Very high-income earners, such as Law Firm Partners, hedge fund, financial professionals and business owners, are extremely vulnerable should they suffer a disability.  This occurs because Group Long-Term Disability (LTD) plans and Individual Disability Insurance (IDI) have combined issue and participation limits that leave the very highly compensated professional exposed.

While lower paid employees receive a full 60% of their pre-disability earnings should they become disabled, the very highly compensated professional receives significantly less than 60% of their income creating a reverse discrimination scenario.  The higher the income, the less protection.

The Problem

Why are rank and file employees protected while very high-income earners are not?

1) Group Long Term Disability (LTD) plans typically cover 60% of an employee’s pre-disability earnings up to some predefined monthly maximum.  Assuming a plan has a group LTD plan for executives with a $12,500 monthly maximum benefit, an employee earning $250,000 per year would receive the maximum monthly benefit of $12,500 should they become disabled ($250,000 / 12 months is $20,833 of monthly income).  Therefore a 60% disability benefit is $12,500 per month ($20,833 * 60% = $12,500).  Anyone earning $250,000 or under per year would receive a full 60% of their pre-disability earnings, the maximum benefit.  Conversely, the higher the income above $250,000 the lower the percentage of disability income being covered.

2) Individual Disability Insurance (IDI) is placed in conjunction with a Group LTD plan to provide protection above the group LTD plan.  While this increases the amount of protection for high income earners there is a limit to which the insurance carrier will write group LTD and IDI coverage leaving the Very High