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Getting the Best Disability Protection:
How Group Disability Plans Work With
CA Select™ Income Protection Insurance
CA Select Income Protection Offset Case Study
Do you really know what your Group long term disability insurance would cover if you became sick or injured? Does it cover all of your earnings? Who controls the plan?
Reliable disability insurance coverage is a critical part of your financial planning. Thanks to recent changes to the CA Select Income Protection Insurance Plan, you can now “offset” any gaps in your employee group insurance plan – easily and cost-effectively.
The offset approach allows you to purchase more CA Select Income Protection insurance than we would normally offer when you have existing group disability coverage. In keeping with standard insurance practices, however, these higher amounts may be reduced (offset) by any benefits payable from your ”other” plan.
Here’s an example
George is a 43-year-old CA at a large manufacturing company with an annual salary of $120,000. George regularly earns a bonus based on company results, which adds about $40,000, on average, to his total income each year. His company-paid group disability plan covers 50% of George’s salary – but all benefit payments are taxable as income and the plan does not cover his bonus (a significant portion of his annual income).
When George investigates the group LTD plan, he also discovers that the coverage contains a One-year Own Occupation definition of disability, which means George’s benefit payments will end after just 12 months if he is able to perform any job (no matter how menial). More importantly, George is planning to leave his company within the next two years to begin his own firm, at which time he will automatically lose his company coverage.
George decides to buy CA Select Income Protection insurance to ensure that he has at least $5,000 a month to cover his core living expenses. (The CA Select income replacement formula would allow him to purchase up to $6,700 per month based on his total pre-disability income of $160,000). The following table illustrates how the CA Select offset works with George’s company plan to provide adequate benefit coverage. This example assumes that benefit payments under both plans begin after three months of disability and that the own-occupation provision under the group plan takes effect after 12 months.
 | Annual income | Monthly benefit amount payable
from the
employer group plan | Monthly benefit amount payable
from the
CA Select Income Protection Plan |
At application | $120,000 + $40,000 | 50% of salary only
(taxable as income) | $5,000 with group offset (non-taxable) |
3 months after disability occurs (disability payments begin) | $0 | $5,000
(taxable as income) | $3,200*
(non-taxable) |
12 months after Disability occurs (Own-occupation provision ends under group disability) | $0 | $0
(benefit payments cease) | $5,000
with Annual 8% COLA adjustments |
*The additional CA Select “offset” benefit is calculated using the amount that would normally be issued based on your pre-disability income, and reduced by the amount the employer group plan actually pays. When necessary, a 70% factor is used to convert taxable benefit amounts to a non-taxable equivalent for the first $10,000 of taxable monthly group benefit, and 60% thereafter. In this case, George’s maximum non-taxable monthly benefit (based on income from both salary and bonus) is $6,700, using the same CA Select income replacement formula. This is reduced by $3,500 (70% of the taxable group benefit of $5,000) while the group plan provides benefits. The result is an additional benefit payment of $3,200 ($6,700 - $3,500).
CA SELECT - INCOME REPLACEMENT OFFSET AMENDMENT |
| | Earnings | Income Replacement Formula (IRF) | Group Benefits (Taxable) | Current CA Select | With Offset Option |
At Application | Base | $120,000 | | Max $5,000 | $6,700 | |
| Bonus, Profit, etc | $40,000 | | 50% | $5,000 | |
| Total Earnings | $160,000 | $6,700 ** | $5,000 | $1,700 | $5,000 |
Premiums are based on | | | | $1,700 | $5,000 | |
At disability | | | | | | |
| | | | | | Total benefits from all sources are limited to IRF |
| | | | | | $6,700-($5,000*70%) |
Total Benefits | | | | | $6,700 | $8,200 |
For more information, read our discussion page and our Frequently Asked Questions about group disability offset.
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