The potential need for disability insurance isn’t something most people think about. It’s not as visible as health insurance — there’s no monthly bill or prescription pickup to remind you it exists. For many, it only becomes real after a disability happens.

At its simplest, disability insurance replaces part of your income if you can’t work because of illness or injury. But for executives and other highly compensated employees, that protection often stops short. Most group long-term disability (LTD) plans have a benefit cap that leaves higher earners with a serious shortfall — what we call the income protection gap.

The income protection gap problem

Picture a company executive or other high earner who suddenly can’t work due to a serious illness. Their employer’s LTD plan might promise to replace 60% of their income, but only up to a $10,000 monthly maximum. For someone making over $200,000 a year, that means less than half their paycheck is actually covered.

It’s a problem many companies don’t realize they have until it’s too late. When an executive goes out on claim, the first question HR usually asks is, “What can we do for this person?” Unfortunately, the answer is often: not much. You can’t insure someone after the disability happens. That leaves the company with two bad options — self-fund the income gap (which can be expensive and set a precedent) or do nothing. And too often, the company does nothing.

How executive disability benefits help

Executive disability insurance addresses these gaps and provides comprehensive protection to high-paid employees. Here are some key benefits:

• Higher income replacement: Executive disability benefits can replace a higher percentage of the executive’s income, ensuring that the covered employee can maintain their standard of living if they must go out of work on a claim.
• Customizable coverage: Executive disability plans can include coverage for deferred compensation, bonuses, and other income not generally calculated into protection amounts. 
• Competitive benefits: By offering executive disability insurance as a valuable part of a benefits package, employers can offer even their highest-earning executives income protection  

How Advisors Can Bridge the Gap

If you’re a licensed insurance agent or advisor, you have a real opportunity to help here.

1. Review what’s in place. Take a close look at the company’s current disability coverage — especially around renewal time. Identify executives whose income exceeds the plan’s benefit maximum and show them exactly how much coverage they’re missing.
2. Educate the decision-makers. Many employers assume their group plan covers everyone equally. Once they see the numbers, the risk becomes obvious — and the solution simple.

Be Proactive, Not Reactive

Proactively addressing the income protection gap is one of the most important conversations you can have with employers. I’ve received many distressed calls from HR departments and benefits producers about an executive going out on a claim, only to discover that less than half of their income would be covered. But at that point, it’s too late to insure them, and the cost ultimately falls on the business through self-funding or employee dissatisfaction.

The good news? It’s an easy problem to prevent. Talking to clients about income protection for executives before a claim happens can protect both the business and the employee — and position you as the advisor who helped them avoid a major problem.

Key Takeaways:

1. Many highly compensated employees are at risk of an income protection gap within their employer’s group long-term disability coverage.
2. Businesses and their benefits producers often ignore this gap until after an executive must go out on a claim, leading to lost income for the employee or potentially costly self-funding by the employer.
3. Executive disability insurance can fill the income protection gap by providing comprehensive coverage tailored for high-earning employees.