Underinsured Executives

The Challenge of Underinsured Executives

05/01/2024 Written by: AP Employee Benefits

When evaluating executive-level total compensation, employee benefits often drive significant value in those calculations, contributing to an organization's executive recruitment and retention strategy. High-level executives are often found to be underinsured based on the limitations of many group disability plan contracts. Nearly one in four Americans will become disabled by the time they reach retirement age, according to the Social Security Administration, yet only 51% of Americans own disability insurance - down from 58% in 2018. Luckily, the opportunity to carve out these benefits through a Guaranteed Standard Issue, or GSI carve-out, presents a potential solution to this problem and ensures that your organization's top executives have complete income protection in the event of disability.

For executives with larger salaries, standard group disability offerings may not be covering the full value of their compensation. Standard disability plans typically cover anywhere from 40-70% of an employee’s salary; however, the problem lies within the limitations of the coverage. This disability plan structure typically does not account for bonuses or other types of incentive compensation, potentially leaving a large gap for those employees who are rewarded with such financial incentives based on their performance. Carve-out plans can help provide the additional protections that this population requires.

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GSI programs also present several potential tax advantages, as these plans can be structured so that there are fewer income tax implications that may result in reduced benefit payout. Employers also benefit from their additional tax deductions when these plans are offered, as the premiums that the employer pays for the plan are considered tax deductible. In addition, the employer can deduct their contributions to the employee’s individual policy premium.

The potential benefits of GSI programs go beyond employer tax deductions. When high-level executives are shown that they are valued and feel secure in their level of income protection, they are far less likely to seek other employment opportunities. This not only reduces the direct costs associated with turnover, but also leads to an increased level of tenure, operational efficiency, and individual productivity. Organizations with more tenured employees – particularly tenured senior leaders – report more positive work environments and higher levels of employee satisfaction. Organizations teeming with more tenured employees are often viewed more favorably by newer employees, who may correlate a strong organizational culture to longer employee tenure.

Leveraging this strategic approach and offering executive disability through a carve-out can help ensure that full coverage is in place for all employees seeking income protection. These types of plans can help employers with the ongoing "budget versus benefits" dilemma that many companies face each year. By utilizing this method, employers can still offer group disability coverage for all employees, while providing GSI for executives, elevating your organization's benefit offerings while still being conscious of your bottom-line.

Is a GSI strategy a good fit for your organization? Reach out to your AssuredPartners team for additional information and support as you explore strategic disability offerings for your organization's executives.

Need more insights? Your local AssuredPartners team can help.

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