The traditional company long-term disability (LTD) plan for employees provides a very valuable benefit to protect a persons income if they are suddenly stricken by either an illness or disability. Most mid-level employees will receive between 60-67% of their income (taxable in most cases to the recipient) to age 65 with possible additional benefits from either the state disability program or social security (each state varies). Due to universal limits for disability insurance coverage, no one person can protect 100% of his or her income so in most instances, this group plan provides the maximum level of protection available to such employees.
Such is not the case, however, for the top-tier level executives of the company who earn over $100,000.00 annually. Typically, these key employees participate in the basic group plan but will not receive the same 60-67% income replacement protection that their mid and low level colleagues do. This occurs because most group long term disability plans have level caps to each monthly benefit. Some plans stop as low as $5,000.00 a month while others may go to $10,000.00 a month. While this certainly may seem like a large annual benefit, it does not provide the proper level of protection to an executve who makes over $250,000.00 a year.
Group LTD plans generally protect only an employees base salary. This creates a problem for individuals who receive a large portion of their income from year-end company bonuses or distributions from company profits. Such additional income would not be counted as the base salary and consequently, would not be covered.
One simple solution to protect these valuable executives is an additional carve out LTD plan. Such a plan would provide each highly compensated company executive a second plan to supplement their group ltd coverage. Many of these supplemental plans are portable individual disability insurance policies which offer the executive not only additional protection but a secondary plan to keep and take with them if they ever leave the company of the group LTD plan is dropped.
Supplemental disability plans are an excellent benefit to help attract and keep top talent. Companies can have the choice of offering this form of coverage on a voluntary basis to offset cost. Moreover, it provides each of those key employees a proper level of income protection and piece of mind. Even though the current trend for many employers is to cut back on company benefits, this type of fringe benefit has and will continue to become a very common offering for all types of businesses.