One Way to Protect Your Income (Part 2 of 2)
Your Law Firm has a group long-term disability program. Excellent news. However, the reality is that a significant portion of your income may still be at risk.
Group Income Protection
Many group income protection policies are inadequate. They have the following gaps and limitations:
- Salary-Only Protection:Most Group Long Term Disability (GLTD) programs protect up to 60% of your salary, with no income protection for other compensation such as bonuses, commissions, incentive plans and retirement savings.
- Benefit Caps: GLTD programs typically have benefit caps based on more moderate income levels, which may limit the amount of income replacement more highly compensated lawyers can receive.
- Taxes: Benefits from an Employer Paid Plan, like the usual GLTD program plan design, are taxable, so the actual income replacement may be significantly lower than expected.
- Portability: GLTD programs may offer a convertibility feature (although rare) and don’t offer any portability benefits. There are a couple of risks here. What happens if your Group cancels the coverage? Or, you switch to a new company without GLTD benefits?
The solution for these issues is typically an Executive Disability program or a Supplemental Individual Disability Insurance (IDI) program. Providing supplemental IDI or the opportunity to purchase supplemental IDI at a group discounted rate is a valuable and key benefit to help attract and retain top legal talent to your firm.
The firm can pay the premium for its eligible employees or offer supplemental IDI as a voluntary benefit (or the opportunity to “buy up”) at a reduced group rate. If the firm pays the premium for the supplemental IDI, the benefits are considered taxable income, significantly reducing the income benefit. If you, the lawyer, pays the premium, “buying up” or in the form of a voluntary benefit, the benefits are not taxable.
By supplementing your group plan’s LTD, highly compensated lawyers can gain an extra layer of protection that provides greater income replacement.
In addition to protecting your total compensation and closing income replacement gaps, other benefits of supplemental IDI typically include:
- Option for up to 100% income replacement coverage for catastrophic disabilities
- Custom designs that complement most group LTD plans
- Fixed employer-sponsored discounted premium (up to 35 percent) and non-cancellable coverage to age 67
- Individually owned permanent disability coverage
Your firm may also find multiple advantages and efficiencies from offering supplemental IDI, such as:
- It helps attract and retain top talent
- It enhances the competitiveness of your benefits package without directly increasing your costs
- It may stabilize overall rates
- Claims experienced for supplemental IDI do not impact basic LTD rates
Benefits to the lawyers include:
- Security of a higher net income during a disability
- Portable coverage, even if the employee changes jobs
- Discounted, fixed premiums
- No medical exams or lab work required
- Easy payroll deduction (not mandatory)
Don’t leave your financial future to chance. We are well positioned to review your current income protection plan and help you (and your employer) develop a plan that works for you and your family. Please reach out to Chris Cahill with any questions at: Chris@TwelvePointsWealth.com or 978-318-9504.
Learn more about the importance of income insurance in Part 1 of this series.