Most people don’t plan for a debilitating accident or illness during their working years. But three in 10 workers entering the work force today will become disabled before retiring. And only five percent of disabilities are work-related—meaning 95 percent of people with disabilities will not qualify for workers’ compensation benefits.
Most of us know people who have faced an unexpected disability and weren’t prepared. Over a worker’s career, the risk of long-term disability is greater than the risk of premature death. Most workers wouldn’t think of going without life insurance to protect their families. Disability income insurance protects another valuable asset—the ability to earn an income.
In the event of sickness or disability, disability income insurance offers your employees the assurance that they can continue to pay their regularly monthly bills. Disability income insurance will replace anywhere from 45-65 percent of an individual’s salary if an illness or disability prevents them from working. Policyholders receive benefits free of income tax if they paid premiums themselves; if they paid only a portion of the premium and the employer paid the rest, they will receive a proportionate share of benefits tax-free.
Employers that provide disability income insurance often provide a small base amount. This might not be enough coverage for a high-paid professional with a family, for example. These individuals should consider buying additional coverage. Offering a voluntary plan in addition to an employer-paid plan can ensure that all your employees have at least a minimum amount of coverage, and makes affordable options available to those who need more.
Questions to Ask
When purchasing a group disability income insurance plan for your employees, you’ll want to know the answers to these questions:
- How much will the policy pay? Most group disability income policies pay a benefit of about 50-60 percent of base salary. Check the policy—many do not include bonuses or incentive pay in their income calculations, which could leave salespeople and executives short of needed overage.
- How long before the policy begins to pay benefits? The elimination period is the length of time between the start of a disability and the time the policy begins paying benefits. It can range from 30 to 365 days. The longer the elimination period, the lower the premiums. If your organization offers short-term disability benefits or paid sick leave, you can coordinate coverages so that your long-term disability income plan begins to pay benefits after benefits from these other plans end.
- How long will the policy pay benefits? Once the policy begins paying benefits, it will continue to pay benefits as long as the disability lasts, until the end of the benefit period or three to six months for short-term disability income policies. For long-term disability policies, benefit periods typically end after two, five or 10 years or at the age of 65, 66 or 67.
- How do benefits coordinate with other coverage? Insurers limit benefits to a percentage of pre-disability salary to discourage malingering. They also include “coordination of benefits” provisions in policies to prevent injured workers from receiving more money for being out of work than they do for working. Coordination of benefits provisions reduce the benefits the policy will pay by the amounts policyholders receive in benefits from other policies. For example, if a policyholder receives workers’ compensation benefits for lost time, the disability income policy might reduce benefits by the amount of these workers’ compensation payments.
- How does the policy define disability? The definition of disability varies from company to company. Some require policyholders be unable to perform duties specific to their job. Less-lenient policies require policyholders to be unable to perform any job duties for which they are reasonably qualified before they will pay benefits. You will have to show a loss of income to receive benefits. Ask your insurance carrier for specifics.
- Do policies pay benefits for partial disabilities? Many insurers recognize that partial disabilities are more common than total disabilities. You can obtain coverage for partial disabilities in the policy or in a rider, or policy addition. In either case, the policy provides benefits proportionate to the degree of disability or the amount of lost income.
- Does occupational classification affect costs? The nature of the job helps determine the price of coverage. Insurers will charge more to cover people who do manual labor than for those in professional or administrative positions. The company’s prior claims experience also affects costs. For smaller groups, the insurer might require medical underwriting, or an analysis of the health of every individual insured by the plan.
- What are some of the optional benefits? You can add a variety of additional coverages to a disability income policy, including cost-of-living riders that protect benefits from inflation. Few insurers still offer “own-occupation” coverage on a group basis. This type of coverage expands the policy’s definition of disability so it will provide coverage when insureds can’t perform the essential duties of their own occupation, rather than any occupation to which they’re reasonably suited. However, some individual policies still offer “own occupation” coverage. If you have professionals on staff, they might be interested in purchasing an additional individual policy with this type of coverage.
For more information on disability income insurance and its advantages, please contact your local USI Northeast office.