Individual DI Coverage in the Corporate World
An often overlooked opportunity for those practitioners marketing group coverage as the foundation of their practices are the exposures that exist in the group products that the clients have purchased.
Indeed, in the case of disability income coverage, it is worthy of consideration by the group professional as there may very well be significant gaps that need filled, and holes that need to be addressed in the implemented group disability coverage. Very often those that are most exposed are the very decision makers that the professional may be working with on the other group coverages maintained by the group. A group disability plan that doesn't adequately provide for these key executives, may impact the planners relationship with the group should a disability arise.
Group Long Term Disability plans abound. There has been significant penetration of this type of coverage in the benefits setting. This type of plan allows for significant protection for the rank-and-file workers and often even those that are highly compensated. However, many, many times the structure of the plan does not do an adequate job at protecting the true earning power of the key employees and/or owners of the group.
A group LTD plan is typically structured with a 50% to 60% salary replacement, capped by some monthly benefit amount. A plan that would replace 60% of salary to a maximum of $5,000 per month is not atypical. This is a fine plan design and will provide full coverage to the vast majority of many of the employees of the group. The exposure comes in for those who are highly compensated the best and the brightest of the group being insured.
Let's say the above plan design was offered to a small engineering firm employing forty people. Of those forty, eight of them earn in excess of $125,000 - these may be project engineers, officers, etc. These employees paychecks are greatly exposed in this plan design. Their salary replacement amount is $60,000 capped by the monthly benefit - less than 50% of their pre-disability income. Remember, too, that this is not a true gauge of the disability benefit as this type of benefit is further reduced because of the taxability of these payments These eight employees need additional DI coverage.
For someone making $125,000 per the example above, there is in excess of $65,000 of income exposed to a disabling event (the spread between the monthly cap and the salary, plus an additional allowance for the taxability of the disability benefits). That's a lot of income that needs protected.
The individual DI market recognizes this opportunity. In fact, now may be the best time in years to approach an account that is in this type of situation. At a minimum, most carriers will offer legitimate discounts for multi-life purchases. Discounts range up to 20% on a multi-life individual sale. In addition, many carriers are softening the element of underwriting these exposed employees by offering some amount of guaranteed issue individual disability income amount. This is a powerful opportunity for those in the sub-group who have health issues.
The premiums can be deductible to the employer, and individual plans will typically offer definitions that are richer than those found in group coverage - an important element in retaining key employees in the firm. Plus with most individual coverages, the noncan/guaranteed renewable plan design offer stability of premiums. To top it all off, these plans are completely portable.
It's something group producers need to consider. Often times by not offering, or at least pointing out the exposure of the executives and key employees with their current group LTD plan, the producer might be unknowingly shortchanging the very decision makers who have control over who provides benefits to the group. An untimely disability of one of the key executives could point out the shortfall of a plain Group DI plan and might very well jeopardize planner's relationship with that group. A prudent professional will seek ways to shoot the gaps and fill in the holes in a group clients disability income plan.
About The Author:
Ray Phillips is the Plus Group partner in the Pennsylvania office. Ray is a member of the International DI Society. He is past-President of Pittsburgh's NAIFA and NAHU Chapters, is currently the past-President of The Society of Underwriting Brokers. He currently sits on the board of the Nationaol Association of Indedpendent Life Brokerage Agencies (NAILBA) and has served on the Board of the Society of Financial Service Professionals Pittsburgh Chapter. In 2006 he was awarded the Edward F. Haldeman Award by the Pittsburgh NAIFA Chapter for Meritorious Service.