Something New To Talk About In Group DI
Being able to bring your clients new ideas in disability, let alone new ideas about adding value to their group disability plan, has been a bit difficult of late.
Over the last decade, most discussion about group disability has been how wrapping individual products around the group can maximize the after-tax benefit.
The most popular (and most successful) value-adding concept was to simply do the math for the boss, explain how a 60% to $10,000 per month benefit really means an after-tax benefit of $6,000 per month, or only 38% of income and to place an individual disability policy to cover the difference.
Many clients dont even think about the tax effect of a 100% employer-pay plan.
The taxation of disability benefits seems to draw a lot of questions, but it is really very basic. The rule I always have used in explaining the impact of taxes on disability benefits is, “Uncle Sam always gets his money.” He either gets it from someone paying tax on the money used to pay the premium, or he gets it from the person collecting the benefit. If an employer pays the premium, then the benefit will be taxed.
If the employer pays the employee and the employee pays the disability premium, then the benefits are tax-free (since the employee already has paid tax on the income that he or she used to pay the premium).