On the surface, the nation’s economic picture looks positive: unemployment is down, the stock market is up, and housing prices have rebounded from the last big recession. However, dig a little deeper and you’ll see a slightly different picture of how financially fragile even some of the most well-compensated American workers are. Despite overall economic gains made in recent years, many families are struggling and may not be financially prepared should an unexpected accident, illness or injury occur.
In fact, according to a 2018 poll of U.S. workers by employee benefits company, Unum, 49% have less than $1,000 in savings and could only pay bills for about two months before needing additional assistance. Of those making more than $100,000 per year, 40% are living paycheck-to-paycheck.
This is worrying in many respects, but particularly so in the context of disability. When a household’s breadwinner can’t earn a paycheck, it may be difficult for a family to keep up with everyday expenses.
Unfortunately, suffering a disabling injury or illness is more common than many people think: according to the Social Security Administration, one in four U.S. workers will experience a disability requiring more than a year away from work during their career.
A disability can be due to an accident or injury, but is more often because of an illness or health issue such as cancer, cardiovascular disease, or musculoskeletal problems. Disabilities can last months or even years, and prevent the employee from earning an income, potentially impacting the family’s ability to pay bills, their kids’ tuition, or maintain their existing lifestyle.
Employers often offer disability insurance, which covers a percentage of base income (usually around 60%) but often excludes income from bonuses or commissions. For higher-wage earners like those within the financial services industry, this can leave significant gaps in financial protection should they experience a disability which prevents them from earning an income.
While a basic long term disability (LTD) insurance policy may cover 60% of a base salary, many policies have a monthly benefit maximum of around $5,000 per month. For those earning more than $100,000 a year, they’ll see a significant gap between their pre- and post-disability income. And if the LTD insurance is employer-paid, the benefits are taxable, bringing that maximum payment down to around $3,600 after tax.
If your workforce earns higher salaries, or rely on bonuses or commissions, you should consider additional income protection to provide for them and their loved ones. LTD insurance is an excellent foundation for income protection; but benefit maximums, uncovered compensation, and taxable benefits may leave higher income earners with a gap in coverage.
Individual disability insurance (IDI) can insure a greater portion of income – often 75% or more – to help bridge this income gap. IDI also replaces a portion of total compensation – including commissions and bonuses – so employees receive benefits that come closer to their actual pre-disability income. This type of insurance is also portable, meaning if an employee changes jobs, they can take their IDI policy with them.
Employers within the financial services industry make up some of the largest portion of Unum’s IDI business for a few key reasons:
- Financial services has a high proportion of highly compensated employees with costly lifestyles to protect
- Commissions and incentive pay often constitute a significant portion of income
- Organizational structure within the banking industry allows for executive and management group carve-outs
- Employees see the value in having portable disability coverage that they own should they change jobs or roles
IDI policies can be purchased anytime during the year, meaning you may not have to wait until the standard open enrollment period. And while many companies cover premiums on these policies for their top earners, there are a variety of ways to fund an IDI program for your workforce.
Michael Miller is an assistant vice president of Unum’s IDI division, overseeing rating, implementation and enrollment teams. He has nearly twenty years of experience in the disability insurance industry. For more information, contact him at [email protected]