Covering the high-net-worth client.
This is where corporate benefit professionals really have an opportunity to make a difference. Corporate sponsored multi-life programs are most always offered on a guaranteed issue basis with no medical exams or lengthy underwriting requirements. Simply sign the form and you are covered. For the companies that want to offer voluntary programs, they can use an opt-out strategy where everyone is automatically covered unless they sign a form to decline it. This approach has been used very effectively with 40l(k] plans for many years. Under either scenario, the policies are individually owned and portable so they can be kept if the employee leaves for any reason.
Let's look at disability insurance and the significant value these supplemental programs can provide highly compensated employees. Almost all corporations have a traditional Group Long Term Disability plan that covers 60 percent of base salary to $10,000, $15,000 or maybe even $20,000 per month. The problem is that many of the employees earn salaries that exceed the group benefits cap and bonus income is generally not covered at all. This can cause a serious financial exposure should the executive become disabled because many of these individuals have variable compensation (bonus income) that often exceed 25 percent to 50 percent of their total income. This situation is referred to as reverse discrimination, whereby the highly compensated employee has far less disability income protection as a percentage of their income than all other employees. Why not offer a portable individual supplemental disability plan that can either be company paid or voluntary to solve this problem?
There are two types of supplemental disability coverage available. The first is traditional/U.S. supplemental disability coverage that is layered on top of the Group Plan and generally provides additional income replacement at 60 percent to a maximum benefit of $5,000 to $10,000 per month with simple applications and no medical underwriting required.
The second option is from Lloyd's of London, a relative newcomer to this space, but a veteran player in the insurance industry as they have been writing insurance for more than 300 years and are one of the most well capitalized insurance organizations in the world. Lloyd's is familiar to most people as the insurer of professional athletes and entertainers. In recent years, however, they have developed new multi-life guaranteed issue white collar programs and now insure the partners for some of the largest law firms in the country.
These programs are now available for corporations to cover their highly compensated employees. They can be offered on a guaranteed issue basis with large amounts of coverage available up to $200,000 per month. Of course, most people don't need that much coverage but it's nice for those that do. These are individual contracts and are designed to be stacked on top of both group and traditional supplemental disability coverage if these plans are already in place. The Lloyd's products are very flexible and can provide specialty own occupation definitions with benefits payable until age 65. Coverage is portable and can be continued if an individual leaves their employer.
It is important to conduct due-diligence because Lloyd's is a large marketplace with more than 55 Managing Agents (companies) and several are writing this insurance coverage. Thus, there are a variety of products with different provisions and pricing to choose from.
RELATED ARTICLE: A case study in corporate di
By Gary F. Terry
A LARGE, PUBLICLY-TRADED COMPANY was looking for a solution to more adequately cover the disability income replacement needs of their management team. Their incomes had grown over the years and a considerable portion of the total was now structured as variable compensation (bonus).
The current long-term disability plan provided 60 percent of base salary to a maximum monthly benefit of $15,000. There was no coverage for bonus income--which ranged from 30 percent to 200 percent of base salary--or for long-term incentive compensation.
There were 44 members of the management team with base salaries from $170,000 to $1,000,000, annual bonuses from $50,000 to $2,000,000 and long-term incentive compensation from $100,000 to $300,000.
The head of human resources told us that the company had done well and had a solid history of paying bonuses. She felt that most of these employees had built their lifestyle around receiving that additional income and would have serious financial problems if they became disabled and the bonus income was no longer available.
They decided to add an additional disability benefit of up to $40,000 per month to more adequately protect base salary and bonus income. After an exhaustive search, they chose "The Executive Income Assurance Plan," written through Lloyd's of London, because it provided the most flexible solution to meet their disability needs. Also of paramount importance to their program were the integrated definitions of disability and that the coverage be written on a guaranteed issue basis. They also wanted the ability to increase the amount of coverage for the group at any time in the future with no medical underwriting required, which we were able to provide.
Now they have a disability program that will replace the income needs of their highly compensated employees, should they become sick or injured and are no longer able to work in their own occupation.
Gary F. Terry is executive vice president and managing director of The Westport Group, Braintree, MA, and has more than 30 years of corporate planning expertise associated with executive benefits.
HOARDING HORDES Number of ultra-high-net-worth individuals * 2013, '000 [* With investible assets of at least $30M] NORTH AMERICA $9.7 EUROPE $7.7 ASIA $6.6 LATIN AMERICA $2.1 MIDDLE EAST $0.9 OCEANA $0.5 AFRICA $0.4 Source: Wealth-X Note: Table made from bar graph.
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|Title Annotation:||DISABILITY INSURANCE: HIGH-NET-WORTH|
|Author:||Terry, Gary F.|
|Publication:||National Underwriter Life & Health|
|Date:||May 1, 2014|
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