When is the last time you completed a cost-benefit analysis for the group “Long Term Disability” plan for your business? Most benefits are structured from the bottom up versus the top down for compensation. This is a very serious mistake when compensating key people within your organization. The plan in place has the bottom line as the beneficiary. The boardroom executives and shareholders receive less than deserved benefits.

Quite frankly, this type of structure could be costing you thousands or millions of dollars alone in corporate assets in addition to you as the business owner stepping over one of the largest above board tax deduction every single day. If this is a concern for you, please continue to read!!

Our firm is keen on preserving your boardroom executives. The key players who get it done! By incorporating Diverse Legacies into your team of professionals, we will assess every pro and con of the existing group LTD plans you bring to us in order to keep your executives rewarded well. Recently, our firm analyzed a key executive’s income protection plan offered by a powerhouse company. In our assessment, we noticed a very good plan with several loopholes that this highly compensated executive needed to be aware of. This action enabled the executive to properly formulate their financial plan with precision and build a safeguard against the loss of high earnings.

The goal should be to secure the number one common denominator of all your success. That is to have sustainable positive cash flow without liquidating personal assets. Let’s break down the math for this executive:

Here is the actual case:

ADVANTAGES: 

  1. 60% LTD coverage (typical of many plans). 
  2. 90 day elimination period (time before any benefit is paid). 
  3. $15,000 max cap. 

DISADVANTAGES: 

  1. 60% coverage is 100% taxable. 
  2. 24-month coverage on “Mental Illnesses” (1 year only payout after the elimination period). 
  3. Once declared “Totally Disabled” –The employee will be kicked off health insurance and will have to pay out of pocket expenses. 
  4. Employer coverage is not portable. 
  5. Supplemental Insurance with the external company is not “Long Term Disability” coverage. The external company only offers 3-6 months coverage for “Short Term Disability” coverage. That will not make up the difference in loss for the executive. 
  6. Coverage excludes “YEAR END BONUSES.” Includes executive COMMISSIONS only.  
  7. Base Salary coverage only. 

Please note: This employer plan is very solid, but the highly compensated executive was unaware of some loopholes when his salary was factored in.

A brief summary below of the numbers for the executive…

Executive Salary:

$80K (base salary) | $40K (yearly bonuses) = $120K ($10K monthly)

The employer’s current plan covers the following:

Group LTD Coverage: $80K x 60% = $48K. Remember – No Bonus Coverage which represents the $40K.

$48K after tax leaves the executive = $4K X .25% ($1K) = $3K (monthly)

Leaving the executive to pay for health insurance which is on average about $1,700 – $2,000 = $1K take home.

How would this executive’s lifestyle change? If you answered significantly, I am certain you are correct. The higher the compensation model for top executives will yield more diminishing benefits that will not sustain his/her lifestyle. This change would put their family in a devastating position for a sustained period of time. How would you feel as the business owner offering your best revenue generators this service in exchange for their loyalty, brains and company growth?

Do you really value your bottom line more than your boardroom and shareholders?

Take ACTION!

Meet with your Head of Human Resources. It’s time you know what you are offering as an employer. Are you losing money? Tax deductions? Are you willing to pay total disability claims out of the company bank account because your group plan coverage was not enough for your best executives?

Let us bring the solution to you!!

Be Great,

-DL

 

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