Underinsured Executives: The Critical Role of Disability Insurance

Executives drive a company’s strategic vision, manage risks, and steer the company through growth and challenges. However, a significant gap exists in how these high-level leaders protect themselves against potential personal risks, specifically the risk of disability.

Executive disability insurance is often an overlooked or underfunded area, leaving many key individuals underinsured and vulnerable to significant financial stress in the event of a long-term illness or injury.

The Importance of Disability Insurance for Executives

Executives typically earn substantial salaries, often accompanied by bonuses, stock options, and other incentives. However, traditional group disability insurance policies provided by employers often cap coverage at a relatively low percentage of base salary — typically around 60% — and usually have limits on the maximum monthly payout, which can be well below an executive’s earnings. This means that should an executive suffer a disabling condition, they may face a dramatic reduction in income at a time when they need financial stability the most.

This shortfall can be particularly problematic for high-income earners whose financial obligations are often structured around their elevated income. Without adequate disability insurance, the risk of financial instability is real, especially given that long-term disabilities can last for years.

Why Executives Are Often Underinsured

Several factors contribute to executives being underinsured when it comes to disability coverage:

Misconceptions About Employer Coverage

Many executives mistakenly assume that the group disability insurance provided by their company is sufficient to cover their needs in the event of a long-term disability. However, as mentioned, most group policies have payout caps that are far too low for high earners. Executives may not realize the extent of this gap until it’s too late.

Overconfidence in Personal Health

Executives often prioritize physical and mental well-being, maintaining fitness and healthy habits to keep up with the demands of their roles. This can lead to a false sense of security regarding the likelihood of disability. However, unforeseen accidents, chronic illness, or mental health challenges can arise, and the financial consequences of such events can be catastrophic without adequate insurance.

Complex Benefits Structures

Many executive compensation packages include stock options, performance bonuses, and other financial incentives that are not typically factored into group disability coverage calculations. Executives may not fully understand how their entire compensation is treated under their disability policy, leaving them unaware of how much they stand to lose if disabled.

Lack of Tailored Coverage

While group policies are standardized across organizations, they often fail to consider executives’ unique financial situations. To ensure full protection, tailored disability insurance policies that are structured to account for an executive’s full compensation, including bonuses and incentives, are necessary.

Solutions: Protect What You’ve Earned

To close the coverage gap, executives should consider purchasing supplemental individual disability insurance policies. These policies can be designed specifically to protect a higher percentage of income, up to 80%, and are more likely to reflect an executive’s true total earnings, including bonuses and other incentives.

The insurance brokers at Tooher-Ferraris Insurance Group understand the unique needs of high earners. These brokers can help design policies that account for an executive’s full compensation package and ensure the highest level of protection.

As executive compensation structures change, our team regularly reviews and updates your disability coverage to ensure it continues to meet your needs.