Are you doing enough to protect your highest earners?

Thomas Charla

By Thomas Charla
Thomas Charla is director of business markets at MassMutual.
Posted on Jun 7, 2021

Your company probably offers a great benefits package to your employees, including health insurance, disability income (DI) insurance and life insurance. But many of these benefits programs are designed to appeal to all of your employees equally. As a result, your benefits package may not be adequate, relative to salary, for your company’s top earners. This disadvantage may be seen when it comes to disability income and life insurance.

The "income gap"

Group long-term disability insurance (GLTD) offered through your company can be a valuable employee benefit. Many employees have come to expect their company to offer GLTD, and it is important to meet their expectations. Indeed, the Insurance Information Institute suggests that more than half of large and mid-sized companies offer such benefits to their workers.

But a GLTD policy usually comes with limitations. For example, the plan may only cover 60 percent of an employee’s base salary (bonuses and commissions are often excluded), have monthly caps, and the benefits paid may be subject to income tax. These factors all contribute to what is called the income gap — the difference between an employee’s pre-disability income and his or her net GLTD benefits.

The income gap can become larger for employees who earn high salaries. Due to the plan’s monthly benefit cap, high earners can receive significantly less than 60 percent of their salary if they become disabled. (Calculator: The value of key employees)

To quickly determine which of your employees may be adversely affected, simply double the GLTD’s monthly cap, and add a zero.


$5,000 (monthly cap) x 2 = $10,000. Add a zero = $100,000. For an employee who earns more than $100,000 per year, GLTD may provide less than the traditional 60 percent coverage.

With the formula above in mind, look at your company’s high earners. How will they, and their families, fare financially in the event of a disability?

What about life?

A group life insurance benefit can pose a similar situation for your top executives.

Typically, group life insurance offers two or three times an employee’s annual salary. This may meet some of the executive’s life insurance needs, but probably won’t meet all of them.

Your higher earning employees most likely have more costly lifestyles, larger mortgages, and higher monthly expenses than the majority of your employees. In the event of a key employee’s untimely death, their families and loved ones may not have enough life insurance coverage to meet their needs.

Increased coverage

There are many options available to a company that may be looking to provide more protection to its top earners. Individual DI insurance and life insurance made available to select employees, either on a voluntary or employer-paid basis, is one way to reduce coverage gaps created by group coverage. This added option provides high earners with a means to address any shortfalls in coverage. (Related: The executive bonus that keeps on giving: Insurance)

Adding the availability of insurance policies to your executive benefits package can be advantageous for the company, as well. Premiums paid by the company for DI insurance can generally be deducted as a normal business expense. The same is true for life insurance when the premiums paid by the employer are also considered income to the employee.

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This article was first published in March, 2017. It has been updated.


MassMutual does not provide group long-term disability insurance.

Note: There may be implications under the Employment Retirement Income Security Act ("ERISA") depending on how disability income insurance policies are made available to the employees and whether such an arrangement constitutes an "employee benefit plan" under ERISA. Employers should consult their own tax and legal advisors for further information on potential ERISA implications.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. Individuals are encouraged to seek advice from their own tax or legal counsel.

Insurance products issued by Massachusetts Mutual Life Insurance Company (MassMutual) Springfield, MA  01111-0001 and its subsidiaries C.M. Life Insurance Company and MML Bay State Life Insurance Company, Enfield, CT 06082.

Policies have exclusions and limitations. For costs and complete details of coverage call your agent or MassMutual at 1-800-272-2216 for a referral to an agent.

The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel.