Executive Disability Income Plans

SecuraDI Consultants5353 Gamble Drive, Suite 300

Minneapolis, MN 55416952-224-5400

www.sdiconline.com

Disability Insurance – more important than ever.

What once caused death, now causes disability…

For example, deaths due to hypertension are down 73%, while disabilities due to hypertension have increased by 70%.

• Most companies have a significant need for Disability Income planning.

• Most employers and employees suffer from a discrepancy between the perceived and actual level of their disability protection.

• Employees are least familiar with their disability program benefits.

• About 7 in 10 employees consider long-term disability insurance either the most important or one of the most important benefits that employers provide.

• Only about half of the employees covered by a long-term disability program know the percentage of their income that would be replaced.

Disability Insurance – Third Party Research

Survey on Long-Term Disability Insurance, Consumer Federation of America and American Council of Life Insurance, April 7, 2000.

Why Special Disability Benefits for Executives?

• Attracting and retaining key/highly valued employees has become a higher priority in the marketplace.

• As the 77 million baby boomers retire the competition for top talent will continue to grow.

• The expectations of executives/highly valued employees have grown as more companies offer them special benefits

• Traditional corporate LTD plans do not protect key/highly valued employees to the extent they expect. This is due to Benefit Maximums, Tax Implications, Covered Compensation Limitations, and Legislated Benefit Offsets (e.g., social security disability, workers’ compensation)

– Unfortunately, this may not be realized until time of claim.

• Taxability– Many group LTD plans are at least partially employer paid– If the employer pays the premiums on the group LTD plan, the

benefits under the plan are usually taxable to the employee• Incentive Income

– Many group LTD plans cover base salary only and do not cover commissions or incentive income like an annual bonus

• Maximums– Many group LTD plans have low maximum benefit amounts that

may not adequately protect highly compensated employees• Portability

– Many group LTD plans are not portable, meaning that coverage is tied to employment

– If the employee leaves his/her employer, they often lose the group LTD coverage

For Highly Compensated Employees, Group LTD coverage may not be enough!

The Problem

Annual Base Income

+Annual Bonus

Income=

Total Monthly Income

Net Monthly Income

Gross Group Monthly Benefit

Net Group Monthly Benefit

Percentage of Income

Replacement

$50,000 $5,000 $4,583 $3,071 $2,500 $1,675 55%

$80,000 $8,000 $7,333 $4,913 $4,000 $2,680 55%

$100,000 $10,000 $9,167 $6,142 $5,000 $3,350 55%

$125,000 $12,500 $11,458 $7,677 $5,000 $3,350 44%

$150,000 $15,000 $13,750 $9,213 $5,000 $3,350 36%

$200,000 $20,000 $18,333 $12,283 $5,000 $3,350 27%

Assumes 33% tax bracket LTD covers base income only

The Typical LTD Plan

Executive Disability Income Plan – A Comprehensive Disability Strategy

• Utilize both Group LTD and Executive Disability (an Individual product) platforms to create a more effective comprehensive disability plan

• Addresses shortfalls and gaps within a traditional group LTD plan — i.e., covered compensation limitations, legislated benefit offsets, benefit maximums,etc.

• Provides an enhanced, value added benefit to an Executive’s benefit package• Can potentially help stabilize the overall disability plan

Combining Experience-Rated (Group LTD) and Non-Experience Rated (Executive Disability) Coverage

EDIP - Guaranteed Standard Issue Program

•Provides Executives and Highly Compensated Employees with an additional level of disability coverage by layering individual disability on top of Group LTD

•Limited underwriting. No labs or medical exams required•10% to 35% premium discounts and unisex rates•Uses an individual product so coverage is portable •Tax free benefits if premiums are paid by the employee with

after tax dollars

The Problem

Annual Base Income

+Annual Bonus

Income=

Total Monthly Income

Net Monthly Income

Gross Group Monthly Benefit

Net Group Monthly Benefit

Percentage of Income

Replacement

$50,000 $5,000 $4,583 $3,071 $2,500 $1,675 55%

$80,000 $8,000 $7,333 $4,913 $4,000 $2,680 55%

$100,000 $10,000 $9,167 $6,142 $5,000 $3,350 55%

$125,000 $12,500 $11,458 $7,677 $5,000 $3,350 44%

$150,000 $15,000 $13,750 $9,213 $5,000 $3,350 36%

$200,000 $20,000 $18,333 $12,283 $5,000 $3,350 27%

Assumes 33% tax bracket LTD covers base income only

Remember this….The Typical LTD Plan

Executive Income Disability Plan (Group & Individual Coverage)

Net Monthly Income

Net Group Monthly Benefit

+Tax-Free

Individual Monthly Benefit

=Total Net Monthly

Benefit

Percentage of Income

Replacement

$3,071 $1,675 $625 $2,300 75%$4,913 $2,680 $1,025 $3,705 75%$6,142 $3,350 $1,275 $4,625 75%$7,677 $3,350 $2,425 $5,775 75%$9,213 $3,350 $3,600 $6,950 75%

$12,283 $3,350 $5,900 $9,250 75%

A Winning Solution

Executive Disability Income Plan Illustrated

$175,000

$117,250

$60,000$40,200 $40,200

$60,000

$100,200

$0

$50,000

$100,000

$150,000

$200,000

$250,000

Gross Total Income Net Earnings After Tax Gross Group LTD Benefit

Net Group LTD Benefit Net Individual DI Benefit

Assumptions:• Annual income $150,000 + $25,000 bonus income • Group LTD Max Benefit is $5,000• Group LTD does not cover bonus or incentive compensation

Benefits All

Broker:

Deepens client relationships and producers’ value by adding more product solutions

Competitive Broker compensationFirst year commissions and renewals

Vested Broker of Record for inforce business-client retention

Employee

Broker

Employer:

Helps attract and retain talented employees

Enhances the competitiveness of the employer’s benefits package

Allows employer to provide easy access to Individual DI

May stabilize overall rates

Claims experience for the supplemental DI will not impact the basic LTD rates

Employee:

Allows a higher net income during a disability

Provides strong policy provisions as compared to Group LTD

Provides portable coverage even if he/she changes jobs

Offers discounted premiums

No medical exams or lab work required

Premiums are fixed

Ease of payroll deduction

Employer

We Can Help You …

• Assess your client’s disability insurance needs

• Evaluate your current disability insurance programs

• Determine appropriate program design

• Review the cost benefit analysis• Implement your program• Generate additional Income

Contact Mark Weibel at SecuraDi Consultants

952-224-5400 x 215 or mark@sdiconline.com

SecuraDI Consultants