Bridging the Executive Disability Gap: Why Group Long Term Disability Coverage May Be Leaving Your Top Talent Exposed

When designing employee benefit plans, most companies offer group long-term disability (LTD) coverage as a standard protection. These plans are typically structured to cover up to 60% of an employee’s base salary up to a cap that is usually between $5,000 and $10,000 per month.

This cap can significantly limit actual income replacement for highly compensated employees and key executives, leaving them underinsured in the event of a disability.

Understanding the Shortfall

Consider an executive earning $300,000 annually. While a group LTD plan may promise 60% income replacement, the common $6,000/month cap limits actual coverage to just 24% of their salary. These caps, whether built in by plan design or required by regulation, create unintended reverse discrimination—leaving higher-earning employees significantly underinsured compared to lower-paid employees.

A Supplemental Solution

To address this gap, companies often implement supplemental individual disability insurance (IDI) plans for their executives. These plans can provide additional coverage beyond the group LTD cap, ensuring that high-income earners receive adequate income protection in the event of a disability.

This supplemental coverage is layered on top of the group LTD plan and offers several key benefits:

• No medical underwriting required
• Portable coverage if the executive leaves the company
• Custom benefit amounts to restore full 60% income protection—or even more
• Cost-effective pricing through group-based underwriting

Example:

A company identified eight high-earning executives who were significantly underinsured by their group LTD plan. Through an IDI implementation:

• Executives earning $360,000 were able to boost their income protection from 20% to 53%.
• Others earning $150,000–$250,000 saw their disability coverage brought up to a full 60% of income.
• The policies were implemented at an average monthly cost of $743 per executive.

This approach not only enhanced the company’s benefits package but also helped strengthen executive retention and minimize financial risk at the leadership level.

What Employers Should Do Now

If you haven’t evaluated how your current group disability policy performs across income bands, now is the time. The implications go beyond benefit adequacy—they impact employee morale, perceived fairness, and overall retention of your most critical team members.

For more information on how supplemental executive disability coverage can support your business continuity and retention goals, please contact the Anchin Advisory team or your Anchin Relationship Partner to learn how we work with clients to implement IDI and ensure they receive the maximum long-term disability coverage.