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Execs Need Supplemental Disability Income Insurance

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Every day, you make decisions and take risks that influence your income stream. The same holds true for your clients in executive-level positions.

Perhaps they think they’re invincible. And perhaps they take business and personal risks because of the opportunity for gain. But risks with no upside potential require special attention.

These risks also represent opportunities for you to show executive-level clients how they can protect what they have worked so hard to earn. This is why I’m a huge fan of supplemental disability income insurance.

Think about it. Do your executive-level clients even know what they have for disability income insurance coverage? Is it mildly adequate or comprehensive? They may think they’re prepared, but what I’ve learned over the years is that belief does not match reality. So, what is reality?

Issue 1: Inadequate coverage

This is not news. While some may view executives as the least likely candidates to be discriminated against, this may not be necessarily true. Taking a look at disability income insurance, the typical group long-term disability (LTD) plan only covers a certain percentage of income, traditionally 50% to 70%.

There are typically maximum limits on monthly benefits, perhaps as low as $5,000. Bonus and commission income isn’t traditionally covered. And in the end, the benefit is taxable, often leaving the executive with a net replacement of roughly 30% to 50% of their net income (or less for clients whose earnings are in the high six figures).

Issue 2: Life after an illness or injury

Should an executive suffer an illness or injury and need to rely solely on group LTD insurance coverage, the monthly benefit may be the only compensation received. That’s drastically different than the total compensation package before the disability, which may have included a full salary and bonus, pension, 401(k) plan, deferred compensation, and/or stock options.

Issue 3: The “invincibility” syndrome

Also often overlooked is the likelihood of a disability and serious personal consequences beyond the emotional impact among aging executives. High-powered executives are invincible, right? Wrong!

According to JHA, a disability reinsurance, consulting and research firm located in Portland, Maine, older workers are up to five times more likely to submit claims for short- or long-term disability and are absent longer than the average employee. Additionally, a Harvard University study conducted in February 2005 cited serious illnesses as the cause for 46.2% of all personal bankruptcies, despite the fact that most of the individuals surveyed had health insurance.

The opportunity

Expanding group LTD coverage is one option available to businesses, but that can increase the likelihood of claims activity, potentially leaving the employer exposed to future pricing increases.

The option I propose is supplemental disability income insurance. Supplemental DI gives executives an individual, portable policy that can stay with them throughout their careers. And it can help them close the gap with group LTD insurance, including coverage for bonuses and commissions, by layering the individual disability income insurance coverage on top.

Some carriers even offer coverage for retirement contribution protection for qualified plans, where the policyholder’s contributions and the employer’s matches continue to be made in the event of a disability. For those who suffer a long-term disability, this coverage may mean the difference between an early and late retirement.

Fewer than a handful of companies offer an increased level of disability income insurance coverage for high six-figure salary earners. Some insurance companies have recognized the unique needs of these special executives and offer coverage options. Policies that are non-cancelable, have a level premium for the life of the contract and that participate with other in-force policies are worthwhile to consider.

When it comes to high-income earners and those in the executive suite, all of us want them on our client lists. While their time is constrained and attention spans may be short, you may need to work smarter–though not necessarily harder–to garner their business.

To that end, be specific and direct. Know the limitations of their employer’s group LTD plan, how it can impact them professionally and personally, and what you have to offer. Show any signs of incompetence or wasting time, and you can consider the opportunity lost.