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May 04, 2005 at 08:00 PM
All group disability plans, whether insured or self-funded, allow you to spread risk throughout your client’s employee population to minimize plan costs. But there’s a downside: The risk, or volatility, of the plan is based on the total group experience. So, how can you ensure adequate income replacement for all employees–particularly those in the higher income bracket–while minimizing the volatility of plan experience and pricing?
An integrated plan design capitalizing on the benefits of both group and individual policies may be the answer. It can enhance benefits, diversify risk and potentially reduce future costs for your clients, and give you a unique selling solution.
The concept of risk transfer is relatively simple: Take a self-insured or fully insured long-term disability plan with a high benefit maximum and reduce the benefit cap and supplement the coverage with individual policies for high-income earners. The strategy starts to gain traction as the credibility of the LTD case increases–usually at 1,000 lives or more. This is an especially good solution in a higher income population where one claim can affect plan experience significantly.
Combining a base LTD plan with an individual income protection plan enhances benefits for employees while helping to build a risk-sharing component to stabilize the plan against the possibility of future pricing volatility.
There are 4 key risk-management features that could make this strategy a good solution for your clients:
o Risk is transferred from the client. Individual experience does not affect group pricing, so there is reduced exposure to the impact of a high-income disability claim.
o It’s a long-term benefits solution. This approach promotes stability in benefit planning.
o There’s more rate stability. Individual, non-cancellable rates are fixed and cannot increase (for clients under the age of 65), unlike group LTD premiums, which can increase from year to year based on plan experience.
