Executive Disability Insurance



Senior Management

Income protection for Senior Management requires a more nuanced solution than group LTD.




income protection for high-functioning decision making and cognitive roles

For Cognitive Labor 

The nature of high performing cognitive labor is such that the ability to work in one's own occupation is a poor predictor of income.  In leadership positions, especially, there is no automatic income by virtue of occupation or hours, so own occupation coverage doesn't mean much.  It's the performance that matters.

Somewhat greater subjectivity in the determination of disability is appropriate for cognitive occupations.  The business realities of remaining competitive require subtle yet important skills which may not have an objective threshold. 

Furthermore, individually specific work requirements can be important in practice but beyond the scope of group LTD protection.  Group LTD normally reserves the right to assert how the occupation could be performed differently, even if such modifications fall short of employer and employee needs.

For example, an eighty (80) hour work week is fairly typical for leadership because that is what it takes to meet targets.  If the same targets could be met with only 40 hours,  leadership would already be doing so.   The ability to put in eighty hours, however, is not something group LTD can be expected to recognize as a constraint.   

In short, group LTD does not permit the subjectivity or individual specificity that high performing cognitive workers need.  

"Bill's back, but he's not the same."

Leading Reasons for Returning To Work

Key Observation


Although the absence period is usually temporary, health and productivity often continue to be compromised, leaving the worker exposed to ongoing earnings loss and job insecurity.

Social Security Administration; Industry, Occupation, and Disability Insurance Beneficiary Work Return; Social Security Bulletin; Vol. 62, No. 1; 1999; p19.  Among other reasons, 19% because they wanted to work, 11% because rehabilitation made work possible, and 8% for other reasons.

When an Executive returns to work after developing a serious medical condition, they may not be the same person, so to speak.   After some period of observation, he or she may get the "it just isn't working out for us" talk.   


Trying to make it work can drag down employee confidence and production, at significant  expense to the firm.  Sometimes, the best thing for everyone is to go their separate ways.

The clean break is therefore an important option.  But clean breaks run counter to the purpose of group LTD; and with the workers' only source of coverage being group, they will go to great lengths to remain eligible for fear of recurrence.

The key to keeping the clean break option open is to guarantee security of coverage no matter how (or where) the executive chooses to return to work, and make the call on a case by case basis.  Maximum flexibility and choice is one of the most important reasons to have Executive Disability Insurance.



income protection for high-functioning decision making and cognitive roles



of coverage after termination and management transitions



income protection for high-functioning decision making and cognitive roles

Greater Loss of Income Exposure

Compared to other workers, leadership is exposed to a greater loss of income proportionately, upon returning to work, because even the slightest drop in performance can result in a massive drop in income. 



of coverage after termination and management transitions

Longer Bench Times

& Non-Compete Agreements

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.  During this time, they may lay low while they prepare their next opportunity, or consult for a start-up.  However long the break, no coverage is in-force during this time, leaving executives exposed to health risks.

It is incorrect to assume the individual can simply purchase individual coverage.  Once benched, the terminated executive cannot qualify for individual coverage due to financial underwriting (severance doesn't count as earned income).  

The exposure period actually extends about one (1) year longer than the bench time.  Once re-employed, a standard pre-existing condition will surely be present in any new group LTD policy the worker may be eligible for.  Added together, an executive may be looking at the next two (2) years after termination without any real coverage unless special plans are made in advance.

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.



of income replacement ratios, distorted by the LTD cap or exclusion of incentive compensation 

Dependence on Incentive Pay  

The leadership team is often more dependent on incentive compensation than rank and file employees.  But group LTD plans usually exclude bonuses, commissions and equity compensation from the definition of earnings.  There is also an absolute cap on benefits.  After penciling it out, it is not unusual for leadership to have effective income replacement ratios of 25%. 

Restore Parity of Income Replacement Ratios

Executive Disability Insurance restores parity of income replacement ratios.


Unless there is a good reason to discriminate against leadership, a restoration plan is appropriate and allows the plan as a whole to meet expectations.



income protection for high-functioning decision making and cognitive roles

Expectations of Coverage

After an extensive courtship process, high-value 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 are generally not covered.   So, if the Executive has a related claim within the first year of eligibility, he or she will probably get nothing.

Executive Disability Insurance programs are normally designed without Pre-Existing Condition Limitations in order to meet expectations of coverage.



of coverage after termination and management transitions

Leadership Transitions


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.

Easing Senior Leadership Out

It is fairly common for senior management to transition out of their roles by becoming independent contractors while they train their replacements.  The idea is to move them off the payroll but still retain them.   But LTD does not cover 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.


Get Started with Executive Disability Insurance

Disability Underwriters

1420 5th Avenue   Suite 2200

Seattle, WA     98101

(206) 673 2219