In general, disability payments tend to be lower than an employee's pre-disability income, otherwise, employees may not return to work as soon as they are able. However, monthly living expenses when one is disabled might actually increase due to medical costs. In most cases, the benefit is taxable — further reducing the amount an employee would receive.

Additionally, while 61 percent of firms have $10,000 or more as a maximum monthly benefit amount, only 28 percent offer $15,000 or more as a maximum benefit. Less than a third of the companies in the study offered additional insurance to cover the gap in income coverage. Twenty-five percent offer “buy-up” coverage within their group plans.

The additional premiums for these plans are typically paid for by the employee, and usually with after-tax dollars. The plans with the smallest monthly benefit base tend to offer the largest buy-ups. For almost half of companies offering buy-up coverage, the maximum monthly benefit is $15,000 or more with base and buy-up coverage.

The study found that employees might still find themselves underinsured even with buy-up coverage. Few companies (15 percent) responding to the study offered employees the option of individual disability income insurance coverage to supplement the group plan. Of those, one in five have implemented the offer.

“Many employers have the misconception that these plans would be costly and there would be administrative burdens,” Shaw says. “However, insurers like MassMutual can offer 'multi-life' supplemental plans to eligible individuals through their employer at a discount off unisex rates, where there is no distinction in rates between male or female.”

There also tends to be little or no administrative burden, as many insurers take care of the administration of the supplemental plans themselves, Shaw says. For example, MassMutual is slated to enhance its web-based tool, e-Worksite Solutions, to better serve employee groups as early as next month. Employees enrolled in existing MassMutual disability income insurance programs at their workplace can learn about the supplemental plans on the website servicing their program and apply online or by downloading a paper application.

“Another misconception is that employees can get this type of insurance on their own,” Shaw says. “They can, but they generally then have to pay non-discounted rates and have a full medical exam — with multi-life plans available through the workplace, there is minimal medical underwriting.” Policies offered within multi-life programs through an employer are also portable, another feature beneficial to employees.

For increased protection, employees can select riders for catastrophic coverage and/or retirement contribution protection to help build a more comprehensive income protection plan, according to Shaw. Although more than half of the companies surveyed evaluate their group plans annually, only a quarter are considering making changes to their program in the future, the study showed. During interviews with the study's researchers, a number of respondents voiced concerns about their gaps in coverage.

“We care about our employees so we will look at supplemental programs and how they will positively impact employees,” said an executive director of human resources at one firm. “If they're getting 60 percent of their base salary, after taxes they're probably getting 40 percent, so they're really not getting an adequate replacement ratio,” said a manager of global benefits at another company. “It's hard for people to live on 60 percent of their salary,” said a senior director of human resources at a transportation company.

“At only 60 percent of salary, I would have a hard time paying my bills. It's my personal thought,” said a benefits manager at a university. “We have people that just wouldn't benefit by that amount. They'd be left short,” said a benefits manager at a major furniture manufacturer. Shaw said comments like these represent an opportunity for insurers as well as insurance agents and benefits consultants.

“Brokers and consultants should get employers to truly understand the concerns and how to make their offering more robust,” Shaw says. “Many times that can be done on a cost-neutral basis with a buy-up or offering individual coverage through multi-life programs, so the premium cost is born by employees.” Comprehensive online education, application and administration systems to reach and educate more employees across the U.S. and to ease administrative efforts for employers are also available, Shaw says.

Allen McLellan, associate dean of academics and assistant professor of insurance at The American College, said that it was smart that MassMutual partnered with his educational institution to develop a non-biased study of the issues surrounding gaps in existing disability insurance programs. “A lot of time companies conduct studies on the types of  products they sell don't have that much credibility — it comes across as justification for a sales pitch,” McLellan says.

“In this case, MassMutual teamed with us to sponsor the study and then got a separate and independent group to actually conduct it.” The study was conducted by the Boston Research Group, a strategic market research and consulting firm specializing in the financial services industry. The firm reached out to 3,000 of the largest companies in the country based on sales revenue, from a sample list that was provided by Dun & Bradstreet.

“The study had telephone interviews with HR managers, so the responses were quite in-depth,” McLellan says. “That technique, while expensive, makes the results far more effective.” Interviews were conducted in 2010, between July 26 and Sept. 24. “Some of the HR folks in their interviews cited that they were dying to know what was happening with their peers,” Shaw says. “As the economy improves, everyone will be scrambling to keep top talent, and so they want to make sure they are offering benefit offerings comparable to their peers.”

McLellan says Fortune 500 companies tend to have pretty robust disability income plans for their executives because they have more assets to attract more high earners. Even so, gaps can be found in many of their plans. To be fair to employers, McLellan explained the reasoning why group longterm disability plans generally do not cover bonuses: An employee may make $100,000 in one year due in large part to bonuses for a well-performing year, but the next year the employee may not get a bonus due to a bad economy, and so companies would be paying too much in premiums in off-years if bonuses were part of the standard GLTD premiums.

“So typically companies simplify things and to keep premiums predictable and consistent, they don't fluctuate year to year based on additional income,” he says. The trick for insurance companies, agents or benefits consultants is to obtain permission from companies' human resource or benefits managers to get access to the top management and other high-earners of the company such as sales people or professionals such as attorneys, doctors and accountants, to see if they can speak individually with those people, to determine if they need additional coverage.

One point agents should highlight to employers is that rates for disability plans have not risen appreciably, compared to skyrocketing rates for health insurance, says Matthew Tassey, past chairman of The Life and Health Insurance Foundation for Education, an agent for the Principal Financial Group and a principal of Scribner Insurance and Burwell & Burwell, an employee benefits broker.

“When disability is tied to employment, you're dealing with a better-than-average population of people because they are employable,” Tassay says. “Disability insurance rates have not moved up anyway near the rate of inflation.” To be sure, choosing the appropriate remedies to fill the gap for high-earners can be confusing for employers, says Karen Trumbull English, a partner with Spring Consulting Group.

However, when employers and their consultants or brokers have the opportunity to work closely on setting strategy, and organizational culture is needs-based, “incorporation of supplemental benefits often results,” she says. Gary F. Terry, an executive vice president and managing director of The Westport Group in Boston, says disability insurance “is not bought, it's sold, particularly supplemental disability insurance.”

“Most human resource professionals and executives of corporations understand that good employee benefits packages should have a long-term disability program, but that's as far as it goes,” Terry says. “Employers say that employees are not asking for it, so it must not be an issue. But until employees realize they have the problem, they are not going to ask for the solution.” This spells a significant opportunity for brokers. “It's really not sales, it's educating the public.”