Multi-Life Disability: Making Benefits Dollars Stretch Farther

Perception: Group long-term disability insurance coverage is adequate.

Reality: Group LTD insurance is a great foundation, but because the benefit is usually taxable with a monthly cap it may not be adequate for the most highly compensated employees. A typical policy covers 60% of salary but usually will not cover bonus and incentive pay. This can lead to an even larger income protection gap.

Perception: Many employers already offer group disability benefits and do not want the expense of adding individual disability insurance.

Reality: Individual protection may not add any cost to the current plan. Creatively combining group LTD and individual plans can enhance the current plan that employers realize will attract and retain quality employees.

When discussing individual disability insurance with companies that already offer group disability benefits, it is important to stress the flexibility of the individual coverage. Programs can be designed to meet the employers’ needs and the needs of their employees at little or no additional cost.

When properly structured, employees receive quality, portable coverage with a multi-life discount. The discount offered will vary depending on participation levels but will generally run from 10% to 30% off a carrier’s unisex rate.

Getting into the market

A little creativity often can open the door to the underpenetrated multi-life LTD market. The right multi-life prospect may be an existing client who already is providing group LTD coverage.

The purpose of group LTD insurance is to offer a standard level of disability coverage to a large group of individuals–spreading risk effectively. As companies grow they tend to make their group LTD plans richer by increasing plan maximums to sync up with increasing executive incomes.

The increased plan maximums usually benefit only small groups of executives. These high plan maximums add volatility to the overall plan. A few large executive claims can cause an unacceptable loss ratio to the group carrier–increasing rates for the plan over time. If you shift some of the top-end risk to executive plans using individual coverage, you lower the volatility of the group LTD plan.

Most carriers that offer group LTD have “loads” for higher plan maximums and percentages. These “loads” are spread across the entire group LTD plan. When designing an effective executive disability plan, it is important to know where the trigger points are in the group LTD plan. For instance, it would be reasonable to assume that if the plan maximum is over $10,000, that the group is paying a “load” for that. You also can decrease group LTD premiums by lowering the plan’s income replacement percentage. (See case study.)

Will multi-life disability sales be part of your repertoire?

Supplementing your clients’ current group disability plan offers a win-win scenario. You can satisfy an important, financial need for your clients. You can multiply your sales exponentially. And, finally, carriers find they can grow their sales profitably within the employer setting. For those who understand and embrace the potential of this lucrative market, the opportunities can be endless.