Implementing a comprehensive risk management strategy is imperative for C-level executives and senior management at HANYS member hospitals. One critical, but often overlooked component, is the executive disability income protection program. But what exactly is this program and why is it vital for high-income earners?
With increasing interest in executive disability income protection programs from C-suite executives, TruePlan Benefit and Retirement Advisors interviewed Bernard A. Gleeson, Director, Employee Benefit Services on Executive disability income protection programs FAQs.
What is an executive disability income protection program?
An executive disability income protection program (EDIPP) is a specialized form of disability insurance designed to supplement existing group disability plans offered by employers. These individual plans provide additional coverage beyond the typical monthly maximum benefit cap found in traditional employer-based offerings. By overlaying on top of group plans, they ensure that high-earning executives receive adequate income protection if they become disabled.
How does an executive disability income protection program (EDIPP) differ from standard disability insurance?
While standard group long-term disability (LTD) plans may offer coverage up to 60% of an executive's annual earnings, they typically max out at $10,000 to $15,000 per month. This can leave high-income earners underinsured. In addition, EDIPPs provide more specific definitions of disability and occupation tailored to the individual's role.
Scenario: Group vs. individual disability plans
In this scenario, let’s say we have a CEO who needs to be mobile and walk to different areas of the business. They suffered a permanent leg injury and were unable to walk, and therefore unable to continue the duties of this specific occupation. However, they were still able to earn income as a virtual academic professor.
Under a group plan, the disability carrier may decide to cover the difference in income. However, they will not pay the full claim amount since their definitions of disability are more specific. The CEO has now lost income because of their disability, as they're only receiving a portion of what they used to make.
Under an individual executive disability plan, another term for an EDIPP, the disability carrier would likely pay the CEO’s full claim. This is because the EDIPP’s definitions are specific to the CEO’s own occupation.
This scenario can also apply to other C-suite and senior managers. If you'd like to learn more, see Investopedia’s group and individual disability insurance overview.
Why do high-income earners need an EDIPP?
For high-income earners (>$180K per year), such as C-level executives, the traditional group LTD plan's benefit may not adequately cover their income due to the LTD plan’s monthly benefit maximum, especially when post-tax calculations are considered. EDIPPs bridge this gap, offering peace of mind and financial security by covering a broader scope of their earnings.
What are the key benefits and coverage options of an EDIPP?
These programs provide a higher level of disability protection, ensuring that more of an executive's annual earnings are covered. Coverage is typically determined as a percentage (60% to 66%) of the applicant's annual earnings, with some excess line carriers offering limits of up to $100,000 per month. This coverage can be customized based on the executive's specific needs, subject to underwriting that evaluates health metrics, occupation, etc.
Additional EDIPP considerations
There are instances where executives may have language in their employment agreement stating the employer will provide a policy to cover any gap in disability coverage between the group disability plan and 60% to 66% of the executive’s annual earnings.
Many group LTD plans don’t cover bonuses or additional compensation, which widens the gap of income not covered.
Unlike the 24-month period on group plans, executive disability income protection plans cover gaps regarding mental health and substance abuse to age 67. Riders can be added that are not available to group plans, such as an increase in the cost of living.
Who is eligible for an executive disability income protection program (EDIPP) and how do you enroll?
Executives with annual earnings exceeding the underlying disability policy maximums are eligible for these programs. Enrollment involves applying for coverage, which is subject to the carrier's underwriting process. The carrier will review and either approve, modify or deny the coverage based on various factors.
How does an EDIPP fit into an overall risk management strategy?
Most hospitals want to take care of their C-level staff or senior management. Offering such a program signifies a commitment to the well-being of C-level staff and senior management, aligning with broader risk management objectives. Top talent will want to stay or move to an organization that prioritizes their financial security.
What are the long-term financial risks for executives without disability income protection?
Without adequate coverage, executives face significant financial risks. In the event of a disability, they would only be covered to the limits of any existing group LTD plan, potentially jeopardizing their financial stability.
Key considerations when selecting a program
When selecting an executive disability income protection program (EDIPP), executives should be aware of several critical factors that can influence their coverage. First and foremost, the benefit amount should adequately reflect their annual earnings to ensure that they receive sufficient income protection in case they are unable to work due to a disability.
Many insurance companies offer policies that can supplement existing group LTD plans, ensuring that high-income earners do not fall short, especially considering the maximum benefit caps of traditional employer offerings.
Another important consideration is the distinction between short- and long-term policies. While some may provide a tax-free benefit, others may require a specific medical leave period before benefits kick in. It’s essential to compare the premiums, as they can vary significantly based on underwriting criteria.
Executives should look for plans that define what it means to be totally disabled, allowing for a more nuanced understanding of their coverage should they need to return to work in a modified capacity.
Finally, individual disability income policies may provide the flexibility and specificity necessary for high-level executives to receive benefits that align with their unique financial and occupational circumstances. By evaluating these components carefully, individuals can plan adequately for unforeseen circumstances.
Why choose TruePlan?
At TruePlan, we possess extensive experience and success stories in executive disability income protection. We collaborate with both domestic and excess line carriers to tailor solutions that meet your organization's needs. Trust us to guide your employee benefit strategy with executive disability income protection insurance.
For more information on our services and how we can support your executive team, reach out to TruePlan today. Secure your future with the right protection in place.