Additional Income Replacement
IDI pays a fixed dollar monthly indemnity amount independent of other sources, increasing total income replacement. 80% income replacement is fairly standard on a tax-equivalent basis, with 100% being possible in most cases.
We have never seen a Group LTD policy that offsets for employee-paid individual disability insurance.
Supplemental Individual Disability Income (IDI) coverage is issued through individual policies where the employee is the policy owner and - once the policy is issued - there is no ongoing dependency on the employer. The individual employees own and control their policies, although the employer may be involved in the payment of premiums until the employee terminates, at which time the insurer will redirect the bill to the individual at home.
Individual policies are generally Guaranteed Renewable and often Non-Cancellable to age 65 or older, meaning the insurer cannot cancel or increase the premium provided the premium is paid. Any group discount is retained upon termination and the individual is not required to continue working for coverage to remain in effect, at least prior to age 65.
Standalone (retail) coverage for individuals is also available, which is basically the same except without the discount and underwriting concessions.
Flexible Approaches For Groups
EMPLOYEE OR EMPLOYER PAID
Premiums can come from any source, in any combination. You can even change cost-sharing formulas over time without repricing existing policies.
LOW PARTICIPATION REQUIREMENTS
Only three (3) policies are required to start, and if participation later falls below this, existing policyholders won't be adversely affected.
Employees can custom-configure their own policies, including the Elimination Period, Benefit Period, Benefit Amount and Riders, subject to underwriting constraints.
If the program needs to be cancelled or funding reduced, nobody gets hurt. Policyholders have the right to continue coverage on the same terms with no ongoing employer dependencies.
No earnings reporting
IDI is issued as a fixed dollar monthly indemnity benefit. If you don't report earnings, the issue amount stays where it is.
employee self service
Employees can on-board themselves. Just give them the link.
payroll deduction not required
Payroll deduction is completely optional. Direct billing lightens the employer's load and still offers significant discounts.
It is possible - though not common - to have a non-ERISA program without any employer involvement, and still open up access to significant discounts.
What are IDI benefits pegged to?
Individual disability insurance benefits are pre-determined at the time of policy acquisition by the "issue amount." This is a fixed dollar monthly indemnity amount - e.g, $5,000 per month, $10,000 per month, etc. Each employee's offer will be different due to varying levels and types of compensation. The issue amount is the maximum amount the individual qualifies for at the time of application based on a snapshot of current earnings, although it is possible for the employee to select a lesser amount.
Over the course of a worker's career, the issue amount is often ratcheted up to keep pace with rising earnings, but never down. Therefore, an individual who acquires a policy and then later decides to transition to a less stressful, less well compensated position would still have the benefit of the sum of all the layers of coverage added over the years, and could theoretically have an income replacement ratio greater than 100%. The security of a pre-determined benefit amount regardless of earnings fluctuations is the hallmark feature of individual disability insurance.
The premium is generally guaranteed level, based on original issue age. Increases in coverage volume to keep up with rising compensation do carry an associated charge, but these increases don't affect the favorable pricing of previously purchased layers of coverage.
What happens if someone decides not to participate? Will they get another chance next year? Will the offer change?
This question assumes the group has a Voluntary Guaranteed Standard Issue (GSI) offer, which allows employees to acquire coverage without medical underwriting if they enroll during a window of time. The group has to qualify for a GSI offer based on the level of employer support and demographics.
When GSI offers are extended to employees, employees should not assume there will be another chance next year. All parties want it to be an annual offering; and while that may be the plan, there are at least four (4) reasons it may turn out to be a one time opportunity.
1. The insurer may not have the risk appetite to extend offers - to anyone - in future years. This could be part of a nationwide decision that applies to all employers, or it could be employer-specific as a result of low participation. Insurers make decisions about whether to extend another round of offers on a year-by-year basis.
2. The insurer's underwriting practices may not allow offers to a person that has previously waived coverage. Insurers do not communicate whether future offers are possible, although your Rep may be familiar with the insurer's practices. To be on the safe side, enroll for at least a minimum policy because future increases are doled out quite liberally even if new policies are not.
3. A person's earnings may decline after having passed up an offer, in which case the offer will be smaller. This is why it is so important to acquire IDI coverage as earnings are on the rise. Once acquired, IDI policies don't shrink.
4. A person's earnings may, in the future, decline below the minimum eligibility threshold to qualify for a GSI offer (typically $100,000). Note: once a policy is issued, there is no ongoing earnings requirement; earnings only matter for purposes of initially qualifying.
Worst case scenario?
If a future offer is not made, previously issued policies are safe. The non-cancellable guarantee provides individuals with security of ongoing coverage once their policy has been issued.
Would a future offer be any different?
Even if a future offer is made, it's never as good as the original offer.
Future offers for those who waived a previous offer will include a pre-existing condition exclusion. Only on the first offer - and future increases on existing policies - is there no pre-existing condition exclusion, and only if so specified in the offer. No carrier will waive the pre-existing condition exclusion for individual who passed on a previous offer. Keep in mind these are individually tracked, so new hires will generally be able to get offers without a pre-existing condition limitation even if the group as a whole may have had several rounds of offers over the years.
Additionally, any future offers will be more expensive due to being older. This matters because future premiums are based on original issue age. It is for this reason that it is best to acquire as much of the non-cancellable stuff as possible while young.