Despite a relatively rosy economic picture with low unemployment, a healthy stock market, and solid housing gains, many of the nation’s most compensated workers are often struggling. According to a 2018 poll of U.S. workers by employee benefits company Unum, 49 percent have less than $1,000 in savings and could only pay bills for about two months before needing additional assistance. Of those making more than $100,000 per year, 40 percent are living paycheck-to-paycheck.
This is worrying in many respects, but particularly so in the context of disability. When a household’s breadwinner can’t earn a paycheck, it may be difficult for a family to keep up with everyday expenses.
Unfortunately, suffering a disabling injury or illness is more common than many people think: According to the Social Security Administration, one in four U.S. workers will experience a disability requiring more than a year away from work during their career.
A disability can be due to an accident or injury, but is more often because of an illness or health issue such as cancer, cardiovascular disease, or musculoskeletal problems. Disabilities can last months or even years, and prevent the employee from earning an income, potentially impacting the family’s ability to pay bills, their kids’ tuition, or maintain their existing lifestyle.
Many employers offer disability insurance, which covers a percentage of base income (usually around 60 percent) but often excludes income from bonuses or commissions. For higher-wage earners like those within the healthcare industry, this can leave significant gaps in financial protection.
While a basic long-term disability (LTD) insurance policy may cover 60 percent of a base salary, many policies have a monthly benefit maximum of around $5,000 per month. For those earning more than $100,000 a year, they’ll see a significant gap between their pre- and post-disability income. And if the LTD insurance is employer-paid, the benefits are taxable, further decreasing that maximum payment.
Take “Vincent” for example. Not too long ago, he was at the height of his professional career. After successful stints in banking and telecommunications, he was serving as president and CEO of a healthcare company, sat on a few hospital boards and was chairman of another. But in 2012, at age 55, Vincent suffered a stroke that turned his life upside down.
“To lead a company, you have to communicate well and know how to work with numbers, or at least have an appreciation for how important business transactions will affect the outcome of your company,” he said. “When I had my stroke, the key foundation of my career was wiped out overnight.”
Now, seven years later, Vincent still has problems with his balance and cognitive issues that prevent him from going back to work, but he’s thankful he and his family have disability insurance benefits that replace most of his income while he continues to recover.
“Having your financial life interrupted can be devastating, because the bills don’t stop when you get sick,” he said. “Supporting my family has always been one of my most important goals. If I couldn’t, I’d feel like I was failing at my duties as a husband and father. Because of my disability benefits, my family can still count on me to provide.”
Long-term disability insurance is an excellent foundation for income protection; but benefit maximums, uncovered compensation, and taxable benefits may leave higher income earners with a gap in coverage.
Individual disability insurance (IDI) can insure a greater portion of income to help bridge this gap. IDI also replaces a portion of total compensation—including commissions and bonuses—so employees receive benefits that come closer to their actual pre-disability income. This type of insurance is also portable, meaning if an employee changes jobs, they can take their IDI policy with them.
Shortly after a regional physician’s network in Texas added the IDI policy to the network, a covered physician went out on disability due to a cancer-related illness. She was out for eight months full-time and then worked her way back utilizing the policy’s return-to-work benefits. Prior to the diagnosis, this physician was making $350,000 annually in total compensation. Because her LTD policy provided $10,000/month (34 percent income replacement) and her IDI benefit added an additional $7,500 (26 percent income replacement), she was able to close the gap between her pre- and post-diagnosis pay, replacing around 60 percent of her salary.
Employers within the healthcare industry make up some of the largest portion of the IDI business for a few key reasons:
• Healthcare has a high proportion of highly compensated employees with costly lifestyles to protect
• Bonus and incentive pay often constitute a significant portion of income
• Organizational structure within the healthcare allows for executive and management group carve-outs
• Employees see the value in having portable disability coverage that they own should they change jobs or roles
IDI policies can be purchased anytime during the year, meaning you may not have to wait until the standard open enrollment period. And while many companies cover premiums on these policies for their top earners, there are a variety of ways to fund an IDI program for your workforce.
Michael Miller is an assistant vice president of Unum’s IDI division and has nearly twenty years of experience in the disability insurance industry. For more information, contact him at [email protected].