The Case for Disability Benefits and What You Can Do About it

The majority of workers in this country have employer-sponsored health insurance, but only 30 percent of American workers in private industry have employer-sponsored disability insurance, according to a recent survey conducted by the U.S. Department of Labor.

Disability insurance can replace a portion of pre-disability income if an employee is unable to work. The benefits a disabled employee receives can cover bills, such as food, mortgage payments or college expenses. Employers can offer short- or long-term disability coverage or a combination. Short-term disability insurance typically lasts six months or fewer, and long-term disability insurance lasts for the length of the disability or until age 65.

What Disability Insurance Means to Employers

Obviously, when employees can’t work due to disability, it will affect their finances. It can also affect the employer financially. A study by the Work Loss Data Institute revealed that hiring replacement workers (a direct cost) or dealing with lost productivity (an indirect cost) can exceed medical insurance costs for a business. “For U.S. employers in 2000, direct disability lost time costs were $91,360 per 100 workers; total disability lost-time costs (including direct costs) were $458,150 per 100 workers; and medical costs were $268,539 per 100 workers,” the study stated. For small companies, these costs could have a profound effect.

A key finding from the U.S. Department of Labor’s National Compensation Survey of Employee Benefits in Private Industry (March 2006) showed that few small business owners have made arrangements to protect themselves and their families from disability. By making this coverage available to employees, the small business owner also has access to coverage at group rates, which can be lower than individual rates.

A 50-year-old nonsmoking female earning $100,000 annually could pay approximately $4,125 per year for an individual disability policy. In contrast, a group policy could run $300 to $450 per employee in annual premiums.

Employers can pay the entire premium or share costs with employees. Employers also can fund a basic plan to protect employees, and employees may then purchase supplemental coverage to better address their needs.

What It Means to Employees

The 2005/2006 MetLife Study of Employee Benefits Trends report indicates that 47 percent of employees live paycheck to paycheck. Many of these employees are service workers, the lowest-paid occupational group and the group least likely to be covered by employer-provided short- or long-term disability plans.

Participating in an employer’s plan is an easy option for many employees, since they don’t have to request quotes from multiple insurers. One advantage of obtaining disability insurance through an employer is that it requires no medical exam, unlike an individual disability insurance policy. Unhealthy workers might find their request for coverage denied if they try to purchase individual coverage.

Group disability coverage often has more exclusions than an individual policy. Most long-term group disability policies due not cover employees who have pre-existing conditions.

For more information on disability insurance plans, contact your local USI Northeast office.

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