Mind the (LTD) Gap

If you’ve been to London and have taken the Underground Rapid Transit System, you are likely familiar with the Mind the Gap signs and constant reminders to be careful navigating that one-foot gap between the platform and the subway car. It seems over the top until something happens and an emergency occurs because someone isn’t paying attention. We could also be accused of overdoing it when it comes to Group Long Term Disability (LTD) insurance.

The Gap That’s Also a Blind Spot 

Many of our employee benefit clients have a Group LTD that is typically designed to cover the basic long-term disability income needs of 80% of the employees. That’s the good news! The bad news is that it typically does not adequately protect business owners, senior management, key people and leading sales performers who think they are “all set” but are too busy to examine the limitations for highly compensated employees. 

Why? Because “LTD” could also stand for “Last Topic Discussed”. There are many aspects to a comprehensive benefit and retirement program where disability is often glossed over, or considered a non-essential add-on for coverage. However, it could be argued that it insures your most important asset…the ability to earn income over a long career. 

2 Minute LTD Review 

Please join me in doing a rapid check of your Disability Income Protection you can determine whether this impacts you or not: 

• Pull up your Group LTD Benefit Plan Description. Look for the phrase describing basic plan design, something like “60% of covered earnings to a maximum of $5,000 per month.” Now, do some quick math to determine what your benefit would be and whether the $5,000 per month maximum is capping your benefit. Note: if you earn over $100,000, it is.
• Next, look for a definition of Covered Earnings. Most importantly, does it cover Bonuses and/or Commissions? Is it based on “last year’s W2” or does it average over a couple of years? Obviously, if you have a high degree of variable or incentive compensation, this is a critical part of the formula. 
• What’s the definition of Total Disability and Residual Disability Benefits? We could devote an entire post to disability definitions but for now, look for language that helps you understand what would trigger total disability income benefits, how that might change over time, and what if you could continue doing your current work but needed to reduce your hours. 
• When does the Group LTD coverage start and end? Most LTD Plans provide disability income benefits after a 90 or 180 Day Elimination Period (often preceded by Short-Term benefits) and continue through To Age 65 or 67 assuming you still qualify for benefits. It’s also important to understand how your LTD plan works if you are a boomer and considering changes in your employment status. 
• Who is paying the premium? Keep in mind that if your Employer is paying 100% of the premium, your disability income benefits are taxable income. Paying taxes is never pleasant but it’s even worse if you are out on disability and are receiving a fraction of your regular compensation.

If you are confident that your current Group LTD coverage (plus any individual policies) would keep you financially whole in the event of a serious accident or injury, you’re done!

If it appears you need to Mind The LTD Gap, please consider the following options: 

• Purchase an Individual Disability Income policy from a well-regarded insurer who specializes in this type of coverage. You’ll need to provide proof of income and an insurance physical may well be required in addition to a formal application. 
• If there are 3 or more employees in your company who are also “capped” with their LTD benefits, you can consider a multi-life individual plan that may provide a 10-20% discount and simplify the application process. Your employer could also choose to pay all or part of the premiums. 
• A company-sponsored Supplemental Disability Plan with 10 or more participants can result in higher discounts and a simplified or guaranteed approval process.  No insurance physicals are required and the process is a breeze.

Know Your Numbers

There are some other essentials to designing and implementing the best plan for your industry, occupation, health history, tax bracket, etc. But, if you take a few minutes to understand your current compensation and how your Group LTD will protect you in different scenarios, you’ll be positioned for financial security and peace of mind. Especially knowing that you can save time and money by securing needed, additional coverage.