,100 of monthly benefits based on the 60% coverage formula described above. If the LTD is an employer-paid benefit, the $2,100/month is taxable–and the after-tax benefit could amount to less than $1,600. Here, the employee might be eligible for at least another $500 a month of individual coverage, making up for the LTD benefits lost to taxes.