Promus Financial | Executive Benefits

Supplemental Disability Plans

 

Most employees receive group long term disability (LTD) coverage through their employer.  As a result, employees assume that 60% to 66% of their income would be replaced in the event of disability (common group LTD plan design).  For higher compensated employees, this assumption is not even close to reality.  Consider the following regarding group plans:

 

  • Plans generally cover base salary only and not incentive compensation (bonus, commission, etc.)
  • Monthly benefits are often capped at $5,000 to $10,000 per month
  • Since employer-paid group benefits are taxable, net replacement income may be reduced even further

 

Assume a key employee has an annual salary of $200,000 with annual incentive pay of $100,000.  What would their actual income replacement percentage look like in the event of a disability?  Consider the following under a “60% of salary plan” with benefit caps of $10,000/month and $5,000/month respectively:

 

ExecLTDGap

 

As you can see from the example above, a group long term disability plan may work for the average employee, but may leave key employees very under-insured and at-risk in the event of a disability.  At higher income levels, the disability gap is further exacerbated.

 

A Promus supplemental disability program, whether paid for by an employer or offered as a voluntary benefit can:

 

  • Provide an enhanced definition of disability
  • Cover total compensation, rather than limiting coverage to base salary
  • Mitigate the impact of LTD benefit caps
  • Provide disability benefits that are non-taxable, depending on plan design