Disability Insurance

April 22, 2022


Disability insurance is an important benefit that can easily be overlooked during open enrollment, when much of the focus is placed on medical insurance. But income protection against the financial burden of an extended illness or injury is essential, and without proper coverage, the impact to unsuspecting employees can be devastating. 

The facts speak for themselves, and they’re eye-opening: One in four 20-year-olds entering the workforce will experience a long-term disability before retirement age, according to the Social Security Administration. Long-term disability is generally defined as lasting 90 days or longer, but there’s a caveat — most insurance companies report average disability claims lasting almost three years. 

It’s challenging to estimate the length of a disability. While some will be fortunate to return to work within a year, other claims can last much longer, even until retirement age. 

“The risk of an employee getting sick or injured and unable to work for a long time can be financially devastating,” says Gene LoVasco, President of LoVasco Consulting Group in Detroit, Michigan. “Most people don’t think about how much income they could lose if they’re not working for a period of several years. And that is before additional medical expenses.” 

Many employees do not think it can happen to them because they don’t realize the most likely causes of disability. Most attribute disability to accidents. In fact, accidents cause only about 10% of claims. 

“Unfortunately, you are much more likely to experience a disability due to a problem with your back, joints, heart or cancer,” says Steven Wight, Principal of TCS Insurance in Larkspur, California. “Our firm has seen this over the last 40 years with our own clients.” 


Many companies offer group disability insurance programs. There are both short- and long-term options. 

Group short-term disability plans usually provide income replacement for the first three to six months. Long-term disability plan benefits begin after three or six months and can provide benefits until retirement, covering a much larger financial risk. 

Only 35% of private sector workers have access to long-term disability benefits, according to a 2020 National Compensation Survey published by the U.S. Bureau of Labor and Statics. While benefits are available to more than half of the workforce at companies with more than 500 employees, only 25% of personnel at companies with less than 100 employees have access. 

 A misperception is that the cost and implementation of long-term disability insurance is a barrier to access. Group plans cost on average $16-$25 per employee per month, depending on the industry and group demographics.

“Many small business owners are surprised with how affordable a group long-term disability plan can be, that it’s easy to implement and is guarantee issue (no medical questions),” notes Gene LoVasco. 


Group long-term disability insurance benefits most commonly provide 60% income replacement up to a maximum of $10,000 or less. This covers income up to $200,000. A plan with a 60% benefit is designed to provide approximately what an employee lives on after taxes, retirement, and insurance contributions. 

But what if an employee earns $200,000 or more per year? 

A quick calculation shows that high-income earners are not receiving 60% income replacement for the most common plan designs. Unfortunately, many key employees do not realize this is the case until a claim occurs. 

“We refer to this as The Perception Gap™ — the difference between how employees think they are covered and how they are actually covered,” Steven Wight explains. “Most individuals earning income over $200,000 per year or those with significant incentive compensation will receive much less than 60% of their total compensation due to a low plan maximum, uncovered income, and possible taxes paid on benefits if an employer is paying for the benefit.” 

The most effective and popular option to close this gap is an employer-sponsored supplemental individual disability insurance plan. An employer can carve out a group of high-income employees and either pay for the policies or offer them on a voluntary, employee-paid basis.

“Employer-sponsored plans offer incredible advantages with discounted pricing and guaranteed issue underwriting,” Gene LoVasco notes. “This avoids full medical and financial underwriting required of an individual employee trying to obtain coverage independently. The difference from retail pricing can also be significant.”

Individual disability insurance policies can cover compensation not insured by the group long-term disability plan and increase the percentage of income replacement and plan maximums. This creates more optimal income replacement levels when a more highly compensated employee is unable to work for a long period of time due to an illness or injury. 

Additionally, policies are fully portable with no change to the benefits or premium, even if the employer is paying 100% of the premium. This provides a powerful tool for employers to attract, reward, and retain top-performing employees.

Disability insurance is a great employee benefit to create additional financial security at a time when an employee needs it the most. With the right plan in place, an employer can be confident that employees are able to focus on their recovery rather than the financial stress that comes with an unexpected accident or illness.

Erik Reynolds Erik Reynolds
Sales Support Director
M Financial Group

Erik Reynolds is Sales Support Director at M Financial Group and co-author of “The Advisor’s Guide to Disability Insurance,” published by the American Bar Association.

M Financial Group is a leading life and disability insurance distribution, service, and product organization serving high net worth individuals, executives, and employers. M Financial Member Firms have provided executive disability plans to employers for over 35 years.


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