How to help your clients close their income protection gaps
By Paul Wickline
Your January enrollments are done, your clients have their W-2s in the mail, and you’ve got their renewal meetings penciled in for next fall — time to sit back, right?
Not so much, especially if some of those clients have highly compensated employees or partners. In fact, now is the perfect time to pivot back to those clients and give them a clear look at whether they’re doing enough to help all their associates protect their most valuable asset: their ability to earn an income.
Three points of protection
Let’s back up a minute and talk about financial wellness and risk management. Think of it as a triangle with three essential points to make it complete:
- Savings and investments if they live a long time
- Life insurance if they die early
- Disability insurance if the unexpected happens and they can’t work
Your clients probably have 401(k)s and term or permanent life insurance in their employee benefit packages. They might have group disability coverage, too, but there are two key differences: access and portability.
Employees can go online or pick up the phone and buy their own life insurance at near the same cost their employer offers it (and most often, for much less and with higher benefits). Same thing with savings and investments, where banks and financial advisors abound to help them set up plans with a variety of retirement options.
But disability coverage is different. Employees can’t buy income protection insurance on their own at anywhere close to the cost of buying it through work. And they can only access this valuable coverage without medical evidence at the workplace. Not only that, if it’s a group long-term disability plan, they’ll lose their coverage if they leave the employer. That’s why your clients need to help all employees protect their income if they become sick or hurt and can’t work — providing needed protection for future years, even if they change employment.
Paint a clear picture
This is why now — after the W-2s are out — is the ideal time to reconnect with your clients. They’ve just seen a complete view of their employees’ current incomes, so gaps in protection for all income are easier to spot.
One way to paint this picture is plotting income and age on a scatter diagram, then looking how many annual incomes fall above and below the $200,000 line. We set our metaphorical Mendoza line there because the most popular disability plans cover 60% of base earnings up to $10,000 a month. That amount of coverage will adequately protect employees earning up to $16,667 a month, or $200,000 a year.
But higher earners will still have a coverage gap. Add incentive earnings such as bonuses, commissions and restricted stock units (often not considered by group LTD plans), and the underinsurance increases dramatically. If you have clients in fields such as financial, information technology, medical, legal or evolving industries such as biopharma, business services, energy or consultancies, they probably have employees who need more protection.
Paying for parity
Some of your clients may tell you they want to treat all employees the same, while others see value in differentiating based on job role, seniority or value to the organization. Both philosophies are legitimate, but you may need to ask more questions to determine what clients really mean if they talk about parity or an egalitarian structure.
Offering the same amount of coverage to lower and higher earners isn’t necessarily treating them equally. One group has a safe amount of protection, while the other is exposed to more liability. This unfunded liability and inequity is often brought to your clients’ attention at the time of claim — but it’s too late then to transfer the risk. Your clients can choose to offer coverage that helps close this income gap and treat all employees equitably.
Individual disability insurance (IDI) is one solution to bring to your clients. It can be layered on top of the group disability plan they offer all employees and offer much higher levels of income protection with guaranteed rates on a guaranteed-issue basis.
An advantage of this solution over simply increasing the maximum amount of coverage on the group plan is greater cost containment and predictability for the group plan. The IDI coverage is essentially “walled off” from the group contract, so claims on the individual plan don’t affect the experience on the group contract.
And because the IDI policy is individual coverage, it’s 100% portable. That could be an important attraction point for some of your clients’ highly paid — and highly valued — key contributors, especially with severance and employment contract obligations.
Adding IDI coverage doesn’t necessarily have to increase the burden on your clients’ benefits budget, either. Look for a plan with flexible payment solutions that allow them to choose whether to provide it as employer-funded coverage or facilitate access as a voluntary benefit for greater parity.
In a perfect world, employees would own their benefits — not “rent” them. Unfortunately, they’re not always going to be able to access benefits on their own. So when they can, they need to get those benefits they can keep by accessing them through the workplace.
Paul Wickline is a senior account executive in sales and client management at Unum. He can be reached at PWickline@unum.com.