With employee retention cited as the top benefits objective among the HR practitioners polled in MetLife’s 7th Annual Employee Benefits Trends Study, a comprehensive disability income insurance program can help achieve this critical business goal. Appropriate income protection is important for all employees. However, it can be more challenging when considering the needs of highly compensated employees (HCEs).
Although group long-term disability (LTD) offers a good base of protection for employees at all pay levels, HCEs may find that an employer-provided plan may not provide ample coverage to meet their income protection needs. When reviewing a LTD plan, MetLife suggests employees focus on the issues of “TIM”
(Taxability, Incentive Compensation and Plan Maximum).
The three questions they need to ask are: 1) Will my benefits be taxable? If the employer is paying the premium, they generally will be. 2) Does the plan cover incentive compensation? Many LTD plans do not. 3) What is the maximum monthly benefit? It is not uncommon for HCEs’ income replacement needs to exceed the LTD plan’s maximum monthly benefit.
“Supplemental individual disability income insurance (IDI) can address these issues,” explains Lynn Dumais, vice president, individual disability insurance product management for MetLife. “If the employee is paying the premium with after-tax dollars, supplemental IDI will provide a tax-free benefit. In addition, it will cover a percentage of the employee’s total compensation (i.e., base salary, bonus, commissions) and add a layer of income protection so the employee has a more appropriate level of coverage.”
Need for disability insurance
One of the unexpected results from the current economic climate is that more employees are becoming aware of the need to protect their income in the event of a disability. MetLife’s 7th Annual Employee Benefits Trends Study shows that more than half of working Americans earning $100,000 or more annually are extremely concerned about the financial impact of a disability affecting their family’s principal wage earner and almost half are worried about being able to meet their financial obligations.
According to the Employee Benefits Trends Study, one-third of employees earning $100,000 or more say they have no disability income insurance coverage and about 20% of employees earning $100,000 or more overestimate their coverage levels. “The reality is that most people don’t believe they will ever become disabled, and therefore, have failed to pay attention to this issue in the past,” Dumais says.
How much coverage is needed?
How do employees know the level of coverage that is right for them? It’s generally recommended that they replace 60% to 75% of their total income. Most employer-provided plans will replace 40% to 60% of an employee’s salary. Dumais suggests that HCEs should target a higher level of income replacement, which will help them to meet their financial obligations. If an HCE suffers a long-term disability and misses years of work, or never returns to work, these obligations can quickly add up.
Many people mistakenly believe their most important asset is their home when, in fact, Dumais explained that it’s one’s ability to earn an income. “If you earn $250,000 a year and become totally disabled at age 45,” she observes, “by the time you turn 65, your income loss will be $5,000,000, which is significantly greater than the value of most homes.”
MetLife’s Total Disability Solution
MetLife is one of the few insurance providers to offer a total disability solution to the group marketplace that includes both LTD and supplemental IDI – a bundled product offering that is beneficial for both the employer and employee.
MetLife is able to provide a consultative approach to the employer. Offering both products allows MetLife to coordinate the enrollment and ongoing administration between the two product lines, including any claims-related activities.
According to Dumais, “when one carrier provides the entire disability solution, it helps ensure a smooth process for both the employer and the employee. If an employee is filing a claim, it is a stressful time for them. The last thing they want to do is deal with two separate claims processes and two different companies. With MetLife, if an employee files a claim, they deal with only one contact. Any coordination between the claim teams occurs behind the scenes and does not impact the claimant.”
For the employee, purchasing a supplemental IDI policy through an arrangement between MetLife and the employer provides a discounted policy with limited underwriting. Additionally, since this is an individual policy, it is fully portable, so if the employee ever leaves their employer, they can take the individual policy with them and keep the premium discount. In contrast, most group LTD coverage ends the day you leave your employer.
For more information, please visit http://www.whymetlife.com/
downloads/MetLife_DI_LTD_IntgrtdSolution.pdf, or contact your insurance broker, benefits consultant or MetLife representative.
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Metropolitan Life Insurance Company |
