Supplemental Disability Plans

“My Group LTD plan covers 60% of my costs. I guess I should be fine if I become disabled...”.

Have you overheard your company’s Group Long Term Disability (LTD) program mentioned in these simple terms by an employee?  If so, you may be aware that this brief explanation leaves out important details.

What Is Missing from Your LTD Supplement?

It may be in your best interest and the interest of your employees to request answers to these questions:

• What forms of compensation does the plan cover?  
• Does your plan cover base salary only?  Bonus? Commissions? Incentive plans? Retirement savings?  
• Are these other forms of compensation a significant portion of total compensation?
• What is your maximum monthly benefit?  
• Does your maximum monthly benefit leave some of your more highly compensated employees covered at a much lower replacement percentage?

Example:

At a 60% replacement percentage, a Group LTD monthly cap of $10,000 covers compensation up to $200,000.  As compensation climbs above $200,000, replacement percentages decline.  At $400,000 of covered compensation, the replacement percentage falls to 30%.

Could your disability benefit be taxable? 

Depending on who the LTD payer is and how the LTD premiums are remitted, in the event of disability, the monthly LTD benefit paid could be taxable.  

LTD benefits paid out at 60% and then taxed may create genuine hardship on your employees; just what your LTD Plan is supposed to alleviate.

Is 60% enough?

Even if there are no gaps in coverage in your LTD Plan, your employees may wish they had a higher replacement percentage that the “standard” 60%.  

A supplemental IDI plan can allow your employees to “buy-up” to a higher replacement percentage and can even be implemented as a voluntary benefit.

A Frightening Scenario:

One of your key employees is diagnosed with a serious illness.  Upon discussing his options for long term disability, he realizes only his base compensation will be covered, at a 60% replacement percentage, and the benefit will be taxed.  He has no other Supplemental Disability Insurance.  His post-disability income replacement works out to be less than 15% of his pre-disability income.

Is this what your Group LTD plan was designed for?

Regardless of the origin of gaps in coverage in your Group LTD Plan, Supplemental Individual Disability Insurance (IDI) Plans are designed to minimize the impact of a long term disability on your employee population.