When is 60% not 60%?
Group LTD usually excludes bonuses, commissions and equity compensation from the definition of earnings. There is also an absolute cap on benefits.
After penciling through the formulaic adjustments, it is not unusual for leadership to have effective income replacement ratios of 25%, even though the benefits summary suggests 60%.
Restore Parity of Income Replacement Ratios
Executive Disability Insurance covers many types of compensation that group LTD doesn't, in addition to high dollar amounts - restoring parity of income replacement ratios to the target level, which is typically 60% but can be higher.
Protect Earnings Attributable to High Performance
Are you in an occupation that has highly variable compensation from one person to the next? If so, any policy that defines disability based on occupation is incomplete for purposes of income protection.
What matters is the income itself; and for that, a special kind of disability insurance is required that allows for somewhat greater subjectivity.
Coverage While Benched
A year is not an unusually long time to be out of work for executives. It takes executives longer, on average, because of job scarcity at that level and that they often have non-compete clauses in their severance agreements, preventing them from working for competitors and sometimes in the industry. During this time, they may lay low while they prepare their next opportunity. The problem is, they may have no income protection during this time and they can't get it now that they are not working.
Executive Disability Insurance solves this problem by setting the Executive up with an Individual Non-Cancellable policy in advance of termination. Once such a policy is in place, that coverage remains valid and continues to protect the individual throughout their employment and afterwards, even while not actively at work.
When a key person is mentally unfit for work, they make costly mistakes - these mistakes are orders of magnitude more expensive than when committed by other employees.
Rather than trying to make it work out, sometimes the best solution is for everyone to go their separate ways before any serious damage is done. If the exit is to be voluntary, the worker will want options to continue working in a capacity that is personally satisfying and earn a comparable amount.
But Group LTD is not optimized for choice or high economic security. To do so would compromise LTD's primary objective, which is getting employees back to work. While return-to-work is a sensible business objective for rank-and-file employees, it may be too risky for the business to assume that the same approach should always be used for senior leadership. Executive Disability Insurance allows for a more deliberate and financially attractive exit if that is what the situation calls for.
income protection for outside recruits
No Pre-Existing Condition Limitations
After an extensive courtship process, employees assume the employer has taken care of disability coverage. But with group LTD, claims related to a Pre-Existing Condition within the first year of hire are generally not covered. This leaves a gap when hiring from outside.
Executive Disability Insurance programs can be designed without Pre-Existing Condition Limitations so that on-boarding executives are covered without the wait.
of coverage after termination and management transitions
Avoid Conflicts of Interest
When the sale of a business is contemplated, stakeholders generally seek to insulate management from personally disadvantaging themselves from the sale. This is one of the reasons severance pay is provided and the same is true of executive life & disability insurance; because executive life & disability do not depend on the employer for continuation.
Cover Senior Leadership During Transition Periods
It is fairly common for senior management to transition out of their roles by working part time or becoming independent contractors while they train their replacements. They may be the only ones who know the ropes. But LTD does not cover part time employees or independent contractors, leaving a coverage gap. Executive Disability plans solve this problem, and are well suited for senior management as they move into consulting roles.