Group Disability Blog
Does your company use the same insurance broker for health insurance as well as Group Disability and Life Insurance? Do you or your broker refer to the disability and life insurance as "ancillary"? Do you know what the definition of "Ancillary" is? To be of secondary or to be subordinate.
It's no wonder. Most insurance brokers spend the majority of their time on health Insurance! Does that impact the quality and pricing of the employer provided Group Disability and Life Insurance? Yes. It does. Wouldn't it make sense to delegate the disability and life portion to an insurance advisory firm that specializes in Group Disability and Life? Ideally, that firm should spend 100% of their time allocated to your business on Group Disability and Life. They would never be distracted by the overwhelming task of managing your health insurance.
Look at it this way, if you needed brain surgery, would you use a general practitioner or a specialist? A firm that specializes in Group Disability and Life Insurance will likely be able to reduce your current plan cost by a significant margin. Odds are that they will also find shortcomings in the current plan design. As an example, if an employee becomes disabled is the LTD insurance benefit taxable income or tax free. Why not set up a "Gross Up" plan where the benefit is tax free?
What's the downside to using a second broker for the disability and life? Dealing with a second insurance advisor may require you to make an extra phone call or email now and then. Aside from that, there is only upside.
Tax Free Disability Payments? The “Gross Up Plan”
When an employee becomes disabled, disability payments are typically taxable. However, there is a little know provision that can change it from taxable to tax free. Most insurance carriers, however, do not promote it.
Here's how it works. The “Gross Up Plan” adds a clause to the Group Disability Policy, changing the premium structure for a certain class of employees. Most employers apply it only to the salaried or executive group. By recognizing their share of the premium as taxable income on their W2, the benefit becomes tax free at claim time. See 104(a)(3) of the Internal Revenue Code or go to https://www.irs.gov/irb/2004-26_IRB/ar06.html.
The net impact is a much higher after tax disability payment to the executive. For the employer, the cost is very low, if any.
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It's not Ancillary
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