For most employees, the ability to earn a living is their most significant financial asset, and a lengthy period of disability can be devastating. Employers can help protect against that risk by providing group disability income insurance — a group insurance product that provides income replacement benefits to an employee should he or she become sick or injured and unable to work.
Disability insurance protects employees and their families against financial catastrophe by helping them meet daily expenses — bills, mortgages and other expenses — and maintain their standard of living. Disability insurance replaces a percentage of pre-disability income if an employee is unable to work due to illness or injury for a specified period of time. Employers may offer short-term disability coverage, long-term disability coverage, or integrate both short- and long-term disability coverage.
Why Provide Disability Insurance?
Disability insurance is both an employee benefit and a health and productivity tool. The rehabilitation and management tools available from most insurers can yield significant savings to employers. While helping your employees avoid financial disaster, disability insurance also helps you mitigate the indirect costs of disabilities, such as finding replacement employees and the costs incurred by time and productivity losses. These problems are amplified for small businesses where the absence of just one key employee can have a lasting impact on productivity and can even impact the continuation of day-to-day operations.
“I already provide workers’ compensation coverage. Doesn’t it help?”
Not if the employee became ill or was injured off the job. Workers’ compensation is state-mandated insurance that covers both lost income and medical expenses for work-related illnesses or injuries only. Workers’ compensation cannot help for injuries or illnesses that occur outside of work. This is where STD and LTD provide protection.
Short-Term Disability (STD) Coverage
Short-term disability (STD) coverage provides disabled employees with a specified percentage of pre-disability income — typically 60 percent — once their sick leave has been exhausted. The duration of STD coverage varies, but is typically not more than six months. Conditions that may trigger payment of STD benefits include pregnancies, strains, sprains and minor surgeries. These conditions typically resolve quickly and employees usually are able to return to work before the benefits are exhausted.
Long-Term Disability (LTD) Coverage
Long-term disability (LTD) insurance provides income to employees whose earnings are interrupted by lengthy periods of disability. Long-term disability benefits usually begin when sick leave and short-term disability benefits are exhausted, and typically replace about 60 percent of pay. LTD benefits can continue for anywhere from five years to the remainder of an individual’s life. LTD is generally considered protection from the effects of a catastrophic illness or injury, but claims are often a result of common ongoing medical conditions that worsen overtime (e.g., heart disease, hypertension and diabetes).
Issues to Consider
Benefit Selection and Funding
Ideally, employers should offer an integrated STD and LTD package. This allows for claims experts to be involved early and find the best ways to return a person to work as quickly as possible. One insurer can provide the early intervention offered with STD benefits and the protection of LTD. This coverage can be fully paid by the employer, cost-shared with the employee or offered as an employee-paid voluntary benefit. Employers often fund a basic plan to protect employees, and employees may then purchase supplemental coverage to better address their individual needs.
Employees Can’t Count on State and Federal Programs. Your employees may believe that the state or federal government will provide the necessary financial help if they become disabled. Some assistance may be available, but it will probably not be adequate to accommodate the needs of their family for an extended period of time.