Disability Buy-Up: Completing The Coverage For Executives

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If you’re looking for creative executive benefits to offer business owner and employer clients, unique opportunities can be found in an emerging area known as individual disability income insurance buy-up, or simply disability buy-up.

The term is commonly used when selling individual disability insurance with group long-term disability (LTD). While LTD is offered to all eligible employees, executives can be carved out for additional coverage. Disability buy-up provides increased coverage for executives, business owners and other highly compensated and highly valued employees.

In addition, the benefit allows for more flexibility in disability benefit plan designs and increased benefit cost effectiveness. While plan designs and carrier offerings may vary, disability buy-up is an increasingly popular component of comprehensive disability solutions geared toward executives.

What’s In It for You

By selling to a group of employees, with the employer’s facilitation, you are selling multiple policies and greatly increasing your commissions on each case.

But it’s not all about premiums and compensation. You also are expanding your contacts within your clients’ organizations.

By meeting and building relationships with your clients’ senior management teams, you are not only reaching the key decision-makers, you are also creating new avenues for cross-selling other executive benefit options.

According to MetLife research, executive disability had premiums of $1.3 billion in force in 2000, with only 20% of employers offering this type of coverage. The remaining 80% represents an incredible opportunity for deeper business market penetration.

How do you start? Begin by prospecting among your existing LTD clients. These clients already understand the value of offering disability benefits to their employees.

Value for Clients

The 2003 MetLife Employee Benefits Trends Study shows that employers’ top 3 benefits objectives last year were controlling costs, retaining employees and increasing job satisfaction. These same findings suggest that employees who are highly satisfied with company benefits are at least 3 times more likely to say they are highly satisfied with their job and that they feel a strong loyalty to their employer.

Disability buy-up lets employers and business owners cost effectively offer their executives more value in a disability plan, helping to attract and retain key personnel. Additional value for clients include:

Greater flexibility when developing a disability plan for employees;

The ability to offer increased disability coverage voluntarily as an employer-paid or employee-paid benefit enhancement;

Increased rate stability over the long term for the group program, since the individual disability component is generally fixed and the aging of the executive group will not raise individual disability rates;

Decreased impact of large claims on group rates because the disability buy-up plan claims are not applied to group rates; and

The ability to deduct coverage as a business expense if the coverage is paid as a bonus to the employee as part of reasonable compensation.

Value for Employees

Many businesses already offer group LTD to employees. For certain employees, this coverage is often enough. However, group LTD plans may leave executives and other highly compensated employees underinsured due to monthly maximums on benefits associated with the coverage.

Additionally, standard LTD plans may exclude variable and incentive compensation, such as bonuses a factor that can adversely impact an employee’s financial well being during a disability. Disability buy-up can offer these employees a higher level of income replacement when it’s needed most, helping employees to maintain their pre-disability lifestyle.

Other areas where a disability buy-up plan can add value include:

o Portable coverage that employees own, even if they leave their current employer;

Benefits that may be tax free, if the employee pays the premiums with after-tax dollars. Group LTD plans generally provide taxable benefits if premiums are paid by the employer; and

Noncancelable coverage and protection in the employee’s occupation for the duration of the benefit (this may vary with the plan and the employee’s occupation).

Your Best Prospects

Certain businesses make excellent prospects for disability buy-up sales, including law firms, technology companies, consulting firms, engineering and architectural firms, and other white/gray-collar industries. The ideal employee candidates for disability buy-up plans include executives, business owners, key employees and other highly compensated personnel who earn $60,000 or more annually.

Beyond providing increased disability coverage for executives, disability buy-up plans can be custom-tailored with optional riders to further increase value to your clients and their employees. These include residual disability, cost of living adjustment, plus long term care options and coverage for a catastrophic disability.

A guarantee standard issue (GSI) product may also be an excellent fit. A GSI offers guarantees that every eligible member of an employee group can buy a certain amount of coverage without modification, and with limited medical and financial underwriting and no medical exams.

Increased value can be added if a company’s group LTD and disability buy-up plan are offered by the same carrier. This tends to create greater carrier and plan stability because these plans, historically, do not change and rarely get replaced. This also can reduce an employer’s administrative concerns surrounding their disability plan as well as create an easier process at claim time for an employee.

Clearly, disability buy-up plans can avail you of opportunities to leverage rapport with existing clients, create new relationships and increase sales. The plans enhance clients’ group benefit plans and help protect a greater portion of employees’ income if they were to become disabled.

Disability buy-up plans can provide the flexibility and cost effectiveness that today’s business owners and employers want and coverage that today’s executives need.

is a regional disability income brokerage sales representative at MetLife. He can be reached at mlprince@metlife.com.


Reproduced from National Underwriter Edition, June 11, 2004. Copyright 2004 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.