The Hidden Gap in Group Disability Insurance That Most High-Income Professionals Miss

Most professionals assume they’re well covered through their workplace disability insurance plan. In reality, that’s often not the case.

In fact, I often refer to this as “reverse discrimination” in disability insurance.

Someone earning $60,000 may be covered for ~85% of their take-home income, while someone earning $400,000 may only be covered for ~40% under the exact same plan.

How That Happens

Let’s walk through a simple example.

• $60,000 income = ~$47,000 after tax (~$3,900/month)
• $400,000 income = ~$225,000 after tax (~$18,750/month)

Most Group LTD plans cover around 66.67% of income.

So:

• $60k earner → ~$3,333/month
  • This is roughly 85% of their take-home pay
• $400k earner → would be ~$22,000/month
  • But most plans have a cap, often around $7,500/month

So instead:

• $400k earner → $7,500/month
  • That’s only about 40% of their take-home pay

It Gets Worse (Tax Matters)

In many cases, the employer pays the Group LTD premium.

When that happens, the benefit is taxable.

Assuming a 40% tax rate:

• $7,500/month → ~$4,500 after tax

Now you’re looking at:

• ~24% of take-home income covered

This is a very real scenario, and far more common than most high-income earners realize.

What Group Plans Don’t Cover

Another key issue is how income is defined.

Most Group LTD plans only consider:

• Base salary

They typically do not include:

• Bonus income
• RSUs
• Pension adjustments

For many professionals, that’s a significant portion of total compensation that simply isn’t insured.

The Definition of Disability Matters

Most Group LTD plans start strong, but change after two years.

They typically shift from:

• “Own Occupation”
  to
• “Any Occupation”

This means:

Even if you can’t do your current job, the insurer can terminate benefits if you’re able to work in another role — even if that job pays significantly less.

What a Strong Individual Disability Insurance Policy Does Differently

A high-quality individual disability policy is designed to fill these gaps.

It can:

• Supplement your Group LTD coverage
• Include bonus/variable income in your insurable earnings
• Provide stronger “Own Occupation” protection
• Continue paying partial benefits if you return to work at a lower income

For example:

At $400,000 of income, total available coverage (Group + Individual) could be around $15,000–$16,000 per month.

If your Group LTD only provides $7,500, that leaves a meaningful gap that can be addressed with an individual policy.

What Should You Do?

If you’re a higher-income professional, the first step isn’t to replace your Group LTD plan — it’s to understand it.

Look at:

• Monthly benefit amount
• Maximums
• Whether the benefit is taxable
• How income is defined
• The disability definition after two years

From there, you can determine whether there’s a gap worth addressing.

Final Thoughts on Disability Insurance…

Most people assume they’re well protected because they “have disability insurance at work.”

In reality, for higher-income earners, that coverage often falls short in a meaningful way.

Understanding that gap is the first step to making a more informed decision.

– Jeff

*Disclaimer: This article is intended for general informational and educational purposes only and does not constitute personalized insurance, financial, legal, or tax advice. Insurance needs, policy features, costs, and suitability vary based on individual circumstances and specific contract provisions. Coverage availability and terms are subject to insurer underwriting and approval. Readers should review their own situation carefully and consult with a licensed insurance advisor before making any insurance decisions or changes to existing coverage.