Supplemental Income Protection

Now More Attractive than Ever to High-Comp Executives

by Branden Pierson

Mr. Pierson is National Sales Leader, Executive Benefits, for Unum. Connect with him by e-mail:

It’s clear that producers are already starting to feel the impact of healthcare reform as they experience continuing pressure on their compensation. Fortunately, a market opportunity currently exists that can help remedy this situation. By offering supplemental individual disability insurance (IDI), producers cannot only help enhance their revenue stream, but they can also provide key executives with a complete income protection solution that they may be missing.

Getting educated

Many industry professionals are under the misperception that group long term disability (LTD) provides all employees with adequate disability coverage for their needs. While this may be true for most employees, it isn’t often the case, however, for highly paid employees. Simply by virtue of how much they earn, these high wage employees often lack the total income protection they require. How does this happen?

Group LTD plans are usually designed to replace 60 percent of base salary and most have monthly benefits caps. However, highly compensated employees whose total income often includes bonuses and commissions – which may not be covered under their group LTD plan – often wind up being significantly underinsured. Not only is their variable income unprotected, but benefits caps are usually based on more modest income levels, short changing high earners. In addition, employer-funded benefits are taxable, further eroding the coverage gap and leaving executives at risk financially. Instead of 60 percent income replacement, many highly paid employees have an income replacement ratio that is much lower.

Here’s an example of two highly compensated executives:


$200,000 salary +

$50,000 bonus

$300,000 salary +

$50,000 bonus

Total annual income



Covered compensation (salary only)



$300,000/ or



Group LTD benefits60% of covered compensation to a maximum of $10,000/mo



Income replacement ratio of total compensation package



Income Replacement ratio after taxes (assumed at 28%)




An ideal solution

Supplemental individual disability products are a very attractive option that can address this benefits shortfall while enabling producers to diversify and grow their business. It’s a win-win situation because not only do producers benefit financially, but they are selling a valuable product to an underpenetrated market with a significant need.

In many cases, executives haven’t made a decision about this coverage because it hasn’t been presented to them nor has the need been fully explained. Clearly, successful marketing to this group of select employees requires producers to first educate their employer clients prior to the product being offered.

Supplemental individual disability insurance is not just an offering intended primarily for lawyers and doctors anymore. Current IDI coverage is appropriate for all highly paid executives throughout corporate America, no matter what their industry

In fact, supplemental IDI can appeal to employers as well by enhancing the benefits package they offer, helping them attract and retain valuable employees in a changing marketplace. And because the product can be offered through multiple funding options, adding a supplemental IDI program doesn’t have to increase an employer’s benefits cost. Offering Supplemental IDI on a voluntary basis through payroll deduction, for example, virtually eliminates any additional premium cost for the employer.

Broadening the appeal

Producers should be pleased to learn that the IDI product of the past has gone through an evolution. No longer a “one size fits all” plan, today’s supplemental IDI is designed to be a flexible, modular package that can be customized to integrate smoothly with an employer’s group LTD program. In addition to custom designs that complement most group LTD plans, supplemental IDI has other benefits, as well:

  • The coverage is employer-sponsored but individually owned and portable.
  • The option of up to 100 percent income replacement coverage for catastrophic disabilities.
  • Premiums are fixed and coverage is non-cancellable to age 65.
  • Rates for an employer-sponsored plan can be 20 to 50 percent less than coverage on the street for a single policy, depending on case size and gender.

Importantly, the underwriting process for supplemental IDI has also been streamlined, with most plans now being written as guarantee issue.

Supplemental individual disability insurance is not just an offering intended primarily for lawyers and doctors anymore. Current IDI coverage is appropriate for all highly paid executives throughout corporate America, no matter what their industry. This “mainstreaming” of the product means that a producer’s target audience can now be any eligible employee earning  +/- $100,000 or more, or any high income earner with income exposure.

Enrolling the product

Thanks to enrollment and communication advances, selling this product to busy executives who have little time to devote to benefits decisions has also become a lot easier. With today’s technology, a variety of methods are available that can be accessed by executives whenever or wherever it’s convenient for them. The key to using any of these tools is customization and adapting the  implementation for each company’s particular corporate culture:

  • Dedicated self-service website. Popular with executives pressed for time, this method is easily accessible 24/7 and can be used both to gather information and to enroll when the executive is ready.
  • Web meetings. Hosted web meetings enable executives to ask questions of a live person, and to gain additional information before making a purchasing decision.
  • Recorded presentations. With PowerPoint /Flash, company-specific presentations can be pre-recorded and hosted on an employer’s website.
  • Telephonic enrollment. A dedicated phone line gives executives access to a person who can provide company-specific information as well as answer questions and handle enrollment. And with voice signature authorization (VSA), an executive’s voice serves as the required signature, eliminating paperwork or a website visit.

What’s in it for producers

With healthcare reform presenting new market challenges, being able to offer supplemental IDI is a plus for producers. Today’s IDI product offers compensation with more options to better meet the needs of the producer community, including high/low or level commission plans. In addition, the first year and recurring revenues are lucrative; because compensation is vested with the writing producer, it also provides protection from loss of revenue from a takeover.

Supplemental IDI may have gotten lost up until now because of lack of shelf space and  understanding of the need, but clearly there couldn’t be a better time to offer this valuable product, which can help both you and your clients. The message is getting out, and if you don’t bring it up, someone else will.