Last week I was enrolling the employees of a new client in a supplemental long term disability (LTD)income insurance program. These individual policies are designed to supplement a group LTD plan because for some, group LTD doesn’t provide enough coverage. Here’s an example:
- Sam Claus makes $50,000/year or $4167/month.
- His group LTD plan will pay him 60% of his salary if he is disabled or $2500
- Sam pays 25% in taxes, so he’s used to living on $3125/month ($4167 X (1- 25% for taxes))
- Because Sam’s company pays the premium for the LTD plan, the benefit is taxable. If Sam is disabled, he will take home $1875/month ($2500 X (1-25%)) after taxes
- Even though Sam has a great LTD plan, he will still be short $1250/month in take home pay
- A supplemental disability policy could help him replace some or all of that $1250.
Meeting with the employees, I usually ask them what their top 2 or 3 expenses are at home. Most say mortgage or rent as #1, and the mortgage or rent is often equal to, or more than, the income shortfall in their LTD plan. This can often make the supplemental policy, if it’s affordable (in this case we have a steep multi-life discount), a really worthwhile consideration.
If the employee is also the provider of health and dental insurance for his / her household, the cost of COBRA is almost never a consideration. If Sam is covered by a family plan, it’s likely that the COBRA cost for health and dental will be more than $1200/month. If Sam doesn’t have access to health and dental coverage elsewhere, he needs to include the cost of COBRA when he considers the question, “Does your group LTD plan provide you with enough coverage?”
Even if the employee feels like the LTD is sufficient for his current household expenses, it might not be enough to cover the cost of COBRA, and the supplemental policy could be used to fill in the coverage gap.
There are a few group LTD carriers that have riders that cover COBRA costs as well. As such, either the supplemental policies, or the COBRA cost rider might be something to think about at your next group LTD plan renewal.
If you’d like to chat about your group or supplemental disability plans or any other topics related to employee benefits, we’d love to hear from you. Call us at 866-724-0008 or click the button below.