Disability Income • Critical Illness Insurance • Long Term Care • Life Insurance

Employee Voluntary Purchase Disability

A voluntary income protection plan can significantly add to your benefit package without placing additional pressure on your bottom line. Next to health care coverage, income protection is one of the most important benefits that a business can offer, especially to its key-employees.

Executive Carve-out

Provide Disability Income coverage for a select group of employees only. The business may choose tax-deductible premiums or benefits. When the company deducts the premiums, they are not shown as income to the insured and the benefits are taxable to the employee. The plan needs to be documented and communicated to the employees to qualify for the deduction. Flexibility in plan design and freedom to choose who may participate make this a very popular approach to satisfying income protection needs. The benefits may be layered on top of an employer-paid LTD plan.

Executive Bonus

Provide Disability Income for a selected employee(s). Premiums are deductible to the company, as they constitute compensation to the employee. The amount of the premium will appear in the employee's W-2 as taxable wages, making the benefit income tax-free to the employee. This arrangement can be either formal or informal. In a formal arrangement, the business adopts a resolution to pay a bonus for the express purpose of paying a disability insurance policy. Premiums are paid directly to the insurance company. Under an informal bonus arrangement, the business pays additional compensation to the employee and the employee pays the premiums for the disability income policy, often through payroll deductions. Under either arrangement, the firm may bonus an additional amount to cover the tax obligation created by the initial bonus. This method is often referred to as a "double-bonus".

Supplemental Disability Income

Employer-paid LTD is often an integral part of a benefits package. Benefits from an employer-paid LTD program are subject to income taxation when received by the employee. The result is that a 60% gross monthly benefit may only net 40% after taxes. Few of us can live on 40% of income.

One effective answer is to provide your employee's with an option to voluntarily purchase additional income protection. This coverage is layered on top of the LTD program. As these premiums are employee-paid, the benefits are received income tax free. And these income tax free benefits help fill the gaps created by the taxable LTD benefit. This added benefit can make an enormous difference in a disabled employee's lifestyle.

Reverse Discrimination Issues ... Often, Business Owners, Managers, Executives find (too late) that their incomes have outpaced the group LTD benefit limit. For example, a typical LTD plan covering 60% of income to $5,000 per month covers a $100,000 income. But what about exposed incomes in excess of $100,000 per year? In this scenario, a $150,000 income is only covered at 40% of earnings! If the LTD definitions don't cover bonus or commissions incomes, or if plan exclusions and integrated coverage limitations apply, it could even be worse. Under these circumstances, even a $100,000 income may be underinsured. Supplemental Disability Income protection can be a valuable service to these valued upper income employees.

Another approach, mirroring the above, is designed to provide Individual Disability Income protection in situations where no group Long Term Disability exists. Benefits are received on an income tax-free basis. Typically this approach is offered on a payroll deduction basis with no employer contribution.

There is no fee for my services

Paul SuPrise, CLU, LTCP
770 Nuangola Road • Mountain Top, PA 18707-9507
570-868-6871 • Fax 570-868-6872
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