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How Supplemental Disability Insurance Can Protect High-Income Workers

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Recent economic events have made employees more aware than ever of their financial vulnerability. Even highly compensated Americans — those earning $100,000 or more per year – have learned that they are not immune to financial instability, and that they may be lacking the appropriate coverage to protect themselves and their families: disability income insurance (DI).

An individual’s ability to earn an income has been, and will continue to be, their most important asset. Yet many Americans are not familiar with individual DI protection, nor are they seeking advice on how to protect their income.

According to MetLife’s Seventh Annual Employee Benefit Trends study, almost half of all employees earning $100,000 or more annually are worried about the financial repercussions of a disability that affects their family’s principal wage earner, and are concerned about their ability to pay bills if a period of sudden income loss were to occur. However, about one-third of these employees have no DI coverage.

If highly compensated employees are concerned about sudden income loss, why are so few taking steps to protect themselves with DI? This is a valuable opportunity for you to offer guidance and education about how DI can help provide security.

Education is critical
According to MetLife’s study, one in five employees who earn $100,000 or more a year does not know how much of their income is protected by DI. Of those, 40 percent either believed the amount was inadequate or were unsure if their coverage was substantial enough. In fact, one-third of those who do know how much DI coverage they have are covered for less than 60 percent of their salary.

Despite the high rate of DI underinsurance for highly compensated employees, only 33 percent of individuals earning $100,000 or more have spoken to an insurance agent about their DI coverage.

You should discuss your clients’ income protection needs with them as part of any sound financial plan. This should include a review of any employer-provided group disability plan, as well as the potential need for supplemental individual disability coverage.

Coverage foundation, the workplace
Traditionally, employees look to employers for disability protection. However, while more than half of highly compensated individuals with DI obtain it through the workplace, these employees may not have enough coverage for their income level.

You should be pointing out the potential limitations of a group long term disability plan and help your clients understand the need to expand their safety net. Most employer-offered long term disability plans only cover up to 60 percent of an employee’s salary and exclude bonuses and commissions. Finally, if the employer is funding the premium for the coverage, any benefits will most likely be taxable to the employee.

Expanding coverage
While group long term DI coverage is a solid base for all employees, executives and the highly compensated often need supplemental disability coverage to ensure greater income protection.

Supplemental individual disability income (IDI) insurance can often be the right choice for these highly compensated employees seeking to ensure an appropriate level of coverage. When combined with a group long-term disability plan, supplemental IDI policies provide more complete protection. Supplemental IDI often covers additional sources of compensation, and when the employee pays the premium with after-tax dollars, all benefits received are tax-free. In addition, when offered through the workplace, supplemental IDI may be available with limited underwriting and at a discounted rate.

There are other advantages of purchasing supplemental IDI plans. The plans offer more flexibility and portability, allowing employees to take their coverage with them if they leave the company. At a time when employees are facing more and more uncertainty in the workplace, this can provide extra peace of mind.

Now more than ever, agents have a tremendous opportunity to help their highly compensated clients move from education to action when it comes to protecting their income in the event of a disability. Many employees are concerned about their coverage, but lack the information and tools to make decisions that can give them the high level of protection they need.

Helping clients understand their current safety net, and how they can widen it effectively, is a discussion that all producers should be having with their clients.

Lynn Dumais is vice president of individual disability income insurance for MetLife. She can be reached at [email protected] or 813-983-4002.


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