Income Protection Is Not Just A Box You Check

As a financial advisor, "Do you have disability insurance?", may be a common question you ask your clients. However, it cannot be the only question you ask. A 'Yes.' to the question of having disability insurance is just the beginning. If your goal is to truly protect your client and their family, you must dig deeper.


Most clients obtain their disability insurance through their employer. While LTD insurance is a good benefit; it is important that both you and your clients know the details of the program. It can lead to your clients having a better understanding of the potential gaps in their income protection and the opportunity for you to present a solution to help supplement their existing coverage. There are 4 areas of an LTD program that need to be examined to determine the level of income protection your client really has.

  1. Most group LTD policies are paid for by the employer. While it is great that the employer is willing to provide this benefit to their employees, it makes the benefits of the plan taxable. Does your client understand that they will not actually receive 60% income replacement should they become disabled? Do they know that this benefit will be reduced by income taxes? With this knowledge, are they still adequately covered?

  2. Most employees don't know that there may be offsets and reductions to their LTD benefits. Their monthly benefit may be reduced by social security, workers compensation, outside income, and other benefits. Knowing this, are they still adequately covered?

  3. Is your client's income just salary or does it include other items like commissions and bonuses? Many group plans base the % of income replacement on just salary, not total compensation. Does your client depend on more than their salary? If so, is their LTD coverage enough?

  4. Your client has 60% income replacement or do they? There is a second aspect to LTD coverage, the monthly cap. LTD plans replace a percentage of income up to this cap. Common caps can range anywhere from $2500 to $15,000 per month. Depending on this monthly cap, your client could have much less than 60% of their income covered by their LTD program. Does this cap limit the benefit your client would receive?

Just because your client has disability insurance, it does not mean that they have an adequate income protection program. Asking a few additional questions can lead your clients to have a deeper understanding of their current level of income protection and provide you with the opportunity to provide supplemental solutions to help fill the gaps.

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