Disability Income Protection: The Tiered-Benefit Approach

Disability insurance is the greatest resource available in protecting one’s paycheck against the very real threat of unforeseen and debilitating illnesses and injuries. You are likely to find that most working Americans are insufficiently, if at all, covered by some form of income protection insurance.

Many U.S. employers provide a small layer of guaranteed-issue group disability benefits. The carriers of such plans commonly limit benefits to 50% to 60% of income with caps at $5,000 to $20,000 per month depending on an insured’s occupation and income level. Those without group DI can seek individual disability insurance from a handful of large U.S. carriers. Some members of the U.S. workforce can find sufficient disability coverage from a combination of group and individual benefit sources. 

However, most of those who make up the white-collar market and some in the expanding grey-collar market earn salaries and bonuses that are hardly protected by group and/or individual disability policies. The resulting gap in benefits can be successfully addressed with a layering of qualified DI products or what Petersen International has coined “the tiered-benefit approach” to disability income protection.

Take a physician for example – a partner in an orthopaedic group making $700,000 per year. The partnership has agreed to provide taxable group benefits capped at $15,000 per month, and the doctor’s insurance agent has acquired an additional tier of tax-free individual disability coverage from a carrier willing to provide the doc another $15,000 per month. $30,000 of monthly disability benefits sounds reasonable to most of us, but one must consider that figure covers only about 50% of the doctor’s earnings, and 50% of his/her income is not enough to maintain a semblance of a former lifestyle and care for a family after becoming disabled. A U.S. resident with a small to average-sized family must have at least 65% of income replacement to financially survive through disablement.
Our example physician is eligible for a third crucial tier of monthly benefits from Petersen International. Since his/her group disability benefits would be taxed, Petersen would participate up to 75% of income, and would provide the doctor with a monthly benefit of $13,750 on top of the existing group and individual DI policies.

For anyone making a substantial income, the risks of underinsurance can prove to be severe and financially disastrous. We can help your clients properly layer disability income benefits on top of existing group and/or individual policies. The tiered-benefit approach to disability insurance is the best solution to successfully filling any subtle or blatant gaps in the protection of your clients’ incomes.