Many employers recognize the risk of disability that their employees face and offer a 60% long-term disability income replacement plan for all employees. But for some employees–often those executives and other key employees responsible for the companys success–that 60% income replacement plan provides a much lower level of coverage.
Group LTD does a great job of providing a layer of income protection to all employees at reasonable rates, and for many employees paid on an hourly or salaried basis, this level of protection is enough to weather a disabling condition. However, for those employees who earn more than the LTD plans covered earnings or derive income from bonuses or incentive compensation, group LTD alone may not provide adequate coverage.
Traditionally, individual disability insurance (DI) has been a good solution for under-insurance, but it is not always affordable and applicants must complete an exhaustive underwriting process that may ultimately result in a declination.
A recent development in disability insurance is executive DI, which works with group LTD. Offered on a multi-life basis–usually 10 or more employees–executive DI, like individual DI, provides flexible individual disability coverage but also offers affordable rates, streamlined underwriting and guaranteed issue–characteristics normally associated with group coverage.
The starting point for an executive DI plan is determining if a class of employees would receive a lower disability income replacement ratio than rank-and-file employees. This class of employees may be defined by earnings, title or other criteria. Once the need for additional disability income replacement is determined and an executive DI plan is chosen as the right approach, insurance carriers can craft coverage meeting the specific needs of an employer group.
Executive DI plan designs include all the features of an individual disability contract but use consistent provisions and unisex rates for all participants. Plan provisions such as elimination periods, maximum benefit periods and limitations should dovetail with the LTD plan to produce consistent results at claim time.
Executive DI plans also provide the opportunity to enhance coverage through optional provisions. An important consideration is whether the wording of provisions under both policies will provide consistent coverage. Executive DI policies are generally issued to and owned by the covered employee, even if premiums are paid by the employer, making them fully portable. Multi-life discounts are generally portable, too, although this practice varies by carrier.
Service is an important consideration for these plans. Many executive DI plans are offered as an employee benefit and administered through the benefits manager. Carriers that provide a coordinated executive DI and group LTD plan can reduce the burden of the employer through streamlined underwriting and administration. And level premiums improve rate stability and predictability.
Employees benefit, too, from consistent claims decisions, and they avoid duplicate information requests when the same claim analyst adjudicates both claims.
A coordinated approach to LTD and executive DI coverages is attractive to insurance advisors as well. An effective design center will meld the right provisions and coverage levels to create a plan that will serve employers long-term needs. Building a program using different carriers products may not achieve the desired goal.
Executive DI creates a great opportunity to provide disability solutions for employers who find their LTD coverage is providing some of their employees with less coverage than they intended. With affordable rates, guarantee issue and flexible provisions, executive DI is a convenient way for employers to ensure that all their valued employees receive sufficient long-term disability income replacement.
Daniel R. Stancil is assistant vice president-executive benefits, Standard Insurance Company, Portland, Ore. He can be e-mailed at email@example.com.
Reproduced from National Underwriter Life & Health/Financial Services Edition, July 29, 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.