|
|
Disability |
|
|
General Information Plan Options & Features to Consider Premium & Availability Factors Employer Sponsored Short and Long-term Disability Insurance
Disability insurance provides a cash benefit to you when you are unable to work due to an accident or injury for a period of weeks or months. Some employers help employees get through short periods of illness with sick leave, that is, a certain number of days for which you will be paid your regular salary if you sustain a disabling illness or injury and are unable to work.
After your sick leave is exhausted, some employers offer “short-term disability” benefits, that is, a certain percentage of your salary (usually not more than 60% of your salary) will be paid for an additional number of weeks or months after you have satisfied a “waiting period”. Examples of a waiting period are 1st – 15th day after you are disabled due to an accident or illness. Short-term disability can be “self-funded” by an employer (the employer pays the promised salary continuation out of the employer’s funds) or “insured” (when the employer contracts with a group insurance company to administer and pay benefits). Insured group short-term disability insurance can be paid 100% by the employer, the employer and employee may share the cost, or the benefit may be completely voluntary and paid 100% by the employee through payroll deduction.
After short-term disability benefits are exhausted, the next level of benefit is called long-term disability insurance or disability income insurance. This type of plan has a “waiting period” before benefits begin. That is, you have to continue to be disabled for anywhere from 30 – 365 days, depending on the plan, before benefits become payable. Long-term disability coverage is an essential component of a sound financial plan. Since we cannot predict when a serious or even permanent disability may occur, it is important to be covered by a work-based group long-term disability policy, an individual disability income policy, or both. This type of pre-planning can assure there is money to pay your home mortgage and basic living expenses in the event you are unable to work for an extended period of time. As with short-term disability insurance, group long-term disability insurance premiums may be paid 100% by the employer, the employer and the employee may share the cost, or the benefit may be completely voluntary and paid 100% by the employee through payroll deduction.
The taxation of disability benefits depends generally on who pays the premium—you, your employer or both. If you are considering the purchase of an individual plan and if you receive benefits for a group short or long-term disability plan, check with your tax advisor regarding the taxability of your benefits. If you are an employer considering offering short or long-term disability insured plan(s) to your employees, we suggest you consult with your tax advisor for the best arrangement for your company and your employees.
Plan Options & Features to Consider
If you have group long-term disability insurance at work, you may or may not be offered some choices about the amount of coverage you will receive. If you are considering the purchase of an individual disability income policy, you will be able to custom design the features and benefits that are important to you. Of course, the more “bells and whistles” you add, the higher the premium will be.
If you have the opportunity to purchase individual disability income when you aren’t already enrolled in a group plan, you will qualify for a higher monthly benefit. If you already have group insurance at work when you apply for an individual policy, the benefit maximums for which you can apply will be coordinated with your employer sponsored plan. This coordination of benefits will prevent you from making more money on disability than you do when working.
There are many features and options to consider when purchasing an individual disability income plan. Here are some of them:
Amount of Benefit: The first decision is how much of your income to you want to cover? Generally you can cover from 40% to 60% of your pre-disability monthly income with insurance. The amount you need will depend on your regular monthly expenses, your savings and how much premium you feel you can comfortably afford.
Waiting or Elimination Period: Your waiting period is the time you have to be disabled before your benefits will become payable. On an individual disability income policy, you can usually select a waiting period from 30 – 365 days. Of course, the longer you wait, the less the premium will be. Keep in mind that your first check will generally not arrive until at least 30 days after the end of your waiting period because the insurance company has to contact your physician to certify your continued inability to work.
Benefit Period: Another consideration is how long you want to be able to receive benefits should you become disabled. Some carriers limit the length of time based on your current occupation. Typical benefits last for anywhere from two years to age 65. The longer the benefit period, or course, the higher the premium.
Definition of “Disability”: Be sure to carefully review the definition of disability before you purchase a policy. Policies definitions run from the extremes of covering you if you cannot perform your own-occupation, or they may require you to perform any gainful employment. If your occupation requires special training, education and skills, you will want to be sure that the profession you worked hard to qualify for is covered. The more liberal the definition of disability is, of course, the higher the premium will be.
Partial Disability: Some policies require you to be totally disabled for benefits to be payable. Other policies offer “residual” benefits, that is, they allow you to receive a partial benefit if your inability to work full-time has reduced your income. Some policies require you to be totally disabled before “residual” benefits are payable, others do not. This additional benefit may be standard or offered as a “rider” for additional premium.
Presumptive Disability: This benefit allows you to be considered totally disabled under special circumstances, such as the loss of eyesight, speech, hearing or limbs. As with other benefits, presumptive disability is included with some policies as standard and is an option on others for an additional premium.
Guaranteed Renewable and Non-cancelable: there are the two main types of disability income protection policies. Guaranteed Renewable means that the policy can not be canceled as long as the premiums are paid on time, premiums cannot be raised on an individual because of their health or claim status, but premiums can be raised for whole classes of policyholders. Non-cancelable means that the policy cannot be cancelled as long as premiums are paid on time and the premiums can never be raised. The later is obviously the more desirable plan.
Portability: An individual disability income policy that you buy for yourself is owned by you, and protects your income regardless of where you work or how many times you change jobs. It is totally “portable”. This type of plan is the most desirable because you can customize the benefits to your own needs and you are assured to be able to continue the policy even if many changes of employer occur over your working lifetime.
Some employers may offer you the opportunity to buy individual voluntary long-term disability insurance through work with discounted premiums paid by payroll deduction. If the policy is an individually underwritten policy which you “own”, then chances are you will be able to take that policy with you if you change employers by assuming the premium payment as required by the insurance company. Oftentimes the discount you received as being part of the original employer group will also continue if you opt to continue the policy after termination of employment.
True “group” long-term disability policies you have through your employer are the least expensive way to obtain coverage, but are rarely portable (that is, you cannot continue it as an individual policy if you change employers). Your next employer may not offer long-term disability and if you are no longer insurable due to an illness or injury, you may find your income is unprotected.
Cost of Living Adjustment (COLA): When this optional protection is purchased, it allows for your monthly benefit to increase annually to help account for the increase in the cost of living (also called an inflation rider). The purpose of this benefit is to help you maintain your pre-disability standard of living. This benefit is costly, but can potentially increase your benefits by a specified percentage, anywhere from 4 – 10 percent, depending on your contract.
Option to Purchase Additional Benefits: Also known as a future insurability rider, this optional benefit allows you to purchase additional amounts of monthly benefit at specified dates in the future without having to prove you are still healthy enough to qualify. If you anticipate your income will rise in the future, this is a great rider to purchase. As long as the additional coverage does not provide more monthly benefit than is allowed (for example, 60% of salary), purchase of additional monthly benefits is guaranteed on the dates specified in the contract.
Waiver of Premium: This benefit allows you to miss premium payments during a time of disability (that is, when you are collecting benefits for a disability). This allows your benefit dollars to stretch even further because monthly premiums will not be in your monthly budget.
Premium and Availability Factors
There are many factors that are considered when rates are developed for an individual disability income policy. There are also factors which determine the type of plan, maximum benefits and options that are available to you. Here are some of them:
-- Health status of the applicant -- Age and gender of the applicant -- Occupation of applicant -- Annual salary of applicant -- Monthly benefit amount -- Benefit design and options -- Length of waiting period -- Length of benefit period -- Definition of disability -- Extent of disability -- Smoker / non-smoker status
Employer Sponsored Short & Long-term Disability Income Insurance
As an employer, there are several avenues available to you if you would like to offer income protection plans to all or some of your employees. As stated earlier, the taxation of disability benefits depends generally on who pays the premium—the employee, the employer or both. If you are an employer considering offering short or long-term disability plan(s) to your employees, we suggest you consult with your tax advisor for the best arrangement for your company and your employees. Please note that the number of employees required for each plan discussed below will vary by carrier and plan, but here are some general ideas:
Group Short-term Disability Plan: If you are an employer with at least 2 employees, you may offer a group short-term disability plan to your employees. This affordable coverage helps your employees pay their living expenses should an illness or injury prevent them for working for a brief period of time. As the plan sponsor, you will determine the waiting period, the benefit period, the maximum percentage of salary covered and whether you will pay the entire premium or require an employee contribution. If you pay 100% of the plan, you will have to enroll all your full-time employees. Your insurance program can be designed to coordinate with your company sick leave policy and long-term disability waiting period. Plans, premiums and availability vary by insurance company.
Group Long-term Disability Plan: If you are an employer with at least 10 employees, group long-term disability coverage is an affordable benefit that provides your employees and their families with real financial security. As the sponsor of the plan, you will have the opportunity to design a plan that best suits your company and your employees. You may choose to have benefits start as early as 30 days after a disability begins or to wait as long as 6 months. If you also offer group short-term disability insurance, you will coordinate your waiting period with your benefit period on your short-term plan. You can also decide which riders to offer, what the monthly benefit maximum will be and what percentage of salary to cover. You may opt to pay the entire premium or ask the employees to contribute a percentage of the cost. The nature of your business (SIC code), the benefits you select and the health of your employees will determine the rates and availability of coverage. If you cover 100% of the premium, then you must enroll all of your full-time employees on the plan. Plans, premiums and availability vary by insurance company.
List-bill Individual Disability Income Plans: This option allows you to design an individual plan or plans that will be offered to your employees on a voluntary, payroll deduction basis. The advantage of this arrangement is that employees can custom-design their own program to the extent allowed, they will pay for the coverage themselves and the plans are generally portable should they terminate employment with your company. Based on the total number of eligible employees and the percentage of them that opt for coverage, there may be premium discounts and/or a small amount of guaranteed issue, making the plans very attractive to your employees. Plans, premiums and availability vary by insurance company.
Individual Executive Disability Income Plans: As the employer, you may purchase individual disability income policies for your executives and managers. Because this is not “group” insurance, you can discriminate in who is offered an individual employer sponsored contract. Depending on the number of contracts issued, there may be premium discounts and / or a small amount of guaranteed issue. Also, because these are individual policies, they are portable should the employee terminate coverage. If you are looking for a great benefit to offer your most valuable employees, an executive disability program is sure to be well received. Plans, premiums and availability vary by insurance company.
|
