An advanced concept of integrating non-cancellable disability income to group long term disablity. Integrate into either of the following (Traditional Combo; Traditional Combo Plus; Reverse Combo Plan; Split Benefit Plan)

1. Lance B Kolbet, RHU, LUTCF
University Financial Group
Supplemental Disability
Meeting the Needs of Key Employees

2. Review Topics:
• Perspective & Relevance of Income
• Interesting Disability Facts
• Financial Resources
• Employer Response
• Creating Solutions
• Next Steps

3. Perspective
Your greatest asset?
The chart below projects total earned income from age X to age 67
Annual $50,000 $75,000 $100,000 $125,000 $150,000 $200,000
Income
Age 35 1,600,000 2,400,000 3,200,000 4,000,000 4,800,000 6,400,000
40 1,350,000 2,025,000 2,700,000 3,375,000 4,050,000 5,400,000
45 1,100,000 1,650,000 2,200,000 2,750,000 3,300,000 4,400,000
50 850,000 1,275,000 1,700,000 2,125,000 2,550,000 3,400,000
55 600,000 900,000 1,200,000 1,500,000 1,800,000 2,400,000
60 350,000 525,000 700,000 875,000 1,050,000 1,400,000
What have you done to protect it?
Your ABILITY to work is a very valuable asset!

4. Perspective
Two disturbing and relevant facts:
Fact 1. For most Americans, financial obligations demand 100%
of paycheck
Fact 2. Americans don’t save enough

5. Perspective
Everything rests on income
DIS-ABILITY causes income loss

6. Dis-Ability Facts
• As mortality decreases due to advances of medicine and
technology, the incidence of disability increase
• Conditions that used to be fatal often cause extended
disabilities:
• Hypertension
• Heart Disease
• Cardiovascular
• Diabetes
• Disability is 2-3 times more likely than Death at most ages
• Disability causes nearly 50% of all mortgage foreclosures
2% are caused by death.

7. Financial
Resources
• Savings / Retirement Accounts
• Liquidate Assets
• Family/Friends
• Government Benefits
• Employer’s Group Long Term Disability plan

8. Employer Response
Provide LTD for all employees
• Efficient and cost effective
• Transfer of risk to 3rd party
• Isolate company from claims management
• Increase employee confidence
• All treated equally

9. Employer Response
+ LTD is for the masses and…
- Contains personnel
impact key
cost containment features and benefit limits that can negatively
+ LTD rate is charged against all employees covered payroll and …
- Benefitdecreases will result in composite rate increases; reductions
result in
enhancements
+ LTD benefits can be increased with ease and…
- Increases in requirementsmaximums carry new pre-ex limits and/or Evidence
of Insurability
LTD benefit
+ LTD is employer and insurance company controlled and…
- Not portable or owned by insured employee

10. Employer Response
Employer expense for LTD is managed best managed by:
2. Limiting monthly benefit to a maximum of $5,000 - $10,000 and
3. Covering salary only
Impact to key employees?
Percent of Income Replacement (Pre-tax)
LTD Plan : 60% to $10,000 monthly benefit
60
Four employees:
 Non-Executive - $50,000 salary
40 60%
 Exec #1 - $100,000 salary and $50,000 bonus
 Exec #2 - $200,000 salary and $100,000 bonus 40%
 Exec #3 - $300,000 salary and $200,000 bonus
20 40%
24%
Non-Executive Executive #1 Executive #2 Executive #3
0
Highest income earners receive the lowest percentage of benefit

11. Employer Response
LTD rates increase dramatically with the level of income replacement
Cost of LTD Relative to Income Replacement
Rate
5000 7500 10000 12500 15000 20000
Maximum Monthly Benefit
Increasing the LTD maximum benefit will result in higher composite rate

12. Creating Solutions
While all employees are important,
all employees are not equal.
So then, how do employers take care of key
employee needs?

13. Creating Solutions
Group LTD is an ideal foundation and can be
supplemented with an Individual policy.
Supplemental policies are effective because they
contain cost and benefit features not found in LTD.
Employer can offer different supplemental
disability policy designs to different classes of
employee.
Employer selects/designs his own classes, so if
desired, supplemental policies are provided for
select participants only.

14. Plan design highlights
Creating Solutions
 Supplemental policy designs vary to serve different objectives.
The most common are:
Fill in the gap created by a low benefit LTD plan
(ex: a 60% to $5000 LTD protects incomes to $100k, those over 100k have <60%)
OR
Design plan to include protection for incentive comp
(ex: 60% LTD covers Salary only, Supp provides 60% for Salary AND Incentive)
OR
Cover Salary and Incentive at highest % available
(ex: Supp may provide between 75% - 100% income replacement)
 The cost of a supplemental plan can be either employer or
employee paid.
 Taxation of benefits and impact on actual replacement ratios may
be worth considering

15. Creating Solutions
Cost Characteristics of a Supplemental plan design
• Maximizes the strengths of ID and LTD to deliver the best plan at
a more efficient cost
• Splitting the benefit between two contracts allows greater income
replacement and eliminates/reduces discrimination against key
employees
Benefit Quality/Cost Continuum
High ID
Supplemental
Benefit Quality and
Plan
Income Replacement
LTD
Low High
Cost

16. Creating Solutions
 Supplemental policies deliver unique features and benefits
• Rates are discounted, fixed, and guaranteed to age 65
• Coverage is portable at existing discounted rates
• Inclusion of bonus and incentive compensation in covered earnings
• No benefit offsets for Social Security, Worker’s Compensation, other
income
• Contains benefits for Catastrophic disability and Non-Disabling injuries
• Annual benefit increases up to the maximum guaranteed standard
issue (GSI) offer
Supplemental plans deliver a best of both
worlds approach for your most valued employees!

17. Creating Solutions
Next steps.
 To design a supplemental plan we need:
1. Detailed census of employees being considered for supplemental plan
2. Copy of current LTD certificate and confirmation of current rate
3. Set date to review plan options
 When plan is approved we move on to installation:
• Authorized signature on employer documents
• Pre-payment of 1st months premium
• Each participant completes a short form application.
(There is no need for medical exam or personal tax records)
• Policies are issued to participants.

18. Questions?