Company executives are beginning to see how standard-issue long-term disability may not fully meet their needs should they become disabled. It's a "stark realization that their current long-term disability coverage is good for the rank and file but discriminates against higher income earners," says Steve Brady, 2nd VP of individual disability insurance sales and marketing at The Standard in Portland, Ore.

Executives, Brady explains, tend to forget that the typical LTD plan has a cap that could be up to $10,000 a month, and instead think they will receive up to 60% of their full income if they are disabled. "That cap limits them, and a usual long-term disability plan does not cover incentive pay, bonus income," he points out.

For a typical long-term disability sale, a broker will respond to a request for proposal from a human resources department. Under normal circumstances, the RFP will have several carriers answer it. Whichever offers the lowest premium will usually be chosen by HR without other considerations, Brady says. However, selling a plan to high wage earners is different from a typical RFP and thus rises above the HR department's usual decision process, Brady adds.

As the impacted parties do not realize the gap in their coverage, the broker must reach out directly to an executive to explain. "That can grow into an opportunity to present to the board on how you solve this problem," he says. "The only solution right now for the gap in coverage is individual disability layered on top of long-term disability and sold on guaranteed issue basis."

This presents a further revenue opening, as individual disability is typically less restrictive than a group plan and makes the plans more attractive to executives.

Further, by selling just to a group of high-wage individuals, one can separate by class. This allows for bundling the policies for discounts, Brady says. "You can give them better definitions and portable coverage, and guaranteed premiums," he explains. "That is a perk that most brokers are unaware of and most executive boardrooms are unaware of."


In practice

Enrollment firm Covala Group, based in New York City, provides an example on its website of successfully implementing long-term disability insurance for executives at Thomson Reuters. According to Covala's website, Thomson Reuters had nearly 1,500 highly compensated executives who lacked full LTD coverage. To overcome that, Covala sold an executive LTD benefit that covers bonus compensation, increases the benefit maximum by 33% and provides full portability through individual disability policies at a 30% discount. As a result, 40% of all eligible executives enrolled in the benefit and the rate guarantee on the employer-paid basic group LTD was extended by two years, Covala says.

Such plans, The Standard's Brady adds, usually stick with the original broker, unlike a traditional LTD plan where is there is competition and a broker can be replaced and the commission lost. He recalls an executive plan placed with a group of attorneys with a premium over $500,000. "The broker cannot be replaced," he says. "They install the plan and walk away and it's permanent ... that gives brokers a lot of confidence, 'I am going to make this sale and no one will able to steal it from me.'"

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