How To Talk To Rank-And-File Workers About Buy-Up DI
By

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.

In addition, although the contract language of a worksite DI product may not be as liberal as what is typically offered to executives, the policy may still be portable.

It all makes sense mathematically, but you might be wondering if the rank-and-file employee will be able to understand the financial calculation used to build this model. My answer is, they will, if you do a little “homework” on the group LTD plan and present the problem in simple terms.

Consider the approach shown in the chart on this page. Distributors have used this approach successfully when selling individual DI to rank-and-file employees in worksite settings.

Ideally a separate enrollment package should be created for each employee, showing the workers current LTD benefit and the maximum amount of supplemental DI available. If only limited or inaccurate census data is available, however, or if the enrollment is too large to make individual packages practical, consider using a point-of-enrollment presentation kit and a simple calculation worksheet instead.

Distributors who work in the executive market usually do not operate in the traditional worksite marketing arena, and some companies that offer “executive” products do not offer worksite products. In these situations, consider partnering with a knowledgeable worksite specialist and split the case between the two product types and the markets they serve.

is a partner at Disability Insurance Specialists, LLC, Bloomfield, Conn., and may be e-mailed at MAMEIGHc@dispec.com.


Reproduced from National Underwriter Life & Health/Financial Services Edition, June 17, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.