By Brett Virgin, GEA Board Member
 
Unemployment is low and the stock market is high. On the surface, the U.S. economy is doing quite well, however, if you dig a little deeper, you’ll see a slightly different picture of how financially fragile many American workers are today. Despite the overall economic gains made in recent years, many families may not be financially prepared should an unexpected illness or injury occur.

According to a 2018 poll of U.S. workers, 49% have less than $1,000 in savings and could only pay bills for about two months before needing additional assistance. The poll also pointed out that of the workers earning more than $100,000 per year, 40% are living paycheck-to-paycheck. Alarming in many respects, but particularly so in the context of a disability. When the breadwinner of a household can’t earn a paycheck, it can be difficult for a family to keep up with everyday expenses.

Unfortunately, suffering a disabling injury or illness is more common than many people think: according to the Social Security Administration, one in four U.S. workers will experience a disability requiring more than a year away from work during their career. 

Disabilities can be the result of an accident or injury, but they are more often due to an illness or health issue such as cancer, cardiovascular disease, or musculoskeletal problems. Disabilities can last months or even years, and may prevent the employee from earning an income, potentially impacting the family’s ability to pay bills, their kids’ tuition or maintain their existing lifestyle.

Employers often offer group disability insurance, which covers a percentage of base income (usually around 60%) but often excludes income from bonuses or commissions. For higher-wage earners this can leave significant gaps in financial protection should they experience a disability which prevents them from earning their income.

While a basic group long-term disability (LTD) insurance policy may cover 60% of a base salary, many policies have a monthly benefit maximum of around $5,000 per month. For those earning more than $100,000 a year, they’ll see a significant gap between their pre and post-disability income. And if the LTD insurance is employer-paid, the benefits are taxable, bringing that maximum payment down to around $3,600 after tax. 

If your workforce earns higher salaries, or depends on bonuses or commissions, you should consider additional income protection to provide for them and their loved ones. Group LTD insurance is an excellent foundation for income protection; but benefit maximums, uncovered compensation, and taxable benefits may leave higher income earners with a considerable gap in coverage.

Individual disability insurance (IDI) can insure a greater portion of income – often 75% or more – to help bridge this income gap. IDI also replaces a portion of total compensation – including commissions and bonuses – so employees receive benefits that come closer to their actual pre-disability income. This type of insurance is also portable, meaning if an employee changes jobs, they can take their IDI policy with them.

IDI policies can be purchased anytime during the year, meaning you may not have to wait until the standard open enrollment period. While many companies cover premiums on these policies for their top earners, there are a variety of strategies to fund an IDI program for your workforce.