Another component of Comprehensive Disability Income Protection planning involves securing adequate protection for employees by building on the foundation of company provided Group LTD. When we consider the average Group LTD plan provides 60% of salary up to a stated monthly benefit maximum, the best case scenario is the disabled employee would endure a minimum 40% loss of income.
Most employees would consider that a devastating financial situation which could result in significant economic hardship and loss of lifestyle. Case in point, consider a manager earning $75,000 in income. Under a 60% to $10,000 Group LTD plan, the benefit received would amount to $45,000 a year, resulting in a 40% loss of income.
Under a Benefit Maximization approach, all or some of a company's employees are afforded the opportunity to maximize their disability protection through a combination of the company's current Group LTD plan and an individual policy purchased on their own. The target replacement percentage of the combined plan would be 75%, meaning the employee could voluntarily elect another 15% of protection on top of the 60% provided by the Group LTD plan.
Additionally, as the employee would be paying for the individual coverage on his own, that benefit would be received tax free, resulting in an overall after-tax income replacement percentage of 80% of net income, based on an assumed tax rate of 25% of the Group LTD benefit.
To learn more about the Benefit Maximization component of a Comprehensive Disability Income Protection plan, please review the following presentation located at the bottom of this page and feel free to contact our office for additional information.
