Financial experts all agree that 65% of income protection is the prescribed solution to prevent financial disaster during a time of a serious illness or injury. Higher income individuals have always had to rely on multiple tiers of income protection coverage to get them to this amount.
Traditional group disability insurance caps at some maximum amount set by either the carrier or the employer. These caps are often around $10,000. Individual disability insurance is then added as a second tier to bring the maximum benefit up to a higher amount, but it too will have a maximum of about $25,000.
When you combine Tier 1 and Tier 2, the maximum benefit is often between $25,000 and $35,000 per month. This goes a long way for many incomes, but still leaves high income individuals with a shortfall. Tier 3 is excess (either group or individual) disability insurance which can protect up to 65% of income, regardless of income. Thus a person with an income $1,000,000 has a justifiable need of $54,100/month. Even this wonderful third tier has, historically, had an underwriting challenge when it comes to income that is in the form of Stock Options.
Group Disability insurance income calculations are based upon salary only. Pension contributions and bonus/1099 income are not counted. Individual Disability insurance income calculations may include other forms of income and pension contributions. However, there is one income that, until now, has not been counted – Stock Options.
Thanks to our R&D team, working close with our Underwriting and plan design teams, Petersen International Underwriters now can look at income from:
Bonus and/or 1099 income
Executives of publicly traded companies often are provided Stock Options as a significant portion of their income. Let’s look at Virginia M. Rometty, Chairman, President and CEO of IBM. In 2013, Ms. Rometty’s income was $13,203,889. The break down was $1,500,000 as income and $11,703,889 in Stock Options. Based upon traditional disability underwriting, the maximum disability protection was $81,250 per month in benefits! Sounds great right?
When you add in the Stock Option income, you find that this really only equals 7% of income.
While we may not fully appreciate the benefit shortfall because of the sizable number, remember that larger incomes spend, percentagewise, the same! Bigger home, more expensive cars, insurance premiums, etc. are all much larger. Believe it or not, in this example, Ms. Rometty is grossly underinsured for income protection!
How does it work?
The Stock Option Disability Insurance Plan is a long-term, own-occupation product designed to financially indemnify those who regularly receive compensation in the form of corporate stock options in case of career-ending disablement. Benefits are paid in a lump sum equating up to five times the monetary annual average of the last three years of stock option awards.
Noone is impervious to a long term disability, including top executives. Disabilities strike without prejudice and have affected many former top executives including:
Steve Jobs CEO of Apple
John Menzer CEO of Michael Stores Inc.
Steve Yang CEO of Hyundai
Brenda Barnes CEO of Sara Lee Corp.
Charlie Bell CEO of McDonald’s
Graham Mackay Chairman of SABMiller
Call PIU today at (800)345-8816 for benefit illustrations and to find out more about this one-of-a-kind opportunity to acquire disability income protection for all sources of your client’s wealth and compensation.
Where Diligence Matters
We are proud to announce that Petersen International has been recognized by the Surplus Line Association of California as one of only five firms transacting insurance business in the state of California with less than 1% of filing errors in 2014.