Are Disability Benefits Adequate?

• Position: Business Brief - Brief Article

New types and increased frequencies of disabilities are being created as a result of today's working conditions, and employee needs -- especially those of high-income executives -- are often being neglected. So says Don Gray, vice president of executive benefit services at Redwood City, Calif.-based ABD Insurance and Financial Services, a privately held insurance brokerage and employee benefit consultant.

He said in an interview that while long-term disability benefits go a long way to help employees, typical group long-term disability (LTD) programs replace only 60 percent of an employee's salary. And, a bigger issue is "reverse discrimination" for high-income individuals. He said the problem stems from the practices of most insurance companies requiring 100 percent employee participation, while benefits do not cover the highest paid adequately.

There are four specific problem areas, Gray says. The first is taxability. In almost all cases, premiums for group LTD programs provided by employers are paid by the employees, making benefits received by a disabled person subject to income taxes.

Second, in many cases, not all incomes are defined in the group contract as being covered. So, while salary and commissions may be covered, incentive compensation or bonuses are not. A disabled person would not have access to a specific amount of bonus or performance pay that may have become a part of his or her every day lifestyle.

Third, insurance companies set caps that maximize the amount of benefits. Thus, depending upon the company philosophy, incomes of staff and other factors, a benefit may range from $6,000 per month to $15,000 per month. For an executive salary of, say, $25,000 per month, this becomes a form of reverse discrimination. "Just about every plan that I look at has one or more of those top executives who are subject to reverse discrimination," says Gray.

Fourth is the lack of insurance for...