The Old StrategyWe all live in a world of “have”, and “have-nots”. In today’s society there are many people in a company who are doing extremely well, and they are typically supported by a large administrative work force who does not receive as much compensation for the work they do. Too many companies today have group long term disability insurance that is improperly structured because of a false notion that used to work in the 1960’s. It is a huge mistake to have one single group long term disability insurance plan for a company that has such a discrepancy in wages and earnings between multiple classes of employees.
Protect The Decision MakerIt seems to make sense that if you have a group long term disability insurance plan at your company, you would want a plan that will protect the executives of the company, and the larger incomes that they earn. You may have a group LTD plan that covers 60% of income up to a monthly maximum benefit of $10,000 or more. The CEO and other top executives in the company will then max this benefit out at $10,000 a month should they ever suffer from a long term disability. You may even be proud of the fact that your company has such a great LTD benefit for it’s employees.
The logical extension of this is that all of the administrative people in the company making less than $100,000 a year will all be covered as well because their incomes will not merit the full $10,000 a month should they ever need to file a claim. The reality is that the receptionist and the CEO have the same level of coverage, with the same benefits. Odds are the company is paying a lot more for disability insurance protection for it’s employees than it needs to as well. If there are 100 employees in a company, there may be 30 people that actually make enough money to maximize the group LTD, and 70 that have way too much coverage for the incomes they make.
The SolutionIt is actually an easy problem to fix if you know how to do it. As the president of a small company I understand that my income protection needs are a bit different than the needs of my receptionist, and while the benefits offered in a group LTD plan may be more than adequate for my administrative staff, they would come nowhere near protecting my income should I become disabled. I have a responsibility to provide income protection to my employees, but I have a larger responsibility to my family to make sure our lifestyle continues should I become disabled, and group LTD is not going to cut it on it’s own.
If I shave the group LTD monthly maximum benefit down to $3,000 a month in my company, I have actually not changed the monthly benefit of any of my administrative employees. LTD pays 60% of earnings up to a maximum monthly benefit, and $3,000 a month would cover that level for each one of my administrative employees. The money saved on this change is significant, and more than enough to cover the cost of guaranteed issue individual disability insurance for myself and several key employees who need more than group LTD has to offer.
Some companies have a hard time with this idea because they feel they are taking something away from the employees, this is often not the case at all, and in fact you are usually improving the disability protection for everybody involved. If an administrative employee is making $50,000 a year, that is a monthly earnings rate of $4,166. 60% of $4,166 is $2,500 which is more than covered by a group LTD plan with a monthly maximum of $3,000. You have not changed the employees group LTD at all for anybody earning $60,000 a year of less.
Higher Wage Earning EmployeesPeople who are making more than $75,000 a year would want the option of purchasing additional disability insurance to protect their incomes. You can put the savings from the LTD into a guaranteed issue individual disability insurance program for all of your higher income employees. The company can offer a specific amount of individual coverage to all the eligible employees, or can make the participation for the higher amounts a voluntary benefit costing the company nothing. A higher income executive can protect the larger portion of his or her income with a higher quality individual disability insurance plan on a guaranteed issue basis, and not have his lifestyle dependant on the same plan as the receptionist. It is very common for a company to take the savings from the LTD and offer the executives 2 or 3 thousand a month of guaranteed issue disability insurance, and providing them an option to personally buy more at a discounted rate because of the employer sponsored discount.
The End ResultThe company after going through this process still provides the same level of protection to the vast majority of it’s administrative employees. Executives and senior leadership will have a more comprehensive level of disability insurance protection, often protecting a larger share of their incomes as a result. The rates for the group LTD will reduce significantly and will stabilize because there are no more large claims that could affect your LTD rates with one single claim. You will end up providing your employees with a disability insurance program that truly reflects the needs of your employees, and doesn’t discriminate against the larger wage earners.
