As a way to add contemporary appeal to executive total reward programs, many companies have opted to bolster traditional group life and disability policies with supplemental carve-out benefits. Basic benefits are often capped at limits which are not proportionately meaningful to overall compensation for highly compensated executives. They fall well shy of adequate wage replacement or survivorship income and may run counter to a company’s philosophy of equity with respect to risk oriented benefits for employees.
The benefit disparity is easily identified using Gap Analysis modeling; illustrating benefit shortfalls for the executive population, as compared to both a company’s intended coverage levels as well as competitive peer benchmarking. The good news is carriers have recently starting pricing premiums more competitively and underwriters are offering higher guaranteed issue limits (i.e., the amount of benefit they will accept without medical underwriting requirements). It makes this a great time to creativity explore ways to remedy benefit disparity for executive-level employees.
Executive Supplemental Disability
While basic group LTD plans may only cover a fraction of an executive’s total compensation, Executive Supplemental Disability extends an additional layer of coverage to more appropriately insure the full earnings picture – base salary plus bonus and other variable income. When offered as an employer-sponsored program, the company is able to take advantage of both guaranteed issue underwriting and premium savings as much as 25-40% off retail rates.
Supplemental Executive Life
Similar to group disability plans, basic group life plans often do not provide a meaningful level of coverage. Employers use creative Executive Supplemental Life programs to provide much higher limits or cover higher salary multiples. In some instances, the plan is combined with products that allow for tax-advantaged cash value accumulation that may provide an attractive supplemental retirement planning income source for the participants. Supplemental Executive Life programs also provide benefit portability so executives may keep continue the policy if they separate service.
Summary
Staying up to date on competitive offerings in this segment of the compensation market is critically important in today’s job market. As a part of an overarching employee benefits strategy, the creative application of a supplemental executive carve-out benefit program provides a much needed tool and contemporary approach to attract, retain and reward key talent.
