A Win-Win: Add Value to Your Employee Benefits With Life and Disability

From ChamberChoice and Smart Business Pittsburgh

Accident and tragedy are two things no employer wants to see for employees.

“Disability products and life insurance give employees peace of mind, knowing they have financial support in the event of unforeseen circumstances,” says Chuck Whitford, consultant at JRG Advisors. “They also give employers peace of mind in knowing that they help protect their employees. Ancillary benefits can even help businesses recruit and retain the best employees.”

Smart Business spoke with Whitford about how life insurance and disability coverage benefits employers and their employees.

Why should employers consider getting a disability plan?
According to the Council for Disability Awareness, every 7 seconds someone in the U.S. suffers an illness, injury or accident that will keep them out of work for more than one month. For individuals out of work for three months or more, the average time off of work due to a disability averages 2.6 years. That’s 136 weeks without a paycheck.

The cost of implementing a long-term disability plan is relatively small. For most business owners, the problem escalates as the owner tries to satisfy the current work demand and take care of the disabled employee. Providing long-term disability coverage is also valuable to employees — buying coverage on their own can cost as much as an entire group account because of stringent underwriting. Plus, the program can be structured so that the premiums are deducted as a business expense, but benefits can be received on an income tax-free basis.

What’s the difference between short-term and long-term disability?
Short-term disability fills the gap between day one of disability and when the long-term benefits kick in. Typically, a short-term disability contract covers the first 13 or 26 weeks of disability. Unfortunately, many people live paycheck to paycheck. Short-term disability can benefit those lacking sufficient savings.

Long-term disability is usually fully insured, with the exception of extremely large employers that self-fund the benefit. For most employers, the cost is determined by employee demographics and industry classification. Claims experience isn’t a significant factor. Long-term disability pays a portion of the disabled employee’s income after he or she runs out of both sick leave and short-term disability benefits, typically after 90 to 180 days. Depending on the plan design and how the policy defines disability, it may pay a monthly benefit for a specific number of years, such as two years or until normal retirement age under Social Security.

However, an employer shouldn’t administer its short-term disability program. Most employers aren’t equipped to assess when an employee is unable to perform his or her own job or when he or she is able to return, and employers are estimated to pay out 30 percent more in benefits than if the plan was managed by a claims professional. It is possible to outsource the claim adjudication process to a qualified third party, often referred to as ‘advise to pay.’

How has life insurance changed and why is this coverage important?
A recent study found nearly 70 percent of U.S. workers, across all generations, believe having a life insurance benefit available at work is important. This importance has grown over the past five years, an increase of 22 percent. For many, it is the only life insurance they own. Group life insurance can fill gaps in coverage and the purchasing power of a large group helps keep the coverage affordable for the employer.

Sixty-five percent of employees with group life coverage believe they need more life insurance beyond what their employer provides. Depending on the plan design and type and amount of coverage elected, employees may be able to buy additional life insurance without answering health questions. Some plans allow employees to purchase coverage on a spouse and/or dependent children. Buying life insurance at work is convenient because premiums can be paid through payroll deduction. When they leave the employer, people typically can choose to maintain coverage, paying premiums to the insurance company.

Employers that don’t have group life or group disability should meet with their insurance consultant. They most likely will be surprised by the relative low cost involved in establishing a program that can provide additional value to their employees.