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Intro To Supp Disability Plans Ufg
- 1. Lance B Kolbet,RHU, LUTCF University Financial Group Supplemental Disability Meeting the Needs of Key Employees
- 2. Review Topics: • Perspective & Relevance of Income • Interesting Disability Facts • Financial Resources • Employer Response • Creating Solutions • Next Steps
- 3. Perspective Your greatest asset? The chart below projects total earned income from age X to age 67 Annual $50,000 $75,000 $100,000 $125,000 $150,000 $200,000 Income Age 35 1,600,000 2,400,000 3,200,000 4,000,000 4,800,000 6,400,000 40 1,350,000 2,025,000 2,700,000 3,375,000 4,050,000 5,400,000 45 1,100,000 1,650,000 2,200,000 2,750,000 3,300,000 4,400,000 50 850,000 1,275,000 1,700,000 2,125,000 2,550,000 3,400,000 55 600,000 900,000 1,200,000 1,500,000 1,800,000 2,400,000 60 350,000 525,000 700,000 875,000 1,050,000 1,400,000 What have you done to protect it? Your ABILITY to work is a very valuable asset!
- 4. Perspective Two disturbing andrelevant facts: Fact 1. For most Americans, financial obligations demand 100% of paycheck Fact 2. Americans don’t save enough
- 5. Perspective Everything restson income DIS-ABILITY causes income loss
- 6. Dis-Ability Facts • As mortality decreases due to advances of medicine and technology, the incidence of disability increase • Conditions that used to be fatal often cause extended disabilities: • Hypertension • Heart Disease • Cardiovascular • Diabetes • Disability is 2-3 times more likely than Death at most ages • Disability causes nearly 50% of all mortgage foreclosures 2% are caused by death.
- 7. Financial Resources • Savings / Retirement Accounts • Liquidate Assets • Family/Friends • Government Benefits • Employer’s Group Long Term Disability plan
- 8. Employer Response Provide LTDfor all employees • Efficient and cost effective • Transfer of risk to 3rd party • Isolate company from claims management • Increase employee confidence • All treated equally
- 9. Employer Response + LTDis for the masses and… - Contains personnel impact key cost containment features and benefit limits that can negatively + LTD rate is charged against all employees covered payroll and … - Benefitdecreases will result in composite rate increases; reductions result in enhancements + LTD benefits can be increased with ease and… - Increases in requirementsmaximums carry new pre-ex limits and/or Evidence of Insurability LTD benefit + LTD is employer and insurance company controlled and… - Not portable or owned by insured employee
- 10. Employer Response Employer expense for LTD is managed best managed by: 2. Limiting monthly benefit to a maximum of $5,000 - $10,000 and 3. Covering salary only Impact to key employees? Percent of Income Replacement (Pre-tax) LTD Plan : 60% to $10,000 monthly benefit 60 Four employees: Non-Executive - $50,000 salary 40 60% Exec #1 - $100,000 salary and $50,000 bonus Exec #2 - $200,000 salary and $100,000 bonus 40% Exec #3 - $300,000 salary and $200,000 bonus 20 40% 24% Non-Executive Executive #1 Executive #2 Executive #3 0 Highest income earners receive the lowest percentage of benefit
- 11. Employer Response LTD ratesincrease dramatically with the level of income replacement Cost of LTD Relative to Income Replacement Rate 5000 7500 10000 12500 15000 20000 Maximum Monthly Benefit Increasing the LTD maximum benefit will result in higher composite rate
- 12. Creating Solutions While all employees are important, all employees are not equal. So then, how do employers take care of key employee needs?
- 13. Creating Solutions Group LTDis an ideal foundation and can be supplemented with an Individual policy. Supplemental policies are effective because they contain cost and benefit features not found in LTD. Employer can offer different supplemental disability policy designs to different classes of employee. Employer selects/designs his own classes, so if desired, supplemental policies are provided for select participants only.
- 14. Plan design highlights Creating Solutions Supplemental policy designs vary to serve different objectives. The most common are: Fill in the gap created by a low benefit LTD plan (ex: a 60% to $5000 LTD protects incomes to $100k, those over 100k have <60%) OR Design plan to include protection for incentive comp (ex: 60% LTD covers Salary only, Supp provides 60% for Salary AND Incentive) OR Cover Salary and Incentive at highest % available (ex: Supp may provide between 75% - 100% income replacement) The cost of a supplemental plan can be either employer or employee paid. Taxation of benefits and impact on actual replacement ratios may be worth considering
- 15. Creating Solutions Cost Characteristicsof a Supplemental plan design • Maximizes the strengths of ID and LTD to deliver the best plan at a more efficient cost • Splitting the benefit between two contracts allows greater income replacement and eliminates/reduces discrimination against key employees Benefit Quality/Cost Continuum High ID Supplemental Benefit Quality and Plan Income Replacement LTD Low High Cost
- 16. Creating Solutions Supplementalpolicies deliver unique features and benefits • Rates are discounted, fixed, and guaranteed to age 65 • Coverage is portable at existing discounted rates • Inclusion of bonus and incentive compensation in covered earnings • No benefit offsets for Social Security, Worker’s Compensation, other income • Contains benefits for Catastrophic disability and Non-Disabling injuries • Annual benefit increases up to the maximum guaranteed standard issue (GSI) offer Supplemental plans deliver a best of both worlds approach for your most valued employees!
- 17. Creating Solutions Next steps. To design a supplemental plan we need: 1. Detailed census of employees being considered for supplemental plan 2. Copy of current LTD certificate and confirmation of current rate 3. Set date to review plan options When plan is approved we move on to installation: • Authorized signature on employer documents • Pre-payment of 1st months premium • Each participant completes a short form application. (There is no need for medical exam or personal tax records) • Policies are issued to participants.
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